The city gets virtually all its water from that watershed. The Winter River-Tracadie Bay Watershed Association has been complaining that the city has been drawing too much. The Brackley branch of the river ran dry in July, six weeks earlier than it did last year, and a second branch ran dry this month.
DFO sent a letter to the city's water utility on Friday saying the dangerously low water levels are affecting the fish habitat.
"It is the opinion of DFO that the current rate of water extraction is an activitiy for which the City of Charlottetown may be in non-compliance," said the letter.
The federal department wants a short-term and long-term strategy from the city to tackle the problem.
The city already has its own concerns about water use. Last month Coun. Eddie Rice, chair of the city's utility committee, asked residents to pay more attention to how they're using water.
"The letter is no surprise. It's a fair letter, it's a serious letter," said Rice.
"That's a letter worthy of an answer. And it will be answered."
The city also started a rebate program last year to encourage people to install low-flow toilets. That program was extended into this year.
Despite those efforts, the letter suggests the city might be in breach of the Fisheries Act because it's not doing enough to conserve water, and therefore not doing enough to protect the fish habitat in the Winter River watershed.
The amount of water the city can take from the watershed is governed by a provincial permit, and the city is currently operating within those guidelines, though it is very close to the limit.
No one from DFO was prepared to speak with CBC, but the letter says Ottawa will move in with corrective action, including enforcement, if the city doesn't act.
City council met Tuesday night to discuss the letter.
Rice says the short-term solution could be to force water use restrictions on city residents. In the long term, Rice wants water meters on every home.
A decision on what to do next will come from city council within the next two weeks.
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