Merger rumors center on El Paso, Southern: Atlanta-based utility mulls combination with Houston natural gas company.(El Paso Energy Corp; Southern Co)

Rumors heated up this week that Atlanta-based Southern Co., an electric utility, is eyeing Houston-based El Paso Energy Corp., a natural gas pipeline and energy trading company, for a possible acquisition or takeover.

Industry trade journals fast rumored a possible deal between Southern and El Paso in late January, but those reports died down quickly when no further information surfaced about a possible merger. The speculation returned this week, however, after a slew of combinations were announced Monday between utilities and natural gas companies.

And insiders at El Paso Energy confirmed this week that due diligence has been in progress and that Southere's auditors, Arthur Andersen, were combing through the books at El Paso as recently as last week. Also, the CEOs of both companies reportedly met last week and agreed to proceed with negotiations.

Officials at neither company would comment on the speculation that a merger was in the offing. And on Wednesday, El Paso Chairman William Wise downplayed the possibility of a merger at an …