Household power bills will go ''through the roof" after the O'Farrell government lifts a cap on electricity prices, the state opposition has warned.
Labor says the O'Farrell government's announcement on Monday that the Independent Pricing and Regulatory Tribunal would no longer set power prices removes a safety net that ensures electricity consumers get a fair deal.
But the stance is at odds with federal Labor's position in government, when it said NSW must find the ''political courage'' to deregulate electricity prices to stop power bills soaring.
Premier Barry O'Farrell said deregulation would increase competition in the energy market and push down prices for more than 1 million electricity customers.
''From now on, retailers will need to work harder and offer better deals to win customers,'' he said.
The decision affects about 40 per cent of electricity customers - those on standard contracts, where the price is set by IPART.
The remaining customers are on market-based contracts and can shop around for the cheapest deal.
The deregulation process will begin on July 1. The government says IPART will continue to monitor the electricity market. However, it would not commit to reintroducing controls if its reform does not lead to more competition or lower prices for consumers.
Labor leader John Robertson said energy companies could now charge families ''whatever they want'' and deregulation had failed in other states.
''South Australia has the highest electricity bills, on average, in the country and prices have risen in Victoria,'' he said.
A spokesman for Energy Minister Anthony Roberts said that since 2009, the average Victorian competitive market price has increased less than the NSW regulated price. He said the South Australian market was only deregulated a year ago and it was too early to measure the reform's success.
In late 2012, federal Labor's then minister for resources and energy, Martin Ferguson, said retail price deregulation allowed more competition and easier switching between electricity retailers. He called on the states to find the ''political courage'' to deregulate the market.
Consumer watchdog Choice said the main cost drivers of electricity bills were infrastructure costs, such as upgrading poles and wires. Mr O'Farrell has said he does not intend to take a policy to sell the poles and wires to next year's election.
A Choice survey in 2012 found that a third of consumers who had joined their retailer in the previous three years had tried to compare providers but found it too difficult.
Public Interest Advocacy Centre chief executive Edward Santow said well-implemented deregulation should lead to lower prices. But he called on the government to review fees charged by retailers and concessions and rebates for households struggling to pay bills.
The NSW electricity market is dominated by Origin Energy, EnergyAustralia and AGL.
A report by the Australian Energy Market Commission last year found households could be as much as $400 better off a year if they moved to market-based electricity contracts. It said there was enough competition in the state's energy markets for price controls to be removed.