A lot of that debt load traces back seven years to the merger of Cincinnati Gas & Electric with Public Service of Indiana. While the resulting Cinergy turned into a major power player, it has struggled to find its niche in the increasingly turbulent, deregulated energy business.

Indeed, Cinergy CEO James Rogers is known to be actively seeking a merger. Over the last few years Cinergy is known to have had conversations with 10 or so potential partners, but nothing came of them. The two most active suitors, until now, have been based in the UK--PowerGen Plc and Scottish Power Plc. Both are said to have grown skittish because of Cinergy's debt load and the uncertainties of the US deregulation scene.

Reports indicate that the PSEG/Cinergy deal, if it comes down, would be a stock swap. PSE& has aggressively diversified from its traditional electric and gas supplier roots into a multi-faceted operation that produces and transmits power, and has a separate operation just to market its product outside of its traditional New Jersey home base.

Analysts says that such a merger would propel the combined entity headfirst into the wholesale electricity market, where the prime activity is selling electricity to a clientele consisting of other utilities and major industrial users. It would also mark an expansion of PSEG's presence in the Midwest, where it has plans well along to build five power plants.

There are said to be other potential suitors for Cinergy, which apparently remains an attractive target despite recent failures to merge. One is said to be American Electric Power, based in Columbus, OH, whose multi-state territory in several Midwestern and Southern states matches up well with Cinergy's service area. Another that has been mentioned is Dominion Resources, based in Richmond, VA.