The merchant energy sector is starring in another summer horror show.

The latest version casts Allegheny ( AYE) and Mirant ( MIR) in the roles previously filled by Dynegy ( DYN) and Williams ( WMB).

While the plot may be numbingly familiar, it does offer a few new twists. The starring companies are still racing to escape the bankruptcy monster -- but Allegheny already has used up a lot of cool tricks to dodge bankruptcy once, and Mirant has decided to stop running and just play tough guy instead.

So far, the market has had mixed reviews. Investors panicked at a surprising new bankruptcy warning from Allegheny late Monday, pushing the stock down 6.6% to $8.70 at midday Tuesday. But they weren't quite as alarmed at the latest bankruptcy chatter surrounding Mirant: After receiving a fresh credit downgrade from Standard & Poor's late Monday, Mirant was down 3.1% at $2.48 at midday Tuesday.

Still, investment strategist Peter Cohan is bracing for another hairy ride. And he points out that last summer's hero remains missing from the current merchant energy saga: "While Dynegy and Williams managed to squeak through with help from bottom-fisher Warren Buffett, Allegheny and Mirant appear to be stuck," said Cohan, who has no investments in the merchant energy sector. "This leads me to believe that Allegheny and Mirant may have a lot harder time escaping with their lives."

But Blaylock analyst Lasan Johong is holding out for another happy ending. He is convinced that Allegheny's new CEO will find a way to pull the company out of its current fix. And he's almost certain that Mirant will escape bankruptcy as well. "Let me qualify this by saying that I can't account for people doing stupid things and being totally irrational," said Johong, who owns no stock in either company. Still, Johong admits that he's probably the only analyst who still recommends buying Mirant shares. He doesn't formally cover Allegheny.

Familiar Scene

To Allegheny investors who were looking for a relatively smooth ride until 2005, Monday's after-market bankruptcy warning came as a nasty surprise. Just four months ago, Allegheny had finally snagged the elusive financing that was supposed to carry the company through this year and next. Now, seemingly out of the blue, Allegheny is in danger once again.

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