In the latest controversy to hit the industry, British Gas confirmed it had mis-sold to customers in Sainsbury's stores nationwide and in the Westfield shopping centre, Shepherd's Bush, between February 2011 and March last year.
It has identified customers who were potentially mis-sold to and has made an average payment of £130 to 4,300 affected customers. As it was unable to contact another 1,300 ex-customers, a further £434,000 will benefit vulnerable customers via the British Gas Energy Trust.
Regulator Ofgem said staff and branding in Sainsbury's stores did not make clear British Gas was the supply partner for Sainsbury's Energy. It added sales staff did not compare tariffs on a like-for-like basis.
And, in some cases, customers were told they would save money by switching, but they paid more with Sainsbury's Energy or British Gas.
British Gas said it discovered the mistakes through internal checks and informed Ofgem of what had happened before taking steps to compensate customers.
Ian Peters, managing director of British Gas Residential, said: "We are very sorry and have ensured no customer will be out of pocket as a result."
As British Gas reported the matter to Ofgem and took action to correct the issues, Ofgem said it has accepted the compensation package in lieu of opening a formal investigation