Npower will pay £3.5 million to vulnerable customers after regulator Ofgem found it had mis-sold energy contracts to customers on doorsteps and by phone.

Between 2009 and 2012, Npower did not properly estimate how much energy customers used, and and sales staff assumed people were on expensive standard tariffs from rival firms. (Use Cheap Energy Club to check you're on the cheapest deal.)

The energy watchdog also found Npower gave customers the wrong information about how their direct debits would be calculated.

Ofgem says the mis-selling took place while Npower was "making changes to its sales processes". It ended by September 2012, and the issues have now been remedied.

Npower says it will write to all customers who may have been affected by the breaches.

It's the second time in three weeks Npower has promised to pay out for poor service. Earlier this month it said it would pay £1 million to vulnerable customers after complaints rocketed.

In October, Scottish Power announced it was paying out £8.5m because of mis-selling (see Scottish Power MSE News story), while SSE was fined £10.5m in April (see SSE fined MSE News story).

What did Npower do wrong?

Npower's sales failings included:

  • When customers didn't know their annual usage, sales staff estimated it by using the number of bedrooms and number of occupants - rather than the wider range of factors which Ofgem recommend.
  • Telesales representatives assumed customers were on standard tariffs with rival companies, meaning savings may have been overstated.
  • Direct debit levels weren't reviewed as frequently as promised, while customers didn't always receive their annual direct debit discount on the date they expected it.

Who will get a share of the money?

From the £3.5 million fund, Npower will pay at least £25 to all customers who get core group Warm Home Discount payments.

These customers are 75 or over and receiving pension credit, or under 75 and only getting the guarantee credit element of pension credit.

Customers will get a credit on their account, or money to top-up a pre-payment meter account.

Any money left over from the fund will go to Npower's Health Through Warmth Crisis Fund, which helps homeowners with long-term cold-related illnesses get heating repairs and installations. Beneficiaries do not have to be Npower customers to benefit from the scheme.

What if I think I was affected?

Npower says letters are now going out to customers it believes could have been affected, and it hopes to have them all sent out by the end of January. It'll ask for details of what happen and says it will refund customers who have been left out pocket.

If you don't get a letter but think you were affected, get in touch with Npower via its website.

Because of the issue with sales staff assuming potential customers were on standard tariffs, Npower says it does not yet know how many people were affected.

'Get in touch with Npower''s energy analyst Archna Luthra says: "Another day, and another mis-selling fine for one of the big six energy firms. This is the fifth fine that Ofgem has doled out for inadmissible, systematic mis-selling. Let's hope it’s enough of a sting to ensure Npower and other suppliers don’t continue to act improperly.

"If you think you might have been mis-sold to, get in touch with Npower with any information you have, you may be able to get £100s back.

"And remember switching directly with a supplier is almost never the best way. instead do a full market comparison, which looks at all providers and factors in your usage and postcode."

'Drawing a line under this'

Ofgem’s senior partner in charge of enforcement, Sarah Harrison, says: "Npower has done the right thing by stepping forward and recognising that whilst it was making changes to improve its sales processes, weaknesses remained which affected consumers' ability to compare supplier offers fairly. 

"These issues have been fully addressed by Npower and Ofgem welcomes the company’s actions and its agreement to pay £3.5m to directly benefit vulnerable consumers.

"Ofgem will continue to hold companies to account to ensure rules to protect energy consumers are met and that the market works for consumers in a simpler, clearer and fairer way."

Npower chief executive Paul Massara says: "We’ve worked very closely with Ofgem as they’ve investigated these previous issues. It’s good to draw a line under this, so we can focus on our goal of becoming number one for customer experience by the end of 2015."