Octopus Energy has been ordered to fork out £1.5 million in refunds and compensation after neglecting to issue final bills to customers within the mandatory six-week period, regulator Ofgem has announced.

The energy watchdog discovered that more than 34,000 pre-payment meter customers from 2014 up until October 2023 were left without their final bills in the timeframe stipulated by its regulations.

In a move acknowledging the potential distress caused, especially to those in vulnerable situations, Octopus has agreed to pay around £1.483 million in redress and compensation, averaging £43 for each customer affected, Ofgem said.

This sum includes £231,000 in refunds for credit left on accounts upon closure, plus an additional £1,250,000 as compensation to those impacted.

Ofgem highlighted the necessity of producing a final bill to provide customers with a definitive statement of their account balance, despite them being able to check their meter balance, particularly to clarify their final debit or credit status.

Beth Martin, Ofgem's director for consumer protection and competition, said: "It's important that customers receive final bills in accordance with our rules, so they are aware of any credit remaining on their accounts and can reclaim it.

"This is particularly important for pre-payment meter customers who are more likely to be in financial difficulty. We are pleased that Octopus has now rectified the error and put things right with its customers, offering both refunds and compensation where it's due.

"We will continue to closely monitor compliance with our billing rules and drive improvements in the sector so customers can expect the highest standards of service from their energy supplier."

The regulator said its attention was drawn to the matter when E.ON Next voluntarily reported a similar error. Octopus Energy criticised Ofgem for dedicating "two years investigating an alleged issue with pre-payment meter bills that had zero customer complaints and had already channelled millions of pounds into customers' hands".

Octopus acknowledged the logic behind Ofgem's mandate for pre-payment customers to receive a final bill upon moving out, but argued that it was largely unfeasible to execute in reality.

The energy supplier highlighted several challenges: 60% of pre-payment customers failed to inform Octopus of their move, reliance on outdated and inefficient industry systems for final billing, and only having bank details for a mere 10% of pre-pay customers, with the added complication that 70% of refund cheques remained uncashed due to missing forwarding addresses.

Rachel Fletcher, director of economics and regulation at Octopus Energy, said: "Octopus has always been focused on doing the right thing for customers and thinking outside the box to deliver good outcomes for customers despite imperfect industry systems and data.

"With energy costs soaring, we'd like to see Ofgem put people over policies. People want lower bills. We'd like to see Ofgem focusing its efforts on delivering that."