With no budget for the fines, the money will come from the water reserve.

Frustration among councillors and the leadership team was palpable at Tuesday night's meeting, with a mutual belief the fines should never have been issued in the first place.

Councillor Juanita Wilson said there's only so much one can say about the matter and it's all been said before.

"It's such a ridiculous situation that we should be paying a fine for the over-extraction of water we sought approval to access, and so much more in this report," she said.

A report to the council reveals in the most severe months of drought, the council approached the Department of Planning, Industry and Environment [DPIE] to buy water on the open market to attach to four of the wells.

Tamworth running out of water was quickly becoming a reality, but in initial discussions with DPIE it became apparent attaching more water to the wells to keep an emergency supply in Chaffey Dam might not be approved.

Council said on January 21 it wrote to NSW Water Minister Melinda Pavey to let her know it had already exceeded its allocation and to see what could be done.

In April, it said Ms Pavey replied and advised the council to buy more groundwater on the open market and attach it to the wells, or transfer other council-owned water to the wells.

The council said the letter did not mention that DPIE had warned approval might not be granted because of concerns about adverse affects on bores in the area.

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The council said without the information about the amount of water that could be attached to the wells from DPIE it ran the risk of purchasing the water only to be told it didn't have permission to do so.

So, it continued to extract water from the wells while in discussions with DPIE about the situation until the Natural Resource Access Regulator (NRAR) launched an investigation.

Council's water and waste director Bruce Logan said DPIE has since acknowledged their modelling on the groundwater wells is "flawed".

"They are pursuing a new model which hopefully will provide more closer correlation between what we extract and how much water is flowing in the river," he said.

The NRAR investigation resulted in two $1500 fines being imposed and according to NRAR the total extraction was 375.67ML, an over-extraction of 310.59ML.