Energy companies making £125 profit from each customer
The profit margin for energy companies has shot up to £125 per customer, from £15 in June.
This is the amount energy providers would make if energy prices and bills remain the same for the next year.
Ofgem, the energy watchdog, has said this figure should fall back to around £90 next year for each customer.
It also said energy companies must make tariffs simpler to understand so it is easier for customers to compare prices.
No frills tariffs
For customers wanting a 'no-frills' tariff there should be one standard charge for energy units used. Those wanting a more complicated deal should be protected from price hikes within a fixed-energy tariff.
There should also be further regulation with regards to bills, annual statements and notice of price increases to promote further transparency across the energy market and make it fairer for consumers.
Full details of the proposals will be published next month and Ofgem says it hopes to implement these changes in time for winter 2012.
Following recent price hikes by all the Big Six energy companies, the average dual-fuel bill is now £1,345 per household.
Chief executive for Ofgem, Alistair Buchanan, says: "When consumers face energy bills at around £1,345 they must have complete confidence that this price is set by companies competing in a fully competitive market. At the moment, that is not the case. That is why a radical break with the past is needed.
"Ofgem's tariff reforms offer the quickest way to create a market where consumers can have confidence that prices are set by effective competition. Suppliers have told Ofgem they want to restore confidence in the industry and now they have the chance to do so."