Customers who have left the Melbourne Water area or those with relatives who were customers but have since passed away will be entitled to a return of money already collected for Labor's desalination plant.
"The Victorian Coalition Government believes those who have paid for the desalination plant in this financial year but are no longer Melbourne Water customers have a right to have that money refunded," Water Minister Peter Walsh said.
"Melbourne water retailers are currently establishing processes for the return of this money and I have asked for details to be finalised and on their websites by the end of July 2012," Mr Walsh said.
The Coalition Government has also directed Melbourne Water to freeze prices from July 1 so money collected from current customers in the last financial year for the desalination plant can be returned.
The money was collected by the retailers in accordance with pricing plans set by the previous Labor Government's Water Plan 2.
Mr Walsh said the cost of water would not increase for customers, with current 2011/12 water prices remaining the same for the 2012/13 financial year.
"The Coalition Government, together with the metropolitan Melbourne water retailers, have decided to return this money to customers as quickly as possible," Mr Walsh said.
"The independent Essential Services Commission (ESC) will conduct a review and consult with the public on the quickest and fairest way to return the money.
"In the meantime, from 1 July the price of water will not increase for the 2012-13 financial year for customers of City West Water, South East Water, Yarra Valley Water and Western Water."
Melbourne Water was due to commence payments of $1.8 million per day for the desalination plant on July 1 but delays to the construction of the plant means the consortium building will not receive the full payments until the plant is fully commissioned.
The Coalition Government has committed to return to customers all money collected for the desalination plant last financial year with interest.