Sydney householders face an average $100 increase to their annual water bill as the state government pushes ahead with its controversial desalination plant.
The Independent Pricing and Regulatory Tribunal (IPART) recommended a water price increase of 13 per cent from July and increases that would amount to more than $200 for an average household over the next four years.
The draft report said the initial increase would amount to $95 for a typical household using 200 kilolitres of water a year, and $203 over the next four years for households with the same consumption.
IPART said $92 of the average $203 increase for a domestic consumer was allocated to the cost of the NSW government's desalination plant at Kurnell, in Sydney's south.
Handing down the report, IPART chairman Michael Keating said he was conscious the price increase would put some financial stress on householders.
But he said investing in alternative water infrastructure, including desalination, was worth the increase.
"It does concern us ... (but) I think it's good value," Dr Keating told reporters.
"I don't think this is the element of the whole household budget that is going to break the household budget," he said.
NSW Council of Social Service director Alison Peters said low-income families would struggle as the cost of living continued to increase.
"While we can understand the need to invest in infrastructure, the problem is the cost of that is being handed to individual households who are paying increased water rates," Ms Peters told AAP.
"And it's on top of petrol price increases, housing cost increases, grocery increases.
"We've had electricity and public transport increases in recent times as well, it's all these little things, particularly for low income households, are just going to make it even harder."
Water Minister Nathan Rees said the price rise secured the future of Sydney's water supply and would strengthen the economy.
"We've got the three largest recycling schemes in Australia, we've got a desalination plant, we've got rainwater tank rebates, we are setting Sydney up for the future," he said.
"It's never good news when you have to stand up and say that water prices will increase, no-one pretends it is.
"Water is the lifeblood of our economy, we are the engine room here that sets up our economy and our households for the next 50 years."
Mr Rees acknowledged that the rise would put added pressure on household budgets but said measures were in place to help families cope with the increase.
Opposition Leader Barry O'Farrell said almost $180 of the increase over four years was due to the government's mismanagement of Sydney Water or its obsession with a desalination plant.
"These massive increases in water rates simply rubs salt into the wounds of working families across the city," Mr O'Farrell told reporters.
Sydney Water managing director Kerry Schott said alternative water supplies were essential for the city.
"Sydney, I think, is in a new phase with our water supply in demand," Dr Schott said.
"The days of dams and cheap water are gone, partly thanks to climate change and partly thanks to population growth, and all sources of water now, whether it's recycled or desal, are more expensive."
Sydney Water was proposing to implement more initiatives to provide relief to low-income families, including a project to help customers buy water-efficient appliances, Dr Schott said.
