The move has also put the state government's plans to privatise the companies - including both the timing and the potential sale price - up in the air.

Networks NSW, the arm of the state government that runs the electricity distributors Ausgrid, Essential Energy and Endeavour Energy, said it would  issue a legal challenge to a recent regulatory ruling to impose heavy spending cuts on the companies.

The network companies argue the cuts would lower service standards.

They also said that regulators had made no allowance for a a heavy round of job losses that would come as a result of the cuts. As many as 2750 jobs are under threat.

Networks NSW said it did not believe the Australian Energy Regulator, had followed the National Electricity Rules in making its determination.

"The three networks will not appeal the $731 million cuts to capital expenditure included in the AER's final determinations,"  chief executive of Networks NSW Vince Graham said.

"We will, however, appeal the average annual cuts of $324 million to operating expenditure due to the impact on vegetation and bush fire risk mitigation programs across the state and the AER's decision not to provide a workable transition plan to implement continuing efficiency improvements.

Mr Graham said the benchmarks used by regulators were questionable.

"We believe the AER has made serious material errors in its final determinations including the use of flawed and unreliable benchmarking to justify cuts to operating expenditure. These cuts to forward operating expenditures are compounded by the AER's decisions to retrospectively cut $876m in revenue from this year's budgets ten months into the financial year."

The networks companies will also challenge the interest rate assumption which lies at the heart of the ruling, which it argues has been set at too low a level.

Regional utility ACTEW/AGL has already said it would to appeal the recent AER ruling which has imposed spending cuts as well.​

The spending cuts imposed by the AER were expected to lead to savings averaging $165 for the typical customer of Ausgrid in the first year, $313 for customers of Essential Energy, who mostly live in rural areas, and $106 for customers of Endeavour Energy.

Industry sources said the appeal process is not likely to be finalised until the end of the year, which will delay until well into 2016 the finalisation of the sale of the first of the distributors, which is expected to be Ausgrid.

Any reduction in the level of the price cuts would help to boost the value of the assets to be sold, financial analysts have said.