Instead of extending the fixed-term contracts of these customers, British Gas rolled them onto its more expensive standard variable tariff.
It also provided 2.5 million customers with incorrect terms and conditions, which stated exit fees were payable during the 49-day period before their fixed deal expired.
However, under Ofgem’s switching rules, customers do not have to pay an exit fee when switching if they are in the last 49 days of their contract.
British Gas wrongly charged 1,698 of its fixed-deal customers a total of £64,968 when they switched suppliers during that time frame.
The regulator said the Big Six supplier refunded all customers who had been overcharged by more than £1 and paid £502,633 in compensation to them before its investigated concluded.
Following Ofgem’s findings, British Gas agreed to pay a further £244,770 in compensation to customers who were wrongly charged exit fees and the standard variable tariff and pay more than £1 million into the regulator’s consumer redress fund.
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. Ofgem put in place the switching window to help all customers switch before they are rolled into their supplier’s expensive default rate.
“Our enforcement action against British Gas sends a strong message to all suppliers that they must respect their customers’ rights during the switching window and always treat customers fairly.”
British Gas owner Centrica said a system error led to a small proportion of customers being incorrectly charged.
A spokesperson added: “We’ve apologised to the customers affected. Those who were charged too much were promptly refunded as soon as we identified the issue and were paid an additional goodwill gesture. Some customers were provided with initial communications containing incorrect terms and conditions – but all other communications they received were correct.
“We note Ofgem has acknowledged that we have already addressed this issue and that we have changed our processes to ensure the error has been corrected.”