Big Six U.K. Energy Suppliers to Shrink to Five as Merger Passed

(Bloomberg) -- Britain’s “Big Six” energy suppliers are set to become five after the merger of SSE Plc and Innogy SE’s retail units was provisionally approved by the Competition and Markets Authority.

The new provider will be Britain’s second-biggest and worth about 2.6 billion pounds ($3.4 billion), according to RBC Europe Ltd. estimates. The antitrust watchdog said that a government-imposed tariff cap would help protect customers from the threat of higher prices.

The CMA’s in-depth review of the merger follows a separate investigation into energy market competition, which found that 70 percent of customers at the six largest energy firms were on so-called standard variable tariffs, the most expensive deals. The findings led Prime Minister Theresa May to introduce a price cap for such contracts, due to start by the end of the year.

On Thursday the CMA found that “the number of people switching energy provider is the highest in a decade and the proportion on SVTs has fallen.”

The panel examining the merger found that, after initial concerns, SSE and Innogy’s Npower aren’t close rivals on variable tariffs. The clearance means the deal is on track for completion by the end of its financial year, SSE said in a statement.

“It is vital that householders have a range of energy suppliers to choose from so they can find the best deal for them,” Anne Lambert, chair of the inquiry group at the CMA, said in a statement. “With more than 70 energy companies out there, we have found that there is plenty of choice when people shop around.”

While British regulator Ofgem has successfully increased the number of suppliers by lowering the barriers to entry for small companies, the shortcomings of this approach were exposed after two suppliers went into administration in July and a third earlier this month.

Read more on the inquiry into the merger here

The CMA is seeking views and evidence on its provisional decision by Sept. 20. It plans to publish a final report by Oct. 22.

“We remain confident that the formation and listing of the new company is on track for completion by the end of SSE’s financial year,” SSE Chief Executive Officer Alistair Phillips-Davies, said in its statement.

Merging the companies will be complicated. The new utility will be led by Katie Bickerstaffe as CEO who is expected to take up her role on Sept. 24. Gordon Boyd, the new chief financial officer designate, has already started in his position.

“A major hurdle will be how to combine the systems and upgrade them without huge disruption and loss of customers,” Lakis Athanasiou, a utilities analyst at Agency Partner LLP in London said. “A lot will depend on the quality of management and its ability to project-manage the process.”

Innogy will hold 34 percent in the combined retail company and SSE will demerge its 66 percent stake to its shareholders upon completion of the transaction.

“This deal marks a significant consolidation in energy retail - shrinking the Big Six to Big Five, and will knock off Centrica’s crown as the U.K.’s largest electricity supplier,” said Meredith Annex, an analyst at Bloomberg New Energy Finance.

Centrica Plc is the U.K.’s biggest supplier with 12.9 million accounts at the end of 2017. The new merged company will have 11.5 million accounts, according to Bloomberg NEF. In electricity the new supplier will be the biggest with a 24 percent market share compared with Centrica’s 20 percent, Ofgem figures show.

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