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Dominion Shuts Door on Pursuing Merger; AEP Lukewarm on M&A

A top official with Virginia-based Dominion told a gathering of financial professionals last Tuesday that the energy company is "not interested" in pursuing a merger. Meanwhile, Michael Morris, CEO of American Electric Power (AEP), told the same conference that AEP is "not excited" about merger and acquisition (M&A) activities.

"I will say this as definitively as I can -- there is no 'M' at Dominion," said Thomas Farrell, Dominion's president, at the Deutsche Bank Electric Power Conference in New York. "We are not interested in a merger. We aren't talking to anybody. We are not going to talk to anybody," he added.

"We have the best set of assets, we believe," Farrell went on to say. "We have the best growth opportunities for our existing shareholders.'

Dominion does not "see anybody else in our sector that can keep up with the earnings growth that's going to come to us from the rolloff of the hedges and the resetting of the fuel in 2007 and 2008."

At the same time, the company will continue to be on the lookout for add-on generation units and will also continue to "look at some E&P assets." But Dominion is "not interested in a merger. Whatever rumors people hear or who talks to who about what -- we're not playing. I don't know how to say it any more clearly than that."

"One of the great lines that we all use is that I don't want to get big for the sake of getting big," Morris said in his appearance before the Deutsche Bank conference.

He made his remarks in response to a question as to whether congressional repeal of the Public Utility Holding Company Act (PUHCA) would stoke AEP's interest in possible M&A activity.

"We're constantly looking," he noted. "We constantly look at opportunities." If AEP "could find a reasonable way to model a little bit of the bolt-on stuff that Ameren has done so successfully, we would," Morris noted.

"But in our space, and we all know this, it's tough to pay a premium. The synergies need to be shared and it's tough to have that be accretive to the shareholders. And I don't want to send any shockwave, but accretive in year one -- I don't know if that's ever doable."

Looking at the broader power sector, Morris said that with the repeal of PUHCA, he expects "some other big footprint undertakings." AEP is "not eager to do anything, but we surely always look at opportunities to do things if they were to come along."

Possible M&A activity in the utility sector has Wall Street buzzing these days in the wake of three mega-deals that have been announced -- the planned combination of Duke Energy and Cinergy, the proposed merger between Exelon Corp. and Public Service Enterprise Group (PSEG) and MidAmerican Energy Holdings Co.'s plans to buy PacifiCorp.

Meanwhile, David Ratcliffe, CEO of Southern Co., said at the conference that if Congress moves forward with repeal of PUHCA this year, it would be the wrong call to simultaneously beef up the M&A authority of FERC.

"I think it makes sense to repeal" PUHCA, Ratcliffe said. "What I don't want to do is repeal the holding company act and simply move a great deal more merger authority and oversight over to FERC. That's not the answer."

He said that "we don't need FERC [commissioners] to have more authority than they have now. They already have significant oversight authority."

Ratcliffe, who put odds of PUHCA repeal occurring this year at 50-50, said, "I really do think that we've got to be careful about the language that is being discussed in moving and expanding the FERC authority. I just don't like that idea."

Both the House and Senate versions of the energy bill pending on Capitol Hill include repeal of PUHCA. However, the Senate measure also would beef up FERC's merger review authority, as well. The Senate took up consideration of its version of comprehensive energy legislation last week (see related story).

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