By Sabina Zawadzki
LONDON (Reuters) - British regulators have launched an in-depth investigation into the tie-up between the retail power unit of SSE (LON:SSE) Plc and Npower, owned by Germany's Innogy, saying it may reduce competition and increase prices for some households.
The merger would create Britain's second-largest retail power provider and reduce the "Big Six" dominating the market to five companies when they are already facing political scrutiny for their tariffs and pressure from smaller rivals.
It also comes as German energy giants RWE and E.ON plan to carve up Innogy. The deal would make E.ON, another of the "Big Six", the parent company of Npower. Analysts have said that may complicate the SSE-Npower merger.
The Competition and Markets Authority (CMA) warned at the end of April it would launch a deeper probe, which typically lasts 24 weeks and can be extended, unless the two companies propose solutions that would lift its concerns.
"SSE and Npower did not offer measures to address the CMA's concerns, and so it has referred the merger for a more in-depth, Phase 2 investigation," the regulator said in a statement. "The deadline for the final report is Oct. 22."
Combined, SSE and Npower would have 11.5 million customers, making the new company second only to Centrica's British Gas, which has more than 14 million customer accounts.
INDUSTRY UNDER FIRE
Even before the announcement of the merger last November, the industry had faced criticism as household bills doubled over the past decade despite years of market liberalisation that was meant to make energy more affordable.
Last month, the influential Business, Energy and Industrial Strategy Committee of lawmakers said the deal could damage competition and would reduce consumer choices. They had already called the energy market "broken".
On Tuesday, however, the two parent companies disagreed.
"We did not put forward measures to address the CMA's concerns because we firmly believe this merger will be good for competition as it stands," Innogy said in an emailed statement.
"It will create an independent, customer-focused company, offering customers a more efficient, improved service - and bring benefits to the wider market as well."
SSE said it was on track to complete the formation and listing of the new company in the last quarter of 2018 or first quarter of 2019 despite the investigation.
"A Phase 2 referral is a well-established process for transactions of this nature and we remain confident that the proposed merger will deliver benefits for customers and the energy market as a whole," SSE Chief Executive Alistair Phillips-Davies said in a statement.
The British market is dominated by British Gas, SSE, Iberdrola's Scottish Power, Npower, E.ON (EON.UL) and EDF (PA:EDF) Energy, which account for about 80 percent of the retail electricity market.
But those six companies held 95 percent of the market share just three years ago and have shed customers to much smaller rivals; increasing pressure on their revenues.
Additionally, the government plans to impose price caps on the most common tariff from these companies, the standard variable tariff, by the winter of this year to tackle what Prime Minister Theresa May called "rip-off" prices.