Ofgem, the energy regulator, began a formal investigation yesterday into alleged mis-selling of energy contracts by npower, one of Britain's top six power suppliers.

The inquiry comes after claims that sales representatives of npower - which has 6.8million customers and is owned by RWE, the German utility group - had lied to customers and used illegal practices to sell contracts.

The alleged tactics included exploiting customers with a poor command of English, making people sign forms without revealing that they were contracts and lying about charges.

If found guilty, Ofgem can impose a maximum fine of 10 per cent of RWE's global turnover, which was €42 billion (£33billion) in 2005.

The timing of the announcement is particularly galling for npower.

Today Andrew Duff, its chief executive, is to meet Sir Alistair Buchanan, Ofgem's chief executive, Malcolm Wicks, the Energy Minister, Hilary Benn, the Environment Secretary, plus fellow industry executives and representatives of organisations such as Age Concern at a conference on fuel poverty hosted by Ofgem.

Adam Scorer, director of campaigns for Energywatch, the independent watchdog, welcomed the npower investigation.

“With the evidence suggesting npower's sales staff were caught red-handed bullying, deceiving and harassing consumers, an example must be made of them,” he said.

The inquiry is the latest sign of a clampdown on sharp practice in the energy sector.

Two weeks ago, Ofgem began an inquiry into alleged market abuse by ScottishPower and Scottish & Southern Energy. In February, it began a competition review and also fined National Grid £42million.

Npower said that it planned to co-operate fully with the Ofgem investigation and that it was “very concerned” about the claims. It said that several staff had been suspended pending disciplinary hearings.

News of the inquiry will infuriate npower's customers, who in January became the first to be hit by the latest round of fuel price rises when the company introduced bill increases of up to 17 per cent.

Ofgem's fuel poverty meeting is being held amid growing expectations that energy companies are preparing for a second round of price increases this year as global oil prices continue to rise, feeding into higher wholesale gas and electricity prices.

One top energy executive told The Times this week that rising bills for UK customers were virtually inevitable unless wholesale gas prices, which are linked to crude prices, fell dramatically.

David Bootle, spokesman for National Energy Action, the campaign body, said that if suppliers increased fuel bills by a further 25 per cent this year, a further million UK households would be plunged into fuel poverty - defined as spending a tenth or more of income on energy.

About 4.5 million people live in fuel poverty. Mr Bootle said that an extra 40,000 households are added to this total for every percentage point rise in bills.

A further 25percent rise would lift the total to about 5.5million homes.

Only one in fifteen fuel-poor households is on a social tariff, which offers the cheapest deals to the most vulnerable customers. Npower, for example, offers help to only 2,557 customers.

Today's meeting comes after an announcement this month of a deal between the Government and the big energy companies to boost their collective annual spending on social programmes by £225million over the next three years.

About 100,000 households are expected to benefit.

Discussions are expected to focus on how this money should be spent to help those in need and how to tackle related problems, such as people failing to claim fuel-poverty benefits to which they are entitled.