Scottish Power has agreed to pay £750,000 following an Ofgem investigation into price differences between its standard credit and direct debit tariffs.
The investigation found that between September 2009 and December 2012 Scottish Power did not have a robust process to assess the cost of different payment types and set prices accordingly.
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Under Ofgem rules, suppliers can only have different prices for different payment methods if the amount reflects the costs involved in supplying those accounts.
These rules are designed to protect consumers and take into account that some payment methods are more expensive to administer than others.
Scottish Power will pay the £750,000 to the Energy Best Deal campaign run by Citizens Advice which helps consumers with their energy accounts.
Ofgem said the size of the penalty reflected the scale of the breach and took into account Scottish Power's willingness to accept its failings and make payments that benefited consumers.
Ofgem senior partner in charge of enforcement, Sarah Harrison, said: "Suppliers need to clearly justify the different prices they set for different payment methods.
"In this instance, Scottish Power did not have a robust process in place when setting their prices to ensure that the difference between their tariffs complied with Ofgem's rules.
"We've held them to account for this and they will now pay £750,000 to benefit Energy Best Deal."
A Scottish Power spokesman said: "Scottish Power has co-operated fully with this investigation.
"We recognise that historically we did not have a robust process in place but we are pleased that Ofgem has concluded its investigation and made no finding that any specific impact on customers resulted from our failure to have these processes in place.
"We fixed this problem by December 2012 and all of these processes are now fully compliant."
Citizens Advice chief executive Gillian Guy said: "Energy firms are taking advantage of their customers when they overcharge for different payment methods. With fuel bills up a third since 2010 costs are already very high so people shouldn't be paying more than they have to in order to have a warm home and the lights on.
"With trust in energy suppliers at rock bottom, companies need to be upfront and clear about why prices between alternative payment methods differ and by how much.
"Ofgem is right to hold Scottish Power to account for not sticking to the rules and it is good that struggling consumers will benefit as a result of its action. It has taken four years for this issue to be resolved so we hope this action, along with the £12 million E.On is paying back to customers, is a sign that Ofgem is getting on with current enforcement cases and can find a quicker way to sort these issues out for consumers."