Normally mild-mannered utilities funds have turned in electrifying performances this year. But be careful: Despite forecasts of higher demand and lower interest rates, experts worry that the sector might be ready to burn out.

Utility stocks are often derided as investments so bland, you can sell them to widows and orphans without anyone complaining that the stocks are too risky. No big dips, but usually no big gains, either.

Increased demand. The growing economy has boosted demand for electricity, but it could take two to three years for the industry to build enough power plants to handle that demand, says Matthew Smith, co-manager of Franklin Utilities Fund.

The U.S.' fondness for electrical devices has also heightened demand. A big flat-screen TV uses more electricity than a refrigerator. "If demand continues to increase at such a robust pace, there could be a big increase in (stock) prices," Smith says.

Increased investment. Regulated utilities are generally allowed a reasonable return on their investments, even though earnings can take a hit soon after the utilities buy plants and equipment. As they invest in environmental and other new equipment, though, utilities should eventually be able to recoup their investment, plus a profit, through higher rates.

Lower interest rates. Although the Federal Reserve hasn't nudged short-term rates lower since 2003, many analysts expect a rate cut by fall. Utility stocks offer dividend yields of about 3.2 percent to 3.4 percent. The average money-market mutual fund yields 4.8 percent, but utilities offer the prospect of rising share prices, too.

Those dividends are looking better to baby boomers, too. The 79 million boomers, born from 1946 through 1964, are rapidly approaching retirement. They'll need growth from stocks but steady dividend income, too. Utilities stocks offer both.

What could short-circuit the rally? Prices of utilities stocks are high, relative to earnings, says Joseph Sterling, co-manager of American Century Utilities Fund. The average electric utility stock has a price-to-earnings ratio about equal to the S&P 500's -- and some are up to 15 percent higher, Sterling says.

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