The UK competition watchdog has threatened an in-depth investigation of the merger of household energy suppliers SSE and Npower, unless they address concerns that the deal will reduce competition and raise prices.
An initial Competition and Markets Authority probe of the merger of two of Britain’s “big six” suppliers found that the “rivalry” between large energy companies “is an important factor in how they set tariffs”. On Thursday, the CMA gave notice of a full investigation if the two companies do not offer undertakings that address its concerns within seven days.
The combination of the household supply business of London-listed SSE and Npower, owned by Germany’s Innogy, would reduce the big six to five and create a new company with just under 13m customer accounts. It would have a larger share of electricity supply than British Gas, the market leader — 24 per cent compared with 22 per cent, although its market share for gas would still be dwarfed by British Gas.
“We know that competition in the energy market does not work as well as it might. However, competition between energy companies gives them a reason to keep prices down,” said Rachel Merelie, senior director at the CMA.
“We have found that the proposed merger between SSE Retail and Npower could reduce this competition, and so lead to higher prices for some customers. We therefore believe that this merger warrants further in-depth scrutiny.”
The two sides have until May 3 to offer measures to address the CMA’s concerns. The watchdog is understood to be specifically 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 is going through parliament to cap SVTs.
SSE said it will take time to assess the CMA’s position but chief executive Alistair Phillips-Davies said the company was confident that “the proposed merger will deliver benefits for customers and for the energy market as a whole”.
“The energy market isn’t working for consumers,” said Rachel Reeves, MP and chair of parliament’s business, energy and industrial strategy committee. “The proposed merger . . . risks damaging the development of a more competitive energy market, reducing consumer choice, and [threatens] to be a bad deal for energy consumers.”
Alex Neill of the consumer group Which? said: “Given that both of these energy suppliers also struggle on customer service, coming in at the bottom half of our satisfaction survey, it’s vital that there is thorough scrutiny of the impact on consumers before allowing any venture to go ahead.”
Npower owner Innogy is in turn controlled by 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 will seek undertakings to ensure Eon does not end up owning its own UK retail business while retaining its stake in a merged SSE-Npower.