Xavier and Ava Bower, aged six and five, inspected the water coming from their home's special purple tap on Monday, trying to spot the difference.
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"It does smell a little bit more of chlorine than regular water," their mother Belinda Bower said. "But it doesn't look cloudy or brackish or anything like that.
"We've made them aware the purple tap was different. That they couldn't use it as drinking water or to put the sprinkler on to play outside."
The Bower family live in one of the 355 households in Chisholm that began receiving recycled water from Hunter Water on Monday.
The utility says it's the first time it has supplied reused water to residences.
Jim Bentley, the managing directer of Hunter Water, said the region first had been in the pipeline for "years".
The utility has connected its water treatment plants in Farley and Morpeth to several new housing developments in Chisholm and Gillieston Heights.
The 1,100 houses included in the scheme have separate plumbing systems for recycled water and potable water. The recycled system is denoted by purple tap fittings. The connection to 772 houses in Gillieston Heights will be switched on at the end of May.
"With every new development we take every opportunity we can to make drinking water use savings," Mr Bentley said.
"If they are in locations close enough to plants, it makes it feasible to look into these kind of opportunities."
Only certain parts of Chisholm's Waterford housing estate, where the Bowers live, are connected to the scheme. Some houses in the development have water tanks.
"I was surprised not everybody in the estate was getting it," Ms Bower said. "We're in quite an early part of the estate. This house is about eight to ten years old.
"I'm happy for any kind of recycling. I'm a teacher, so I've implemented recycling systems at schools as well. We'll be trying to use that water as often as we possibly can."
Hunter Water says its recycled product can be used for washing clothes, flushing toilets, watering the garden and washing cars. However, it cannot be used for drinking, cooking, showering, bathing or filling swimming pools.
The utility expects households will reduce their use of potable water by 40 per cent.
The recycled water costs 15 per cent less than drinking water. Hunter Water was already applying that reduced rate to the drinking water coming out of the purple taps before Monday's switch.
Mr Bentley said the program could be expanded to new developments in the future, depending on their proximity to treatment plants, population size and economic considerations.
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