The decision comes after a provisional clearance from the inquiry group of independent Competition and Markets Authority (CMA) panel members, who investigated how the merger would affect householders. The group specifically examined competition concerns around how the deal would impact ‘standard variable tariff’ prices.
Following a period of consultation, the CMA 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.”
The CMA 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 therefore 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.
Looking ahead, 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.
Commenting on the Competition and Markets Authority’s merger approval Peter Earl, Head of Energy at comparethemarket.com, said “This may be a farewell to the Bix Six but the Big Five won’t look very different. This deal is a defensive move from two companies,who amongst other things, must be worried about the rise of the challenger energy companies. They are right to be worried. The energy market is changing and for the better. The old Big Six business model, which relied on people staying on uncompetitive standard variable tariffs and profiting from this inertia, is finally coming under strain. Both companies have been losing customers’ trust in recent years as more and more people have started to realise that they are penalised by staying with the same provider.
“However, sadly, we think that many customers will continue to remain on uncompetitive tariffs, which will be priced just below Ofgem’s cap. We are concerned that the price cap will play into the likes of SSE-Npower’s hands, lulling people into thinking that they won’t need to switch to get the best deal. SSE-Npower will clearly be hoping that this comes to pass. In the vast majority of cases though, people will still need to switch to get the best and most competitively priced tariffs.”