Utilities have new reasons to mourn those gaping holes in their pockets.

The struggling companies, which burned through piles of cash chasing elusive, deregulated profits, have run out of mad money at a particularly inopportune time. After borrowing heavily for power plants and trading operations, the companies have wound up flat broke just as some high-ticket transmission assets -- decades in the making -- are starting to hit the market.

The new technologies address the very reliability concerns that have engulfed the sector since a massive blackout left 50 million people in the dark earlier this month. They also silence the industry's loudest excuse for failing to upgrade the nation's transmission system.

These superconductors, designed to carry record loads of power with near-perfect efficiency, require none of the unsightly infrastructure that would come with traditional updates. In other words, the utilities can't keep blaming "not-in-my-backyard" syndrome for transmission failures forever.

"Electric transmission has received little attention from policymakers and little investment due to NIMBY," said Williams Capital analyst Christopher Ellinghaus. "Because utilities couldn't invest in transmission and distribution, they spent a lot more time focusing on generation, where the prospective returns looked better."

But unlike regulated businesses, where at least modest returns are guaranteed, the generation business has proven to be a costly one for utilities. In a rush to capitalize on deregulation -- and capture uncapped profits -- utilities built more power plants than America will need for years. Instead, the country is increasingly short of the natural gas used to fire most of those plants. Excess power capacity and high gas prices have combined to leave unregulated units scrambling to get by. So utilities are now leaning on their dependable, but limited, regulated profits just to keep them afloat.

With their credit ratings pressured by massive debt -- used to finance all those power plants -- utilities aren't necessarily rushing out to make new investments. Still, Ellinghaus believes utilities would sink fresh money into transmission assets if the incentives were better. He says the government must sweeten the returns, and lighten the hurdles, for new transmission upgrades.

But even after this month's blackout, Ellinghaus isn't counting on quick action from the notoriously slow government.

Northeast Utilities

(NU)

, whose customers lost power in the outage, says the blackout has triggered only a burst of "frenetic energy" that still lacks the concentration needed to fuel dramatic change. Only when transmission upgrades become a national priority, outlasting the brief aftermath of a one-time blackout, do utilities see real progress coming.

"It took us 10 years to put a man on the moon -- and we barely had a rocket that could leave the orbit of the earth," Northeast spokesman Frank Poirofj pointed out. "But with enough national attention focused on that goal, it happened."

Until now, power transmission hasn't exactly captivated the American public. But it has sparked the interest of enough scientists to bring revolutionary technologies -- comparable to fiber optics and computer chips -- in much closer reach than the moon.

Cool Science

Before the mid-1980s, superconductors were fascinating -- but essentially worthless -- wonders of technology.

For decades, scientists had marveled at the way some materials, when cooled below the boiling point of helium, allowed currents to flow with almost no resistance. But it took a lot of liquid helium, which was scarce, to bring the materials down to the necessary minus-269 degrees Celsius. Only in 1986, when foreign scientists stumbled upon a new breed of ceramic superconductor that could function at a balmier minus-139 degrees Celsius -- higher than the boiling point of plentiful liquid nitrogen -- did four American scholars grow excited enough to give up their jobs at the Massachusetts Institute of Technology and set out on their own.

Since its launch by MIT professors in 1987,

American Superconductor

(AMSC) - Get Report

has spent roughly half-a-billion dollars seeking to perfect technology that could revolutionize electrical transmission systems. To its credit, the company has some commercial products already on the market. It sells superconducting magnetic energy storage devices, or SMEs, that protect against voltage swings. And it also supplies superconductor motors for U.S. Navy ships.

But its most ambitious technology -- and the one most needed to overhaul transmission systems -- has yet to hit the shelves. The company did test its superconductor transmission lines in a failed experiment with

DTE's

(DTE) - Get Report

Detroit Edison that few involved are eager to discuss. And it has a big deal inked with the Long Island Power Authority to help transmit enough power for 300,000 homes by 2005.

But the company must clear some big hurdles before this crucial technology takes off.

"Right now, their wires are only 10 meters long," said H.C. Wainwright analyst David Kurzman, who has an underperform rating on the stock. "They need to be 50 to 100 times longer. It's absolutely doable, but it takes time."

