SCOTTISH Hydroelectric owner SSE has received a boost for its controversial plan to merge its retail business with npower after the competition watchdog said it was minded to approve the deal.

The proposed merger will result in the big six energy retailers that dominate the household market being reduced to five.

Unions and consumer groups have expressed concern about the impact on gas and electricity prices and on jobs.

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However, the Competition and Markets Authority said it had provisionally decided to clear the deal after finding that SSE and npower do not compete closely on standard variable tariffs (SVT).

“We carefully scrutinized this deal, in particular how it would impact people who pay the more expensive standard variable prices,” said Anne Lambert, chair of the inquiry group appointed to consider the merger.

“Our analysis shows that the merger will not impact how SSE and Npower set their SVT prices because they are not close rivals for these customers.”

The CMA has until October 22 to deliver its final report.

But its comments sent a clear signal the deal is likely to be approved, in spite of widespread concern about the grip the biggest firms have on the market. The big six players have raised prices this year.

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The CMA noted the energy regulator Ofgem is preparing to introduce a cap on variable tariffs, in spite of objections from powers firms.

It said: “The number of people switching energy provider is the highest in a decade and the proportion on SVTs has fallen.”

The CMA appears happy with the degree of competition for fixed price deals.

“With more than 70 energy companies out there, we have found that there is plenty of choice when people shop around,” said Ms Lambert.

Perth-based SSE welcomed the provisional findings reiterating its claim that the merger of the retail operations, in a new standalone business, will be good for consumers and the energy market as a whole.

It plans to focus on power generation and related infrastructure after demerging the retail arm.

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“The scale and pace of change in the GB energy market continues to be significant and requires us to evolve,” said chief executive Alistair Phillips-Davies . “The planned transaction presents a great opportunity to create a more agile, innovative and efficient company that really delivers for customers and the energy market.”

SSE said it would engage with the CMA as it prepares its final report. The company expects the deal to be completed by the end of its financial year on March 31 .

In July shareholders in SSE voted comprehensively in favour of resolutions paving the way for the npower merger. They will own 65.6% of the new retail business created by the merger.

Npower is owned by Germany’s Innogy, which will have 34.4% of the new business. Innogy described the CMA’s decision to give the deal provisional approval as an important milestone.

The CMA referred the deal for a full investigation in May after its initial probe found the tie-up could potentially lead to higher prices.

When the proposed deal was announced in November, SSE said it would focus on energy, infrastructure and services amid the transition to a lower carbon future while continuing to serve business and Irish customers.

It said the new retail business should benefit from significant synergies, citing operational cost efficiencies and savings from a combined IT platform.

SSE noted then the two retail businesses had around 11.5 million customer accounts in Great Britain at September 30. SSE recorded a 320,000 drop in customer numbers in the three months to June 30, to 7.45 million, from 7.77m in June last year.