Treasurer Scott Morrison has urged AGL to get "fair dinkum" with Australians by considering an offer from Alinta to buy the Liddell power station.
Mr Morrison raised concerns AGL was not acting in the national interest by refusing to sell the power station, which is expected to close in 2022.
"We want to see them seriously consider a private sector proposal for someone else to own that asset," he told ABC TV.
"If they are fair dinkum - and they have got to be fair dinkum - with the Australian people they should give it fair dinkum consideration."
Energy Minister Josh Frydenberg dismissed calls from former prime minister Tony Abbott to nationalise the coal-fired power station in the NSW Hunter Valley.
"The party that Sir Robert Menzies founded was one of small government and pro-markets, not of nationalisation and the dead hand of socialism," Mr Frydenberg told ABC radio.
"The market can deliver better outcomes."
He said while the government's national energy guarantee will address reliability issues in the energy grid, keeping Liddell open would help soaring power costs.
Prime Minister Malcolm Turnbull wants Liddell stay open until 2025, when Snowy Hydro 2.0 is online, to ensure there is no gap in power availability.
He is encouraging AGL to sell the power station to Alinta, in order to keep downward pressure on power prices.