ELECTRICITY AFR PHOTOGRAPH BY GLENN HUNT 31082011.GENERIC- electricity , homes , energy, power.AFR USE ONLY

Overhaul … the heavy capital spending needed to upgrade the electricity network will top the cost of the national broadband network. Photo: Glenn Hunt

IT MUST rank as one of the most underwhelming reforms aimed at tackling rising power prices: merging three state-owned electricity distributors into one big company, and then using the savings to give rebates to households most exposed to rising power bills.

It's a bit like the old adage:Give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime.

If the NSW government wants to get serious about rising power prices, it needs to do more than just shuffle government-owned assets one more time and ''launch'' cost-cutting programs that were under way already.

Paying rebates does not resolve the underlying issue of the driver for rising power prices: the heavy capital spending to upgrade the electricity network, which will top the cost of the national broadband network.

Putting to one side the argument whether the spending is necessary, if the state government wants to get serious about reining in power prices, it needs to tackle the issue head on.

While it spins its wheels, the Productivity Commission has begun work to benchmark the productivity of electricity distributors. Victorian distributors, which have been privatised, argue the NSW industry is woefully inefficient, pointing to the lower spending programs in that state.

In their defence, the NSW operators say the state is much larger geographically than Victoria, and that this adds substantially to their operating costs. They also point to the rising density of much of inner Sydney, with demand for more tunnelling and the like, which adds significantly to costs.

Then there is the Australian Energy Market Commission, which is working on another important issue behind the soaring network spending: high reliability standards.

To avoid the possibility of a catastrophic blackout for several weeks, as happened in Auckland in 1998, and in recognition of Sydney being a ''global'' city, much of the spending is aimed at giving the city greater power security and reliability.

But now that the cost is coming home in terms of soaring household power bills, politicians have taken fright. And they have the backing of the likes of Rod Sims, the head of the competition regulator, the Australian Competition and Consumer Commission, who says reliability standards probably are too high. In fact, most of us can put up with the odd blackout.

At a time when the energy intensity of households is at record highs, with the steady rise in the number of home appliances and the demand for round-the-clock internet connectivity, it is odd that someone would advocate the occasional blackout as something we would tolerate. Imagine a blackout as we try to book that online flight, transfer funds or shop online.

Critics of the merger of the three distributors into a single unit say this will make it more difficult for future selloffs. But that is not the case.

When full power privatisation was discussed by the state cabinet, it was supported by the likes of the Transport Minister, Gladys Berejiklian - whom the Premier, Barry O'Farrell, would like to see replace him when he eventually steps down - and Mike Beard, his Treasurer, with whom he does not get on particularly well.

But do not be surprised if O'Farrell puts forward a privatisation proposal at the 2015 state election, to offer shares in the monopoly distributor to NSW investors.

Instead of simply selling the company to the highest bidder, to win over public support for what has emerged as perhaps the single most vexed issue in state politics in a generation, a sharemarket listing might just help to lance the boil, while at the same time helping to raise capital to fund the required infrastructure spending.

The funds from selling off Victoria's power industry in the 1990s helped finance large redevelopments such as the Docklands, and infrastructure lobby groups argue that freeing cash from selling electricity could help NSW in a similar fashion.

O'Farrell has his own agenda: he wants to break the long-standing perception that NSW is a Labor state, which is why he is moving cautiously on issues such as selling electricity assets, while pushing ahead with matters such as the north-west rail project, which makes lousy economic sense but which he thinks will guarantee his side of political seats in the city's north-west for the next several elections, at least, and help to break Labor's grip on the state.