The Environment Protection Authority (EPA) has fined Central Highlands Water almost $6,000 for allowing sewage to spill into Lake Daylesford last April.
The spill occurred on Easter Sunday, when alarm systems at a sewer pump station failed to warn of a sewage overflow for about two hours.
The EPA's Wayne Robbins says a large amount of sewage leaked into the lake during that time.
He says the health risks caused by this were significant.
"Well obviously a sewage spill isn't pleasant," he said.
"[There is] visual and odour impact and potentially health risks in terms of E. coli and fecal contamination."
