Fiasco: electricity consumers will end up paying more thanks to a decision by a tribunal to overturn the electricity regulator's price cuts. As publicly-owned natural monopolies, much like Telstra's copper wire network used to be, the price electricity networks can charge has long been set by an independent regulator. It used to be the Independent Pricing and Regulatory Tribunal (IPART) in NSW, and today it is the national Australian Energy Regulator (AER). Every five years, much like Stalin used to do, the regulator comes up with a determination on how much revenue the networks should be allowed to recoup from customers to cover their efficient costs, plus a reasonable profit. Note the emphasis on "efficient" there.

Devoid of any competition, and left to their own devices, networks could in theory charge as much as they wanted for delivering their service. They could be fat, lazy and over-invest in infrastructure, so-called "gold plating" of networks. Consumers would end up paying highly inflated prices and the economy as a whole would suffer. State governments might find themselves complicit, more inclined to turn a blind eye to the excessive costs imposed on households so they could keep collecting supercharged dividends to fatten their budgets. In fact, that's a pretty good description of exactly what has happened over the past decade, when electricity prices doubled.

In response, the national electricity regulator was given increased powers to take a more nuanced approach to setting prices, which took into account how the efficiency of Australia's electricity networks compared to a benchmark of international networks. The comparison was not a pretty one. Australian networks, and NSW networks in particular, emerged as some of the most bloated and least efficient in the world. The electricity regulator responded last year, slashing the amount the NSW networks would be allowed to recoup from customers by billions of dollars over five years. This would have delivered households a $100 to $300 annual saving, depending on their network. Retaliation from the networks was swift. Amid wild threats of massive job losses and increased bushfire risks, they lawyered up, taking the regulator to the Australian Competition Tribunal seeking to have it overturn the decision. A legal fee feeding frenzy ensued. Pretty soon, the networks had engaged all the top silks in Sydney, forcing their opponents, the Public Interest Advocacy Centre, to fly barristers in from Melbourne to mount the case that consumers should pay even less than the regulator had determined.

More than 40 barristers assembled in a Phillip Street court for three weeks of hearings last year. Together they threw thousands of pages of submissions and evidence at the tribunals' three members: a judge and two economists. No doubt the tribunal members assessed the evidence before them carefully, and to the best of their ability. But it is it any wonder that, under such an onslaught, they ultimately ruled last Friday in favour of many of the network's grievances? The effect of their 300-plus page judgment is that the regulator must go back to the drawing board on the way it determines allowable revenue. Instead of benchmarking networks against an international benchmark, revenue must be determined on a "bottom up" assessment of costs.

Whereas the regulator had pointed the finger at enterprise bargaining contracts signed by the networks and unions as too generous, the tribunal has ruled all those costs as given. So too, where the regulator had deemed contracts signed by the networks for maintenance of vegetation around poles and wires as excessively priced, the tribunal says the costs are allowable in full. Where the regulator had tried to apply "incentive regulation", designed to squeeze the networks to curtail costs, the tribunal's decision essentially green lights a "cost of service" methodology, in which all costs incurred, however inefficient, can be passed on to customers. The bottom line is that you will end up paying more for electricity. It's not clear exactly when the bill shock will hit. The tribunal's judgment is so complex, it will likely take the regulator at least a year to come up with another price determination. We are already two years into the five year pricing period, so any increase in costs will have to be recovered by large increases in electricity prices, possibly as soon as July 1, but more likely heavily back loaded in years to come. Worse, there is nothing to say the networks won't simply haul the regulator back to the tribunal for an even more favourable decision. An extraordinary situation now exists where the national electricity regulator is effectively subordinate to a three-member tribunal.

And the best bit? Because the networks are still government-owned, taxpayers have been picking up the legal bill for this fiasco. And we call this capitalism?