Ofgem has unveiled plans to impose a cap on gas and electricity bills for the first time in ten years.
The energy regulator told the Independent that the UK's Big Six energy providers will face tougher action if they fail to overhaul their expensive and confusing tariffs this year.
One solution would be the implementation of price caps, a move that has not been used since 2002.
Explaining its plans, Ofgem said it believes competition in the energy market is the best way to drive down the prices paid by the UK's 22 million households.
However, the watchdog admitted: "We haven't ruled out regulation, particularly for more vulnerable customers, if our reforms don't work."
Industry body UK Energy said companies are looking "very closely at all the reforms proposed" while listening to feedback from customers.
Earlier this month, Ofgem research found that many consumers want the number of energy tariffs to be limited to ease the process of comparing prices.
Ofgem aims to simplify energy bills
22nd March 2011
The watchdog has criticised energy providers for the complexity of their invoices.
British Gas pledges to simplify gas and electricity tariffs
25th November 2011
Consumer Focus has welcomed plans from the energy industry to make tariffs easier to understand.
Energy suppliers must give more warning on price hikes
29th March 2011
Firms in the sector must inform customers at least 30 days before any price rise.
Co-operative Energy to cut gas and electricity bills by 3%
20th December 2011
Ethical provider Co-operative Energy will cut its prices from next February.