Npower-SSE merger wins go-ahead from competition watchdog
Big six shrinks to big five as CMA clears way for major shakeup of energy sector
The competition watchdog has provisionally given the green light to the merger of npower and the retail arm of SSE, removing the final hurdle to the biggest shakeup of the energy sector in years.
An investigation by the Competition and Markets Authority found that the two firms did not compete closely for customers on default tariffs which most people are on. Few people switched between the pair, it added.
However, Anne Lambert, chair of the CMA’s inquiry group, said: “Our analysis shows that the merger will not impact how SSE and npower set their standard variable tariff [default] prices because they are not close rivals for these customers.”
The approval from the watchdog clears the German-owned npower and UK-listed SSE to create a behemoth with 11 million customers that is second in size behind market leader British Gas, which has 12.6 million.
The merger is expected to complete in the last quarter of 2018 or first quarter of 2019.
The big six will then shrink to the big five, though challenger companies including Ovo, First Utility and Bulb are not far behind.
SSE said it was pleased by the CMA’s finding. “The planned transaction presents a great opportunity to create a more agile, innovative and efficient company that really delivers for customers and the energy market as a whole,” said Alistair Phillips-Davies, the firm’s chief executive.
Innogy SE, npower’s parent company, said the verdict was an important milestone and its plans for the merger were on schedule.
The 34.4% stake held by Innogy SE in the new company is slated to be transferred over to rival German energy firm E.ON next year, as part of a huge asset swap between E.ON and Innogy SE owner RWE.
The CMA merger inquiry looked at whether the market consolidation would lead to bigger rises in default tariffs, or to hikes being announced earlier.
It concluded neither prospect was likely, because the large suppliers benchmark their prices against all the other big players rather than one specific firm.
But consumer group Which? said it would be “watching closely” to see whether households faced higher energy prices as a a result of the merger going ahead.
Labour said the decision was concerning and warned that consumers could suffer from poor service if the merger resulted in job cuts.
Alan Whitehead, shadow energy minister, said: “Given that both of these companies already struggle to provide good customer service, job losses in customer care as well as other departments must be avoided at all costs.”
There are now 72 domestic energy suppliers for consumers to choose from, according to the CMA. Comparison site MoneySuperMarket said that gave people a “significant” number of alternatives if the newly merged firm was too expensive.
One cloud facing the new company is Theresa May’s price cap on default tariffs, also known as standard variable tariffs, which is due to take effect at the end of the year.
The prime minister promised that consumers on SVTs will save up to £100 on their annual bill, which will hit profit margins at the big six.
With more than two thirds of its customers on SVTs, SSE is heavily exposed to the cap.
George Salmon, equity analyst at Hargreaves Lansdown, said: “Should the cap be more severe than expected, the new business would face a fresh headwind from day one.”
The merged company will be headed by the first woman to be a chief executive at a large supplier, Katie Bickerstaffe, the former chief executive of Dixons Carphone.
News source:The Guardian