After months of protests by consumers worried that PG&E SmartMeters are negatively impacting their health, PG&E extended a big olive branch Monday, saying for the first time that customers should be able to keep their traditional analog meters.

“We need to listen to our customers,” PG&E CEO said Anthony Earley in an interview. “Why should we be fighting with our own customers over something like this?”

PG&E’s new proposal will now go to the California Public Utilities Commission, which could vote on it as early as next month.

SmartMeters are digital devices that use radio signals to transmit information about customer electricity and gas use to utilities, eliminating the need for meter readers to manually check the meters. Utilities across the country and around the world are installing them, and PG&E is on track to have 10 million in place throughout its Northern California territory by mid-2012.

But PG&E’s rollout has been marred by complaints, initially over billing accuracy and in recent months over health concerns. A small but vocal group of PG&E customers in Santa Cruz, Marin County and elsewhere has flooded state regulators with allegations that PG&E’s SmartMeters make them sick and cause migraines. Santa Cruz resident Bianca Carn hired an electrician to remove the SmartMeter at her home after her children started suffering headaches.

For months, PG&E, state regulators, consumer advocates and several Bay Area cities that have passed ordinances against SmartMeters have struggled to come up with a fair opt-out proposal that would give consumers who don’t want SmartMeters other options. A big sticking point is cost: PG&E and state regulators maintain that customers who opt out should bear the cost of replacing the meters and having them read manually. But many customers oppose having to pay any kind of opt-out fee.

Last month, state regulators with the PUC proposed an opt-out plan that would charge customers who did not want a SmartMeter an initial $90 fee and an ongoing monthly charge of $15. The initial fee would be waived for low-income customers, who would pay a monthly charge of $5.

Michael Peevey, a former utility executive who is president of the PUC, proposed an opt-out option that includes either a SmartMeter with the radio turned off or a new digital meter that does not have a radio transmitter.

But PG&E, which is eager to rebuild its reputation with customers after the deadly San Bruno pipeline explosion, went one step further Monday and now hopes to see an opt-out decision that includes the choice of keeping traditional analog meters.

“PG&E seeks to be responsive to a small percentage of its customers who continue to have concerns about digital and wireless technology,” the utility said in the filing. “PG&E would like to ensure that the adopted SmartMeter opt-out program resolves the concerns of those customers who do not want to receive a SmartMeter, even with the radio off.”

Consumer advocates said the change of heart was long overdue.

“This is definitely progress,” said Mindy Spatt of the consumer advocacy group TURN. “It is too bad they forced the meters on so many people before coming to the conclusion that customers should have a choice, which is what customers have been asking for all along.”

Contact Dana Hull at 408-920-2706. Follow her at Twitter.com/danahull.