SSE aims to turn up the heat on British Gas with a merger of its UK power and gas retail operations with those of npower, owned by Germany's Innogy.
The deal will create a supply group with £11 billion in combined sales that could kick off a consolidation in the UK energy market where established firms are battling smaller, nimble rivals.
The roughly 11.5 million customer accounts of the new firm would move SSE closer to Centrica's British Gas, which has more than 14 million.
The company, in which SSE would have a stake of about two thirds, and British Gas would together control more than 50% of the market.
SSE owns SSE Airtricity in Ireland.
But Innogy chief executive Peter Terium said he was confident British regulators would approve the deal.
The deal, which needs support from SSE shareholders and Innogy's supervisory board, would cut the number of big energy retailers in Britain to five from six. Closing is expected in late 2018 or early 2019.
By merging their retail units, Innogy and SSE form a group with pro-forma sales of £10.9 billion and operating profit of £123m in 2017.
It is expected to become a small or midcap stock once listed on the London Stock Exchange.
Overall, there are around 60 energy suppliers operating in Britain at the moment.
Britain's Competition and Markets Authority (CMA), which will need to approve the merger, said it was aware of the deal but would not comment when asked if it would give its approval.
Analysts expressed concerns about potential problems combining Innogy's and SSE's IT platforms, which run on two different systems
SSE will hold 65.6% of the new entity, which will not include its business retail and Ireland operations. Innogy will hold the rest.
It will receive a £60m break fee if SSE fails to get approval for the move by July 31, 2018.
"This process is likely to take some time and in the interim we remain absolutely focused on the critical job of delivering for customers," said Alistair Phillips-Davies, SSE's chief executive.