What Ofgem found and what British Gas must pay

Centrica (LSE: CNA), the parent company of British Gas, has agreed to a settlement package after the regulator concluded that British Gas failed to meet the standards required of a licensed energy supplier when installing prepayment meters (PPMs) between 2018 and 2023.

Ofgem found that British Gas breached licence conditions specifically designed to protect customers in vulnerable situations, according to the regulator's settlement announcement published on 15 May. Tim Jarvis, chief executive of Ofgem, said the supplier "fell short in its treatment of an unacceptable number of vulnerable customers who had a PPM installed without consent."

The financial terms are substantial. British Gas must pay £20m into Ofgem's Voluntary Redress Fund. It must also write off up to £70m of energy debt owed by vulnerable customers, some of which may be applied as direct compensation. On top of that, British Gas is required to continue granting the remainder of a £22.4m voluntary support package it launched in 2023 for PPM customers.

British Gas must also pay additional compensation to affected customers from the 2018 to 2021 period. These payments sit on top of sums the company says it had already proactively paid to customers affected in 2022 and 2023, according to the settlement terms.

Taken together, the combined value of the redress fund payment, debt write-offs, compensation, and voluntary support package exceeds £110m. For context, Centrica reported adjusted operating profit of £2.8bn in 2023. The settlement is therefore manageable on a balance-sheet basis, but the figure is among the largest remediation packages Ofgem has secured from a single supplier, and it signals the regulator's willingness to impose meaningful financial consequences for systemic compliance failures.

"The installation of prepayment meters under warrant should only be a last resort, with rigorous checks to ensure debt is recovered lawfully, proportionately and safely," Jarvis said.

How the prepayment meter scandal unfolded

The British Gas PPM scandal first entered public view in early 2023, when a Times investigation revealed that debt-recovery agents acting on behalf of the supplier had been forcing entry into the homes of vulnerable customers to install prepayment meters. The reporting documented cases involving elderly, disabled, and mentally unwell individuals whose meters were switched without adequate consent or welfare checks.

The revelations prompted swift regulatory action. Ofgem imposed a voluntary moratorium on forced PPM installations across the entire energy supply industry in February 2023, halting the practice while it reviewed safeguards. The moratorium applied to all licensed suppliers, not just British Gas, reflecting the regulator's concern that the problem might be sector-wide.

Ofgem lifted the moratorium later in 2023, but only after introducing stricter requirements. Suppliers were required to carry out enhanced vulnerability assessments before seeking a warrant to install a PPM, and to demonstrate that all alternative debt-recovery options had been exhausted.

British Gas's exposure was compounded by the fact that much of its debt-recovery operation had been outsourced to third-party agents. The investigation period, spanning 2018 to 2023, indicates that the failures were not a short-lived lapse but a prolonged breakdown in oversight of contracted functions. This is the detail that matters most for governance purposes: a FTSE-listed group's customer-facing compliance obligations were being discharged by external parties whose conduct fell below the regulatory standard, and internal controls did not catch it for years.

Chris O'Shea, chief executive of Centrica, acknowledged the severity of the failures. "What happened should never have happened, and I am sorry to the prepayment customers who were affected," he said, according to the company's statement. "When we get things wrong, we make them right."

O'Shea added that Centrica had "treated this matter with the seriousness it deserves" over the preceding three years and had "made changes to our practices and put safeguards in place."

The compliance lesson for regulated-sector boards

The British Gas settlement carries implications well beyond the energy sector. Any board overseeing a regulated, customer-facing operation, whether in utilities, financial services, telecoms, or water, should note the scale of financial exposure that follows when outsourced functions breach licence conditions.

Three features of this case stand out.

First, the duration of the breach matters. Ofgem's investigation covered a five-year window. The longer a compliance failure persists undetected, the larger the population of affected customers and the greater the eventual remediation cost. Boards that rely on periodic audits rather than continuous monitoring of outsourced partners face heightened risk.

Second, the remediation cost far exceeds the headline penalty. The £20m payment into the Voluntary Redress Fund is the figure that attracts attention, but it represents less than a fifth of the total financial package. The £70m debt write-off and the £22.4m voluntary support commitment dwarf the formal penalty. This pattern, where consequential costs outstrip the regulatory fine itself, is familiar in financial services enforcement and is now clearly established in energy regulation.

Third, regulatory expectations around vulnerability are tightening across sectors. Ofgem's approach mirrors the Financial Conduct Authority's Consumer Duty framework, which requires firms to deliver good outcomes for retail customers, with enhanced obligations towards those in vulnerable circumstances. The water sector faces similar pressure from Ofwat. Boards in any regulated industry should treat vulnerability obligations as a first-order compliance risk, not a customer-service afterthought.

Prior to this settlement, Ofgem's most prominent enforcement actions had focused on billing errors and customer service failures, with penalties typically in the low tens of millions of pounds. The combined £110m-plus package here represents a step change in the financial consequences the regulator is prepared to impose, and it was achieved through a negotiated settlement rather than a contested enforcement process.

What the new advisory panel means for the industry

As part of the settlement, Ofgem will create a new Vulnerable Customers Debt Advisory Panel to inform and support British Gas in developing what the regulator described as "industry-leading practices" in the treatment of vulnerable customers in debt.

The panel is a novel mechanism in energy regulation. Ofgem has not previously required a supplier to submit to ongoing external advisory oversight as a condition of settlement. The closest parallels exist in financial services, where the FCA has occasionally required firms to appoint skilled persons under Section 166 of the Financial Services and Markets Act 2000 to review and report on specific business areas. In the water sector, Ofwat has used enforcement undertakings that include commitments to improve governance, but a standing advisory panel of this kind has no direct precedent.

The panel's mandate, as described in the settlement terms, is advisory rather than supervisory. It will "inform and support" British Gas rather than direct its operations. Nevertheless, its creation signals that Ofgem is willing to impose ongoing oversight structures on suppliers whose compliance failures are sufficiently serious, a development that other energy suppliers and their boards should monitor closely.

For the wider industry, the panel may also serve as a testing ground. If Ofgem judges the model effective, it could become a standard feature of future enforcement settlements, particularly where breaches involve vulnerable customer groups. Regulated-sector operators would be prudent to assess whether their own debt-recovery and vulnerability processes would withstand equivalent scrutiny, before the regulator arrives.