Octopus takeover of Shell will be firmly in CMA’s sights

It seems incredible that when I joined Utility Week as a reporter in July 2018, Octopus Energy was serving just 250,000 customers. Fast forward five years and Octopus is second only to British Gas in its domination of the energy retail market.

Octopus came into the market as an upstart challenger in 2016, making a virtue of the fact it was outside the big six, referred to as a “cosy oligopoly” by founder Greg Jackson. Now, with the acquisition of Shell Energy’s retail portfolio in the UK (and Germany) Octopus is a major player in a big six that accounts for 90% of the energy supply market – a higher penetration than in 2016.

Not everyone is happy with the retailer hoovering up such a large market share. Earlier this year its acquisition of Bulb’s 1.5 million customers was subject to a High Court challenge by rivals British Gas, Eon and Scottish Power. The case was ultimately thrown out, but its latest move will see Octopus grow by a similar number (1.4 million) to a staggering c.6.5 million UK customers.

With this kind of scale, Octopus must be prepared for scrutiny and judging by the conversations I’ve had with industry experts over the past few days, it seems likely the Competition and Markets Authority (CMA) will want to take a look at how far Octopus’ tentacles are stretching.

Its growth over the past seven years is simply staggering. I admit that during the last few years the market has seen unprecedented volatility which resulted in swathes of retailers going to the wall, requiring companies to step up and take on those customers who saw their supplier fail. Octopus itself took on 580,000 Avro Energy customers in what was the biggest Supplier of Last Resort (SoLR) transfer ever.

Yet last week’s announcement marked the first major acquisition in normal times for, well, some time. The last time we saw such a huge transfer of customers pre-crisis and pre-Covid was when Ovo bought SSE’s retail arm – four years ago this month. With concerns from rivals already resulting in a High Court challenge, and the market coalescing once again around a limited number of players, it seems inevitable the case will pique the interest of the CMA.

It is easy to see why it would make sense for the watchdog to review the Shell acquisition. Already soaring global wholesale prices have been exacerbated by the war in Ukraine and energy bills have reached unprecedented levels in the past 18 months. As a result, the energy retail sector has come under scrutiny like never before. Every week it seems the industry is at the top of the mainstream news agenda – a prospect which I could never have foreseen as a junior reporter back in 2018. Yet here we are, the crisis is at the forefront of the agenda and it is only reasonable to expect a company taking on so many millions of customers in such a short space of time to fall under the watchful eyes of the CMA.

Octopus does have the option to head off any pushback it might receive as a result of its latest deal. Companies can go to the CMA proactively, before completing any acquisition, to allow the watchdog to examine the terms of the deal to ensure it is above board. This may be an option for the retailer to quell any fears about unfair impacts to competition.

This is not to say that Octopus is the wrong supplier for the job, far from it. After all, it is a company which is consistently lauded for its exceptional customer service and it has positioned itself as a true market innovator. That aside, the only other realistic alternatives would make other already very large suppliers even larger.

But deals as large as this must be subject to the utmost scrutiny to ensure competitiveness and that customers are getting a fair deal.

Over to you, CMA.