Watchdogs clear deal
SSE-Npower merger ‘does not pose competition risk’ says CMA
Katie Bickerstaffe: new CEO of the combined group
Competition watchdogs have cleared the proposed merger between SSE Retail and Npower after accepting that it does not pose competition issues.
The decision follows a review by the Competition and Markets Authority (CMA) into how the merger would affect householders. The group specifically examined competition concerns around how the deal would impact ‘standard variable tariff’ prices.
Following a period of consultation, the CMA has decided to clear the merger after finding that SSE and Npower are not close rivals for customers on these tariffs.
Anne Lambert, chairman of the inquiry group, said: “With many energy companies out there, people switching away from expensive standard variable tariffs will still have plenty of choice when they shop around after this merger.
“But we know that the energy market still isn’t working well for many people who don’t switch, so we looked carefully at how the merger would affect SVT prices. Following a thorough investigation and consultation, we are confident that SSE and Npower are not close rivals for these customers and so the deal will not change how they set SVT prices.”
The CMA found that the number of people switching energy provider is the highest in a decade and the proportion on SVTs has fallen, with customers usually switching to a cheaper, non-SVT, tariff.
However, as those who do not switch are usually on one of the large energy suppliers’ already expensive SVTs, the CMA carefully examined whether the merger would change how larger suppliers set these prices.
It found that SVT prices are mainly driven by changing wholesale costs, but the large energy suppliers take account of each other’s tariff changes when choosing the size and timing of their own. Bad publicity from being the first to increase charges or make bigger increases means more of their customers switch away. The CMA therefore carefully considered whether a reduction in the number of large suppliers would encourage larger or earlier tariff changes.
It found that in this case SSE and Npower do not pay special attention to each other, consistent with the evidence that they are not close rivals for SVT customers, who instead prefer to move to other suppliers. Therefore, the merger is not expected to have a significant impact on SVT pricing.
Looking ahead, Ofgem’s price cap is also expected to protect people on standard variable tariffs.
As part of its assessment, the inquiry group examined evidence from the six large energy suppliers; smaller suppliers; customer groups; and regulators, before going on to consult on its provisional clearance. It received no evidence during the consultation that altered the provisional decision.
Alistair Phillips-Davies, chief executive of SSE, said: “We are very pleased that the Final Report of the CMA’s investigation confirms its provisional findings that the proposed merger of SSE Energy Services and npower does not raise any competition concerns.
“This is a complex transaction and there is still much work to do in the coming weeks and months.
“However, we’ve always believed that the creation of a new, independent energy and services retailer has potential to deliver real benefits for customers and the market as a whole and it is good to see that the CMA has cleared the transaction following what was a comprehensive and rigorous inquiry.”