* Balkan country cuts prices for second time this year
* The government hopes cut would avoid new protests
SOFIA, July 30 (Reuters) - Bulgaria's state energy regulator cut the electricity costs for households by an average of 5 percent as of August 1 as part of a pledge by the ruling Socialists to reduce power costs' burden in the European Union's poorest country.
The new tariffs approved late on Monday were criticised by businesses, saying the cuts would deepen the already poor capital state of power producers and distributors.
Electricity prices are politically sensitive in the Balkan country since power bills bite off a big chunk of monthly incomes, especially during the winter.
This is the second cut in the power prices this year.
In March, the regulator cut the electricity costs for households by an average of 7 percent following mass protests over high utility bills and poverty that toppled the centre-right government of GERB a month earlier.
The Socialist-led government, under daily pressure to resign from thousands of protesters over corruption, hopes the cuts will avoid the protests expanding into a wider wave of demonstrations in the autumn and the winter.
The regulator has said the cuts will come at the expense of the way producers of expensive renewable energy are compensated and a decrease in the purchase price of electricity from large state power producers.
It has also limited the investment the three power distributors in Bulgaria - Czech company, Energo-Pro and Austria's EVN - can claim for improving the power grid's efficiency.
"The price regulation will lead to two negative effects," said Georgi Stoev, an economic analyst with Sofia's based independent think-tank Industry Watch.
"Businesses will suffer as it has to bear on its back the new cuts while non-recognition of the projected investment costs of power distributors will discourage investors in the sector."