The revelation has prompted the state's peak welfare agency to call for a review of the rebate system as millions of dollars in assistance are going unused.

The Family Energy Rebate was introduced in July 2012 and was to be funded from savings flowing from the creation of Networks NSW to run state-owned electricity companies Ausgrid, Endeavour Energy and Essential Energy.

Families eligible for the Commonwealth's Family Tax Benefit Part A and B can apply for the rebate, which began at $75 and rose to $125 in 2013-14 and to $150 this financial year.

About 540,000 NSW families are eligible for the rebate, but since its inception the take-up rate has been well below expectations.

In 2012-13, the government budgeted for $12.5 million in rebates, but spent just $5 million. This equates to about 67,000 families or just 12 per cent of those eligible.

In 2013-14, the government increased the amount it budgeted for the rebate to $18.9 million. But budget papers reveal it again only paid out $5 million in rebates – an underspend of $13.9 million for the financial year.

The government has now cut the amount it estimates it will pay in rebates in 2014-15 to $13.5 million.

On Monday, Energy Minister Anthony Roberts said 49,178 applications for the rebate have been received for 2014-15, with 28,858 applications approved.

This was an improvement of 109 per cent on the same period in the previous financial year after the government began promoting the program through schools and childcare centres.

But the Council of Social Service of NSW (NCOSS) called for a review of the rebate system, slamming it as "poorly targeted" and "too difficult to access". Applicants must apply annually after receiving their family tax benefit.

"Millions of dollars in available assistance are going unused and aren't reaching the right people," said NCOSS chief executive Tracy Howe.

Residential disconnection rates for non-payment in NSW rose 32 per cent to 33,000 in 2013-14. This meant twice as many NSW families had their power disconnected last financial year compared with five years ago.

Ms Howe said the government should combine the Family Energy Rebate and the Low-Income Household Rebate into a new energy rebate calculated as a percentage of a household's bill.

Asked where the $22 million budgeted but not spent on the rebate since 2012 has gone, Mr Roberts said Treasury decides where estimated funding not used is re-allocated.

"The budgeted amount for the rebate is an estimate," he said. "Further funds will be released as required to ensure no eligible applicants will miss out."