On Monday, chair Cate Faehrmann MLC heard from Tamworth Regional Council (TRC) water and waste director Bruce Logan and David Gowing, John Richards and Ildu Monticone from the Peel Valley Water Users Association (PVWUA) at the NSW Upper House hearing.

Ms Faehrmann told Mr Logan a public inquiry was a good time to air the issues being worked through with WaterNSW.

"I assumed the existing dam would be decommissioned but that's not clear is it?" she said.

"So there's two things: you would potentially lose the dam under your ownership and ability to sell that water as a profit for the council, but WaterNSW confirmed last week that the user-pays model will more likely apply for funding water infrastructure. "Is that a concern financially? A double-whammy if you like."

The Dungowan project is expected to increase the town water supply by seven gigalitres and will hold 22.5GL all up.

The average annual use for agriculture will be 5.65GL, according to WaterNSW's website.

Mr Logan said the water sourced from the old dam is almost free apart from some fees.

"We are concerned the new dam operated by WaterNSW and owned by the state government, if the same charges apply that we pay from Chaffey, there would be an incredible increase in the cost of water for the residents of Tamworth," he said.

The council pays $45 per megalitre of water from Chaffey Dam and about $3 from Dungowan.

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A recent independent survey showed overall, 88 per cent of people feel the new Dungowan Dam will have a positive impact.

PVWUA member David Gowing said while the group was in favour of the dam, it had concerns about an increase in charges.

"I suspect that it possibly is not the best value for money but it is probably the only option available within the resources available," he said.

"I believe the total capacity even now is inadequate for the future needs of Tamworth city, especially if the population grows to 100,000 which is predicted by the council.

"Australia as a country needs to move forward, if we don't do that - we sign our death warrant."

The next hearing is November 27.