Sitting in the Timberhouse dining room in Chester, California, two retirees discuss the day's usual lack of catch. They're spending their waning years in RVs by the edge of sparkling Lake Almanor, most of the time with a fishing pole in hand. What they know is the condition of the lake rarely fluctuates. What they don't know is that it's about to. They don't care. "I'll be dead before anything changes," says the 85-year-old.Unless he plans on a funeral next year, he's wrong.Lake Almanor is created by one of 13 Pacific Gas & Electric hydroelectric facilities on the Feather River. Once the initial damage to the watershed was done, the utility -- the largest in the nation -- has operated them for a total of 68 facilities in vast Northern and Central California quietly and more-or-less benignly for nearly a century.Despite its profitability, PG&E doesn't want to be in the hydro business anymore.The utility has a plan to transfer its dams to a sister company -- a move that could raise and lower levels on Lake Almanor in an instant, leaving retirees' RVs high and dry or sopping wet, as well as take drinking water out of state regulation, manipulate the price of electricity and put watersheds in the hands of timber companies. And it's not just in California; another PG&E affiliate is buying up dams in New England too. In California, the yet-to-be created unregulated affiliate is to be called PG&E Hydro. In Vermont, it's PG&E Generating.If the plan goes through, the two PG&E affiliates would be the largest owners of electric generation in the nation.The dams in California control most of the arid state's rivers. And, it's a state where water wars historically shaped development, and continue to do so. In California, water can be far more precious than gold. It's a conduit for real estate development. It subsidizes agribusiness. It controls what's left of fisheries. And, in the increasingly deregulated energy industry, water can control the price of another precious commodity -- electricity. On the East Coast, PG&E Generating bought six hydroelectric facilities from New England Power in New Hampshire and Vermont two years ago. The sale of those dams, primarily on the Connecticut River, are being appealed by the North East Center for Social Issue Studies based in Brattleboro, Vermont.Here's the deal: PG&E (the utility) wants out of the electric generation business. California is the first state to wholly deregulate electricity generation and the utility wants to focus on the still-monopolized distribution part of the scene while its more risky, and potentially more profitable, unregulated sister companies focus on the competitive market.The utility wants to transfer ownership of its 68 hydroelectric facilities to sister company PG&E Hydro, which would be under the same corporate umbrella as PG&E. But, it would not be regulated by the California Public Utilities Commission. PG&E's facilities include 174 water control dams on 30 major rivers and streams. In addition, PG&E plans to transfer another 136,000 acres of watershed land to PG&E Hydro. The land could then be used without regulation, or it could be sold to other companies, probably timber firms for logging.After months of resisting putting a price tag on the dams, PG&E recently decided they're worth $3.3 billion. Not chump change, but nowhere near the price that State Senator Steve Peace (D-San Diego) thinks they're worth -- up to $7 billion. Dave Kaplan, PG&E manager of investor relations, says that at the $3.3 billion price, the money would be spent to bring down electric rates from 10 percent to 40 percent.But, environmental considerations come first for those involved -- other than PG&E, that is. And, as usual, environmental problems boil down to money. "We're now looking at rivers as profit centers," Hervey Scudder, president of the North East Center for Social Issue Studies in Brattleboro, Vermont, says."In a deregulated electric market, there is pressure not to do things that have an environmental benefit," California State Senator Debra Bowen (D-Redondo Beach), explains. Bowen, the chair of the energy, Utilities & Communications Committee, is attempting to put into law some restrictions for the environment, fish and water consumption on the use of the dams, no matter who owns them.As a part of PG&E's hydroelectric plan, the utility promises to maintain its current level of "environmental stewardship." PG&E vice president of rates and accounting services, Tom Bottorff, says that as long as the "dams stay in our corporate family we would be committed to the long tradition of honoring environmental and water rights." But, PG&E only promises to keep the dams for five years, and may sell them off sooner if they become "uneconomic," according to the company.Michael Jackson, attorney for the Regional Council of Rural Counties in Northeastern California, scoffs at PG&E's version of environmental stewardship. He invokes the much-dammed Feather River in his own back yard. "It's silted in both dams and diversions. The fishing's horrible. Facilities have failed and aren't repaired."So, instead of environmentalists on the scene, anglers are the ones attempting to ride to rescue. In response to PG&E's $3.3 billion price tag, California Assembly Speaker Pro Tem Fred Keeley joined up with the Pacific Coast Federation of Fishermen's Associations. The fisher folks are the radicals here. They want some of the dams taken down. The lack of environmental voices so far is at least partially due to utilities funding environmental groups, according to Vermont's Scudder. "Nonprofit organizations are in an awkward place. Utilities have learned that for very little money they can fertilize nonprofits. Everybody starts making payments on cars and sending their kids to college. Then they're trapped. Environmentalists are not about to get on board [against dam sales] when it could jeopardize their funding." Scudder mentioned two East Coast environmental organizations with that problem -- the Conservation Law Foundation and American Rivers. The Conservation Law Foundation was the subject of a Wall Street Journal investigation earlier this year that found similar conflicting interests.Environmental concerns are one object. Electric prices are a close second. If the 4,000 megawatts of electricity produced by running California's rivers through PG&E's hydroelectric facilities -- 5,000 megawatts if one includes PG&E sales through irrigation districts -- is added to PG&E current affiliate's 7300 megawatts, PG&E's unregulated affiliates would become one of, if not the largest generators in the nation. In comparison, PG&E's largest nuclear plant, Diablo Canyon, produces 2100 megawatts.In Vermont, while there's no deregulation yet, there's a plan being floated by the state government to spend over $1 billion to bail out utility stranded assets. That includes both nuclear and hydro plants.Many other states are in the process of deciding if, and if so, how much, they have to pay off their utilities for their own stranded assets.If PG&E's plan to transfer the dams is approved, PG&E Hydro would likely sell the electricity into the competitive electric market. That could bring down electric prices for consumers, but critics, like Lon House, consultant for the Association of California Water Agencies, fear, however, PG&E Hydro could "dictate electric prices."Indeed, an owner that has both hydroelectric and other generation, as PG&E affiliates would, is "potentially disruptive" to a competitive electric market. A hydro owner could "earn higher prices for all the generating capacity it owns" by keeping cheap hydroelectricity off the market at times of high demand, a committee of the California Independent System Operator -- the quasi-public agency responsible for reliable electricity, notes.Hydroelectricity is a bargain, but complications -- including market manipulation--could make hydroelectricity relatively expensive. Now, hydro is cheap because rain, the fuel, is free. Most other sources of electric generation in California run on natural gas, a finite fuel with a price tag. No matter what method picked for running most of the state's hydroelectric plants, or even tearing then down to return rivers to more pristine habitat, the reliable old utility that quietly took care of the dams for most of this century is forever changed. It will be a mad scramble over the next few months to see who comes up with the prize of California's version of liquid gold and who calls the shots when Northeast states enter a deregulated environment.J.A. Savage is associate editor of California Energy Markets, an independent weekly covering politics, regulation and the business side of the energy industry.