UK watchdog threatens full investigation into SSE, Npower merger

LONDON, April 26 (Reuters) - Britain's competition watchdog said the planned merger of SSE (LSE: SSE.L - news) 's retail power and gas business in the UK with Npower, owned by German rival Innogy , could lead to higher prices for customers and warrants further scrutiny.

The watchdog said the merger would be referred for a longer Phase 2 investigation unless the parties offer acceptable undertakings to address the competition concerns.

"We know that competition in the energy market does not work as well as it might," said Rachel Merelie, senior director at the Competition and Markets Authority. "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. We therefore believe that this merger warrants further in-depth scrutiny."

(Reporting by Kate Holton; editing by Sarah Young)