Npower cuts jobs amidst merger with Eon
Npower is being absorbed by Eon. Npower and Eon are both part of the Big Six energy companies that control most of the residential gas and electricity market in the UK. Any partnership or acquisition between these two major players is bound to shake up the increasingly crowded British energy market. What does that mean for their employees and what does it mean for you?
Background: npower/SSE Scrapped Merger
Non-energy-heads may be forgiven for being unaware that npower is currently in the process of being absorbed by Eon. New reports have been scarce ever since npower and SSE officially scrapped their proposed merger in late 2018.
SSE had stated that the new national tariff price cap made it much more difficult for the merger to take place. The limit cut into the projected profits of all Big Six firms, including npower. With their profit predictions reduced even further than previously predicted, npower’s level of debt and corporate exposure was high enough for SSE to pull the plug on the merger.
Npower Job Cuts
Since then, reports have surfaced that npower’s employees have been worried about job losses. And it turns out, those fears were well founded. At the start of February, npower announced they will be cutting 900 jobs, or 14% of their workforce.
The job cuts should lower operating costs and make the merger more palatable with Eon, who will absorb npower’s troubled business in exchange for increasing their 13% of the UK market. Combining the two firms' customer bases will push Eon to within spitting distance of UK powerhouse British Gas.
Still, even with the cuts CEO Paul Coffey stated publicly that npower will still be facing a significant loss, which could result in further job cuts. He blamed the situation on the Ofgem implemented national price cap, which combined with newer energy suppliers’ more competitive tariffs have lowered prices to “levels that are not sustainable” according to Coffey.
The Eon Npower Merger
All of this is happening under the shadow of yet another merger, as Eon is currently preparing to absorb npower. This would effectively transform the Big Six into the Big Five.
How did npower move from merging with SSE to Eon so quickly? Thanks to their respective parent companies. Both of the UK energy firms are owned by huge German multinational corporations: RWE, who own npower (via Innogy), and E.ON, Eon’s parent company.
E.ON and RWE have been involved in a complex asset swap over the last year that has involved German, British and other international subsidies and assets. So when the SSE merger went belly up, RWE (and thus npower as well) was already in the process of shifting corporate assets to E.ON. They simply added npower onto the metaphorical pile.
Ofgem has yet to publicly object to the merger, and due to the international nature of the parties involved regulation could prove difficult going forward. Either way, after fully approving the failed SSE/npower merger it seems that Ofgem isn’t particularly concerned that a merger could result in less competition between large suppliers.
A bigger obstacle to the merger could be the Competition and Markets Authority (CMA) which in late February launched an investigation into the merger. The probe will study whether the transaction between RWE and E.ON could lead to less competition and higher prices for customers.
The investigation will look at various assets being exchanged by the companies including npower. The CMA plans to make an initial decision by 24 April.
From Big Six to Big Five
Both Eon and npower are part of the Big Six, the UK’s infamous group of Britain’s biggest energy suppliers, meaning that the merger would finally end the era of the Big Six in Britain.
While details are scarce, this has the potential to jostle our energy market in unprecedented ways. Eon is unlikely to immediately scrap all things npower from day one, and they could even choose to maintain the npower brand indefinitely. But most experts think that in the long-term Eon will slowly phase out the npower brand, and the announced job cuts aren’t doing much to combat those suspicions.
What Does This Mean for Npower Customers?
In the short term, the effects of this potential merger are still uncertain as the two energy giants hash out the details of the deal, but we expect to see teething issues with everything from billing procedures to the tariffs on offer going forward.
For now, you’ll probably still receive surface and bills from npower. Personnel cuts may degrade customer service to some degree, but Eon employees will most likely be phased in to pick up the slack and their lack of familiarity with npower policies and products may negatively impact what is already subpar customer service.
Eon has actually ranked superior to npower in terms of customer service and value for money, so it’s possible that npower customers may actually be pleased with the switch. Still, most industry insiders are predicting at least a few months of painful transitioning.
Effect on the UK Energy Market
Some commentators have speculated that removing one of the Big Six suppliers may reduce competition in the energy industry and therefore raise prices across the market. However, this seems unlikely as all pressure to lower prices is firmly coming from independent suppliers, not competition within the Big Six itself.
On the contrary, other Big Six companies may feel more pressured to adapt to the changing energy market now that one of their own has fallen.
Our prediction is that while all the Big Six (or Five) companies continue to lose customers to independent suppliers, they will not be incentivised to increase their rates.
What You Need to Know
How important is the merger? Will it affect you or your energy supply? That depends on who you are.
For npower employees
Obviously they’ll be most affected by the merger. npower’s already announced job cuts have left 900 employees without a paycheck, and experts predict even more cuts in the months ahead.
For npower customers
While the difference shouldn’t be dramatic, you may notice a decline in customer service in the weeks ahead. Then again, with npower’s history of tremendously low customer service reviews, things could actually improve.
In the grand scheme of things, the effect of moving from the Big Six to Big Five is hard to quantify at this stage. How the UK energy market reacts remains to be seen as further details emerge in the next few months. Other Big Six companies may see the closure of npower as an opportunity or as a warning signal, but either way independent suppliers will continue to provide better service for a lower price.