An energy giant is facing a hefty fine after it misled 35,000 customers into signing up to a price freeze promotion that actually increased their bills.

Teesside magistrates court yesterday heard how energy customers across the North-East were tempted by an npower offer that invited them to 'freeze your energy prices, act now to avoid price increases.'

But after thousands signed up, they discovered that their bills had all increased by five per cent. In mitigation, the company told the court they warned customers by phone that they would first have an increase in their tariff before having their prices fixed.

Keith Wilson, representing Middlesbrough Council's trading standards department, said: "Their promotion said customer's domestic tariffs would be frozen until the end of the year.

"In fact this was far from the truth and customers were to be placed on a tariff that was more than they had previously paid.

"The company tell us its sales staff were told to inform people their bills would rise, but customers say this was not the case.

"The company received 53 complaints about this. Its promotion was clearly misleading."

Npower representatives pleaded guilty to a charge of false advertising arising from its promotion which lasted from January to December 2002.

Kevin Miles, npower northern Ltd residential director, delivered a mitigating speech to the court.

He said: "I would like to take this opportunity to apologise to those customers. This was not a deliberate attempt to mislead." He explained that North-East customers had been confused because the company had recently bought out Northern Electric, but wanted to include it's customers in its national price freezing promotion. But because the former company charged less, their tariffs had to brought up to the level of all npower customers.

Magistrates ruled their sentencing powers - a maximum £5,000 fine - were insufficient and sent the case to crown court for sentencing at a later date.

Following yesterday's hearing, npower released the following statement: "We accept that we made a mistake by not adding into our printed materials all the information that was explained on the telephone to customers wishing to sign up, but all our marketing was carried out in good faith.

"We have reinforced the checks and balances in our campaign procedures to help ensure this doesn't happen again.

"Meanwhile customers who took up this offer have still benefited from the certainty that the price freeze gave them for the whole of last year."