In a big victory for Garland, Mesquite, Plano and Richardson, the Public Utility Commission voted Thursday that the rates charged by the North Texas Municipal Water District to its 13 member cities are adverse to the public interest.

This is the first water case in which the PUC has ever made such a ruling. The decision sends the litigation to a second phase: An examination of the district’s rates now will be undertaken. After the cost of service review concludes, the PUC will use that information to determine appropriate rates.

Among the findings cited by commissioners in deciding to move the case forward were multiple items under the “abuse of monopoly power” section of the PUC rule book.

The outcome of the case could affect not just ratepayers in the four granddaddy suburbs that brought the litigation, but water customers in the district’s other member cities: Allen, Farmersville, Forney, Frisco, McKinney, Princeton, Rockwall, Royse City and Wylie.

The disagreement, which the cities have worked to solve among themselves for years, centers on the cost-sharing “take or pay” methodology that they agreed to in 1988: Each pays an amount based on its highest year of usage; that wholesale charge is then passed along to residents as part of their monthly bill.

The four granddaddy cities have long wanted the rate structure changed because — especially as a result of conservation — they no longer need nearly as much water as they’re contractually obligated to buy. But any change in that rate calculation requires a unanimous vote by all the cities — a tall order when you consider that if the big four pay less, the up-and-comers would have to pay more.

Plano city manager Mark Israelson couldn’t have been more pleased with Thursday’s outcome. Israelson, one of several North Texas city and elected leaders who attended the PUC meeting, told me afterward that Plano is counting on the cost of service review to bring meaningful relief while promoting conservation.

Richardson city manager Dan Johnson, who was also in Austin, echoed those thoughts, saying the vote means a chance to explore “a more contemporary rate method.”

A statement from water district executive director Tom Kula after the commissioners’ decision Thursday said, in part: “The North Texas Municipal Water District looks forward to providing information about the current contract cost-sharing method and related wholesale rate structure in the next phase of this case.”

The statement also noted that the 13-member water partnership was agreed to in 1988 and that the district is focused on providing safe water and keeping rates as low as possible “while addressing the challenges and need for new projects for aging infrastructure, changing regulations and growing communities.”

Even as the PUC is allowing the case to proceed, chairwoman DeAnn Walker made clear her disappointment that the cities and water district had not been able to settle the case among themselves. “That’s where it should be settled. But if parties really want us to decide it, we will be happy to do so."

Frisco city manager George Purefoy agreed with that sentiment. “Hopefully, we will be able to work with all involved to find a fair and equitable solution to the issue,” he told me from his Frisco office.

Construction crews worked on upgrades at the North Texas Municipal Water District complex last month in Wylie. (Ryan Michalesko / Staff Photographer)

McKinney city manager Paul Grimes said his office is still reviewing the PUC actions but is concerned about its implications. “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 said.

Despite the consternation that McKinney — and I suspect most, if not all, of the other cities — feels about the PUC decision, Grimes affirmed that his city wants to continue to work toward a solution in the water rate controversy.

Good luck with that, given the last six years of attempt after attempt after attempt. No city manager wants to be part of any required unanimous agreement on a rate change that creates higher bills in his own city. And no way is this mess resolved without some version of winners and losers.

Republican state Rep. Jeff Leach, whose district includes Plano, Allen and parts of Richardson, is painfully aware of this as a result of personally trying to bring cities together for a compromise. That’s why he is among the lawmakers who urged the PUC to act.

“Unfortunately, some cities were more willing than others to work in good faith towards a resolution," which left no recourse except to approach the PUC, Leach told me. “That’s why today’s ruling is, without question, a positive step forward for district ratepayers.”

Both Plano Mayor Harry LaRosiliere, whose city is among the petitioners, and Rowlett Mayor Tammy Dana-Bashian, who represents the largest of the many customer cities in the North Texas Municipal Water District, addressed commissioners Thursday morning to explain their constituents’ concerns about the high cost of water and the unfairness of the “take or pay” methodology.

In a 126-page analysis, the State Office of Administrative Hearings made some of the same arguments when it recommended that the PUC move the case forward last March. Instead, after a May hearing, the PUC left the case pending.

Thursday, faced with no progress among the cities and a renewed plea by the four granddaddies, the PUC made a little utility history with its decision to take a water case to the review of service phase.

Higher water bills, of which the wholesale cost is just one piece, are understandably a sore subject among North Texas residents. That no doubt is why it’s been so difficult for city managers, each representing a different set of constituents, to come up with a solution.

The district’s water rate has gone from about $1 per 1,000 gallons in 2006 to the current cost of $3 per 1,000 gallons; it is projected to grow to $3.79 per 1,000 gallons five years from now.

Earlier this week, a conservative Austin-based think tank that has long opposed special purpose districts devoted an entire article to the State Office of Administrative Hearings’ findings and recommendations to the PUC.

“The violations and egregious activity found are too numerous to list here in totality, but it bears mentioning that the district’s policies have been decidedly anti-water conservation for several of its member cities,” wrote Russell Withers, general counsel and senior policy analyst for the Texas Conservative Coalition Research Institute.

Quoting from the administrative law judges’ findings, Withers characterized the North Texas Municipal Water District’s “laundry list of abuses” as leaving cities “stuck in a contract that gives the district ‘the unilateral right to adjust … rates, which have risen dramatically in the last decade and are likely to continue increasing.'"

The think tank is just the latest to join this longstanding water rate controversy, which has raised questions not just about the terms of the 1988 contract but the transparency and accountability of a North Texas water district that controls a massive amount of assets.

The PUC made the right call here — this case deserves careful outside eyes on it.