Vattenfall is bidding for Nuon, a Dutch energy firm, and the talks with SSE are purportedly a back up if the merger falls through.
However, an SSE spokesperson declined to comment on the rumours.
Last week, SSE reduced its retail electricity prices by nine per cent and its household gas prices by four per cent.
Commenting on the move, utilities manager for Moneysupermarket.com Scott Byrom said: "SSE has undercut British Gas in the energy price war stakes."
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