British Gas has become the latest major energy supplier to be rocked by a mis-selling scandal after it became apparent it had given customers inaccurate savings estimates, according to a report from Sky News.
The company has now agreed to compensate roughly 4,300 people a total of £500,000, or £130 each on average.
It relates to those who registered for tariffs under the Sainsbury's Energy brand, which is sold by British Gas through a partnership deal, between early 2011 and March 2013 after customers were given overstated estimates on their potential savings.
According to Sky, British Gas notified industry regulator Ofgem after realising the mistake had been made.
It is understood that Ofgem and British Gas agreed the details of the compensation package, with additional goodwill payments included.
Although the figure is relatively small in comparison to similar cases, it will be a big blow for the firm, which has often been boastful about the fact that it was the only major energy firm whose reputation hasn't been compromised over mis-selling.
The news comes just days after Ofgem confirmed that it is launching the country's largest ever investigation into the sector, following a surge in prices amid continued reports of bad service.
"Now is the right time to refer the energy market to the CMA for the benefit of consumers," said Dermot Nolan, Ofgem's chief executive officer.
"There is near-unanimous support for a referral and the CMA investigation offers an important opportunity to clear the air. This will help rebuild consumer trust and confidence in the energy market as well as provide the certainty investors have called for.
The energy market is set for a shake-up over the next few years with the roll-out of smart meters, the government's electricity market reforms, and closer integration with European energy markets.
"A CMA investigation should ensure there are no barriers to stop effective competition bearing down on prices and delivering the benefits of these changes to consumers," added Nolan.