Regulator Ofgem said the redress package reflects the harm caused by E.ON's extensive poor sales practices between June 2010 and December 2013. Given the large number of contracts signed in this period Ofgem said it was likely a large number of customers were mis-sold to by E.ON.
Ofgem said E.ON failed to properly train and monitor its staff and those it employed through third-party telephone sales agencies, leading to incorrect information being given to customers on the doorstep and over the phone.
As part of the redress package, E.ON will pay around £35 each to 333,000 of their customers who normally get the Warm Home Discount. It will also make automatic payments to some vulnerable customers who may have been hit by the poor sales practices.
The company has set up a dedicated hotline and will write to around 465,000 customers it has identified through its redress work in order to find if they are entitled to compensation.
E.ON chief executive Tony Cocker said as part of overhauling its sales operations the company has ended face-to-face sales and outbound residential telephone cold-calling.
He added: "It is completely unacceptable that we may have been unclear with customers about their tariff choices and as a result those customers may not have made the best choices for them.
"There was no organised attempt to mislead, and Ofgem has acknowledged this, but that does not excuse the fact we did not have in place enough rules, checks and oversight."
Since 2010, Ofgem has imposed £100 million in fines and compensation payments on energy companies for rule breaches, including £39 million for mis-selling.
E.ON's fine from Ofgem was a nominal £1 as Ofgem decided the £12 million penalty should go to vulnerable customers rather than the Treasury.
Ofgem said sales agents did not always gather all the information required to make an accurate estimate of charges. They failed to ask consumers if they were in debt or credit on their account and did not robustly account for seasonal variations in consumption.
Some of the breaches continued until last December, despite earlier pledges from E.ON that it would make changes and improvements to its processes.
Ofgem said: "All of these failings can lead to inaccurate estimates of charges and mean a licensee is not providing accurate information to a consumer."
Tom Lyon, energy expert at uSwitch.com, said: "E.ON's behaviour is disappointing, particularly given the length of time these poor practices went on for and the fact that they were happening as recently as last December. Trust in the industry is already at an all-time low and this fine will only serve to further increase consumers' cynicism towards energy suppliers.
"However, a ray of light is that E.ON has engaged positively with Ofgem throughout the process and is committed to putting things right. It is encouraging to see that the £12 million is going directly into the pockets of the most vulnerable customers."
The trade association Energy UK said: "The energy industry is well aware of problems it has had and continues to make great strides in improving standards.
"The mistakes are being dealt with, doorstep selling has stopped, and tariffs are simpler and clearer.
"The benefits of switching are easy to check with new information on bills so people can readily compare one tariff with another.
"The industry knows that it must improve customer relationships and continue to work to regain customer confidence. We also believe the referral of the market to the competition authorities has a positive part to play."