The regulator has set Npower monthly targets to reduce late bills between now and August. If the supplier fails, it must halt all outbound sales activities until the problems are resolved.
Ofgem has also opened an investigation into the billing problems and soaring complaints that have dogged Npower for months.
Sarah Harrison, senior partner in charge of enforcement at Ofgem, said: “Npower customers have suffered service failures for too long, that’s why Ofgem has secured binding commitments from Npower to reduce its bill backlog or face curbs on sales, alongside launching a wider investigation under Ofgem’s new Standards of Conduct.
“Ofgem has been monitoring Npower’s service closely and we have been increasingly concerned about the slow progress to tackle failings. Npower’s recovery plan has not delivered as far and fast as is necessary. Our analysis of complaints data also raises some serious concerns which will be thoroughly examined in our investigation.”
Npower received 1.4 million complaints in 2013 as it grappled with errors caused by the introduction of a new billing system.
In December, chief executive Paul Massara issued a public apology to customers and committed to make sure no customer would be left out of pocket by billing failures. As a goodwill gesture, the company paid £1 million to a fund for vulnerable customers.
Ofgem said Npower had not made enough progress since December.
The supplier is now billing 92 per cent of customers on time and resolving 88 per cent of complaints within 24 hours, it said.
Npower is investing an extra £20 million in 2014 and has assigned 650 people since December to help resolve the problems.
Npower will cooperate with Ofgem’s investigation, Massara promised. “We are committed to getting things right for our customers but recognise that despite the progress we have made our current billing standards have fallen short of where everyone wants them to be…
“We are confident that the measures we are already taking and the additional resource announced today will bring our customer service back to normal levels of performance by the end of August.”
When he took the top job at Npower in January 2013, Massara committed to make the company number one in the industry for customer experience by 2015.