A federal court has blocked efforts to cut power price rises which will leave households facing a 'price spike' that could run into hundreds of dollars a year, one consumer group has warned.

After protracted legal action, the Australian Energy Regulator lost on nearly all counts when it sought to restrain spending by power companies. It had argued that the NSW electricity distribution businesses - the poles and wires companies such as Ausgrid and Endeavour Energy - were inefficient.

The decision has national ramifications since it will affect the regulator's dealings with the power industry in all other states. It is also a windfall for the investors who have paid the NSW government billions of dollars to acquire control of Ausgrid and Endeavour over the six months or so.

Wednesday's decision by the Federal Court covers planned spending by the power companies between 2014 and 2019, with households to be exposed to substantially higher prices than would have been the case otherwise.

The cost of transporting electricity from power stations to households makes up around 40 per cent of the electricity bill, and it is this portion which has been at the centre of this prolonged legal battle as power companies sought to maximise their revenues, by spending up big on new equipment.

The AER had claimed the energy distributors in NSW were less efficient than their interstate counterparts, arguing that households should not be forced to pay for their poor management.

The original decision by the regulator to cut power prices was appealed to the Australian Competition Tribunal and the regulator subsequently appealed the decision of the Tribunal to the Federal Court, with the litigation dragging on since 2015.

The AER said the decision was "disappointing", saying it will now review its options, while refusing to rule out a further legal challenge.

Consumer groups have warned that households may need to brace for substantial price hikes as power utilities seek to recoup their higher costs.

"There is the risk of a 'price spike' as the delayed price adjustment is implemented," an official with one consumer group said.

"There is concern whether there will be a 'price spike' or whether steps already taken will limit that," Craig Memery, policy officer with the Public Interest Advocacy Centre said. "Irrespective, wholesale price rises already seen with gas and electricity are going to add hundreds of dollars to annual utility bills which a lot of households won't be able to afford.

"Not only will NSW households pay more following this decision; the precedent set will affect future decisions by the regulator, impacting households across the country."

Wednesday's court decision could add as much as $1.7 billion to Ausgrid's approved spending, industry sources said, which will have to be borne by households.

"We will need to assess future prices once the full effect of the court decision on the revenue of the distributors is clear," Ms Paula Conboy???, the head of the AER said.

Officials with power utilities said it will take some time before the extent of price rises is known.

"It is too early to tell what the impact will be on prices," an official with one of the power distributors said. "It will take time for the AER to determine what the outcome will be. We have also been discussing with the regulator rolling some of the pricing effects into the next determination period [that is, beyond 2020] to help smooth prices for consumers."

NSW energy minister Don Harwin rejected speculation of price rises, stating the government has guarantees in place to ensure prices charged by the distributors in 2019 are lower than in 2014. However this fails to take into account the decision to "smooth" price rises beyond 2019.

The head of the Energy Networks Association, John Bradley said consumers should shop around if they were concerned about prices rising.

"Any bill impacts ... are likely to be outweighed by the savings most customers could make today by shopping around for a better retail energy deal," he said.

The decision to block the regulator from forcing through price cuts is a boon to the new owners of Ausgrid and Endeavour Energy, which were sold recently by the state government, raising billions of dollars.

The regulator is also pressing for the government to change the way the pricing and spending plans of the energy distributors are regulated, since their ability to challenge AER decisions under a so-called 'limited merits review' has typically favoured the distributors.

"The 'limited merits review' is quite unique to Australia," the AER's Ms Conboy said. "There is no downside for the distributor to appeal a decision. The COAG of Energy Ministers has recognised the limited merits review is not delivering [for consumers]. We're waiting to see what COAG decides."