A report for the city of Winnipeg says substantial rate increases are necessary for water and sewer services and should start with an immediate 2.7 per cent hike.

The city report says that over the next 10 years, water bills could jump a total of 12 per cent. Sewer rates, the report says, could rise 32 per cent.

The extra money is needed to cover rising operating costs and demands from the province to meet a variety of environmental standards.

But a showdown with provincial authorities may be looming, as city managers don't believe some environmental restrictions are necessary.

"The city maintains that, in keeping with the best scientific advice it has received, phosphorus removal is key to improving conditions in Lake Winnipeg, where the treated water flows. But nitrogen removal is not beneficial," the city said in a news release issued Friday.

The city says the capital costs associated with new nitrogen removal equipment would amount to $350 million.

The report will be before a committee of city council next week.

Any rate increases would need final approval at a full meeting of city council.

The first increases are suggested to be effective on Jan. 1.

The city said a typical residential customer would pay an extra $21.22 over the course of the year compared with 2009, if that increase went ahead.