PG&E needed regulatory approval for the plan because its costs for the purchase and development would have been recovered from rate-payers, or electricity consumers.
In the US, utilities are increasing developing and owning wind projects.
The project is "not cost-competitive and poses unacceptable risks to ratepayers," said the law judge, in an opinion issued in December.
PG&E had agreed to buy the project in early 2009. It would have been the first owned and operated by the utility.