Energy regulator Ofgem today announced that Co-op Energy is to pay the amount “because it let customers down in its complaints resolution, call handling and billing processes”.

Co-op introduced new IT systems in March 2015, but shortly after the move Citizen’s Advice received a steep increase in customer complaints.

They included customers being unable to log into their accounts online, which left them unable to submit meter readings or check their bill. Bills were also delayed and direct debit updates stopped.

New customers also experienced delays transferring to the supplier and it also took too long to resolve a significant number of customer complaints.

The charity approached Ofgem in June 2015 with the customer complaint issues and since then the supplier has worked with the regulator to restore service levels, as well as agreed on compensation for the 260,000 affected.

Nearly all the £1.8m has been paid out already (£1.6m) and Co-op confirmed it will be writing to the remaining affected customers to tell them about the compensation.

It added that customers don’t need to do anything to get the money, but if there are any questions it has set up a dedicated email address for inquiries: customerexperience@cooperativeenergy.coop

Any money that Co-op is unable to return to customers will go to the charity StepChange to help energy billpayers who may be financially struggling.

Martin Crouch, Ofgem senior partner, said: “While customers experienced unacceptable levels of service, Co-operative Energy has done the right thing by taking responsibility for the situation and paying out compensation to those people affected.

“If trust is to be restored in the energy market suppliers must make amends to their customers when things go wrong. We want all suppliers to constantly ensure customers are treated fairly.”

After the issue came to light, Co-op voluntarily withdrew from marketing activities to focus on improving services for existing customers.

Ben Reid, CEO of Midcounties Co-operative, said: “As the UK’s only member-owned energy supplier, we put our customers at the heart of everything we do and their interests first. We have apologised to those customers who were affected by the problems we experienced when we introduced a new IT system last year. The system issues are now resolved and we have made significant improvements to our service.”