Energy company SSE, which supplies almost six million UK households, says it is negotiating the sale of its energy retail business to Ovo Group.
But it says no decision has been made by the two firms on finalising a deal.
If a deal is reached, Ovo will become one of the UK’s largest energy firms, having been founded just 10 years ago.
In May, SSE announced plans to offload its energy services division after more than 500,000 households switched to a new supplier in the year to April.
SSE – one of the so-called Big Six energy suppliers – said it would sell or float its energy services arm by the second half of 2020.
“These discussions are continuing, however no final decisions have been taken and no agreements regarding the terms of any transaction have been entered into,” it said.
“The board remains focused on securing the best long-term future for the business, its customers and employees, and for shareholders.”
Ovo declined to comment on the SSE statement.
USwitch energy expert Sarah Broomfield said: “SSE have been looking for a fresh start for their retail energy business for the best part of two years.
“If this deal does materialise, Ovo may well bring a different feel to what SSE customers have traditionally been used to, as one of the companies at the forefront of new technologies such as smart meters and electric vehicles.
“But households affected would likely be most concerned with the price they’re paying and the service they’re getting.”
If a deal goes ahead it would see SSE’s 5.8 million domestic customers added to Ovo’s 1.5 million, making it second only to British Gas, which has 12 million domestic accounts.
SSE has previously said its wider business “fell well short” of its expectations in 2018-19 and has warned 2019-20 earnings will also be hit.
Last November a proposed merger of its household supply arm with rival Npower was called off with SSE blaming “very challenging market conditions”.
The energy firm was also fined £700,000 by Ofgem in April for missing last year’s target to install gas smart meters for customers.