LONDON (Reuters) - Britain’s competition watchdog said the planned merger of SSE’s (SSE.L) retail power and gas business in the UK with Npower, owned by German rival Innogy (IGY.DE), could lead to higher prices for customers and warrants further scrutiny.
The watchdog said the merger would be referred for a longer Phase 2 investigation unless the parties offer acceptable undertakings to address the competition concerns.
“We know that competition in the energy market does not work as well as it might,” said Rachel Merelie, senior director at the Competition and Markets Authority (CMA).
“However, competition between energy companies gives them a reason to keep prices down.
“We have found that the proposed merger between SSE Retail and Npower could reduce this competition, and so lead to higher prices for some customers. We therefore believe that this merger warrants further in-depth scrutiny.”
SSE said on Thursday it remained confident the proposed merger will benefit customers and the energy market as a whole, and that it will be able to demonstrate this to the CMA.
The utility will take its time to assess CMA’s response.
Combined, SSE and Npower have around 11.5 million customers, making the new company second only to Centrica’s (CNA.L) British Gas, which has more than 14 million customer accounts.
Energy prices have come under the political spotlight after household bills doubled over the past decade to an average of about £1,150 ($1,600) a year. The government now aims to impose price caps for a large portion of customers.
“The proposed merger between SSE and Npower risks damaging the development of a more competitive energy market, reducing consumer choice, and threatening to be a bad deal for energy consumers,” said Rachel Reeves, a British lawmaker who chairs the Business, Energy and Industrial Strategy Committee.
The British market is dominated by the so-called “big six” of British Gas, SSE, Iberdrola’s (IBE.MC) Scottish Power, Npower, E.ON [EON.UL] and EDF Energy (EDF.PA), which account for about 80 percent of the retail electricity market.
But aside from facing price caps on their most common tariffs, standard variable tariffs, these companies have also been rapidly losing market share to smaller rivals — they had 95 percent of the market just three years ago.
($1 = 0.7161 pounds)
Reporting by Kate Holton and Oleg Vukmanovic; additional reporting by Sabina Zawadzki; editing by Keith Weir and Alexandra Hudson