Once upon a time, investing in utilities was easy. We could plunk down our dollar on the local gas and electric company, assured we would make out fine, if not like bandits.

We could see the power plant outside of town and feel reassured, as it belched smoke into the sky, that it was also coughing up dividends--for us and for our moms and dads.

Our local broker knew a lot about the local gas and electric. He played golf with its president and directors, went to the Rotary Club with them, and could happily and responsibly tell anyone interested to buy its shares. The state regulators made sure the shareholders profited, because if they didn't, the rates would go up or the lights would go out.

It was all nice. All predictable. Totally consensual.

Fast-forward to now, the era of deregulation and competition. In many places, the predictability is gone. Nearly every utility is buying or selling something--power plants or customers. Others are getting eaten whole. Still others are getting involved in ventures that have nothing to do with energy--such as telecommunications or, groan, the Internet.

We've gone from energy to "synergy"--a fancy word for "big"--and running these companies is much harder than it ever was in the past.

Investing in them is harder, too, because whenever there's a massive restructuring in an industry, some participants will adapt better than others and we will confront new choices. The situation is complicated by rising interest rates. Interest-rate increases have tended to depress utility stock prices (because utilities traditionally borrow money and because they have been valued like bond investments), but the linkage has eroded in recent years, in part because of deregulation.

There are still plenty of states that have not deregulated and plenty of safe, dividend-paying utility stocks. In my hometown in Wisconsin, Madison Gas and Electric Co. has an unbroken history of dividend payments dating back 90 years--deregulation has not come to Wisconsin. Most of the companies that paid dividends continue to pay them. But the relative size of the payouts (measured by a formulation called the payout ratio) has declined or been close to flat in recent years at companies such as Potomac Electric Power Co., Duke Power Co. and Florida Power & Light Co. They need their money for growth now, like growth companies.

Traditional utilities in the two dozen states not undergoing deregulation are probably still decent "defensive" stocks, if there are such things remaining, that will reassure you with dividends while the market is crashing all around you.

But if you want to live just a bit more dangerously, there's a new sex appeal to this old business, a little more spark to light up your portfolio, coupled with a little more risk.

Just look at the news of two weeks. Consolidated Edison Inc., in New York, agreed to acquire Northeast Utilities to expand its customer base. It suddenly becomes the largest electric utility in America. The week before, DTE Energy Co. of Detroit said it would buy Michigan natural gas (MCN Energy Group Inc.). The week before that, Unicom Corp. of Chicago agreed to by Peco Energy Co. of Philadelphia.

Power companies now offer a greater opportunity to do well, too, through stock-price appreciation.

At the same time, some of these companies may be undervalued, in part because the tedious, state-by-state regulatory process has been so slow, creating uncertainty and a "near-exodus" of institutional investors starting in the early '90s, when the process got started, said Warburg Dillon Read analyst Danielle M. Seitz. Indeed, take a look at the top holdings of "utility" mutual funds. You're more likely to see MCI WorldCom Inc. and AT&T Corp. than any conventional utility--regulated or unregulated.

"It's been a long bear market for us," Seitz said. She and others believe, hope, pray, that this is beginning to turn around. Studies show institutions returning to the field.

The stocks have been in a kind of regulatory "penalty box," she said, because of the multiple layers of authority required to approve restructuring plans, especially when mergers and acquisitions are involved that span two or three states.

Any dramatic recovery has been frustrated by rising interest rates, said Maurice E. May, utilities analyst at Friedman, Billings, Ramsey Group Inc.

Generally, "utility investors of the past bought stocks for two reasons: They were conservative and historically paid high dividends," he said. "That's changing."

Let's look at electricity, starting with a bit of background: The retail power business used to be entirely composed of local and regional monopolies--such as Pepco--with rates and rate bases regulated by state commissions. The same companies that distributed the electricity also generated it. In states that have deregulated or restructured, the two functions are being separated, with distribution remaining regulated as a "natural monopoly," and generation, or supply, being opened for competition.

So companies are reconstituting themselves in at least three ways.

Those concentrating on distributing power have been selling generating capacity to bigger companies and using the cash to expand their base of customers, by either acquiring other distributors or offering new services, or both (the Consolidated Edison example).

Ready and willing to buy those power plants are companies that are moving away from distribution or were never in it and are expanding generating capacity to compete in the deregulated environment.

Finally, some companies seem to want the best of both worlds. They retain monopolies of generation and distribution in states that are not deregulating, at the same time that they're cashing in on the restructuring within the states that are.

Pepco is an example of the first type--the distributor. It agreed to give up its power-generation monopoly in Maryland by auctioning off its generating assets no later than July 2000, on what Pepco hopes will be favorable financial terms. It will continue as a distributor, and will attempt to expand its customer base through, among other things, its joint venture with RCN Corp.--Starpower Communications--to provide telephone, cable and Internet access services. It is also branching out, through a subsidiary, into various financial and real estate services.

"They had to do something," said May, noting that for electricity alone, Pepco's customer base was growing by only 1 percent annually.

As an investment, Pepco is well regarded (May had it as a "buy" until its price hit $26; he now rates it a "hold") but not as well regarded as companies of the second type, those that are preparing to sell power on a vastly expanded scale.

The most prominent example of that is AES Corp. of Arlington, the world's largest power company, which owns or has an interest in 118 plants generating 35,000 megawatts, including 18 plants in the United States. Another is Calpine Corp., based in San Jose, which bought 14 geothermal plants in May from Pacific Gas & Electric Corp. AES, which closed at $51.25 Friday, has a price-to-earnings ratio of 43.8. It's down from its 52-week high of $66.68 3/4, but still well above its 52-week low of $32.81 1/4. Calpine (P/E of 39) closed at $50.81 1/4 Friday, close to its 52-week high of $53.25. Its 52-week low was $9.50. Neither pays dividends.

They're both pricey and have had run-ups, but, said Seitz, "they have a very attractive outlet" in a competitive market for supply. She rates AES a "strong buy" and Calpine a "buy."

A third category is typified by the ever-popular Charlotte-based Duke Energy, which has been purchasing generating capacity throughout the West, including plants sold off by Pacific Gas and Electric as a condition of deregulation in California, even while retaining and expanding its traditional distribution-supply role in the Carolinas, which have not deregulated. Duke Energy sells to 2 million customers there. Its P/E (16.3) and its price range for the past 52 weeks ($51.90 5/8 to $69, closing at $53.68 3/4 Friday) reflects its continued role as a regulated, dividend-paying utility, compared with Calpine's and AES's history as power generators.

Southern Energy, an Atlanta-based division of Southern Co., is similarly blessed (it closed at $25.62 1/2 Friday).

Yet a fourth category is out there that everyone would like to identify but few will--at least in public--because they either don't know or they care to keep it to themselves. These are the companies that remain juicy targets for acquisition.

"There are going to be several classes by the time the dust settles," said Seitz: companies that get bought, which are usually good investments if you can figure out who they are; "some fast-growing companies, mostly suppliers," and some distributors with nice yields and consistent earnings growth.

The final category--the old-fashioned regulated utility--may be the virtuous refuge for old-fashioned investors seeking relief from modern market mania.