A frenzy to identify merger candidates between U.S. utilities amid the wave of tie-ups over the past few months is sifting out possible hookups between Southern Co. and Progress Energy in the Southeast, FirstEnergy and American Electric Power Co. in the Midwest and PG&E and Sierra Pacific Resources on the West Coast. Bankers and energy execs say discussions among utilities have reached a fever pitch now because the utilities who have not found partners, anxious not to be left behind by those who have, are set to capitalize on economies of scale and bigger territories.

Companies such as Southern, while not formally engaging an M&A advisor, have suggested to investment bankers that it is on the prowl for merger partners. One financier says Southern has been in acquisition mode for months and had entertained linking with Duke Energy months ago until Duke pulled the trigger on a $9 billion buyout offer for Cinergy.

Officials say Southern has toyed with the notion of buying Progress because it would create a heavyweight player in the Southeast and their territories match up well. "On paper that merger makes sense," the banker says. Southern supplies power in Alabama, Georgia, Florida, Mississippi and Georgia, while Progress serves the Carolinas and Florida. Calls to Progress Energy's Chairman and CEO Robert McGehee, 63, were directed to a spokeswoman who declined to comment. A Southern spokesman also declined to comment.

In Ohio, bankers say a potential merger between Columbus-based AEP and Akron-based FirstEnergy could provide immediate benefits for both. One utility executive notes AEP, whose stock closed at $34.60 last Wednesday, has been relatively flat over the past two years and should be looking at strategies to juice it. The executive points out that FirstEnergy's stock, which last traded at $50.70 last Wednesday, is up by nearly 30% over the past two years and could be an acquirer on the mid-tier level.

A banker who follows the Midwest utilities, says utilities in that region, such as AEP and FirstEnergy, are looking closely at one another and evaluating potential matches. "Companies in the Midwest, midlevel companies, are having discussions because it's at point in the cycle where it's eat or be eaten. And they want to build up their business with companies that have contiguous territories or that give them entrée into new territories entirely," he notes.

A call to FirstEnergy's CEO, Tony Alexander, 54, was directed to a spokesman who said that the company does not comment on speculation or rumors. A spokeswoman for AEP, responding to calls directed to CEO Michael Morris, 59, declined to comment.

In California, talk of PG&E, which emerged from bankruptcy about two years ago, buying out Sierra Pacific has been working its way around the investment banking community. A few bankers have said such a move might make logical sense because PG&E has significantly cleaned up its balance sheet and may be considering a push into a Nevada market that is viewed by one New York-based utility analyst as high growth. "Sierra Pacific is facing some big challenges including a service territory that is growing in population and has a lack of generation," the analyst says, noting that the energy company is maintaining some significant leverage and could use the pockets of a larger entity to finance its growth. "It could be a good story for both."

PG&E has a market capitalization of approximately $13.8 billion while Sierra Pacific Resources has a market cap of about $2.8 billion. A spokesman for PG&E, fielding calls for CEO Peter Darbee, 52, declined to comment. A call to Sierra Pacific executives was not returned.

One energy official sees a buyout of Sierra Pacific Resources by PG&E as a risky proposition for a California energy company that just emerged from bankruptcy. The official also holds the view that the Nevada service territory is still too dependent on gaming to expect much in the way of growth in the near term.