By Simon Monk
The energy watchdog believes the "big six" power suppliers should have to sell off a fifth of their electricity output in order to break their market "stranglehold".
Regulator Ofgem has accused the major suppliers of failing "to play it straight" with consumers.
The body has given them eight weeks to comply with a number of radical plans to overhaul the industry, or be referred to the Competition Commission.
One part of the reforms on the table is cutting the number of tariffs suppliers offer to avoid confusion over price.
The watchdog also wants to improve transparency by appointing an independent accounting firm to investigate the suppliers' books.
An additional investigation into Scottish Power's standard credit prices has also been launched.
Ofgem launched its review in November after it emerged that price hikes had seen suppliers' profit margins soar by 38 per cent.
Ofgem said that, for the first time, it had evidence that the big six - British Gas, E.ON Energy, EDF Energy, Scottish Power, npower and Scottish & Southern Energy - had pushed up prices in response to rising costs more quickly than they reduced them when costs fell.
The regulator found that average industry margins on a standard dual fuel tariff rose to £90 in November, from £65 in September.
Following publication of the findings, Ofgem chief executive Alistair Buchanan said: "Consumers must have confidence that energy companies are playing fair at a time when they are being asked to foot the £200 billion bill to pay for the investment Britain needs to ensure secure and sustainable energy supplies."