Npower pays £3.5m Ofgem penalty out to customers

Npower breached sales rules covering how energy deals can be sold on the doorstep and over the phone

Trust in the big six energy providers suffered a further blow on Friday as npower was given its second fine in a month, this time £3.5m, for misleading consumers.

The company agreed to pay the £3.5m to vulnerable customers after an investigation by the energy regulator, Ofgem, found it had breached sales rules on the doorstep and over the phone between 2010 and September 2012. The £25-per-house payments will be made to customers eligible for the “warm home discount”, who are typically over 60 and in receipt of pension credit.

The regulator said npower had failed to get enough information from potential customers about their energy consumption to enable them to decide whether it was worth switching from their existing supplier. Furthermore, it did not always ensure that comparisons between the price of npower’s service and that of the customer’s current supplier were based on the tariff that customer was on.

Ofgem also said that npower salesmen misled people by giving them inaccurate information about direct debits and failing to gain sufficient information to direct them to the cheapest deals. It added that the breaches had since been addressed and remedied.

Sarah Harrison, a senior partner at Ofgem, said: “Whilst npower was making changes to improve its sales processes, weaknesses remained which affect consumers’ ability to compare supplier offers fairly. These issues have been fully addressed.”

Paul Massara, chief executive of npower, said: “It’s good to draw a line under these issues.”

Adam Scorer, of the watchdog Consumer Futures, also welcomed the move, although he said the process of taking the big six to task for mis-selling practices need to be speeded up. “Mis-selling is the original sin of energy competition. Npower had mislead customers by phone and on the door step from 2010. Many people who would have been looking for the best deal found themselves poorly treated,” said Mr Scorer. “It is unfortunate that it has taken three years to bring this investigation to a close.”

Npower’s fine comes less than three weeks after it was forced to apologise and hand over £1m to vulnerable consumers after its poor customer service led to it being named as the most complained-about energy company.

But the company is by no means alone. In March 2012, EDF paid £4.5m to vulnerable customers for breaching marketing rules. SSE was found guilty of “prolonged and extensive” mis-selling in April, receiving a £10.5m penalty, while Scottish Power paid £8.5m in October.

Npower’s failure to give potential customers all the information needed to decide whether to change supplier comes against a background of declining switching activity in recent years, according to new research from the Helsinki-based consultant Vaasaett. Just 11.5 per cent of households have switched this year – even after a jump in November following the price hikes by the big six – compared with 21 per cent at its peak in 2006.

Much of the decline came be put down to the phasing out of doorstep selling in 2011. According to Vaasaett, the lower the switching level, the easier it is for the big six to drive through price rises because it suggests customers have a greater tendency to stay with their existing supplier.