The parliamentary inquiry into the government's electricity assets sale revealed yesterday smelter owner Hydro is considering legal action against the government-owned Delta Electricity for compensation after Delta was prevented from signing a 10-year power contract with Hydro.

Any compensation would further eat away the proceeds of the power sale, and could potentially cost hundreds of millions of dollars.

On November 5, the government's electricity reforms steering committee blocked Delta from signing the contract to help ensure higher bids for the electricity assets.

Hydro executive Trevor Coombe said the company wrote to Ms Keneally on November 26 to warn the blocked deal had wasted two years of negotiations and jeopardised 800 smelter jobs, thousands of indirect jobs and about $130 million a year in flow-on benefits to the Hunter and investment in the smelter.

Hydro also sought urgent meetings with either the Premier or Treasurer Eric Roozendaal.

But there was no meeting nor assurances nor an explanation as to why the contract wasn't signed, given a heads of agreement between Hydro and Delta, Mr Coombe said.

Instead, the first communication came yesterday when Labor MP Luke Foley read a statement Ms Keneally's office had issued about 10 minutes before the hearing.

It said the government had written to Macquarie Generation instructing it to enter into negotiations with Hydro for a new long-term power contract, following a cabinet decision last week to abandon further privatisation.

The Premier "vowed to do everything in her power" to protect smelter jobs.

Earlier, Hydro managing director Alberto Fabrini said it had halted plant upgrades and might be forced to stop maintenance spending, which could leave the plant uncompetitive and at a "point of no return" within three years.