Ofgem said while some mergers could benefit customers, a reduction in the number of companies in the networks sector would make it more difficult to push for efficiencies and improve service for customers.
It said: “Ofgem supports legislative change to require the merger authorities to take this factor into account when assessing mergers, as is the case in the water sector.”
It said that it would no longer seek to reduce allowed revenues by a pre-set amount following a merger and that instead it would set rates for companies to share cost savings with customers. Ofgem’s new policy may have implications on the planned sale by EDF of its British distribution networks, although equities analysts said the impact was unclear at first glance.
Freshfields competition lawyer David Aitman said the amount of savings companies were told to share with customers would affect merger discussions. “Buyers and sellers of electricity companies will clearly take note of these proportions when negotiating as they impact on the value to shareholders of owning a particular electricity company.”