WA's economic regulator has recommended average household water bills fall almost $130 next year in a bombshell report that could be a circuit-breaker for the State Government.

The Economic Regulation Authority today defied years of hefty water price hikes to suggest that most people were paying enough for supplies and should in fact be paying significantly less.

Releasing its long-awaited draft inquiry into WA water tariffs, the ERA put forward a raft of changes that would see a typical residential water bill drop by 10.5 per cent, or $128, a year.

Central to the authority's argument was that the Water Corporation, the State's biggest water provider, should not be able to return such a healthy profit to Government.

But the ERA also said the current method used to calculate a property's annual wastewater charge should be overhauled - a move it said would save 80 per cent of households about a $150 annually.

This fall would be slightly offset by a modest 3.6 per cent, or $20, increase in water usage charges, leaving the average punter $128 a year better. Country water customers and businesses would enjoy a similar windfall.

While the draft report's recommendations will be welcomed by water consumers, they threaten to wipe hundreds of millions of dollars from Treasury coffers over the forward estimates.

The West Australian

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