The regulator has issued the penalty following an investigation in the price differential between Scottish Power’s standard credit and direct debit tariffs between September 2009 and December 2012.
When Ofgem opened their investigation the price differential was deemed to be “out of line with that of other suppliers”, although once the investigation was launched, Scottish Power “significantly reduced” the difference.
Sarah Harrison, senior partner in charge of enforcement at Ofgem, 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.”
A spokesperson from Scottish Power said: “Scottish Power has cooperated 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.”
The fine will be used to help fund the Energy Best Deal public awareness campaign that is being run by Citizen’s Advice.
Scottish Power’s fine came as the regulator revealed the price difference between payment types had “fallen significantly” since new rules were introduced in 2009, which took into account that some payment methods are more expensive to administer than others.
Customers who use prepayment meters are now charged around £80 a year more on average compared with direct debit customers for dual fuel, down from almost £140 in 2009.
The price difference for quarterly payment compared to direct debit has remained at around £80 since 2009.
Rachel Fletcher, senior partner for markets at Ofgem, said: “We have found that price differences between payment methods reflect the costs suppliers face, and that they have dropped significantly since Ofgem introduced the rules.
“However, to help re-build trust suppliers must do more to explain to their customers and interested stakeholders about what drives these price differences.
“Given public concern over these differences we also urge suppliers to also look at how they can provide more reassurance to consumers that they are set fairly.”