Times Money readers have uncovered flaws in npower's billing system that could mean that the UK's fourth-largest energy supplier has overcharged millions of customers.

Their concerns are echoed by Energywatch, the energy watchdog, which has referred npower's billing operation to Ofgem, the energy regulator. An Energywatch spokesman says: “We think that up to 2.2 million npower customers could have suffered from the same problem that Times Money readers have identified. If we are proved correct, we want to know what the company will be doing to compensate those who have lost out.”

The energy watchdog has sent information about npower's suspected faulty billing, along with more than 400 cases of suspected misselling, to Ofgem, triggering a formal investigation into npower's practices.

The billing problem centres on the question of how many units of gas npower can charge its customers each year at the higher of its two rates. The customers say that npower should not exceed the annual figure of 4,572 units, which it quotes in its literature and on its website. They argue that by charging more units at the higher price over 12 months npower is breaching its own terms and conditions.

But npower argues that its promise not to charge more than 4,572 units at the higher rate refers to a “tariff year” rather than a calendar year. Although a tariff year is usually the same as a calendar year, there are occasions when it is not. The company starts a new tariff year each time its tariffs are changed. This happened twice last year, resulting in a tariff year of only seven months from April to November.

David White, of Maidenhead, Berkshire, contacted Times Money when he noticed a discrepancy on his bill. He says: “My contract, which I took out in January last year, stated that I would be charged 4,572kWh units at the higher price and the rest at the lower rate. But after 11 months I had been charged for 5,939 units at the higher rate, meaning that I was overcharged by £41.

“After lots of phone calls and getting Energywatch involved, I finally managed to get through to someone senior at npower. He admitted that the company had a big problem with its systems and that many people could have a similar problem. He agreed that I would receive a £41 rebate with my next gas bill.

“A few days later npower went back on its word and said that the problem was my fault because I had not read my meter every 91 days - though I had never, at any time, been asked to do this.

“Eventually, npower backtracked again, refunded me the £41 and sent me a letter explaining what went wrong. I think it is possible that there are hundreds of thousands of other npower customers who have been billed incorrectly, as I was, but who have not asked for their money back. I urge them to check their gas or dual-fuel bills to see if they have been charged more than 4,572 units a year at the higher price.”

Other Times Money readers have contacted us to relate their npower horror stories. As well as suspected inaccurate billing, they have told of high-pressure selling and a stubborn reluctance to let dissatisfied customers transfer to other energy companies. This month npower announced that it had sacked six employees for mis-selling.

Penny Todd, of Brentwood, Essex, is angry at what she views as outright mis-selling by npower. She says: “This year an npower sales representative knocked on my door and told me that, unlike other energy companies, npower does not charge a two-tier unit price for gas or electricity. He also said that prices were guaranteed until 2011 and that I qualified for a £100 rebate if my new yearly bill exceeded the previous year's. I was surprised, so I wrote it all down in the presence of the salesman. I checked when the contract came through and the prices were different - higher, of course - and with a two-tier unit price. It was not a guaranteed price deal, nor did I qualify for the rebate and, overall, it was a lot more expensive than my existing deal.

“I cancelled the transfer to npower and raised a complaint against the salesman. To date I have had one answerphone message and an apologetic letter saying that the salesman would receive retraining. I think the sack would be more appropriate as it was blatant mis-selling.”

Another reader, Carol Baillie, of Lesmahagow, Lanarkshire, says: “I received a phone call from npower last year to tell me that my bills would be cheaper if I moved over to npower. I did this with both my gas and electricity, paying the same monthly direct debit - £65 for gas and £45 for electricity - as I had to Atlantic, my previous supplier.

“But a year on I find that I am £700 in debit for my gas and about £340 for my electricity and I now owe npower so much that I cannot change back to Atlantic. I have upped my monthly direct debit payment to £165 but am struggling to save the extra money I owe them so that I can pay them off and go back to Atlantic. I feel very angry because npower misled me into switching.”

A spokesman for npower says: “We are investigating the cases of alleged mis-selling that Times Money has brought to our attention. With regard to our billing, we charge more units at the higher rate in winter and fewer in summer, and this seasonal weighting is designed to be fairer to all customers equally. We suspended our seasonal weighting temporarily between April and November in 2007, and this resulted in some customers being charged more units in a calendar year at the higher rate than the stated figure of 4,572.

“What we promise is that we won't charge more than 4,572 units at the higher rate in a tariff year. Normally a tariff and a calendar year are the same - 12 months - but every time we make changes to the tariff system we start a new tariff year. In our short tariff year of seven months (April to November 2007) we didn't charge anyone more than 4,572 units at the higher price, but over a full 12 months we did. As a balancing measure, we reduced our gas prices by 20 per cent in April 2007.”

However, an Energywatch spokesman says: “We do not think that it is good enough for npower to say that it can make a year into anything it wants, simply by renaming it a tariff year. We look forward to seeing Ofgem's response on this matter.”

An Ofgem spokesman says: “We are investigating npower with regard to suspected mis-selling and asking questions relating to suspected inaccurate billing. If we find that the company has breached the terms of its supply licence, we have the power to fine it up to 10 per cent of the relevant subsidiary's turnover and require it to amend its behaviour.”

How to complain to energywatch

If you have a problem with your energy supplier, you should first contact the company and offer it a chance to put the problem right.

The next step is to contact Energywatch, the consumer watchdog, which can take up your complaint with the energy supplier. Call 0845 9060708, or visit the website at www.energywatch.org.uk.

Energywatch has arrangements with most of the big energy companies that enable it to refer many straightforward complaints directly to specialist teams within the companies.

Where customers are not satisfied with the outcome they can go back to energywatch, which will investigate the complaint further.

If energywatch suspects that it has uncovered a potentially serious problem, it can then refer the matter to Ofgem, the energy regulator.

From September 30 energywatch will be merged into the National Consumer Council and will be able to help only energy customers who are regarded as vulnerable, or who are facing a real danger of being disconnected.

Case Study: Customer to take legal action

Andrew Beck, of Teignmouth, Devon, is so angry at what he believes is inaccurate billing by npower that he is taking the company to court.

Mr Beck, a semi-retired bathroom installer, has been a gas customer of npower since 1997. The 55-year-old, left, says: “Npower claims to charge gas customers a maximum of 4,572 units at the higher rate. But in the year April 2007 to April 2008, I have been charged in excess of 6,500 units at the higher rate, resulting in an overcharge of £120.

“The company's explanation is that it changed its billing system in April/May last year and again in November and was, thus, entitled to charge its year's allocation of higher-rate units in those seven months. It then reset the clock in November, charging more units at the higher rate, so that over a full 12 months it charged customers many more higher-rate units than the stated figure of 4,572.

“I suspect that many of npower's gas customers will have suffered from this problem. If the overcharge averaged £50 and npower had two million gas customers, that would be worth £100 million. I have now started legal action against npower.”