PG&E; to Cut Price of Diablo Electricity : Energy: The move to cut rates from the nuclear power plant comes as the industry prepares for deregulation.

Pacific Gas & Electric Co. said Tuesday that it will cut the price of electricity produced by its Diablo Canyon nuclear power plant by $2 billion over the next five years.

The plant, which cost $5.5 billion to build, was plagued by cost overruns during construction in the early 1980s.

The plan was reached in agreement with the California Public Utilities Commission’s Division of Ratepayer Advocates, the state attorney general and several consumer groups, PG&E; said. It is subject to approval by the full PUC.

Analysts said the move would help PG&E; compete more effectively with lower-priced power companies as the California utility industry is deregulated. The PUC has proposed that competition in the state be phased in over several years beginning in 1996.

“There’s no question that earnings would be lower . . . without this plan,” said Bob Glynn, PG&E;’s executive vice president.

However, Glynn said PG&E; hopes to offset the plan’s effect on earnings by continuing with an aggressive plan to cut costs. PG&E; has already cut 3,000 jobs in the last two years and has said it will cut more.

The PUC’s deregulation plan would allow power companies to sell electricity over each other’s lines. Under the plan, an electric customer in California could feasibly buy power from out-of-state utilities. Other states are considering similar proposals.

Analysts, who had been concerned that Diablo’s high rates would make it difficult for PG&E; to compete with lower-cost, unregulated power companies and other utilities, applauded the plan.

“PG&E;’s competitive position will substantially improve,” Charles Benore, a PaineWebber analyst, said in a report Tuesday.

Benore warned that PG&E;’s average electric rate of 10.6 cents a kilowatt-hour is among the highest in the nation and will remain high even with the price reduction at Diablo Canyon. The average electric rate represents the average price of residential, industrial, commercial, wholesale and retail power.

PG&E; President Stanley Skinner has pledged to cut costs and bring average rates down to 10 cents a kilowatt-hour or less by 1999. But Benore cautioned that utilities that charge higher than 9 cents per kilowatt-hour will have difficulty competing.

Diablo Canyon has been a thorn in the utility’s side since the cost overruns during forced PG&E; to write off more than $1 billion in revenue and cut its dividend.

The utility was also forced to devise a separate rate structure for power produced at the plant to help pay for the construction. Customers’ rates have been raised each year on a fixed schedule since the plant began operating in 1988. Starting next year, rate increases were to be determined by a formula based on the rate of inflation.

Currently, electricity generated by Diablo Canyon costs 11.89 cents a kilowatt-hour; that was scheduled to rise to 12.2 cents in 1995 and to 13.3 cents in 1999. Under the plan announced Tuesday, PG&E; would instead cut prices 32% in the next five years, resulting in a decrease in prices to 11 cents per kilowatt-hour in 1995, 10.5 cents in 1996, 10 cents in 1997, 9.5 cents in 1998 and 9 cents in 1999.

PG&E; shares closed down 12.5 cents at $61.375 on the New York Stock Exchange.