THE BAILLIEU government was collecting huge dividends from Melbourne Water at the same time as the water authority was overcharging Melbourne households.

The dividend paid by Melbourne Water to the government jumped from $26 million in 2010-11 to $118 million this financial year, while the water authority was charging its customers an extra $306 million for the operation of the Wonthaggi desalination plant.

Melbourne Water has been charging households for the running costs of the desalination plant since December last year, even though it became aware in November that the plant would not be operational until February 2013.

After acknowledging its billing error, Melbourne Water initially said consumers would be refunded over five years in the form of offsets to future bills. However, it has since raised the possibility of some alternative repayment methods.

Premier Ted Baillieu described the charges as a ''hiccup'' this week - a comment that infuriated consumers who are owed an estimated $177 each.