Ofgem announced the fine today (27 July), ruling that customer services at Centrica-owned British Gas had failed on three counts.
These were: a failure to re-open complaints when the customer had indicated that the complaint was not resolved; a failure to provide customers whose complaints they could not resolve with some key details about the redress service provided by the energy Ombudsman, and a failure to put in place adequate processes and practices for dealing with complaints from small business.
Ofgem's biggest fine to any utility provider was the £15m imposed on National Grid in 2008, for abuse of its dominant position in the utility market.
Ofgem warned the utility sector in March that it would be adopting a tough approach to enforcement.
The regulator has hit the utility sector with a further £10m in fines this year.
Commenting on the British Gas fine, Sarah Harrison, Ofgem's partner for sustainable development, said: "Today's finding highlights basic failures in British Gas' customer service, particularly in dealing with some of its small business customers, and shows Ofgem's commitment to use its powers to ensure suppliers treat customers fairly and transparently."
Last month, Ofgem announced it was pushing ahead with plans to shake up the gas and electricity markets, and break the stranglehold of the big six suppliers.
A spokesperson for British Gas, said the company took pride in its customer service.
But added:"However, specifically for our micro-business customers, we acknowledge our service fell short of what they should expect from British Gas, for which we apologise."