Landmark Accord Reached on Diablo Electric Rates

In what was termed a landmark development in the nationwide dispute over who should pay for nuclear power plants, California officials and Pacific Gas & Electric agreed today on a unique settlement of the controversy over the $5.5-billion Diablo Canyon facility.

The proposed 30-year settlement calls for the plant’s performance to dictate how much money PG&E; will realize. The more electricity is generated by Diablo, the more revenue the San Francisco-based utility will realize.

The agreement must be approved by the California Public Utilities Commission. It was negotiated by Atty. Gen. John K. Van de Kamp, the PUC’s division of ratepayer advocates, and PG&E.;

It would immediately raise electric rates “about 5%,” the utility said. But state officials said that means that customers would pay about 25% less for Diablo electricity than they would if PG&E; was allowed to recover the plant’s entire cost from customers.

Higher Rates Sought

The utility had asked to pass on the entire $5.5-billion construction cost to customers in the form of higher rates. The PUC division, charging shoddy work and bad management decisions, wanted the utility’s shareholders to swallow $4.4 billion of the cost.

The proposal announced today doesn’t specifically disallow any sum of money to PG&E.; But William Ahern, head of the PUC’s ratepayer division, said it treats customers as if $2 billion of the construction cost had been disallowed. He called it “a tremendously good deal for PG&E;’s customers.”

The $2 billion refers to the amount of money that has accrued in a Diablo Canyon adjustment account since the plant began operating in 1985 and has not previously been included in customers’ rates.

PG&E; said it would take a one-time charge to earnings of about $500 million, after taxes, to absorb the cost. The company said the charge would virtually eliminate 1988 earnings. It would also slash its annualized dividend to $1.40 per share from the current $1.92.

Diablo Canyon is a two-unit nuclear plant in San Luis Obispo County, about midway between San Francisco and Los Angeles. Construction began in the late 1960s.

Annual Price Adjustment

Under the so-called performance-based pricing, PG&E; would earn revenues based on a pre-established price for each kilowatt-hour of electricity generated by the plant. The price will start at 7.8 cents per kilowatt-hour and be adjusted annually based on an agreed-upon index.

Traditionally, the costs of power plants are recovered through a rate structure that applies throughout the utility. In this case, Diablo would be separately accounted and would earn no revenue when it is not operating.

PG&E; said Diablo is one of the top-rated nuclear plants in the nation in terms of producing electricity close to capacity. Diablo has produced at 74% of capacity compared to an industry average of 61%, a spokesman said.