British Gas, Britain's largest energy supplier owned by Centrica, has paid 4,000 customers and a charity £1m for misleading savings promises on its energy tariffs, regulator Ofgem said.
The energy supplier made exaggerated promises on energy bill savings to customers in Sainsbury's supermarkets and a London shopping centre between February 2011 and March 2013, the regulator said.
It also failed to properly label its energy tariffs sold through the Sainsbury's brand.
British Gas has paid an average of £130 to affected customers and is paying another £434,000 to its British Gas Energy Trust which helps people struggling to pay their bills.
"Ofgem expects all suppliers to put this poor behaviour behind them and really start acting in a way that will help consumers trust energy suppliers," said Sarah Harrison, Ofgem's senior partner in charge of enforcement.
The regulator said it refrained from opening a formal investigation into the incident because British Gas voluntarily took action once it became aware of it.
Last month, the European Commission cleared Centrica's €1.1 billion takeover of Bord Gáis Energy, the retail arm of Bord Gáis.