The anticipated deal is expected to realise ScottishPower's ambition to become the first true multi-utility group in the UK, once domestic electricity and gas supply are opened up to competition in 1998.
It would also end short-lived hopes by rival bidders, including Southern Electric, of being able to snatch Southern Water from ScottishPower's clutches.
However, sources at ScottishPower admitted last night that although an announcement was expected before trading began this morning, last-minute talks were continuing through the night. If final hitches were to materialise, the deal would be put back.
Should Southern Water decide at the last moment that a better offer is on the table from Southern Electric, ScottishPower would be prepared to mount an unagreed bid - unless the asking price was too great.
A critical factor will be whether Southern Electric is prepared to risk a rights issue of several hundred million pounds, with the rest financed out of debt, to pay for its takeover ambitions.
Sources close to Southern Water suggested yesterday that Electric need not move tomorrow but could delay a decision for some time yet.
ScottishPower, based in Glasgow, already has gas and telecommunications subsidiaries and wants to add Southern Water to Manweb, the Merseyside and North Wales electricity company acquired after a hostile pounds 1.1bn takeover battle last year.
Southern Water, whose shares closed at 681p on Friday, valuing the company at about pounds 1bn, is seen as having one of the strongest balance sheets, after buying back 10 per cent of its shares last year.
The company is thought to have triggered a last-minute bidding war in the hope of extracting improvements to the deal on the table from ScottishPower or of obtaining a better price from elsewhere.
For ScottishPower, which achieved operating profits of pounds 477m in 1995/6, the deal could provide savings worth tens of millions of pounds through joint billing systems, metering, procurement and information systems. However, insiders do not expect the savings to be as great as the pounds 100m a year which Scottish hopes to achieve by 1998 from its takeover of Manweb.
Analysts have pointed out that ScottishPower's gearing, at 52 per cent, would rise in the event of a successful bid.
Scottish expects to develop a stronger brand name for itself as a utilities provider, irrespective of region. The company already owns Caledonian Gas, which supplies 6,000 commercial and industrial customers in the UK.
It is also developing a telecoms subsidiary, which is rolling out a fibre-optic network in Central Scotland.
Southern Electric's entry into the battle for control of Southern Water follows the natural geographical overlap between the two companies, which both have franchises in the South of England. Savings could come from similar areas as with ScottishPower, including the merger of both companies' head offices. However, ministers are believed to have already been briefed that a consequent heavy loss of jobs in the South of England might be politically unpalatable in advance of a general election.
Sources within ScottishPower suggested that Southern Electric might face also an investigation by the Monopolies and Mergers Commission if its bid were accepted by Southern Water, because of the overlap between the two companies.
Scottish, on the other hand, hopes that its own bid might not be referred because there are no obvious competitive issues arising from the merger.
The war between ScottishPower and Southern Electric for control of Southern Water is set to lift share prices for most water utilities when dealing starts today, despite uninspiring trading results expected from some utilities this week.Reuse content