Ofgem has released proposals asking firms to invest at least £25bn ($21bn) over five years to improve energy supplies to homes.
Under the watchdog's plans household energy bills could fall by an average of £20 as gas and electricity networks are overhauled.
A £3bn portion of the funding would be earmarked to make the UK’s energy infrastructure more environmentally friendly.
A further £1bn would be invested in energy.
Ofgem is ordering suppliers not to pass the cost onto customers saying they must halve the returns they make on their investments in the energy network.
The proposals could save consumers more than £3.3bn and create a “greener, fairer energy system for consumers".
Jonathan Brearley, Ofgem’s chief executive, said: “Now more than ever, we need to make sure that every pound on consumers’ bills goes further. Less of your money will go towards company shareholders, and more into improving the network to power the economy and to fight climate change.”
Energy experts have praised the plans but energy companies have hit back calling the proposals "half-baked."
Keith Anderson, chief executive at Scottish Power said: “Instead of investing more in creating green jobs and skilled apprenticeships in every community, at a time when the UK needs them most, this is a short-sighted return to austerity politics.
"Nobody benefits from this half-baked plan. It’s bad for jobs, bad for apprenticeships, bad for training and bad for the UK supply chain.”
And Rob McDonald, managing director of transmission at SSE, suggested energy companies may take action against the proposals.
He said: “At present the draft settlement does not strike the right balance for all stakeholders, and without significant changes during the consultation period, there is a real risk that the critical investment in Britain’s electricity networks will be unnecessarily slowed down by an appeal process via the Competition Markets Authority, which is not in any stakeholders’ interests.”