The big six energy retailers are set to become the “big five” as the Competition and Markets Authority’s (CMA) has given the green light to the proposed merger between SSE Retail (SSE) and Npower.
The decision comes after provisional clearance was given by the inquiry group of independent CMA panel members at the end of August.
Following a thorough review, the panel investigated how the merger would affect householders. The group specifically examined competition concerns around how the deal would impact standard variable tariff (SVT) prices.
The CMA said it has decided to clear the merger after finding that SSE and Npower are not close rivals for customers on these tariffs.
Anne Lambert, chair 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.”
Npower’s parent company, Innogy, has welcomed today’s (10 October) final clearance for the creation of a new, independent British energy supply and services company.
It said preparations for the new retail company “are progressing” and parties have achieved important milestones in recent months including the transaction being backed by SSE shareholders.
Katie Bickerstaffe, the designate chief executive of the company, which is yet to be named, is also now in place along with designate chief financial officer Gordon Boyd and designated chairman Dr Martin Read.
Meanwhile the designated executive committee has now been appointed and preparations for the new company continue, subject to necessary “legal restrictions”.
Martin Herrmann, chief operating officer retail of Innogy SE, said: “We will continue to work to complete everything required to create the new company. Today’s final CMA clearance is a further step in setting up this new company which will combine the best of what both retail businesses have to offer and build a better company for customers.”
The CMA said it 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 said.
It “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.
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.