PG&E; to Slash 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 more than $2 billion over the next five years.

The plant near San Luis Obispo, which was bitterly opposed by environmental activists, cost $5.5 billion to build. Cost overruns on its construction in the early 1980s eventually led to a $1-billion write-off on the facility.

Ironically, since a 1988 rate agreement with the California Public Utilities Commission, the utility has been accused of reaping unreasonable profits from Diablo.

Tuesday’s plan was reached in agreement with the PUC’s Division of Ratepayer Advocates, the state attorney general and several consumer groups. It is subject to approval by the full PUC.

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

The plan means that “we’re going to have less revenue, and it will affect the bottom line,” said Stanley T. Skinner, PG&E; president and chief executive, “but this represents no threat to the dividend.” Skinner said the utility expects to offset the plan’s impact on earnings by continuing an aggressive cost-cutting program and by increasing its own unregulated, independent power production business.

PG&E; has cut 6,000 jobs in the last two years and plans $285 million in cost reductions for 1995.

Analysts, who had been concerned that high rates for Diablo power would make it difficult for PG&E; to compete with lower-rate 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.

But Benore warned that PG&E;’s average electricity rate, 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 rate represents the average price paid for power to residential, industrial, commercial, wholesale and retail users.)

Skinner said all customers will benefit from the plan with an extension of the utility’s current rate freeze through 1996. He predicted rate drops to begin in 1997. One consumer group, San Francisco-based Toward Utility Rate Normalization, refused to sign the agreement.

The plan requires “no real sacrifices,” said Audrie Krause, TURN executive director.

But Ratepayer Advocates director Ed Texeira called the agreement “unquestionably a $2-billion step forward in reducing . . . excessively high rates.”

Electricity generated at Diablo Canyon currently costs 11.89 cents a kilowatt-hour; the price was scheduled to rise to 12.2 cents in 1995 and to 13.3 cents in 1999. Under the new plan, PG&E; would instead reduce prices 32% in the next five years, for a price decrease 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; stock closed off 12.5 cents at $61.375 a share on the New York Stock Exchange.