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Customers Analysis And then there were seven? Npower has sold two subsidiaries to Utility Warehouse, and with them 750,000 customer accounts. So has the big six become the big seven? The fine print of the deal suggests not, says Mathew Beech. N power chief executive Paul Massara proclaimed that "in one move" his company and Telecom Plus had added a new member to the "big six". Last week, Npower sold two subsidiary companies, Electricity Plus and Gas Plus, to Utility Warehouse (which is owned by Telecom Plus), together with their 500,000 customers (770,000 accounts). The deal was worth £218 million. On the face of it, a significant major player in the UK energy market has been c reated, but it is not as simple as that. In March 2006, Npower and Telecom Plus made a deal which allowed Utility Warehouse to manage and run Electricity Plus and Gas Plus, although the supply licences, and the electricity supplied, all came from Npower. The catalyst for the latest deal, Ofgem, Npower, and Telecom Plus all agree, is the impending Retail Market Review (RMR), which will limit the number of tariffs an energy supplier can offer to four per fuel. Andrew Lindsay, chief executive of Tele com Plus, said: "[RMR] was the reason for bringing our licences into our name so we could have four tariffs and they could have four tariffs and we could be more competitive in the marketplace." He says the deal is not a way "to get round" the incoming RMR legislation, but rather a way to "protect the individual businesses and their pricing strategies". Under the terms of the deal, Npower will receive £196.5 million up front and an additional £21.5 million three years later. The licences Utility Warehouse has been operating under since 2006 will be transferred to the company, which will become the outright owner of the energy supply business. Richard Hall, head of energy regulation at Consumer Futures, said: "I don't think it was an intention of RMR, but it does seem to be a side effect. "RMR does seem to make it inevitable that either Npower would have to divest the Utility Warehouse business in terms of being under its licences or one of those companies would have had to significantly change its Independents' share 2% 98% Big six Independents offerings to its customers, so I think RMR is the biggest driver of this deal." As part of the deal, Npower has secured a 20-year wholesale supply deal with Utility Warehouse to provide electricity and gas to the 770,000 accounts, subject to shareholder approval and the green light from the Office of Fair Trading. All going well, the deal will go live by the end of December or early January. Telecom Plus's previous wholesale agreement was a three-year rolling contract, but under the new deal, Utility Warehouse has Big six market share (2012) 26 | 29th November - 5th December 2013 | UTILITY WEEK 17% 32% 10% 13% 12% 16% British Gas EDF Eon RWE Npower Scottish Power SSE agreed to take Npower's supply for 20 years and at a price set by averaging the wholesale price of the big six combined. Lindsay says: "We now have a contract guaranteed for the next 20 years, which I am delighted with, and it guarantees Npower a customer." He says the deal will protect his company from price volatility in the wholesale market, should one supplier significantly increase their prices. Despite being linked to Npower for two decades, Lindsay is also happy that Utility Warehouse will be able to be competitive, due to his company's business model. "We have multiple revenue streams per customer – up to five per customers because we offer other utility services – whereas the other suppliers have only two. "Therefore they need to make more money on their two revenue streams than I do on each of my four or five. We have a highly efficient business model." However, both Hall and Reg Platt – senior research fellow at the Institute for Public Policy Research – have raised concerns about the wholesale agreement. Platt says: "The fact that this is tied to a 20-year contract raises very substantial questions. "If Utility Warehouse is solely responsible for the welfare of its customers, how can it make the decision that Npower's wholesale energy is going to be the most competitively priced that it can source for its customers for a 20-year period? Simply impossible. "What we want independent players doing in the market is sourcing energy from different players to drive down costs and ultimately pass on those savings to consumers." Hall also said that the deal "does seem like a phenomenally long time" but that Utility Warehouse seems "happy" with it. The deal was brokered to enable both Npower and Utility Warehouse to continue offering the tariffs they currently offer, and in the process has created a new energy supplier. However, given the terms of the deal, a big question mark remains over the extent to which it can be described as an independent supplier.