The California Public Utilities Commission called Sebastopol's moratorium on the installation of SmartMeters "unlawful and unenforceable" in a letter sent to city officials Friday.
The strongly worded correspondence represents the latest official response to the city's position.
PG&E also said the city lacks the authority to impose a moratorium on SmartMeters and the company vowed to continue installing the devices within city limits.
Citing the "potential risks to the health, safety and welfare of Sebastopol residents," the City Council on Feb. 21 unanimously authorized the moratorium, effective immediately, with a $500 fine for violations.
The city has been ground zero for resistance to SmartMeters, which critics fear can cause ailments ranging from cancer to headaches via the electromagnetic frequencies that the devices emit.
CPUC attorney Frank Lindh, however, wrote that the devices are an important component of the agency's long-term strategy to make California's electrical system more reliable, reduce power purchases and consumers' costs, and lower greenhouse gas emissions.
Lindh wrote that the CPUC has "exclusive jurisdiction" over the state's public utilities. He did not state any actions in response to Sebastopol's stance other than to invite city officials to discuss the matter.
The letter was addressed to Larry McLaughlin, Sebastopol's city manager and attorney, as well as City Clerk Mary Gourley. McLaughlin did not immediately respond to an email Friday seeking comment.
PG&E has 21,000 gas and electrical meters at homes and businesses in the Sebastopol area and has upgraded 7,100 of them to SmartMeters, according to a company spokesman.
About 1,100 customers have opted out of the change, representing fewer than 10 percent of customers.