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Despite a massive $46 million campaign, Proposition 16 — the California ballot measure backed by utility Pacific Gas & Electricfailed in yesterday’s election with 52.5 percent of voters saying no to the company’s attempt to block local governments from creating or growing their own municipal utilities.

Specifically, if passed, Prop 16 would have required a super-majority of two-thirds of voters to support the formation of a municipal utility (the Sacramento Municipal Utility District and Los Angeles Department of Water and Power are good examples) before it could happen. Very clearly, PG&E’s dominance is threatened when other utilities are permitted to spring up in its coverage area. But that wasn’t its argument. Rather, the company positioned it as a burden for taxpayers to not have more of a say over their local governments spending money on new energy ventures.

The measure’s failure is a major victory for its opponents — a group that includes the Sierra Club, the AARP, and the city of Palo Alto, Calif. All told, they only raised $90,000 to defeat the proposition. Obviously, their argument that PG&E was actively working against the incorporation of renewable forms of energy — and the insincere nature of the utility’s motivations — were enough to persuade voters. The vote was actually so close that PG&E didn’t concede until this morning, and PG&E’s campaign seems to have won voters over in Southern California (ironically, where Southern California Edison provides power).

Prop 16’s defeat has major ramifications for the energy industry in California. First and foremost, it says a lot about public sentiment against PG&E. Since residents of Bakersfield, Calif. filed a class-action lawsuit against the utility over smart meter-related rate hikes, public opinion of the company, its suppliers (including Silver Spring Networks), and even smart grid deployments in general, has soured. Clearly, this has come back to bite the company in other areas. In fact, the Prop performed the worst in large population centers served by the utility, namely San Francisco.

Secondly, this result could mean great things for energy and grid innovation in the state. With most Northern California residents required to use PG&E’s services, there was very little incentive for the company to diversify its offerings, provide consumer-facing energy management tools, or extend its reach in renewable energy sources. Now that municipal utilities are easier to set up — adding some competition to the market — new advances are sure to follow.

As the largest electric company in the entire U.S., PG&E is often held up as an example and precedent for the hundreds of other utilities across the country. Many of them look to the company to see what their next moves should be, or what challenges they should pay more attention to. So this decision, while contained to state borders, could have national consequences.

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