The Electricity Plus and Gas Plus companies will be sold, subject to approval by the Telecom Plus shareholders and the Office of Fair Trading, by the end of December or early January.
The move will see Npower customer base fall from 5.4 million down to 4.6 million (electricity and gas) accounts.
Telecom Plus pay an initial £196.5 million for the two companies, with an additional £21.5 million paid after three years, and there has also been a new wholesale supply agreement.
Npower will continue to supply electricity, gas and other services to Electricity Plus and Gas Plus customers for the next 20 years.
Electricity Plus and Gas Plus had been managed by Telecom Plus since March 2006 following a management services agreement between the two companies, although Npower remained the owners during this period.
Paul Massara, chief executive at Npower, said: “In one move we have helped to create the biggest independent competitor in Britain’s household energy supply market.
“This is good for competition and good for consumer choice. Today’s announcement shows that Britain is well on the way to having a big seven rather than a big six.”
“Both Electricity Plus and Gas Plus have expanded substantially over recent years and we are pleased to be able to provide long term support for an entrant which now has more than 770,000 customer accounts nationwide.
“This shows that there is a willingness to compete in Britain’s energy market, and that the market is anything but broken.”
Charles Wigoder, executive chairman at Telecom Plus said: “This is a transformational deal for the company, delivering significant earnings enhancement, a revised and improved twenty year supply agreement with Npower and the opportunity for us to provide even more competitive energy prices to our customers in future.”