UK's npower fined 26 mln stg for billing, complaints failings

* Largest fine given to a 'big six' UK energy firm

* More than 500,000 customers affected

* Npower "very sorry" (Updates with npower comment, background)

By Susanna Twidale

LONDON, Dec (Shanghai: 600875.SS - news) 18 (Reuters) - Npower has been fined 26 million pounds ($38.83 million) in the largest ever fine for a British power utility after overcharging customers and improperly handling customer complaints, regulator Ofgem said on Friday.

Billing issues at the company, a subsidiary of Germany's RWE (Amsterdam: RW6.AS - news) , affected more than 500,000 customers.

Regulator Ofgem said many of the issues were due to the introduction of a new IT (Other OTC: ITGL - news) system in 2011 which led to some customers receiving inaccurate and late bills.

Npower said it was "very sorry" for disappointing its customers and had agreed to customer service targets with Ofgem including reducing the number of late invoices and complaints by the end of June 2016.

If npower fails to meet these targets it will have to stop all domestic sales and advertising until they are met.

"The last few years, since we changed the systems that support our domestic business, have been very disappointing for our customers - and for npower," Simon Stacey, managing director, domestic markets, said in a statement.

Parent company RWE (Xetra: 703712 - news) said in a trading update in November that npower had lost around 200,000 customers in Britain since the start of the year, sending the division to an unexpected operating loss of 66 million euros during the first nine months of 2015.

The npower losses contributed to RWE posting an overall 9 percent drop in profit for the first nine months of the year.

Ofgem said this was the first case to be opened under its Standards of Conduct conditions put into place in August 2013 requiring energy suppliers to be fair, honest, clear and professional.

"The payment of 26 million pounds sends a strong message to the industry that we expect them to act quickly and effectively to ensure a good customer experience," Ofgem Chief Executive Dermot Nolan said.

The money will be divided between some of the worst-affected customers and charity, Ofgem said.

Npower said affected customers would be contacted by the company and did not need to do anything.

($1 = 0.6696 pounds) (Reporting by Susanna Twidale; editing by Jason Neely)