Energy supplier SSE says it has been in talks with the owner of rival Npower with a view to forming a new UK energy supply business.
It said had been in discussions with Germany’s Innogy about merging their UK gas and electricity supply businesses into an independent UK company.
A merger would bring together two of the UK’s “big six” gas and electricity suppliers.
SSE, the UK’s second-largest supplier, said the talks were “well-advanced”.
Any deal would need approval from competition authorities and shareholders.
In a statement, SSE said: “In discussions, SSE is mindful of the requirements of customers and the concerns of employees. It will disclose the outcome of the discussions as soon as they are concluded.”
SSE, formerly known as Scottish and Southern Energy, has 7.77 million households and Npower 4.8 million.
The other four major suppliers are Centrica, Spain’s Iberdrola – which owns Scottish Power), E.On and EDF .
SSE shares rose 2% on the news.