British Gas was fined £2.5 million on Wednesday for failing to deal with customer complaints correctly, energy regulator Ofgem said.
The domestic electricity and gas provider -- which is owned by energy group Centrica and serves nearly half of UK households -- had failed to re-open cases after customers said they had remained unresolved, Ofgem ruled.
"Ofgem has today announced a £2.5-million penalty on British Gas after an investigation by the regulator found that the company had breached regulations setting standards for the way energy companies handle customer complaints," the energy sector watchdog said in a statement.
"The fine is a warning from Ofgem that all energy companies must take complaint handling seriously and treat their customers fairly," it added.
The regulator also found that British Gas did not provide crucial details about how customers could seek assistance from the energy ombudsman.
"Today's finding highlights basic failures in British Gas' customer service, particularly in dealing with some of its small business customers," said Sarah Harrison at Ofgem.
"We warned the industry in March that we would be backing up our plans to reform the retail market with a tough approach to enforcement," she added.
British Gas was also accused of not instituting a functional complaint procedure for small businesses. The utility provider in its defence said that the breach was minor when it has 16 million accounts to serve.
"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," a spokesman said.
"We knew we had an issue here which is why we flagged it to Ofgem. After a £4 million investment, we are now confident we meet all of our regulatory requirements," he added.
Centrica recently announced it was raising its gas and electricity prices from August 18.
The energy provider posted profits of £742 million in 2010, but announced it was raising its gas tariffs by an average 18% and electricity by an average 16%, with some bills increasing by as much as 25%.
The price hikes were widely condemned by consumer groups who warned that millions more people would be affected by fuel poverty -- when a household needs to spend more than 10 percent of its income on energy bills.