Merchant power sector "dead as a doornail": AEP CEO

NEW YORK, May 20 (Reuters)

Soaring natural gas prices have left the struggling merchant energy sector "dead as a doornail," the chief executive of American Electric Power Co. Inc. the No. 1 power producer, said on Thursday.

AEP CEO Michael Morris, speaking at an Edison Electric Institute conference in New York, also said U.S. electricity rates have no choice but to rise in the future, rather than fall as state regulators and consumer groups prefer.

"It's illogical for us to believe that rates are coming down," he said. "We need to start telling the world that this is one hell of a bargain."

Merchant power plants sell electricity to the wholesale market, unlike regulated utilities that deliver power to retail consumers.

The once booming sector is a shadow of its former self following Enron's demise and the subsequent collapse of the energy trading markets, which forced most U.S. power companies to retrench from the merchant business.

Rising natural gas prices are making power generated by merchant power plants too expensive compared to those offered by others, Morris said.

However, a few companies in recent months have indicated that the sector is showing signs of promise. Constellation Energy Group Inc. , for example, last month said it is benefiting from the lack of competition in the merchant energy arena since many of its peers have abandoned the sector.

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