Npower has been ordered to pay £26 million for sending out inaccurate bills and failing to handle complaints correctly.
Ofgem, the energy watchdog, said "it appeared that npower was not treating its customers fairly" and that it had received a large number of complaints, as had other organisations like Citizens Advice, from consumers and MPs.
The money will go to customers directly affected by npower’s failings and to charitable organisations that help people with energy issues in the UK, Ofgem said.
Npower has also agreed customer service improvement targets to reduce the number of invoices and complaints. If npower fails to meet these targets, it could have to cease its business.
Simon Stacey, managing director of domestic markets, conceeded that since npower had changed its systems in the UK, service had been disappointing.
"We are very sorry about what has happened and that is why we have agreed this significant package of customer redress," Stacey said.
Npower said it has reduced complaints by nearly 70 per cent since the beginning of 2016 and agreed targets for further improvements in customer services.
As part of the measures, npower will identify and repay all potential customers who may have been back-billed incorrectly from July 2010 to date. The number of customers who will receive payments is under 100,000 – around 3 per cent of npower's customer base.
Affected customers will be contacted by npower.
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