The residents of two remote Down East islands, Frenchboro and Swan’s Island, pay some of the highest electric bills in the nation, and they’ve proposed to abandon their local electric cooperative to join with the mainland customers of a large utility who enjoy cheaper distribution rates.

But state regulators rebuffed the request on Wednesday, saying Emera Maine’s customers shouldn’t be stuck with the islands’ extra costs. Some observers say the decision sets a new precedent that could drive up electricity costs on many of the state’s islands, and inland rural areas, too.

A total of about 390 people live year-round on the two islands, some 20 miles southwest of Acadia National Park. Their electricity comes by way of undersea cable, and its distribution is handled by Swan’s Island Electric Cooperative. Founded in 1949, the co-op is the sixth smallest in the country, according to President Ed Schwabe.

“We have a couple of Eskimo settlements in Alaska that are smaller than us, and an Indian reservation or two in Arizona and in the Dakotas that are smaller. But we are tiny, and we are paying some of the highest electric rates anywhere in the state,” he said.

It’s not the electricity itself that costs so much more — the islands pay the same as mainland residents for the actual electrons themselves — it’s the cost of delivery.

While the typical monthly bill for delivery to a mainland Emera customer falls around $50, it’s $108-128 per month for the islanders.

Last year, co-op members voted to seek state permission to dissolve the organization and sell its assets and customer base to Emera, even though that meant giving up on a valued institution and the local services it provided to its independent-minded customers.

“In spite of giving up the independence of having their own electric company, the jobs that came with it and the knowledge that we may have some long durations in a winter storm without power, 91 percent of our neighbors stepped forward and said, ‘We need some relief from the high rates that we’re paying,’” Schwabe said.

The co-op, Emera and the state public advocate, who is charged with protecting the interests of all state electricity customers, all agreed that Emera should buy out the co-op. There would be a roughly $400,000 annual cost to Emera customers. But the parties agreed that, spread out over Emera’s much larger customer base, that was a small per-person price to pay to ease a disproportionate burden on the island residents.

When you lump all those island and mainland customers together, they reasoned, economies of scale will result — fewer employees needed, unified administration, maintenance and billing costs — that bring the overall expenses down.

But then the Public Utilities Commission weighed in.

“Well, people choose to live on Swan’s Island. They managed to live with high oil and high fuel prices in the past. Everything costs more than it does on the mainland, and it always has. And we learned in Real Estate 101 that you pay for location,” said Bruce Williamson, an economist and member of the three-person panel appointed by Gov. Paul LePage.

Williamson argued that the benefits of averaging costs over the larger customer base does not trump the principle of allocating costs to those that incur them — in this case, far-flung island residents who decided to live away from the more densely populated and cheaper-to-serve mainland.

“In my view, the entire uniform rates rate-averaging concept having precedential value in Maine is a fabrication and a principle of mere convenience. And it’s also used to sweep away objections that the real equity principle, that of the generally accepted principle of cost-causality, is unnecessary,” he said.

Williamson also suggested that the public advocate, Tim Schneider, was abandoning his obligation to protect Emera’s many ratepayers in favor of the comparative handful of islanders involved. But after the commission voted 2-1 to reject the deal, Schneider held his ground, saying the commission’s position was troubling.

“Going down the road I think we need to decide whether this is an appropriate role for the commission, to charge people more based on where they live within the state. And that obviously has implications for where people choose to live and what our state looks like,” he said.

Schneider’s not the only one who thinks the commission is setting a new and possibly wrong-headed precedent.

“It’s not a small thing to open the gates to this discussion,” said Suzanne MacDonald, community energy director for the Island Institute. “We have many different examples across the state — with other electricity service, with phone service, with internet service — where we see that sharing of costs across geographic areas because so much of our state is rural.”

The commissioners and the parties say there’s still room for a new proposal that would put fewer costs on Emera’s existing customers — one commissioner called it a “glide path.” But in the meantime, residents of the two islands will likely have to endure another winter paying electricity bills that, according to the federal government, are some of the highest in the country.

This article appears through a media partnership with Maine Public.