And American Superconductor is running dangerously low on cash. After raising more than $200 million in a 2000 stock offering -- when the shares rocketed past $60 -- the company spent so much money on new facilities and expensive projects that it's now down to its last $12 million. Despite new plans to issue more stock, which has rallied from $9.25 to $13.47 since the blackout, Wainwright remains skeptical of the company.

"This is a company that likes to put out a lot of press releases," Wainwright said. "But it's losing lots of money, burning through cash and having to raise more. ... This is not a good situation."

TheStreet Recommends

Peter Cohan, an investment strategist who's been watching the company for years, shares that view.

"It still looks like a science project to me," says Cohan. "If the company can tap retail investor naivete to raise cash by selling stock ... it may be able to limp along a little while longer."

Finish Line

And this isn't a one-company race.

"Although I believe our company is regarded as the commercial leader, we do have competition," admitted John Howe, vice president of electric-industry affairs at American Superconductor.

While that competition is thin -- and largely foreign -- it does include at least one other publicly traded American company. And that company,

Intermagnetics

( IMGC), has a profitable line of medical devices to keep it flush with cash as it brings its own superconductors to the market.

"If you're going to have to wait two or three years

for the technology, which company do you want to be investing in?" asked Wainwright, who has an outperform rating on Intermagnetics' shares. "This is a company that's doing everything right."

Unlike American Superconductor, which is still run by the scientists who founded it, Intermagnetics long ago passed the baton to a former

General Electric

(GE) - Get Report

executive who pushed the company away from "lovingly hand-built devices," Wainwright said, and into commercial products. The bulk of Intermagnetics' resources is devoted to magnetic resonance imaging, or MRI, devices that generate steady profits and keep the company's balance sheet awash in cash. But Intermagnetics has plenty of money left over to spend on a "SuperPower" unit that's developing the same next-generation transmission lines American Superconductor is pursuing.

Like American Superconductor, Intermagnetics faces technological challenges. Its own wires, while apparently long enough, are still too expensive for practical use. But the superconductor industry has already overcome much larger obstacles in its brief 17 years of existence.

"We're pretty much right on schedule," Howe said of the tiny industry. "And interest

in the technology has skyrocketed in one week."

Wish List

At Northeast Utilities, where 250,000 Connecticut customers lost power in the recent blackout, technical experts have been eyeballing superconductor wires for years.

The utility sees the new technology as an answer to two major problems. Because superconductor wires can simply replace old copper ones, they would eliminate the need for more space -- and permission -- to build new infrastructure. And because they lose almost no current, they would be able to carry more electricity with greater reliability to power consumers.

"Right now, on conventional lines, you can lose up to 10% of your power," Poirofj said. "That translates into serious money."

Experts predict that superconductors will eventually save the utility industry billions of dollars a year. But for now, they cost far too much for cash-strapped utilities to even consider.

"For that prototype in Long Island -- which isn't even a reliable cable -- it's $35 million a mile," Poirofj pointed out. "Obviously, these cables would have to be mass-produced."

American Superconductor is confident that affordability will come. In the meantime, the company says that even traditional upgrades are more expensive than most people believe. After figuring in extras like property losses and permitting costs, Howe says the price for a mile of high-voltage transmission lines can soar from $1 million to $7.5 million. Underground upgrades, he adds, can come in at double that amount.

Experts have estimated that the U.S. needs 30,000 miles of new overhead transmission lines to overhaul the system.

"Our view -- certainly at this company -- is that we don't need anything like that number of miles of circuitry," Howe said. "With superconductor cables, you use fewer circuits and fewer miles. ... And as we see it, there's no technical hurdle to having the cable available" in a few years.

By then, Howe predicts, superconductor wires will be at or near a competitive price of $10 million a mile. And utilities like Northeast could come nibbling. The company disagrees with critics who've accused the industry of shunning transmission upgrades because of low returns. Instead, Poirofj says the company weighs costs and benefits for its customers -- rather than the impact on its financial condition -- when considering new upgrades.

For now, Northeast continues to monitor superconductor development "with great interest," Poirofj says.

"We need to deliver reliable and cost-effective power to our customers," he said. "With the huge blackout ... that need continues to grow."