Water bills at Melbourne households will rise up to $222 in the coming financial year, mostly to cover the cost of Victoria's desalination plant.
The increase, however, is less than original proposals from water retailers, who wanted increases of between $269 and $355.
Essential Services Commission chair Ron Ben-David says the commission's decision will take effect from Monday next week.
On average, water bills across Melbourne will increase by 22.4 per cent, plus inflation.
"Of the increase it's about two thirds to three quarters is due to the desalination plant," he said.
The desalination plant began operating last December.
Dr Ben-David said the price increase was higher than last time because the desal plant's final cost had ballooned above forecasts.
"Now that the desalination plant is operating we have to account for its true full cost to the state and to Melbourne Water."
City West Water, South East Water and Yarra Valley Water customers will face a significant price rise in 2013/14, then increases in line with inflation.
Western Water customers' price increases will happen more gradually over five years because the company is less reliant on the desalination plant.
Dr Ben-David said Melbourne Water would have to return to the commission by 2016 with a new plan covering the period until 2021, including a range of options on how it might smooth the cost of the desalination plant over a longer period.
Dr Ben David estimated Melburnians' water bills had about doubled in over the last five years.
Water Minister Peter Walsh said the government expected to pocket about $200 million in dividends from water businesses.
"The same criteria for dividends is there as was under the Labor party when they were in government."
Opposition water spokesman John Lenders said Melbourne Water has had to borrow money to pay the government dividends.
He defended the desal plant, saying it was a piece of infrastructure designed to help Melbourne after 13 years of drought.
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