Energy watchdogs today gave the energy supply industry notice to end practices that are failing some households and proposed measures to ban unfair price differences.
Ofgem said electricity and gas firms should stop penalising consumers for paying by different methods under proposals outlined in findings from a seven-month inquiry.
But today's report found that while some consumers were missing out on the full benefits of competition, the market was working well for most.
It said it found no evidence of an energy supply cartel and that consumers have benefited from lower prices, better service and a range of deals since the gas and electricity market was opened up to competition 10 years ago.
However, Ofgem said it was concerned for more than four million customers without gas supply who have no access to the best deals.
And it found the price difference between paying by pre-payment meter and direct debit had surged from around £80 in 2005 to £118, while the difference between paying quarterly and by direct debit had doubled to £80.
Ofgem is also proposing tougher rules on doorstop selling and is pushing for more transparency in energy company financial reporting and better information to help consumers get the best deal.
The report raised concerns over potential "sharp practice" in supply to the small business market, with unfairness in contract terms.
Ofgem warned that if the industry failed to deliver, it could refer the market to the Competition Commission.
Alistair Buchanan, Ofgem chief executive, said: "These are hard times and we are taking a hard line on behalf of disadvantaged consumers.
"We accept that global influences are pushing up costs but the suppliers must change their behaviour and cement consumer confidence."
The report also looked at the wholesale market and the need to remove barriers to new entrants, with small suppliers flagging up difficulties in buying electricity at competitive prices.
Ofgem is now considering the need for new powers to guard against market abuse in the wholesale industry.
It said the findings would be open for consultation until 1 December.
Sarah Harrison, managing director of corporate affairs for Ofgem, told GMTV: "We have looked at this market very closely now for six months and we have found no evidence of cartels operating nor have we found evidence that suppliers have pushed through price increases recently that are above the underlying wholesale costs, that is the cost of power and gas."
Paul Kenny, general secretary of the GMB union, said: "Ofgem has found evidence that the energy companies are overcharging their customers, but it does not have the power to stop them doing this.
"We need to get back to the position where the regulator can cap prices and stop them ripping off consumers."
But Mrs Harrison added on GMTV: "What we have found is that while the markets are working overall well for most customers, there are some failings and those are the things that we want to attack with the proposals that we are putting out today.
"In particular, some of the failings are where suppliers are charging customers above the cost of actually serving those customers.
"To give you an example, there are around about four million households who take electricity alone, they are not on the gas grid, so they cannot access some of the cheaper dual fuel deals.
"Suppliers are really charging those customers above the underlying costs. That is what our specific measures today are designed to tackle.
"We want to see new licence obligations on energy suppliers that are going to make sure that price differences are much fairer."
An Ofgem spokesman said the customers who took electricity alone and were not on the gas grid were found in parts of northern Scotland, parts of Wales and rural England.
The investigation follows a series of hefty price increases in gas and electricity, with concerns raised earlier this year after the the big six suppliers hiked tariffs at the same time.
A business and enterprise select committee group of MPs said in July that the energy market needed urgent reform.
It urged the Government to overhaul its fuel poverty policy and called on Ofgem to look at introducing price controls if suppliers did not narrow the gap between direct debit tariffs and standard credit and prepayment meters.
The higher charges imposed on those with pre-payment meters has led to growing fears that those most at risk of fuel poverty are being penalised the most.
Martin Narey, chief executive of children's charity Barnardo's, said: "Millions of vulnerable families and children will be left hungry and cold this winter unless the Government and energy companies act now to support people in fuel poverty.
"Today's Ofgem report clearly highlights the scandalous practices followed by energy companies which see poorest customers paying the most."
But Ofgem stressed today that competition alone could not protect consumers from price rises.
It said the spiralling cost of oil, gas and coal were driving the consumer bill increases.Reuse content