In a speech yesterday, and in a letter sent to the premiers, Ms Gillard said the market system had failed to strike the right balance between affordability and reliability of supply.

She said the states must give consumers more information, such as when they were using peak power and cheaper, off-peak power, so they had more control over how much they paid. The Prime Minister warned the states to stop price gouging by over-investing in poles and wires and adopt more efficient investment practices.

Over-investing, known as ''gold-plating'', causes power prices to spiral to fund increased dividends to the owners which, in the case of NSW, is the state government.

Ms Gillard cited the NSW government as the chief culprit as she threatened to give greater powers to the Australian Energy Regulator, and the Australian Competition and Consumer Commission, to restrict price rises.

''It's a stick we hold and which we'll use if required,'' she said.

The NSW government accused Ms Gillard of trying to distract from the impact on power bills of the carbon price and noted she was silent when state Labor was gouging consumers.

''The best way to stop prices from rising is to scrap the carbon tax,'' the state Energy Minister, Chris Hartcher, said. ''Today's speech is nothing more than a smokescreen designed to shift attention away from her wrecking ball of a policy.''

Tony Abbott called the speech ''a total political own goal''.

''If she was serious about reducing the cost of living pressure on Australian families, her speech today would be about abolishing the carbon tax. Or at least putting it on hold,'' he said.

The Energy Minister, Martin Ferguson, was to deliver yesterday's address but Ms Gillard took over to give the message more clout. The carbon tax began on July 1 and Ms Gillard needs to counter perceptions that the carbon price is the prime villain.

She pointed out power prices in NSW over the past four years had risen by 69 per cent, which had nothing to do with the carbon price. This year, the increase in NSW is 18 per cent, half of which is due to the carbon price. But she said low and middle-income earners were being compensated for the carbon price impact.

''The bad news is, today, Australians are paying more than they should for electricity because of the price rises that have come without a dollar of assistance,'' Ms Gillard said.

Mr Hartcher said the Prime Minister's threat to increase regulation was hollow because the Australian Energy Regulator already approved the prices charged for using poles and wires. But the regulator operates within a constrained framework, which the state regulator, the Independent Pricing and Regulatory Tribunal, complained recently, limited the ability of the federal regulator to keep the prices low. Furthermore, the appeals process favoured the network owners.

Ms Gillard said the states must agree to a series of measures at a Council of Australian Governments meeting in December or face tighter regulation. She dismissed an industry complaint that the market should be allowed to operate free of regulation. ''This is a market failure,'' she said.