Loretta Lynch, president of the California Public Utilities Commission (CPUC), called the plan "a regulatory jailbreak" and "a corporate shell game to evade proper state regulation" by transferring assets to unregulated PG&E affiliates.

The reorganization plan would split the parent company and its utility into stand-alone companies, transferring the hydro network, Diablo Canyon nuclear power plant and gas and electric transmission systems to unregulated units of parent PG&E.

The utility would continue to own and operate local gas and power distribution grids serving about 13 million customers.

The plan would allow all valid creditor claims to be paid without the need for a rate increase or state bailout, said Bob Glynn, chairman, president and chief executive of PG&E.

It would provide creditors with about $9.1 billion in cash and $4.1 billion in notes.

EYE ON HYDRO SYSTEM

One of the concerns arising from the plan is how Pacific Gas & Electric would continue to manage its hydroelectric properties, which make up the world's largest privately held hydropower system.

Elected officials from 28 counties in PG&E's sprawling hydro watershed in central and northern California will meet Friday to weigh actions on the reorganization plan filed at the San Francisco federal bankruptcy court Sept. 20.

The Regional Council of Rural Counties is worried about who will safeguard the environmental health of the hydro system's rivers and lakes that are the foundation for fishing, boating and tourism in an area that sprawls across about two-thirds of the state, council vice president Wes Lujan told Reuters.

PG&E spokesman Jon Tremayne said the hydro system, nuclear reactors and transmission systems would continue to be regulated by the Federal Energy Regulatory Commission or the Nuclear Regulatory Commission.

The utility also would continue to get power from plants it now owns under a 12-year deal at 5 cents per kilowatt hour.

But State Attorney General Bill Lockyer said he is looking closely at the plan because of "serious concerns the utility is seeking to evade further scrutiny by the CPUC" and avoid state laws on the asset transfers.

Lockyer said that in the past, PG&E had used CPUC oversight as a shield against federal scrutiny.

Despite PG&E's claim that the CPUC has no jurisdiction on the transfer of power and transmission assets to the parent, CPUC chief counsel Gary Cohen said the agency's approval is required under state law.

'FIRE SALE PRICES'

"PG&E's goal is clear. They want to transfer most of the utility's valuable assets to an affiliate company, at fire sale prices, so that they will no longer be subject to any state regulation. It is a deregulation plan, not a reorganization plan," Cohen said.

"PG&E's plan conflicts with California's interest to have a more stable and regulated energy system. Deregulation has failed the public, and we will look at every opportunity to put down this attempt to solve the failure of deregulation with more deregulation," said Doug Heller, of consumer advocate The Foundation for Taxpayer and Consumer Rights.

PG&E's Tremayne said the plan makes the most sense for California because units of PG&E would continue to own and manage power production and transmission.

Tremayne said, however, the reorganization plan does not bar a future sale to another company.

PG&E's plan would give the utility $4.5 billion from the asset transfers to help pay off about $13 billion in debts, including $9 billion in unrecovered power purchase costs.

The CPUC's Cohen and consumer groups said PG&E should receive far more than $4.5 billion from the assets.