A state arbiter said the North Texas Municipal Water District’s rate structure was adverse to the public interest, a decision that could have a ripple effect on consumer water bills throughout the growing region.

The Public Utility Commission of Texas voted Feb. 27 to move forward toward a review of the North Texas Municipal Water District’s rate structure for its 13 member cities. That structure had been challenged by the cities of Plano, Richardson, Garland and Mesquite.

Those cities argued that under the existing contract, they have paid hundreds of millions of dollars in recent years for water their residents and businesses did not use.

“We are hopeful that this next step in the process will bring us closer to establishing a new rate methodology that is fair and equitable to all members, encourages conservation and better serves the Region’s long-term interests,” the four cities said Feb. 27 in a joint statement.

The water district’s other nine member cities are Allen, Farmersville, Forney, Frisco, McKinney, Princeton, Rockwall, Royse City and Wylie.

"We are reviewing the Commission's actions but are concerned with its implications," McKinney City Manager Paul Grimes said. "It ignores the long-standing principle of the sanctity of contracts and has wide-reaching implications for water contracts across the state that may increase the amount of litigation of these matters, which only means more cost to our citizens."

Grimes added his city would work with the others to try to address long-term concerns about the water contract.

Tom Kula, the water district's executive director, said NTMWD is open to changes to the current water rate structure, which was adopted by member cities in 1988.

“We’ll also continue our focus on keeping rates as low as possible while addressing the challenges and need for new projects for aging infrastructure, changing regulations and growing communities,” Kula said in a statement.

The state commission is expected to agree on an interim order late next week and vote on a formal order in a future meeting, PUC spokesperson Andrew Barlow said.

“That would then likely move the case into the hands of an administrative law judge at the State Office of Administrative Hearings to begin the process of the rate review,” Barlow said.

The four cities challenging the contract said in a statement that they have paid a combined $275 million in recent years for unused water. Under the existing water contract, each city pays for the amount of water it consumed in its highest-usage year, even if its residents and businesses use less water in subsequent years.

As the water district has raised rates to fund infrastructure expansions in a quickly growing region, cities like Plano have seen payments creep upward as a percentage of their total costs, even as residential water usage has gone down.

In Plano’s case, those city costs are largely passed on to consumers, Plano Budget Director Karen Rhodes-Whitley told Community Impact Newspaper in September.

Before the PUC decision to review rates, Plano had been working on a possible settlement with member cities. But city spokesperson Steve Stoler said these settlement discussions ended without an agreement.

“Our request was made after working for more than a decade to get relief for our ratepayers,” the statement from Plano, Richardson, Garland and Mesquite read. “Due to our lack of bargaining power, all parties remained at an impasse, and our most viable option was to request the PUC review of our rates.”

Frisco City Manager George Purefoy said his city would continue to work with the member cities challenging the contract.

“Hopefully, we will be able to work with all involved to find a fair and equitable solution to the issue," Purefoy said in a statement.

Once the commission adopts a new rate structure for the water district’s member cities, the district will have 90 days to perform a cost study.

“This has been a long process, and we’re committed to doing our part to strengthen partnerships with our cities to serve the needs of our region,” Kula said.

Editor's note: This story has been updated to include a statement from the McKinney city manager.