## Facts

- American Water Works, Inc., a private utility, previously supplied water and sewer service to the City of Texarkana and nearby areas, including North Texarkana.
- In 1948, the City of Texarkana bought the utility’s system serving both the city and surrounding territory using proceeds from voter-approved revenue bonds.
- The city adopted the predecessor utility’s existing rate schedule, which charged residents and nonresidents the same rates, and kept that schedule in place until 1950.
- On August 8, 1950, the city enacted an ordinance imposing higher charges on customers outside the city limits, including:
  - Water service at 1.5 times the in-city rate.
  - Sewer service at double the in-city rate.
  - A higher water tap fee for outside customers ($50) compared to inside customers ($10 on unpaved streets; $15 on paved streets).
- The respondents were residents of North Texarkana, an adjacent municipality outside Texarkana’s corporate limits, who already had connections and had paid the prior uniform rates.
- Respondents sued to enjoin enforcement of the higher “nonresident” rates as unlawfully discriminatory.
- The trial court rendered judgment for the city; the court of civil appeals reversed and remanded; the Texas Supreme Court granted review.

## Issues

1. Whether a municipality that voluntarily supplies water and sewer service outside its corporate limits may charge higher rates to nonresidents solely based on nonresidence.
2. Whether, under public-utility nondiscrimination principles, a rate differential is unlawful absent evidence of a reasonable basis such as higher costs or different service conditions.
3. What remedy is proper when a municipal rate ordinance creates an unsupported discriminatory classification.

## Decision

- The Texas Supreme Court held that the city was not required to serve nonresidents, but once it chose to do so, it could not impose an arbitrary rate discrimination between similarly situated customers.
- The Court concluded the nonresident surcharges were unlawful on the record presented because the city offered no proof that higher rates were justified by cost or other relevant differences.
- The Court agreed the discriminatory rate structure could not stand without an evidentiary showing of reasonableness, while correcting aspects of the intermediate court’s disposition on remedy.

## Legal Principles

- A utility may not discriminate in rates among customers similarly situated unless the differential rests on a reasonable basis.
- A municipality operating a utility and voluntarily serving nonresidents is subject to generally applicable public-utility nondiscrimination rules for the customers it elects to serve.
- Municipal boundaries alone do not supply a sufficient justification for higher rates; a lawful differential requires support such as higher costs, different service conditions, or comparable factors.
- A city may refuse to extend service outside its limits, but it may not extend service and then charge unsupported discriminatory rates.

## Conclusion

The Texas Supreme Court ruled that Texarkana’s ordinance imposing higher water and sewer charges on nonresidents was unenforceable on the record because the city failed to show a reasonable, cost- or condition-based justification for treating outside customers differently from similarly situated customers inside the city.


City of Texarkana v. Wiggins, 246 S.W.2d 622 (Tex. 1952)