Government signals support for SSE and ScotPower merger:
The British government has swung behind the idea of a £20bn ($37bn, E30bn) merger between energy suppliers Scottish and Southern Energy (SSE) and Scottish Power in a significant policy shift that could remove the key stumbling block to a deal. A merger would create Britain's largest electricity retailer. Officials from the Department of Trade and Industry (DTI) have begun lobbying their counterparts at Ofgem, the independent energy regulator, to persuade them to loosen their approach to the competition regime to help a merger go through. A banker with close DTI connections told The Business: "The government now wants it to happen. The DTI has given a nudge to Ofgem to say you should be favourably disposed towards this deal." Sources close to the two companies said that the potential regulatory issues had been one of the reasons why talks between the two companies were broken off over the summer. The new policy sees Britain making a belated attempt to build a British utility company of enough scale to compete against larger continental peers such as Germany's Eon and France's EdF, following in the footsteps of Spain, where the socialist government last year decided to back a merger between energy suppliers Gas Natural and Endesa. All previous attempts at pairing up Spain's gas and power companies had been rejected on competition grounds. France and Germany have built "national champions" in energy, sacrificing full competition in their domestic markets to allow their companies the scale to expand abroad. The idea of a "Scottish merger" has been around for a decade, but differences in personal style bet-ween SSE's chief executive Ian Marchant and Scottish Power's former chief executive Ian Russell have effectively blocked it. Russell was last year replaced by Phillip Bowman. The banker said that even without competition concerns Marchant would remain sceptical of an all-share merger, which would be vulnerable to being trumped by EdF, RWE or even Eon, which tried to buy Scottish Power last year. According to Ofgem figures, SSE and Scottish Power together would have a 29% share of the British retail electricity market and a 19% share in gas. This wouldn't necessarily cause insuperable problems. Centrica already has a 52% share in gas and 22% of electricity. Bigger problems would surround power generation. Even though the two have only 20% of the UK market, much of it is concentrated in Scotland, meaning the two may have to sell some capacity. 12.10.06