Stormont officials have refused to give any details citing confidentiality.
Homeowners will not face bills until at least March 2017, after MLAs ruled to defer charges.
Instead, the executive pays the cost of Â£280m a year to NI Water. Further legislation is expected to extend the policy.
However, the decision could mean that the authorities are not complying with European rules on water quality.
The EU Water Framework Directive envisages that users should pay for their water to promote conservation.
Officials in Northern Ireland make the case that people do that through their regional rate.
Northern Ireland is the only part of the UK not to levy a charge on homes, although businesses do pay charges.
That has prompted a debate with calls for the introduction of a charge on homes to pay for improvements in infrastructure.
Now, the European Commission has opened a so-called "pilot case" to look at the issue.
Essentially, this is a way for the commission to establish whether EU rules are being correctly applied.
It allows for the commission and member states to resolve any conflicts without resorting to infringement proceedings.
The Department of Agriculture Environment and Rural Affairs (DAERA) said it could not comment on the detail of the case.
"It is the subject of a confidential dialogue with the Commission and the release of further details could potentially prejudice the outcome of those discussions," said the department.
The two sides get about 20 weeks to try and sort out their differences.
Many cases are resolved without going to a formal hearing.
The European Commission has asked questions about the Northern Ireland Executive's decision not to charge homeowners for water.