Poor communication, conflicts of interest and accusations of undue influence in the political process were highlighted in an Auditor-General's report into the setting of water and sewerage prices last year.

Auditor-General Maxine Cooper, pictured, identified a breakdown in relations between Actew Water and the body that sets water and sewerage prices in the ACT - the Independent Competition and Regulatory Commission.

Relations reached an impasse, with Actew disputing the commission's method and price ruling, and the commission accusing Actew of obstructing its price review and withholding information it requested in the weeks before the 2012 election.

The commission said Actew withheld information because it did not want to be "responsible for influencing the outcome of the upcoming election", an accusation Dr Cooper investigated and rejected.

The breakdown resulted in escalating legal threats and demands as the commission attempted to force Actew to yield.

Dr Cooper's report questions whether the prices set last year were even valid.

She said Peter Hanks, QC, believed the prices were invalid because of the way they were set, a suggestion Chief Minister Katy Gallagher has rejected. But Ms Gallagher has agreed to introduce legislation to put the question beyond doubt and confirm the big reductions in prices that took effect last year - at least for now.

Dr Cooper reserved her strongest criticism for the pricing commission, finding it stretched its authority, departed from previous practices, lacked detailed guidance on procedures for setting water and sewerage prices, lacked planning and did not produce promised reports when it said it would.

The pricing commission billed Actew Water $2.36 million for the fumbled pricing decision. Actew Water says it spent $3.97 million of its own money on the process, bringing the total bill to $6.3 million for a pricing decision that now has a question mark over validity.

Ms Gallagher on Wednesday announced a complete review of the way water and sewerage prices are set in Canberra.

The pricing commission rejects most of the Auditor-General's findings, saying the system for setting prices does not need an overhaul and that Dr Cooper's findings are not substantiated.

The pricing commission rejected the suggestion by Dr Cooper that there should be new guidelines from the government on setting prices, and said it had made its own changes to internal processes.

Senior commissioner Malcolm Gray said he would respond to the report on Thursday.

The commission's decision on prices last year amounted to a saving of $83 a year for a typical Canberra household, made up of a 5 per cent increase in water prices and an 18 per cent cut in sewerage prices.

Actew Water appealed the decision but the appeal panel was never set up, given the auditor's investigation.

Treasurer Andrew Barr said on Wednesday he would now set up the panel so Actew's appeal against the price cut could be heard.

Dr Cooper found that Mr Barr himself had a conflict since, as Treasurer, he is a voting shareholder of Actew and he is also the minister responsible for water and sewerage price policy. For the pricing review, he not only set the terms of reference but made submissions for the government.

Dr Cooper said it would be prudent to eliminate the conflicts if possible, but the government rejected the suggestion, saying ministers had to balance multiple interests and there were safeguards in place.

Dr Cooper also found a conflict of interest in the roles of the pricing commission's chief executive, who also took on the role of "chief general counsel", advising the commission on the pricing process. He should not have assumed the role, she said.

Actew managing director John Knox said the report validated Actew's concerns and the view of its own consultant that the pricing decision was "close to the low watermark" in poor process.

Mr Knox called for Actew's appeal of the prices to be heard as quickly as possible, but said in the meantime the prices were valid.

Canberra Liberals treasury spokesman Brendan Smyth said the findings were ''damning''. ''The report is clear: Andrew Barr didn't do his job by providing insufficient terms of reference for the pricing process,'' he said.

''In failing to do his job, the Treasurer is responsible for the undermining of the whole process.''