Regulators say Western Australia’s three state-owned water utilities are charging more for water than it costs them to provide.

A review by the Economic Regulation Authority (ERA) has recommended changes that could save the average household $400 a year.

The inquiry revealed that the Water Corporation, Aqwest and Busselton Water take in significantly more revenue than they spend to supply water services, including wastewater and drainage.

The ERA says it mean the State Government will receive $338.4 million more in revenue from Perth customers this year alone.

The watchdog wants bills to be structured differently, cutting the fixed service charge and raising the per unit price for water to $2.41 per kilolitre.

It says this would encourage smarter use, but also means high water-using households would face higher bills.

Environmental scientist Dr Josh Byrne says that if West Australians were charged more based on consumption, residents would use their water more responsibly, and could push more people to invest in water-saving technology.

“I think what we need to look at is how else can we value the role of these technologies,” he said.

“There's probably an argument to rethink the service charge component of bills for those people that are taking the strain off the infrastructure.”

University of Western Australia water expert Anas Ghadouani says that may not be the best approach.

“People have tried it in other places with fairly mixed reviews,” he said.

“Maybe it will even send the wrong message — ‘if you can pay it, you can use it’ — which is not necessarily what we want.”

The Government increased water services charges by 6 per cent in July this year, with a further 6 per cent increase coming in 2018-19, and 2.5 per cent increases each year thereafter.

Treasurer Ben Wyatt said it would take time to institute any changes to tariffs.

“The Government would, for example, be keen to see the distributional consequences of any proposals,” Mr Wyatt said.

“The ERA's recommendations will be considered as part of the 2018-19 budget process.”