The state yesterday retreated from a cease-and-desist order it recently issued against a Texas-based company that collects water and sewer bills from tenants on behalf of landlords and property managers.

The original order accused Minol-MTR of operating as a collection agency without a license. But allowing the order to stand could have created chaos for tenants and landlords, said the Department of Licensing's Craig Nelson, the man who signed the original order and yesterday signed an order staying it.

"This is a very much larger issue than I think we originally thought," said Nelson, who is chairman of the Licensing Department's five-member collection-agency board. He said the board would reconsider the case at a hearing later this month or early next.

Minol is the biggest of at least a dozen companies that have sprung up in Seattle and other urban areas in recent years to handle water and sewer charges on behalf of landlords. Historically, utility costs were rolled into the rent, but that started changing, landlords said, when utility rates began to outpace inflation.

Under what's known as third-party billing, the tenant receives a bill for water and sewage, separate from the rent. The landlord or his agent is responsible for paying the utility company, but an increasing number of tenants — now nearly one in five in Seattle — receive their bills from companies such as Minol.

Even though it was contesting the Licensing Department's position, under state law Minol was supposed to quit operating immediately, according to Harumi Tucker Tolbert, a regulatory program manager with the department.

The original order was issued July 31 but did not gain media attention until this week, after a Seattle City Council member alluded to it. Once the story got out, a number of tenants started questioning whether they were legally obliged to pay a utility bill to a company the state had said was not licensed to collect it.

Nelson conceded the point.

"We have a situation where there are ongoing utility payments that have to be made, and that would have been extremely difficult and affected a lot of people including tenants and the landlords if the cease-and-desist order had remained in effect," he said.

There was no way to come up with an alternative system to pay the bills, he added. The new order will allow Minol to continue to operate legally as a third-

party-billing company until a hearing, Nelson said.

He noted the action filed against Minol represents the first proceeding brought under a recently amended statute.

"So we're all kind of tiptoeing our way forward a little bit," Nelson said.

The stay was issued over the objections of Assistant Attorney General Rob Kosin, representing the department.

Applauding the stay was Sean Durbin, a local attorney for Minol. "This gives Minol an opportunity to have their position heard before a cease-and-desist is put in place," he said.

Durbin also asserted that in a would-be class-action case filed by tenants against Cascade Water Management — a company later acquired by Minol — a King County Superior Court judge four years ago rejected the proposition that Cascade was a collection agency.

Minol opposes paying the state's collection-agency licensing fees because it believes that would open the door to a number of other regulatory requirements that would lead to "substantial costs," Durbin said.

Officials at Minol's Addison, Texas-based headquarters did not return phone calls or e-mail messages this week. According to its Web site, the company was formed in 1999 under a merger. It is considered a major player in the emerging third-party-billing business and performs sub-metering and billing services for the real-estate industry across Asia, Europe and North America.

According to Bill Deoreo, president of Colorado-based Aquacraft, a consulting firm working on a third-party-billing study funded by the federal Environmental Protection Agency, the practice began "without much regulation or thought on the part of governments."

The study, still a year away from completion, is intended to sort out the advantages and disadvantages and regulatory issues associated with third-party billing, Deoreo said.

"The (property) owners love it," he said, "because they're able to take that (utility) cost and transpose it onto the tenant without necessarily reducing anyone's rent."

Deoreo noted that there are various kinds of third-party-billing systems. The most accurate — and most expensive — are "sub meters" that measure actual consumption for each residential unit.

More common is a system known as RUBS — "ratio utility billing system" — that consists of a formula that generally includes a variety of factors, including floor area, number of bathrooms and number of occupants, to generate a realistic estimate.

But consumers have complained about inaccuracies and inequities associated with such systems, as well as unresponsiveness from third-party-billing companies and landlords when they contest a bill. For example, such systems do not take into account extended absence from a unit, nor do they necessarily reflect the true number of occupants.

The complaints have led to calls for consumer-protection measures. A state bill stalled last legislative session but will be reintroduced in January.

Peter Lewis: 206-464-2217 or plewis@seattletimes.com