AEP CEO says deal must have industrial logic

NEW YORK (Reuters) - American Electric Power Co. Inc. (AEP.N: Quote, Profile, Research, Stock Buzz) needs a deal that makes good industrial sense, perhaps by expanding its type of power plants, to be part of the current wave of utility industry consolidation, the company's top executive said on Monday.

AEP Chief Executive Michael Morris said the Ohio-based company would look for a strong logic, similar to the fit Exelon Corp. (EXC.N: Quote, Profile, Research, Stock Buzz) and Public Service Enterprise Group Inc. (PEG.N: Quote, Profile, Research, Stock Buzz) hope for with their planned merger, rather than scale alone.

"The Street saw the Exelon-PEG deal as nice industrial logic," Morris said at the Reuters Global Energy Summit in New York. "You'd have to find something like that that makes sense for us. What that is, I don't know -- maybe a better mix in the generation fleet."

The vast majority of AEP's power plants are powered by coal.

Morris said that diversifying beyond the company's current footprint, which includes Ohio, Texas, Kentucky, West Virginia and Michigan, among other states, would be difficult to imagine.

Morris also said valuations of utility companies have made it difficult to put deals together as acquirers try to balance the economics of keeping rates low with paying a premium to stock prices. Since peaking on October 4, 2005, the Standard & Poor's utilities index has fallen nearly 11 percent.

"Clearly it's better today from a P/E sense for a buyer than it was a year ago," Morris said.