The merger between energy giants Npower and SSE could reduce competition and lead to higher prices for some households, according to Britain’s competition watchdog.
The Competition and Markets Authority (CMA) said it would refer the deal for a full-blown investigation unless the two Big Six providers can address its concerns.
Its initial inquiry found the reduction in the number of large players in the UK market caused by the merger could impact competition and leave some customers worse off.
Rachel Merelie, senior director at the CMA, said: “We know that competition in the energy market does not work as well as it might. 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.”
She added the deal “warrants further in-depth scrutiny”, but said the two firms have until 3 May to offer measures to address the CMA’s findings.
SSE said it will “take its time” to assess the CMA’s statement.
Alistair Phillips-Davies, chief executive of SSE, said: “We remain confident that the proposed merger will deliver benefits for customers and for the energy market as a whole and that we will be able to demonstrate this to the CMA in due course. We look forward to continuing to work constructively with the CMA and other interested parties.”
The two energy giants announced in November that their British household energy supply and services businesses would join forces, reducing the Big Six energy suppliers to five.
The CMA had already raised worries over the impact of the deal on the energy market, which is already under pressure amid concerns over unfair tariffs, with a government-enforced price cap set to be introduced on standard variable tariffs (SVTs) later this year. Under the proposed deal, the new company will be listed on the London Stock Exchange with SSE shareholders holding 65.6 per cent and Npower owner Innogy holding 34.4 per cent.
SSE, formerly known as Scottish and Southern Energy, is Britain’s second biggest energy supplier and the merged group will serve around 11.5 million customers.
Centrica, Iberdrola (Scottish Power), E.On and EDF make up the remainder of the Big Six.
Major suppliers are facing a raft of regulatory changes after legislation designed to cap “poor-value” energy tariffs for 11 million British households was introduced in Parliament in February.
The Domestic Gas and Electricity (Tariff Cap) Bill would allow Ofgem to limit tariffs until 2020, with the option to extend the cap annually until 2023.
Prime Minister Theresa May said the bill, which the government hopes will become law before next winter, would “force energy companies to change their ways”.