Proposed SSE retail and Npower merger passes first hurdle

A proposed merger between SSE Retail (SSE) and Innogy’s retail arm Npower looks set to go ahead.

The Competition and Markets Authority (CMA) announced this morning (30 August) that it has “provisionally found” that the proposed merger between the big six suppliers SSE and Npower, which would effectively create a big five, “does not raise competition concerns.”

It said an inquiry group of independent CMA panel members has investigated how the merger would affect householders, following initial concerns about the potential impact on standard variable tariffs (SVTs) – the most common and expensive energy tariff.

In a statement, the CMA said as part of its in-depth review, the inquiry group has provisionally decided to clear the deal after finding that SSE and Npower do not compete closely on SVT prices.

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 out there, we have found that there is plenty of choice when people shop around.

“But 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.

“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.

“Looking ahead, Ofgem’s price cap is also expected to protect SVT customers.”

The CMA found that the number of people switching energy provider is the highest in a decade and the proportion on SVTs has fallen.

However, as previously outlined in its energy market investigation, the CMA has found that those people who do not switch, for whatever reason, are usually on one of the large energy suppliers’ SVTs and pay higher prices. Therefore, the CMA carefully examined whether the merger would change how the large energy suppliers set these prices.

SSE shareholders backed the proposed merger on 19 July. It followed the publication of a circular in which the company’s chairman Richard Gillingwater urged them to vote through the deal.

The CMA said it has found:

• If SVT customers switch, they usually change to a cheaper, non-SVT, tariff.
• The risk of losing customers as a result of an SVT price rise will not change with the merger.
• Evidence that few customers switch between SSE and Npower, instead preferring to move to other suppliers.
• SSE and Npower do not compete closely on SVT prices.
• SVT prices are mainly driven by changing wholesale costs.

Therefore, the merger is not expected to have a significant impact on SVT pricing.

As part of its assessment, the CMA said it examined evidence from the six large energy suppliers; smaller suppliers; customer groups; and regulators. This included hearings with consumer groups and suppliers in Scotland where SSE has a large share of consumers. None of these raised substantive concerns about the effects of the merger on householders.

The CMA is now welcoming views and evidence on its provisional decision by 20 September before coming to a final view. The statutory deadline for the CMA’s final report is 22 October 2018.