Plan to Recover Diablo Canyon Plant Costs OKd

A landmark plan to pay for the controversial $5.5-billion Diablo Canyon nuclear plant near San Luis Obispo won unanimous approval Monday from the California Public Utilities Commission.

The agreement, worked out last summer by the California attorney general, Pacific Gas & Electric and a division of the PUC, will lead to an immediate 5% rate increase for PG&E;’s customers, which are in the northern half of the state.

PG&E; has already announced a $500-million write-off against its earnings in connection with the accord, which cuts off certain revenues that the utility had already credited to its accounts. As a result, the utility expects only to break even financially for 1988. It recently cut its annual dividend to $1.40 from $1.92 per share.

The plan represents a departure from the usual method of recovering the costs of building power plants because the utility and its shareholders, not its customers, will assume most of the financial risk over the facility’s expected 28 remaining years in operation.

However, consumer groups attacked the agreement because of a “floor” provision that limits PG&E;’s losses on the plant in certain circumstances. The groups also said the deal encourages PG&E; to operate Diablo Canyon at potentially dangerous levels because the more electricity it produces, the more revenue the utility gets.

The plan establishes a safety committee “to ensure that plant safety is not compromised in the interests of productivity.”

The consumer group Toward Utility Rate Normalization will go to court to block the plan, said the group’s director, Sylvia Siegel. She called it a “fraudulent settlement” that will enable PG&E; to recover Diablo Canyon’s entire cost from customers.

Billed as a performance-based system, the agreement requires customers simply to pay for the electricity produced by Diablo Canyon, starting at 7.8 cents per kilowatt hour. Traditionally, customers must pay for the cost of power plants themselves, even if they aren’t operating.

If Diablo Canyon operates at the efficiency level of most nuclear plants, advocates of the plan said the practical effect will be to prevent PG&E; from recovering about $2 billion of the $5.5-billion cost of building the facility.

Originally, PG&E; wanted to recover the entire cost by increasing its rates to customers. The PUC’s division of ratepayer advocacy, charging mismanagement by PG&E; and its various contractors, wanted the utility to recover only $1.1 billion.

The plan approved Monday was worked out last June on the eve of what promised to be a long and costly legal battle over the final dollar figure. In other cases around the country, huge cost overruns and delays have prompted regulators in numerous cases to prohibit utilities from recovering large portions of nuclear construction costs from customers.

Diablo, originally slated to cost $320 million and be finished in 1972, finally entered operation in 1985 after a series of delays caused by design errors, the discovery of an earthquake fault near the site and other snafus that the PUC staff blamed on PG&E.;

Despite the dividend cut and one-time $500-million write-off, PG&E; and the investment community welcomed the settlement because it removes financial uncertainty and because the nuclear plant is one of the nation’s most efficient. Some believe the utility could recover the entire cost.

But Atty. Gen. John K. Van de Kamp said: “If (the plant) proves to be a turkey, PG&E;’s shareholders, not its customers, will have to shoulder the burden. From now on, cost overruns and poor performance at Diablo Canyon will be PG&E;’s problem, not its customers’.”

Separately, the PUC approved rate increases of about 1% for customers of Southern California Edison Co. and Southern California Gas Co. to take effect Jan. 1. This resulted from small increases in the utilities’ return on equity, or the maximum rate that can be earned by shareholders, which was set at 13% for the state’s major utilities in 1989.

For Edison, rates will go up 1.3% for all customers, amounting to 63 cents a month to $49.86 for a typical bill, the PUC said. For Southern California Gas, rates will go up 1% for residential customers--about 80 cents a month--but decline 1% for industrial customers.