"We are at a crucial decision point in relation to Australia's energy reforms," Parer said in a statement.

"It we do not choose wisely we will see ourselves moving backwards. It is clear that important steps now need to be taken to achieve a truly national and efficient energy market."

The Electricity Supply Association of Australia said the report highlighted that all governments needed to co-operate to address such conerns or future investment worth billions of dollars would be threatened.

But the report also prompted criticism from some parties, such as the Australian Competition and Consumer Commission, the New South Wales government and the renewable energy sector, while state ministers called for more time to review the report.

ACCC Chairman Allan Fels said a single regulator to replace the energy functions of the ACCC, National Competition Council, state regulators and the National Electricity Code Authority would go against international trends.

"Furthermore, a single agency approach is also contrary to current Commonwealth practice," Fels said.

TOUGHER MERGER CONTROLS

The review panel was critical of the New South Wales Electricity Tariff Equalisation Fund (ETEF), a wholesale market mechanism that underpins regulated retail prices.

The three New South Wales generators also held clear market power which, when combined with the ETEF was responsible for power price spikes in May and June, Parer said in a briefing.

"Other states may have similar issues to review but none have the same dominant price setting role in the NEM as do the New South Wales generators."

New South Wales Energy Minister Kim Yeadon said the state would continue to offer regulated retail prices and reiterated the state would not privatise its generators.

The report highlighted the potential risk of generators within the electricity market using their power to boost prices and called for tougher merger guidelines.

It said there must be an overhaul of electricity transmission planning and the National Electricity Market Management Co should be given new responsibilities for management of market rule changes and transmission network planning.

It said power users should be able to bid directly into the market and demand side participation should be encouraged by removing price caps and introducing improved metering.

For the gas market, the review called for improved pipeline regulation and improved competition between the companies working in joint ventures to supply gas from the major producing fields.

Parer said a "separate marketing of gas" from existing fields serving the east coast would be desirable as contracts expire.

The report said an array of greenhouse gas abatement measures should be replaced with a national emissions trading regime.

The Australian Business Council for Sustainable Energy said scrapping the mandated target would put at risk A$4 billion in potential annual sales.

The Federal Government said it would provide its initial response on November 25, with the review panel requiring comments by December 6, ahead of delivering a final report on December 20.