Minister for Water Rose Jackson asked the NSW Productivity Commission to investigate alternative funding models for Local Water Utilities (LWUs), a topic Tamworth council says it considers a "very important issue".

Tamworth mayor Russell Webb told the Leader costs were climbing both for securing water and ensuring its quality.

"The quality of drinking water is governed by certain legislation, and the parameters around the quality of drinking water are getting stronger and stronger in terms of standards," Cr Webb said.

"For us and our treatment plants to be able to do that, we need to keep upgrading so we can meet the new standards and there's a massive cost associated with that."

The state government's review aims to find new ways to balance the costs of installing water infrastructure - particularly in regional and remote areas - with the need to reduce water quality risk.

Tamworth Regional Council has sent a 10-page submission to the Productivity Commission, asking for "better recognition of the state government's responsibility in managing shared water resources across regional NSW".

The submission also asks the state government to consider increasing its contribution to water rebates for pensioners and provide similar rebates for low-income households.

Council's submission claims State Owned Corporations like Sydney and Hunter Water are receiving "significantly" higher subsidies compared to LWUs in regional areas.

Separately, Cr Webb also said he'd like to see the Productivity Commission's investigation do a deep dive into how the state government can improve water security for regional and rural areas.

"To the Productivity Commission we say there needs to be a lot of consideration for councils like our own - and smaller councils - burdened with costs they just can't carry," Cr Webb said.

The mayor was mostly optimistic about how the outcomes of the investigation could improve Tamworth's water woes, but other councillors say they're concerned it "could lead to privatisation".

Cr Phill Betts stood up at council's latest meeting to deliver a warning that Tamworth must be vigilant and proactive in protecting its water infrastructure.

The Leader later asked the longtime local representative what's got him worried.

"Some years back, the Peel Cunningham County Council electricity body was taken over by the state government," Cr Betts said.

"It was then privatised, and we've gotta make sure water doesn't go down that path because individual councils can control the management of their water facilities infinitely better."

He said he hasn't seen anything in the NSW Productivity Commission's investigation that specifically references privatisation, but he sees it as a concern that's always worth spotlighting.

A NSW Government spokesperson said the government's position on privatisation was "clearly" laid out at the start of the review.

"The NSW Government's policy position is that there shall be no forced amalgamations and that councils will continue as the owners of their water and sewerage assets. Continuation of this policy position is a critical assumption of this investigation," the spokesperson said.

The spokesperson also said the review was considering expanding water rebate schemes to renters, healthcare card holders, and low-income households.

A draft report from the investigation is expected to be published by the end of April.