Affected market: Electricity and gas
The OFT’s decision on reference under section 22 given
on 19 April 2006. Full text of decision published 11 May 2006.
Please note that square brackets indicate text or figures which have
been deleted or replaced with a range at the request of the parties or
third parties for reasons of commercial confidentiality.
Npower Ltd (Npower) is active in the supply of electricity and gas
in the UK. Npower is the retail arm of RWE Npower plc (RWE Npower), the
UK energy operating company of German multi-utility group RWE AG. RWE
Npower is active in electricity generation and trading, the supply of
gas shipping and the supply of engineering services in the UK.
Telecom Plus plc (Telecom Plus) provides a range of utility services
primarily to domestic customers in the UK. The Telecom Plus electricity
and gas businesses comprise the following subsidiaries: (i) Electricity
Plus Supply Ltd (Electricity Plus), which is active in the supply of
electricity to domestic customers; (ii) Gas Plus Supply Ltd (Gas Plus),
which is active in the supply of gas to domestic customers; and (iii)
Plus Shipping Services Ltd (Plus Shipping), which provides gas shipping
to Gas Plus.
The transaction involves the acquisition by Npower of the entire issued
share capital in the Telecom Plus electricity and gas businesses as well
as the benefit of the Telecom Plus forward electricity hedge book
On 17 February 2006 the parties notified the proposed acquisition to the
OFT. The administrative timetable will expire on 19 April.
NPower and the Telecom Plus electricity and gas businesses will cease to
be distinct as a result of these arrangements. The OFT believes that the
share of supply test set out in section 23 of the Enterprise Act 2002
(the Act) is met with regard to the supply of electricity to domestic
customers in the UK (see [Note 1]) and, therefore, it is or may
be the case that arrangements are in progress or in contemplation which
if carried into effect will result in the creation of a relevant merger
The parties overlap in the retail supply of electricity and gas to
domestic customers in the UK. To the extent that Telecom Plus does not
supply electricity and gas to industrial customers, there is no direct
overlap between the parties in this segment. Therefore, the supply of
electricity and gas to industrial customers will not be considered
further in this decision.
There is also a direct overlap in the supply of gas shipping as RWE
Npower and Plus Shipping supply gas shipping to retail suppliers. Since
the parties' combined share of supply in gas shipping of less than 5
per cent would not give rise to any competition concerns, this is not
discussed further in the decision.
Referring to a previous OFT decision (see [Note 2]), the parties
submit that the supply of electricity and gas should be considered
distinct relevant frames of reference. Although some customers still
purchase gas and electricity separately, market intelligence suggests
that this approach may no longer be valid. For example, over 85 per cent
of customers who have switched electricity or gas supplier have switched
to dual fuel contracts, which represent around two thirds of electricity
and gas customers. This figure is predicted to increase due to the costs
savings which customers can achieve (see [Note 3]). The supply
side has been characterised by entry from former incumbent gas and
electricity companies supplying both types of fuel. For example, British
Gas, with 53 per cent share in gas supply competes with the large
electricity companies in the supply of gas in Great Britain. Suppliers
tend to focus on marketing dual fuel (Npower and Telecom Plus have a
high proportion of dual fuel customers, [ ] per cent and [ ] per
cent respectively). Some third parties support a single frame of
reference for the supply of electricity and gas.
The OFT considers that it is not necessary to reach a final view on the
scope of any relevant frame of reference because, even when considered
on a narrow disaggregated basis, no competition concerns arise. For
completeness, we have however considered share of supply data in
relation to the supply of (i) electricity; (ii) gas; (iii) dual fuel to
Ofgem grants electricity and gas supply licences that cover Great
Britain. While the former regional incumbent suppliers generally still
enjoy high shares of supply in those areas, as noted above, evidence
shows that customers have been switching to new entrant suppliers. There
is further evidence that switching costs are low, switching rates have
been steady (around 10-15 per cent per annum), and the rate of customers
switching away from the former incumbent suppliers is high (e.g. around
45 per cent of electricity domestic customers are no longer with their
former incumbent suppliers).
For the purposes of analysing the competition effects of this case, the
OFT has therefore considered the geographic frame of reference for the
supply of electricity and gas to be as wide as Great Britain.
The parties’ combined shares of supply (see [Note 4]) in each
of electricity, gas and dual fuel to domestic customers in Great Britain
will vary between 10 per cent and 20 per cent with very negligible share
increments (less than 1 per cent).
In each of the considered relevant frames of reference, post-merger,
NPower will still be constrained by other larger suppliers such as
British Gas plc, Powergen plc, Scottish and Southern plc, EDF Energy plc
Due to the degree of existing competition, the negligible share
increments arising from the merger and the lack of third party concerns,
an assessment of barriers to entry and buyer power in these segments is
Post-merger there will be two vertical relationships between (i) RWE
Npower electricity generation business and the Telecom electricity
business; and (ii) RWE Npower gas shipping business and Gas Plus.
Given the small share of supply increments and remaining competition in
these sectors, no vertical concerns arise as a result of this merger.
THIRD PARTY VIEWS
Ofgem believes that the acquisition does not raise any significant
concerns for competition in the electricity and gas sectors, or in
relation to vertical integration, having taken into account the level of
competition present and the relatively small increase in Npower’s
position in these sectors.
No other third parties expressed any concerns about the transaction to
The merging businesses overlap in the supply of electricity and gas to
domestic customers as well as in gas shipping. Given the parties’ low
combined shares of supply, the negligible increments, the level of
existing competition and the lack of third party concerns, no
competition concerns arise on any of these frames of reference.
Consequently, the OFT does not believe that it is or may be the case
that the merger may be expected to result in a substantial lessening of
competition within a market or markets in the United Kingdom.
This merger will therefore not be referred to the Competition Commission
under section 33(1) of the Act.
1. Npower has an existing share of supply of electricity to domestic
customers exceeding 25 per cent in three regions of the UK (Midlands,
Northern and Yorkshire) which individually or collectively may
constitute a substantial part of the UK. Combined shares of supply in
these regions, measured as a share of total households supplied are,
respectively, [40-50] per cent, [50-60] per cent and [45-55] per
2. OFT's decision of 30 June 2004 in Scottish and Southern
Energy/Atlantic Electric and Gas Ltd.
3. Ofgem's Domestic Retail Market Report, June 2005.
4. Based on number of households supplied 2004-2005.