It's no surprise that traditional utilities are now fashionable with Wall Street.

With merchant generation and energy trading gone bust, bankers, analysts, and fund managers at the 37th Edison Electric Institute Financial Conference, held last month in Palm Springs, Calif., were falling over themselves to find those regulated gems overlooked during the energy merchant boom years.

"How much of your earnings came from the regulated-side? When is the last time you had a rate case? Do you think that will be allowed? What is your dividend?" The financial analysts attending the meeting asked those questions and more. Even some utility CEOs and CFOs got into the act.

It seemed that every firm worth its salt offered up a pie chart with bold claims showing just what share of the bottom line had come from regulated earnings. Count those companies as the lucky ones.

By contrast, the utilities at the conference with under-performing merchant or trading operations were greeted with a level of suspicion that you might otherwise reserve for an unindicted co-conspirator. Consider a question posed to TXU.

"When did you know your energy trading and merchant operations in Europe were under-performing?" TXU had reported significant losses to its European subsidiary quite abruptly in October.

Of course, everybody by now has heard that TXU sold its UK assets, and is now one of many U.S. companies that has exited the European and the UK markets recently.

But confidence in U.S. utility companies-their ability to show a profit in competitive markets-has now been shaken, perhaps irrevocably.

Earlier, when they had announced their overseas projects, U.S. utilities had explained that they were exporting their business models.

Now that those exports have failed, many experts have begun to question whether the skills to compete were there to begin with. Certainly, many analysts at the conference wondered whether more earnings surprises might now show up in TXU's domestic operations. Naturally, TXU has said repeatedly in press releases that its U.S. operations are solid.

But two fixed-income executives I met turned positively livid at what had happened to TXU, as they had counted on that company in their pension fund portfolios. It was supposed to be a widow's and orphan's stock. They said they felt let down, as TXU seemed to them so abrupt and even careless in how it revealed the problems in its European subsidiary.

(In fact, the very public problems of many U.S. energy firms are having a chilling effect on liberalization and privatization efforts worldwide, says one expert. The European Union has backed off on addressing liberalization until 2006, and the opening of French energy markets is not the hot button issue it once was.)

Others I spoke to had bought bonds in Allegheny's utility subsidiary. And just as with TXU, they expressed dismay that financial problems at the parent company level had filtered down to the utility, creating another problem child with cause for concern. And if traditional rate-base regulation no longer offered any safe harbor within a diversified holding company structure, then