The energy supply industry has agreed to a demand from the regulator Ofgem to set up an ombudsman service to rule on disputed bills.
The ombudsman will have the power to settle billing complaints
The new Energy Supply Ombudsman will be able to settle disputes and award customers compensation of up to £5,000.
Energy companies will no longer be able to recover charges if they fail to send a bill for more than two years.
Ofgem asked the industry to deal with complaints better after it completed an enquiry into billing last year.
The Ofgem chief executive, Alistair Buchanan, said: "I am very pleased that the industry has taken steps to put its own house in order and has risen to our challenge to deliver a better service for customers."
The enquiry, first prompted by the watchdog Energywatch, did not find any evidence of systematic billing failures in the industry.
But it did find that when they occurred they could be very upsetting for customers.
In fact very few customers suffered any real hardship after being sent the wrong bills or those rolled up over a long period of time.
However the complaints - estimated at 0.07 per thousand customers each month - still led to 39,000 calls to the Energywatch last year.
It said at the time that incorrect bills were the single biggest cause of complaints about gas and electricity suppliers.
Adam Scorer, director of campaigns, said they were "right behind the idea".
But he warned the ombudsman risked being inundated with complaints unless companies "dramatically improve" their billing.
And the ombudsman would only work if companies "worked well" with the system.
"If companies don't play ball it could take three months of perseverance for a consumer to even get through the door.
"It will be intolerable if only the most complaint-literate, the most tenacious and the most astute consumers can use this service."
Last year the BBC reported the case of hundreds of Powergen customers in East Anglia who had been sent grossly exaggerated bills.
The company eventually admitted that they had suffered "frankly appalling" service from its call centres.
From 1 July, companies will no longer be able to send bills stretching back further than two years and from July 2007 that will be cut back to just one year.
The Ombudsman, Elizabeth France, will also deal with complaints about customers transfers.
These have produced many thousands of complaints since the energy supply business was opened up to competition in the 1990s.
They have often been the result of firms - or their recruitment agents - trying to poach each other's customers without their agreement.
The new Ombudsman service will be free to those making complaints.
But they will first have to try to resolve their problem with their gas or electricity supplier.
Only if they cannot do this will the case be considered by the Ombudsman.