The EU executive wants member countries to phase out regulated electricity and gas prices, which it says discourage companies from exploring cheaper, more efficient options and other companies from entering the market.
The resulting lack of competition prevents the consumer from getting the best deal, said the report. Subsidies on gas and electricity prices also generate debts, which then fall back on taxpayers, it said. The report found that a total of 18 EU countries currently regulated retail energy prices.
The Commission says that EU consumers could save billions if they switch to the cheapest tariff available, but only one third of customers actually compare tariffs.
The report urged member states to uphold the right of consumers to switch suppliers in three weeks without incurring financial costs, and for member states to carry through the roll out of smart meters.
Households in Belgium and the Netherlands have been testing a bargaining plan in which they collectively switch to the supplier that offers the best rates, EurActiv reported earlier this year.
There is some evidence the plan is catching on in other EU countries, with the BBC reporting last week that the UK group Consumer Focus has begun advocating collective switching.
The communication urged EU member states to expedite their transposition and implementation of the existing energy market rules, since the deadline had passed 20 months ago, in March 2011.
The EU executive said it would pursue infringement procedures against countries which have not implemented the third energy package, calling on member states to “vigorously” enforce competition rules to ensure a level playing field across the EU market.
In September, the Commission said it had opened such proceedings against the 18 countries which had not adopted the regulation.
Nine countries currently do not regulate retail energy prices, in line with the third energy package - Austria, the Czech Republic, Germany, Finland, Luxembourg, the Netherlands, Slovenia, Sweden, and the United Kingdom.
Countries failing to comply would be referred to the European Court of Justice, an EU official told EurActiv.
In September the Commission also announced it had opened an investigation into suspected anti-competitive market practices by Russian energy giant Gazprom.
The Commission aims to complete the single energy market by 2014 but has expressed worries that EU countries are not on track to meet the target.
Energy Commissioner Günther Oettinger told businessmen and diplomats 29 September: "I have to be quite open with you. I have some doubts as to whether the goal is achievable by that deadline."