SSE and Npower, two of Britain’s “big six” household energy suppliers, are bracing for the UK competition watchdog to launch an in-depth investigation of their proposed merger.
The Competition and Markets Authority signalled last month it was concerned that the merger, which was announced last November, could hit competition and lead to higher bills for consumers. The companies had just seven days — until midnight last Thursday — to offer undertakings to address these concerns. An announcement by the CMA whether to launch a full probe could be made this week.
The combination of the household supply business of London-listed SSE and Npower, owned by Germany’s Innogy, would reduce Britain’s “big six” energy suppliers to five and create a new company with nearly 13m customer accounts. It would have a larger share of electricity supply than British Gas, the market leader, with a 24 per cent share compared with 22 per cent. Its market share for gas, however, would still be dwarfed by British Gas.
The watchdog is understood to be concerned about the impact of the proposed deal on “standard variable tariffs”, the most common type of energy tariff. The government has promised to tackle “rip-off” energy bills and legislation to cap SVTs is currently making its way through parliament. SSE has the highest proportion of customers on SVTs among the “big six” suppliers.
SVTs have no fixed end date and tend to be pricier than deals offered to customers who shop around. A majority of UK households are on SVTs despite the savings available by switching to cheaper, fixed deals.
Politicians have for years been wrestling with the problem of encouraging people to take advantage of competition in the market. There are now more than 60 suppliers who offer household energy but the “big six” still dominate with around 80 per cent of the market.
When the merger was announced, analysts were divided as to whether it would arouse competition concerns. One potential way around the CMA’s objections would be for the companies to offer to reduce their share of the SVT market by moving customers to fixed deals. The companies have insisted that the deal will deliver benefits for consumers.
Npower owner Innogy is in turn controlled by Germany’s RWE. The merged business would initially be part-owned by SSE shareholders with a minority share held by Innogy. Since the merger was announced in November, a separate deal has been agreed whereby RWE has agreed to sell Innogy to Eon, another German supplier which also has a UK retail business. Analysts believe the CMA may require Innogy to sell its stake in the merged SSE/Npower business to alleviate further competition concerns.
The CMA declined to comment. A spokesperson for SSE declined to comment. Npower said: “Until the CMA makes an announcement we are unable to confirm whether or not we have put forward measures to address the CMA’s concerns. Either way, we will continue to assist the CMA, so that we can continue working towards establishing a new independent, customer-focused company.”