New federal regulations will require the Port Authority to burn "ultra-low sulphur diesel" fuel in all buses by June 2006.

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"It's scary," said Terry Johnson, director of purchasing and materials management for the transit agency. He wasn't referring to the fuel but the price -- $2.25 a gallon as of yesterday.

That compares to 84 cents a gallon the authority paid for "low sulphur" fuel in July and the record $1.44 a gallon that it paid this week.

The authority isn't buying any ultra-low sulphur fuel at present, but it will have to start this summer when the first of six hybrid buses go into service, combining combustible engines with electric motors for propulsion.

A year later, the entire 1,000-bus fleet will be required to use the cleaner-burning grade.

Because authority buses go through about 1 million gallons of diesel fuel a year, each 1-cent hike in prices adds about $100,000 to the operating budget annually.

Johnson said once oil refineries begin producing more ultra-low sulphur diesel fuel, he expects the $2.25 a gallon price will drop. Nobody knows just how much, but at $2.25 a gallon, fuel for buses would put about a $20 million dent in the operating budget.

The Port Authority based this year's diesel fuel costs on $1 a gallon. But Chief Executive Officer Paul Skoutelas estimated soaring prices will add about $5 million in unplanned expenses to the 2004-05 fiscal year budget that ends June 30.