The npower-SSE merger could lead to higher consumer energy bills and warrants further scrutiny, the competition watchdog has said.
Sources at the firms, two of the big six energy suppliers, had expected the merger to get the go-ahead by the Competition and Markets Authority.
But on Thursday the watchdog said the move could “result in a substantial lessening of competition”.
Unless the firms can address concerns by 3 May, the CMA will now embark on a second stage of its investigation.
Combining the two suppliers would create an energy company with nearly 13m customers, second only to British Gas in size. It would also reduce the big six to the big five.
Rachel Merelie, Senior Director at the CMA, said: “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. We therefore believe that this merger warrants further in-depth scrutiny.”
Consumer group Which? said the watchdog was right to warn that households could be left worse off.
“Given that both of these energy suppliers also struggle on customer service, coming in the bottom half of our satisfaction survey, it’s vital that there is thorough scrutiny of the impact on consumers before allowing any venture to go ahead,” said Alex Neill, Which?’s managing director of home products and services.
Alistair Phillips-Davies, SSE chief executive, 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.”
The two suppliers recently designated the chief executive designate of the new firm as Katie Bickerstaffe, potentially the first female boss of a big energy supplier. Bickerstaffe was previously CEO at Dixons Carphone Plc.
Npower and SSE had hoped to have the new supplier up and running by the end of this year, or the first quarter of 2019 at the latest. It is not yet clear whether the watchdog’s deeper investigation will derail that timetable.
Earlier this month, npower’s parent company Innogy SE had said it was “right on schedule” with preparations for the merger.
Npower and SSE are the only two of the big six yet to raise energy bills for customers this spring.