A planned merger between Npower and SSE could push up electricity prices for customers, the competition watchdog has warned.
The Competition and Markets Authority (CMA) told the two energy giants they have to address its concerns or it will refer the deal for a full investigation.
Several of UK’s “Big Six” gas and electric companies have come under fire in recent weeks after hiking prices.
The CMA’s initial inquiry found that a tie-up between NPower and SSE could further reduce competition among utilities leaving some customers worse off.
Rachel Merelie, senior director at the CMA, said: “We know that competition in the energy market does not work as well as it might.
“However, competition between energy companies gives them a reason to keep prices down.
“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.”
She added the deal “warrants further in-depth scrutiny”, but said the two firms have until May 3 to offer measures to address the CMA's findings.
Scottish Power became the latest gas and electric company to increase its tariff last week with the cost for a typical household on a dual-fuel standard tariff set to rise by £63 to £1,211.
That came a week after EDF Energy announced that it would raising the prices by 1.4 per cent, for 1.3 million households from June.
British Gas sparked a backlash from politicians earlier this month by increasing customers’ energy bills by an average of 5.5 per cent, far outpacing inflation and wage rises. Labour shadow cabinet minister John Trickett described the move as a “slap in the face” for customers.
The energy giant said prices will rise by an average of 5.5 per cent, meaning the cost of the standard tariff will increase to £1,161. An estimated 4.1 million customers will see their bills increase by an average of £60 per year.
On Thursday, research revealed that a quarter of a million more customers face rising energy bills in the next three months as 130 fixed rate deals come to an end.
