IF THE DRAMATIC

increase in your electric bill has shocked you this summer, then take revenge: invest in a utility company.

Driven by a limited electricity supply and ever-increasing demand, stocks in the Standard & Poor's utility index have surged 22.5% this year. Particularly attractive to investors have been the companies that operate so-called merchant power plants, or plants that sell their product on the open market across the country.

Though generating stocks have soared since spring, don't think you've missed out on the run completely. While it's true that many companies, such as Dynegy, NRG Energy and Calpine, are at or near 52-week highs, it's also true that U.S. energy shortages are expected to extend into the foreseeable future. And that means these stocks still have room to run.

"We believe that the electric utility stocks should continue to outperform the overall stock market for the next several months and possibly longer," PaineWebber's Barry Abramson wrote in a Sept. 5 note to clients.

Part of the reason utility companies are on a roll is deregulation. By the 1930s, state and local governments had imposed limits on how much utility companies could charge consumers in exchange for granting them monopolies over certain geographic areas. But since the early 1990s, they've been deregulating their utility markets.

Now, every state except Florida and South Dakota has a full or partial deregulation policy in place or is considering such a measure. That means utility companies can charge market prices for their product. And with a power shortfall in the Northeast and West this summer, some consumers have seen their electric bills double.

Supply eventually will catch up to demand, but it could take a few years. Daniele Seitz of UBS Warburg estimates the U.S. is now 80,000 megawatts short (or about 10% of the total electric power produced in the country). And power companies will open plants that produce only about 8,000 megawatts-worth of power this year (a 1,000 megawatt plant is capable of producing power to several hundred thousand homes.) That's downright conservative compared to information provided by the Energy Information Agency, part of the Energy Department, which estimates the nation needs 300,000 megawatts of new generating capacity by 2020.

In the meantime, higher electricity bills for consumers aren't bad for the companies providing the juice. One company that's benefited from the power shortage is Duke Energy. The operator of merchant power plants hit gold this year when some of its newest plants started operation just in time for the power squeeze in California and the Northeast.

Duke's stock has performed so well this year up 66.4% year-to-date that some analysts are concerned it may be one utility stock that's getting fairly priced. This past week, the company zipped past many analyst's 12-month targets of $72 to $75 per share, closing Friday at $80.31. The stock now trades at nearly 17.8 times estimated 2001 earnings, a healthy jump over the industry's 13.2 average P/E ratio.

But at least one analyst thinks there's still time to jump on Duke. Daniel Tulis of Banc of America Securities, Montgomery Division, upped his 12-month target price to $100 a share Wednesday. He's inspired by Duke's potential to generate nearly 7,000 megawatts of electricity in the next couple of years and the possibility of full utility deregulation in the Carolinas, which would free up another 19,000 megawatts of potential power for Duke to sell or trade. Duke deserves a P/E ratio of 22, Tulis says.

Another company that might have some room to grow is PPL, a power generator in the Northeast and West. The company has 2,650 megawatts of power plants under construction and aims to have 10,000 megawatts worth of new power by 2002. Company managers have told analysts that the generating business could grow as much as 20% over the next several years. On Wednesday, the company advised analysts to raise their 2000 earnings estimates to $3 a share (from $2.80 to $2.90 a share), and 2001 estimates to between $3.20 and $3.30 a share, up 10 cents a share.

Cinergy is another company that could gain from the power push. Thanks to a recent ruling by the Ohio Public Utility Commission, Cinergy can sell its most valuable asset, the formerly regulated Cincinnati Gas & Electric Co. The unit accounts for 49% of Cinergy's earnings and is listed as a $5.2 billion asset on Cinergy's books. It's likely Cinergy would receive a premium on any sale.

According to James Dobson, an analyst at Donaldson Lufkin & Jenrette, Cinergy Chief Executive Jim Rogers has hinted he might combine Cincinnati Gas & Electric in a joint venture with another company and then take the new venture public. Cinergy itself is an attractive takeover target as well, analysts suggest. And that could electrify its stock.