Contact Energy was putting prices up an average of 3.2% because of the ETS, but in the Dunedin area the percentage price rises were in double figures, Mr Key said.
"That can't possibly be justified on the back of an emissions trading scheme, and for a company to blame the emissions trading scheme for that sort of price increase is quite incorrect.
"I would caution companies to make sure they don't start blaming the emissions trading scheme and use that as a reason to raise prices if it's not justified," he said.
Contact Energy spokeswoman Louise Griffin said the company had assessed the impact of the ETS and would increase charges for natural gas, lpg and electricity to reflect the increasing cost of energy.
For an average residential customer using 8000 kilowatt hours of electricity and 8000 kilowatt hours of gas per annum, this would mean an increase of around $62.37 for electricity and $21.87 for gas per annum, or just over $5 a month for electricity and just under $2 per month for gas, she said.
"The reason for the bulk of the increase in Dunedin is not related to the ETS.
"It reflects the increasing cost of generating electricity, building new power stations, purchasing gas and providing retail services to customers.
"While individual increases will vary, the average increase for our Dunedin customers will be approximately 6% [excluding the 3.2% ETS increase].
Ms Griffin said Contact did not take price rises lightly, and the company was unable to hold Dunedin's prices at present levels.
"We have not moved prices in Dunedin for 20 months, and we've moved other regions earlier this year for the same reasons."
Some companies have signalled retail price increases after July 1 as a result of the ETS coming into effect while others have not.
Climate Change Minister Nick Smith has spoken about watching how power companies respond to the ETS and said if the Government had reason to believe retail prices were going up unfairly, it reserved the right to hold some form of inquiry.
