The state Supreme Court dismissed last week a challenge by Burien, SeaTac and Tukwila to non-compete fees they receive from the city of Seattle.

In a 6-3 ruling, the court upheld the legality of noncompete fees that Seattle City Light pays to several suburban cities, including Shoreline and Lake Forest Park, to stay out of the utility business.

Writing for the majority, Justice Barbara Madsen said Seattle can pay the suburban cities because those fees do not constitute a government tax.

State law restricts one city from imposing fees on another city's municipal utility. But, the court held, this applies only when a city exercises its taxing and regulatory powers.

City Light negotiated the noncompete fees with suburban cities because it "was concerned that a shrinking rate base would impair its ability to provide low rates and efficient service," the opinion noted.

Burien, SeaTac and Tukwila had discussed with other south King County cities "the feasibility of forming a joint municipal utility."

City Light's franchise agreements provided payments to the cities of 6 percent of revenue from its power sales to the residents of those cities.

In exchange, they agreed they would not establish a competing municipal electric utility.

But two years ago, the cities challenged the payments because state law prohibits one city from imposing utility franchise fees on another city.

The Legislature limited taxes and fees on municipal utilities to keep different governments from adding several levels of charges, Madsen wrote.

"But the Legislature did not intend to prevent cities from conferring a special benefit on an electric utility in exchange for negotiated consideration."

In this case, she continued, "the payments constitute valid consideration in exchange for the Cities' promise to forbear from entering into competition with [City Light]."

Three dissenting judges said the plain language of the state ban on charging fees to municipal utilities should apply to the City Light.

The majority, however, held that this arrangement essentially is a business transaction.

We hold that [City Light's] agreement to pay the Cities a percentage of utility revenues [City Light] receives from the Cities' residents does not fall within the statutory prohibition," Madsen concluded.