Updated December 04, 2018 14:15:11

Photo: Prime Minister Scott Morrison and Energy Minister Angus Taylor have vowed to implement energy policies to bring down electricity bills. (ABC News: Marco Catalano)

The Federal Government has watered down its plans to break up power companies, following backlash from business and backbenchers.

Prime Minister Scott Morrison had heralded the so-called "big stick" policy as the government's answer to rising power prices.

His government had planned to introduce legislation that would allow the Treasurer to force energy companies to divest assets if he felt they were manipulating the market.

But the government on Wednesday diluted the laws, after energy and business lobby groups warned the divestiture powers were too extreme, and could fall foul of the Constitution.

The ABC understands some Liberal backbenchers were also concerned the Treasurer would preside over the proposed powers, with one Liberal MP saying the original proposal ran contrary to free market principles.

The government's new legislation will instead allow the Treasurer to compel companies to sell off assets, but only with the approval of the Federal Court.

"When it comes to the wholesale market and misconduct there, where energy companies deliberately manipulate the market to distort prices, there will be a power of divestment," Treasurer Josh Frydenberg said.

He said the laws had "very strong support" from the party room.

"This policy is the product of proper consultation and feedback and input," Mr Frydenberg said.

"This is about putting in place the right checks and balances. We now have a court order requirement around divestment — that is important.

"We are determined to prohibit misconduct in the energy sector."

The Government will introduce the legislation to the Parliament this week but it is unlikely to be voted on before the summer parliamentary break.

Turnbull urges former colleagues to bring back 'vital' NEG

The Coalition has been struggling to land on an energy policy since the National Energy Guarantee (NEG) was dumped in August.

Former prime minister Malcolm Turnbull and Mr Frydenberg, the then-energy minister, championed the NEG, which aimed to deliver cheaper and more reliable power while also reducing carbon emissions.

The NEG was supported by the Liberal party room on multiple occasions but was dropped in August, just days before Mr Turnbull lost the leadership, after some Coalition conservatives continued agitating against the policy.

"The challenge is that in the Coalition there is a huge gulf between members, people, on their views on energy. There is a significant percentage of Coalition members who do not believe climate change is real," Mr Turnbull said while speaking at an energy event in Sydney on Wednesday morning.

"You have a very entrenched difference of opinion, and the people who hold those views, as you saw with the NEG, are prepared to cross the floor and blow up the government in order to get their way."

Liberal MP Julie Bishop, the party's former deputy leader, announced last week that she wanted her party to revive the NEG.

Her comments came after Labor announced it would adopt the NEG as part of its pledge to throw billions of dollars at renewables.

Mr Turnbull said he "regretted" shelving the NEG, which he described as a "vital piece of economic policy", and called on his former colleagues to revive it.

"There was a minority of Coalition MPs who effectively torpedoed what was a very good, technology-agnostic policy," he said.

"I just want to note I did not abandon the NEG as our policy, it remained. But in the frantic last week of my prime ministership and the insurgency that undermined it and brought it to an end, the Cabinet resolved not to introduce the legislation until we were confident we could secure its passage."

Topics: government-and-politics, liberals, federal-government, electricity-energy-and-utilities, industry, australia

First posted December 04, 2018 14:01:21