Energy regulator Ofgem has ordered British Gas to pay customers £2.65 million in refunds and compensation after finding that it has automatically switched customers onto their expensive standard variable tariff rate after they decided to switch to a new supplier, due to a system error.

An investigation by Ofgem also found that British Gas wrongly charged exit fees to 1,698 fixed deal customers and wrongly informed 2.5 million customers they might incur an exit fee if they switched to another supplier.

Similar concerns were raised about other big six suppliers, E.on and Npower for wrongly threatening exit fees to customers coming to the end of a fixed-term tariff. After Ofgem intervened late last year, they issued a full apology to their customers.

Ofgem’s rules on energy switching are clear – suppliers are not allowed to charge exit fees if you're in the last 49 days of your fixed term contract and can switch to a different provider without being charged any penalties. This 49-day switching window was designed to encourage customers to switch to a better deal before they were rolled onto a default standard tariff at the end of their contract.

Anthony Pygram, director of conduct and enforcement at Ofgem, said: “British Gas failed its customers who were coming to the end of their fixed contracts and switched supplier by unfairly penalising them and applying charges in error.”

“Many more customers could have been deterred from getting a better deal due to the incorrect terms and conditions.”

Such incidents are precisely why many customers are put off from switching because they feel that the energy market is too confusing but customers may be paying wrongly imposed fees without even knowing.

Customers who were switched to a more expensive British Gas standard variable rate tariff, after they decided to switch to a new supplier, were overcharged a total of £782,450. Furthermore, £64,968 in fees were incorrectly charged to 1,698 customer accounts, leaving each customer around £150 worse off.

British Gas said following the system error, those who were charged too much were "promptly refunded as soon as we identified the issue and were paid an additional goodwill gesture".

It said some customers were provided with initial communications containing incorrect terms and conditions - but all other communications they received were correct. "We have changed our processes to ensure the error has been corrected," it added.

These types of errors are causing dissatisfied customers to leave Big 6 suppliers for smaller firms where they can expect much cheaper rates and better, more responsive customer service.

Dermot Nolan, Head of Ofgem says "There are systems out there, and many people are signed up to them, that switch you automatically. Technologies like automatic switching are developing and they will be put in place and they will help to make the market more effective and efficient."

Sign-up to Switchd.co.uk today and let us take the hassle out of energy switching for you. With Switchd you never pay exit fees if you don’t want to, you can help save the planet by choosing only green tariffs and you’ll never overpay for your energy.