Mexico has closed a state-run energy distribution firm with about 40,000 employees and 25 million customers, blaming the scale of its losses.
Federal police seized the offices of Luz y Fuerza del Centro. Spending at the company was increasingly outpacing sales, according to the government.
The firm faced an "unsustainable financial situation", President Felipe Calderon said.
Mexico is trying to cut public spending to offset falling oil revenues.
The Federal Electricity Commission, a state-run utility that provides electricity across the rest of the country, is to provide services to Luz y Fuerza's customers.
The firm's costs between 2003 and 2008 were 433bn pesos (£20.6bn; $32.5bn) while its sales were 236bn pesos, the government said.
Mr Calderon said the utility company could not continue to be funded without increasing electricity rates or taxes.
"That would be unfair particularly when our country is going through tough economic times," he said.
However, he denied union claims that the government was going to privatise the company.
The government said Luz y Fuerza lost 32.5% of the energy that it generated or bought to distribute to its customers. It added that about half of the firm's staff costs went toward pensions for 20,000 retired workers.
A crowd of about 10,000 people gathered in Mexico City to protest about the government's intervention.