Npower SSE Merger Provisionally Cleared by CMA

The Competition and Markets Authority (CMA), the government watchdog responsible for overseeing business competition, has provisionally given the go-ahead for the merger of SSE and Npower, two of the UK’s largest energy firms.

The plan, to merge SSE’s household energy division into Npower’s UK setup, was announced in November 2017.  The new provider would be the country’s second largest energy firm, after British Gas.  SSE’s retail business would be divided from its supply arm, the latter being the division to merge with Npower into a new listed company.  The firms will benefit from administrative cost-cutting and the possession of even greater weight on the supply chain, in theory allowing for lower gas and electricity prices.  Analysing the move, George Salmon from investment firm Hargreaves Lansdown said that “the combination [of SSE] with Npower means potential cost savings, and should help restore the benefits of scale that have been eroded by steadily declining customer numbers.”

The CMA launched an inquiry based on concerns over the impact that this would have on household bills, with fewer competitors for major firms.  The watchdog has not found enough evidence that the deal would have a major impact on consumer tariffs, however, withdrawing its opposition to the merger.

Anne Lambert, chair of the inquiry group, said: “It is vital that householders have a range of energy suppliers to choose from so they can find the best deal for them.  With more than 70 energy companies, we have found that there is plenty of choice when people shop around.”

She pointed out that the major contributor to excessive household bills was not a lack of provider competition, but rather than consumers were not aware of their options: “Many people don’t shop around for their energy.  So we carefully scrutinised this deal, in particular how it would impact people who pay the more expensive standard variable prices (SVTs).  Our analysis shows that the merger will not impact how SSE and Npower set their SVT prices because they are not close rivals for these customers.”

The energy market has experienced a boom in providers in recent years, with numerous tech-orientated challenger firms shaking the standard client base of the Big Six – soon to be reduced to the Big Five with the SSE-Npower merger.  There are currently over 70 providers in the UK offering standard tariffs to the ordinary consumer.

The deal is projected to be completed, at least on paper if not on the ground, by the end of the year, with SSE chief executive Alistair Phillips-Davies saying that he was “confident” that all would be sorted by the end of the financial year at latest (31^st March 2019).  A potential speed bump would be the government’s unveiling of an energy price cap, the exact level of which is expected to be revealed by Ofgem in the near future.  The CMA’s final report will be delivered by the end of the October, although few more major headlines are forecast.

Ben Rich

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