NSW Premier Barry O'Farrell says his government has no intention of slashing hundreds of millions of dollars in dividend payments from state-owned power companies.
The opposition blames the dividend payments for spiralling power prices.
In his audit of the government-owned electricity sector, released on Wednesday, Peter Achterstraat said dividends paid from the seven government-owned electricity corporations had risen to $866 million in 2011/12 - up $230 million on the year before.
Once taxes were included, the power companies' contribution to the government was $1.4 billion last financial year, while their after-tax profits rose $100 million to $1.2 billion, the state auditor said.
NSW Opposition Leader John Robertson said the government had forecast taking a further $1 billion in dividends this year, and again accused Premier Barry O'Farrell of breaking a promise to cap payments.
"We've got a government that promised to freeze dividends, and this financial year is gouging a billion dollars out of these electricity distributors," Mr Robertson said.
"That's putting upward pressure on electricity prices and that's what's pushing families over the edge when it comes to paying their bills."
But Mr O'Farrell said the government had promised to cap dividend payments at the rate forecast by the former Labor Government - and had so far taken less than those predictions.
A $5.2 billion drop in GST revenues from Canberra made it impossible to cut dividend payments further, he said.
"Understand this, dividends, like other state revenues keep schools, hospitals and police stations operating," Mr O'Farrell said.
"If we were in a position to reduce taxes and dividends, we would, but we need to keep our hospitals operating, our schools functioning, and our police stations open."
Mr Achterstraat said electricity customers were paying for excessive overtime at three of the state's power distributors: Ausgrid, Endeavour Energy and Essential Energy.
Ausgrid paid more than one million hours of overtime last financial year, with 865 workers paid 50 per cent or more of their base salary.
One worker was paid more than $180,000 in overtime, almost double their $97,000 salary.
At Essential Energy the number of those earning 50 per cent or more of their salary in overtime payments was 200, and at Endeavour, 34.
"Excessive overtime is not good for employees' health and it is not good for the customer's wallet," Mr Achterstraat said.
"It may well be that the distributors could re-look at the work practices that were introduced some time ago, to see if they're still relevant for 2012."
Mr Achterstraat also urged the three distributors and transmission company TransGrid to avoid so-called gold-plating of the electricity network, which has been one of the major causes of the 80 per cent increase in prices over the past five years.
He said while wholesale prices had decreased, retail prices had increased, partly because of excessive spending on poles and wires.
"The wholesale prices are down, down, down, but the retail prices are up, up, up," he said.
Mr O'Farrell said government reforms to the power sector would see overtime payments cut by one-third over the next two years, while also "getting rid of the gold plating that's been the cause of so much of the price increase in the past".