The Associated Press

Pacific Gas and Electric Co. officials demanded the utility be cut free from state regulation and be allowed to push huge rate increases onto its customers, two weeks before negotiations with Gov. Gray Davis broke off, the San Francisco Chronicle reported.

“Perhaps we misjudged their primary concern,” said Steve Maviglio, the governor’s spokesman. “It wasn’t resolving their credit issue. It was extracting vengeance on the PUC.”

In addition to insisting that it be released from the state Public Utilities Commission‘s regulatory grip, PG&E demanded it be allowed to buy back its power lines without competitive offers if the state ever decided to sell. In addition, it wanted to continue profiting from any telecommunications lines or antennas linked to the system, according to a Feb. 28 eight-page proposal obtained by the Chronicle and published Sunday.

PG&E denies the document influenced the outcome between the utility and the state.

“It is ludicrous to suggest that this document caused the negotiations to break down,” said PG&E spokesman Ron Low. “There were negotiations that occurred later and other documents that followed.”

At the time of the utility’s bankruptcy filing April 6, PG&E Corp. Chairman Robert Glynn said no talks had been held for three weeks. PG&E‘s proposal had been delivered about two weeks before talks ceased.

PG&E has said it’s entitled to recoup $9 billion it paid for wholesale power because of PUC-regulated rate caps, which kept the utility from passing high costs onto customers.

The proposal said this money “will be fully recovered in retail rates without further CPUC review for prudence or any other purpose,” the Chronicle reported.

The document went on to demand the PUC drop all proceedings concerning PG&E, including an investigation into whether the utility violated California law by transferring millions to parent company PG&E Corp. prior to filing bankruptcy.

“They took a position on regulatory matters that was out of touch with reality,” Maviglio said.

PG&E Corp. spokesman Shawn Cooper declined to comment on the proposal.

“That document is confidential,” he said.

Ratepayer advocates say they’re baffled by PG&E‘s demands.

“It’s like the Japanese insisting that we surrender Hawaii after we beat them in World War II,” said Harvey Rosenfield, consumer advocate for the Foundation for Taxpayer and Consumer Rights.