Six to become Five – SSE and N-Power approved

Six to become Five – SSE and N-Power approved

The Competition and Markets Authority has approved the merger between SSE Retail and N-Power without conditions and after a detailed investigation.

The combination will merge SSE Retail and Npower’s supply operations but other SSE activities such as generation and distribution remain separate.  British Gas (owned by Centrica), Scottish Power (owned by Iberdrola), E.On and EDF will remain independent among the larger energy companies.

The CMA launched a second phase probe amid concerns about the potential impact of the merger on customers on standard variable tariffs (SVTs), recalling concerns in its 2014-2016 broader market investigation that households on those tariffs do not tend to shop around.

In its in-depth merger review, however, the CMA found that switching levels between energy providers were at the highest they have been in a decade.  The CMA found that the main constraint on SVT pricing was that any increase would result in customers being engaged and then switching either to the supplier’s own internal lower tariffs or to a competitor.  This increase in switching was also fuelled by the number of internal and external prompts that the customer receives on better offers that may be available.  Of those customers who did switch, the CMA found that they tended not to move between the merging parties.

The clearance also anticipates the introduction of new energy price caps as proposed by Ofgem which will limit the prices that energy companies can charge for typical annual usage to £1,136.  The Money Advice Service has said that deals are available up to £300 cheaper than the cap.

This is the fifth transaction that the CMA has approved unconditionally in the 2017-2018 financial year.  This trend is probably reflective of the relatively low threshold to launch an in-depth review, relative to the strict standard for prohibition.

The extent of change in the energy market, highlighted by the CMA’s merger investigation, is relevant.  However, even with 70 or so energy companies the CMA continues to believe that the market is not working as well as it might for some customers who do not switch.  That is why it looked at SVTs closely, as customers on those tariffs were historically ‘sticky’.  Nevertheless, the clearance is a significant example of the CMA examining a complex transaction in light of the evolving market and regulatory developments.