The energy-trading crowd, long past its admiration of fallen giant Enron, keeps proving that bigger isn't necessarily better.

Several former powerhouses have managed to cut their losses along with their size. Following a new trend in the industry, two struggling utilities --

CMS

(CMS) - Get Report

and

Aquila

( ILA) -- reported smaller quarterly losses as they scaled back the trading operations that triggered their rise and fall. And yet another energy trader,

Williams

(WMB) - Get Report

, managed to report a profit just a year after it nearly tumbled into bankruptcy.

Still, the sector's problems are massive. Across the entire industry, companies are struggling to pay down huge debt loads, even as their old cash-generating power erodes. And for some, like

Reliant Resources

(RRI)

, the hole just keeps getting deeper.

For the second quarter, Reliant reported a net loss of $28 million, or 9 cents a share, that reversed a solid profit from a year ago. The Houston-based company blamed the downturn on continued weakness in its wholesale energy business, a startling drop in its stronger retail segment and higher interest costs associated with a new $5.9 billion financing package. The company is now relying on huge cost cuts to meet reduced full-year earnings guidance of just 10 cents a share.

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Nevertheless, Reliant CEO Joel Staff expressed optimism about Reliant's long-term viability.

"Given the difficult business conditions, we are aggressively working towards improving our future financial performance by adjusting our business model and cost structure," Staff said. "Although extremely weak wholesale market conditions ... continue to affect our earnings, I am confident that we are positioning the company for future success."

But Staff's reassurances, coupled with new leadership announcements, failed to calm the market. After reporting second-quarter results -- and shifting Staff from interim to permanent CEO -- Reliant saw its shares tumble despite the addition of two new directors, a Houston minister and a retired industry executive, to its board. At $4.05, the stock was off 19% in late-morning trading.

CMS also took a dive after reporting a 4-cent miss. Excluding special charges, the Michigan utility reported ongoing profits of a penny a share that fell short of the nickel analysts were expecting and the 13 cents the company reported one year ago.

The company pointed to higher financing costs and a 4% drop in power sales as reasons for the shortfall.

Including charges related to a big asset sale, CMS posted a second-quarter net loss of $45 million, or 31 cents a share. But the company had reported an even bigger loss of $74 million, or 55 cents a share, one year earlier.

CMS pledged to cut costs so that it could maintain its full-year earnings guidance of 80 cents to 90 cents a share.

"There are still many challenges," CEO Ken Whipple said. "But we continue to make progress toward our goal of becoming a smaller, stronger company."

Still, the market sent CMS down 37 cents, or 5.7%, to $6.09.

Aquila fared better. The company's stock barely budged, slipping just a penny to $2.45, on news of another losing quarter. Hurt by restructuring and impairment charges, the Kansas City utility weathered a second-quarter loss of $80.6 million, or 41 cents a share -- which was nevertheless far better than a year-ago loss of $810 million, or $5.69 a share.

Tulsa-based Williams offered the best news in the sector. Helped by a $567 million mark-to-market gain, the company posted a second-quarter profit of $270 million, or 46 cents a share, that reversed a big loss in the same period last year. On an ongoing basis, the company reported a profit of 18 cents a share that surprised analysts -- who were expecting only 3 cents -- and reversed last year's restated loss of 65 cents a share.

But the company reported recurring earnings -- viewed as sustainable -- of just $500,000 for the quarter. Still, Williams CEO Steve Malcolm insisted that the company continues to grow stronger.

"We're headed in the right direction," Malcolm said. "We're making significant progress in turning this company around."

Williams pledged to continue winding down its wholesale trading business -- which it renamed the "power" unit -- and to stop selling off assets in the near future. The company has shed billions of dollars worth of assets, raking in $2.4 billion this year alone, in an ongoing effort to pay down its onerous debt load. It hopes to resume its earnings growth, and regain its crucial investment-grade rating, over the next couple of years.

The company's stock jumped 21 cents to $8.07 -- within $1 of its 52-week high -- after Tuesday's earnings report.