Victoria's multi-billion-dollar desalination plant could be used for the first time, as the Andrews Government confronts a looming water crisis in drought-hit country towns.

The State Government is examining whether to start ordering water from the Wonthaggi plant, which has sat idle since it opened in 2012, as part of a review of the entire state's water grid.

But questions remain about how that would help farmers in the Wimmera and Mallee regions, which are not connected to the rest of the grid.

Environment Minister Lisa Neville said all options were on the table, including using Victoria's "insurance policy" against drought.

"It's not about connecting new pipelines to the Wimmera-Mallee, it's about where does water sit, who's got allocations and how best do we use that water," she said.

A draft report on Victoria's water outlook showed there had been a worrying drop in water storage levels in the state's north-west, to 31.5 per cent in the Wimmera-Mallee.

"Victoria's winter rainfall was mostly below average to very much below average over most of the state except East and Central Gippsland," the report said.

"Parts of western Victoria have experienced very low rainfall for over a year, with some parts having experienced lowest-on-record rainfall over the last 14 months.

"In addition to the area of lowest on record rainfall in western Victoria, northern Victoria and central Victoria have all had severe or serious deficiencies."

Melbourne's water storages are now at a relatively healthy 74.4 per cent capacity, compared to 80.3 per cent at the same time last year.

'Impossible' for desalination water to reach affected areas

Ms Neville said there were no plans to turn on the desalination plant, build a pipeline to the Wimmera-Mallee, or introduce Melbourne water restrictions at present, but a better strategy was needed.

"We all learnt from the millennium drought that we need to take action," she told Parliament.

"We're not praying for rain, that's what happened the last four years. In many parts of our state the drought never broke.

"We want to provide water security for Victorian communities."

Ms Neville said the plan could see Melbourne's water retailer entitlements diverted further north and the city's supply topped up with desalinated water.

But Opposition spokesman Peter Walsh said it would be impossible to get the water across the Great Dividing Range to regional areas.

"Those areas cannot physically receive desalination water, it is just absolutely impossible," he said.

"The Minister is using an opportunity to justify a plant that Melbourne has paid very, very dearly for."

An order would cost Melbourne households an estimated $14 extra on annual water bills.

In July, Melbourne Water proposed extending the contract with the plant's consortium by 33 years to allow for a short-term reduction in water bills.

A decision will be made at the end of the month.