Plans for a merger between Big Six energy suppliers SSE and npower face an in-depth investigation by regulators on fears that the deal could mean higher bills for households.
The Competition and Markets Authority (CMA) found after an initial inquiry that the tie-up could reduce competition – potentially leading to higher prices.
On Tuesday it said that SSE and npower “did not offer measures to address the CMA’s concerns” so it has referred the merger for a “phase 2” probe, with a deadline for the final report on 22 October.
The deal, agreed in November, would see SSE and Innogy – npower’s German owner – demerge their UK supply operations to create a new London-listed company.
Video: Nov 2017: Can Big Six merger be good for customers?
It would consolidate SSE’s position as the country’s second largest supplier of household energy behind Centrica-owned British Gas, with a combined customer base of more than 11 million and revenues of £11bn.
The tie-up would reduce the number of dominant companies in UK energy supply from a “big six” to a “big five” and has prompted demands by MPs for a full CMA probe.
A deal announced in Germany in March that will see npower’s current ownership pass to E.On – another Big Six supplier – has added complication to the deal because of the possibility it could further narrow the market.
Video: Nov 2017: What’s behind Big Six firms’ merger plans?
The CMA has said it would engage with the companies to consider the implications.
However Innogy has said that it does not expect the deal to have a “material impact” on the npower-SSE merger.
The plans come amid sustained political pressure over the issue of customers overpaying for their gas and electricity usage.
A series of Big Six suppliers have already announced price hikes this spring for customers who are on standard tariffs.
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They have generally blamed the higher price of wholesale energy as well as the cost of delivering Government energy policy measures such as the roll-out of smart meters.
In March, npower reported an annual loss for the third year in a row, pointing to intense competition as it lost 155,000 customers and highlighting the challenges facing the industry including plans by the Government to impose a cap on standard energy tariffs.