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On page p. X27 of the 1981 Expert booklet:
Energy Drain: A successful hit by certain undead monsters will drain energy from the victim. Unlike other special attacks, there is no saving throw against an energy drain. Each energy drain will destroy one level of experience of a character, or one hit die of a monster. The creature drained of energy loses all the benefits (attack level, saving throws, spells, etc.) of the former level. This effect cannot be cured. (Note: in the D&D® Companion Supplement rules, there is a magical way to cure energy drains.)
The important thing about energy drain is that it is a metagame effect. It simulates the supernatual fear certain undead create within the character with an effect the player fears.
That is, the purpose of energy drain is to get the player to avoid their character getting drained at all costs. An energy draining monster is not to be fought in a stand-up fight. It asks this question of the players: How do the characters defeat or avoid the monster without ever giving it a chance to use its energy drain?
Therefore (IMHO) it is vital that the DM telegraph energy drain. The players need to be made fully aware the moment they encounter a monster with energy drain that the monster has that ability and exactly what it means. The in-game explaination for giving them this knowledge is the irrational fear that grips the characters in the monster’s presence.
Energy drain, however, is logistically inconvenient. Arguably that isn’t a problem since it should never happen. Still, here are my plans for how to handle it if it comes up in a game I am running.
Energy drain reduces a character’s XP by half. (Which is mostly equivalent to losing a level.) The character’s level, attack level, saving throws, spells, etc.—however—do not change. Rather, the character must simply re-earn the lost XP in order to continue progressing.
What about 1st level characters? (Or characters who have been drained down to less than the XP they needed for 2nd level.) Either the half-XP could be followed until they get down to less than 1 XP, or 1st level characters could simply be killed as that would be closer to the original rule.
Some undead drain more than one level at a time! This seems a bit overkill, so I might skip that. If not, though, draining two levels would, with this rule, mean losing three quarters of the character’s XP.
For monsters who are victims of energy drain, it would still take one HD.