SAN FRANCISCO -(Dow Jones)- Sacramento voters have killed a proposal that their municipal utility annex territory in Yolo County now served by PG&E Corp. (PCG), the investor-owned utility said late Tuesday.

As a result, Pacific Gas & Electric Co. will keep its 77,000 electricity customers in the area west of Sacramento and the $180 million annual revenue they supply to the regulated utility.

"It's clear that we're going to defeat it in Sacramento, and that stops it," said Nancy McFadden, vice president of government relations for PG&E.

"We're still waiting to see what happens in Yolo County, but if the numbers hold up our customers there also have said 'no' to the risk of the takeover," McFadden said.

For the measure to have succeeded, it would have required approval by a majority of voters both in Sacramento County, as representatives of SMUD's existing customers, and in the area of Yolo County that would be switched from PG&E to SMUD.

With 92% of votes counted in Sacramento County, 62% were against the measure and 38% in favor, according to the county government. Those percentages have held steady since the first votes - absentee ballots - were reported earlier in the evening.

In Yolo County, with 38% of the votes reported, about 54% were against the two companion measures involved and 46% were in favor. The university town Davis, industrial West Sacramento, rural Woodland and neighboring unincorporated areas of Yolo County formed a special voting district for the measure, though almost all of the Yolo County votes counted as of midnight were absentee ballots.

City of Davis Councilman Stephen Souza, a leader in the campaign in favor of the annexation, insisted late Tuesday that the measures in Yolo County might pass, and that the vast majority of the voters in Davis would approve them.

"This is round one in a two-, three- or five-round fight," Souza said.

"Sacramento took 25 years to break free from PG&E and create its own municipal utility. I don't know if it will take that long here in Yolo County, but I promise we will become our own municipal utility or become part of another municipal utility someday," he said.

The measure was expected by many to pass in Yolo County, where customers were promised an eventual 30% reduction in their electric bills, once the costs of acquiring PG&E's infrastructure were paid off. Both sides had said that the measure faced a tougher challenge in Sacramento County, where the benefits of an expanded utility were less clear.

PG&E spent more than $10 million to defeat the ballot initiative. The utility had estimated that it could lose about $43 million annually in gross profit margin if the measure succeeded, according to a company filing with state utility regulators. The customers at stake represented only 1.5% of PG&E's customers, or less than a year's average growth, but the utility was concerned that passage of Tuesday's measure could have spurred other northern California cities now in its territory to make the same move.

Nationally, the defeat of the measure could slow what some utility analysts have seen as a nascent movement toward the municipalization of areas now served by investor-owned utilities.

The county and city governments involved all supported SMUD's annexation of the territory being fought over. While the non-profit SMUD legally wasn't allowed to campaign for or against the matter, several of its directors and executives were involved in the campaign to get the measure passed.

SMUD had said it would cost only about $110 million to purchase PG&E's wires, poles and other infrastructure in the disputed area. PG&E put the price tag at over $500 million, saying that the switched customers might never have seen lower electric bills.

Councilman Souza noted that PG&E in Yolo County is paying property taxes on assets valued at a fraction of the $500 million price tag it put on the infrastructure

"Maybe PG&E should be paying higher property taxes. That's a question we'll have to ask our lawyers. Tomorrow is another day, and we'll begin to evaluate the next round in how we become a municipal utility," he said.

-By Mark Golden, Dow Jones Newswires; 415-765-6118; Mark.Golden@dowjones.com