The proportion of energy consumption in America dedicated to electricity production has increased from 10% in 1940 to 40% in 2002. Electric power has grown considerably in scope and importance on a global level as well, becoming increasingly recognized as key to societal progress by increasing economic prosperity and improving the quality of life. Unlike the technology revolution that has transformed the telecommunications industry and despite its societal importance; however, electricity transmission is still operating on a century-old framework. As the grid has grown, a patchwork of additions using the fundamentals pioneered by Edison has created the largest machine on earth comprised of more than 9,200 generator units producing over 1 million megawatts total generating capacity distributed over more than 300,000 miles of transmission lines .
Unfortunately, recent history indicates the grid may finally be reaching its limits without substantial upgrades. Between 1990 and 2005, the rate of severe blackouts due to grid failures excluding extreme weather doubled . Between 2005 and 2009, those rates have almost doubled again. Electricity customers in northeast states such as New York, Pennsylvania, and New Jersey averaged more the 3.5 hours of interrupted service annually. In addition to being inconvenient, these outages are also very costly to the electricity-addicted, digital US economy. Estimated costs of power outages range from $80 billion to $188 billion annually. The Northeast Blackout of August 2003 accounted for over $6 billion in economic losses alone .
The Electric Power Research Institute (EPRI) estimates that total costs for full smart grid development over the next 20 years will range from $338 to $476 billion, but those investments will recoup savings of up to $2 trillion over that time frame, resulting in a benefit-to-cost ratio ranging from approximately 3:1 to 6:1 . Large efficiency gains are expected relatively quickly with the installation of smart sensors throughout the distribution grid. Currently, without effective monitoring technologies, utilities typically apply larger than necessary voltages to ensure they provide adequate electricity transmission. With more accurate monitoring, utilities will be able to only supply what is needed, and re-route electricity more quickly when outages occur. Efficiency gains are predicted to result in energy savings in the range of 56 to 203 billion kWh by the year 2030 .
Demand Response investments also provide a large amount of savings. The FERC estimates that effective demand-side management models have the potential to reduce national peak demand by 20%, which would reduce the number of peaking generation plants needed to be built in the future . Additionally, the Brattle Group estimates the present value of savings realized through Demand Response programs over the next 20 years to be approximately $33 billion. The bulk of these savings (81%) are the result of avoided capacity investments due to lower peak generation needs .
The current electrical grid was built to function in an environment different from the one it operates in today. Market deregulation, increased demand, and lack of sufficient investment in upgrades have led to a state of deteriorating reliability. Smart grid implementation would allow energy markets to work more smoothly in a number of ways as discussed above. A shift towards greater demand control and system awareness will ensure improved and continued reliability at a small up front price compared to long run savings.
 Amin, M., & Stringer, J., 2008. The Electric Power Grid: Today and Tomorrow. MRS Bulletin, Volume 33, April 2008, pp. 399-407.
 U.S. Department of Energy (DOEa). What is the Smart Grid. Accessed from: http://www.smartgrid.gov/the_smart_grid#smart_grid
 Amin, M., 2011. We’re not in Kansas Anymore… The next stimulus – filling potholes is necessary but insufficient. Midwest Reliability Matters, Sept/Oct 2011, pp. 1-4.
 Electric Power Research Institute (EPRI), 2011. Estimating the Costs and Benefits of the Smart Grid: A Preliminary Estimate of the Investment Requirements and the Resultant Benefits of a Fully Functioning Smart Grid. Final Report, March 2011.
 National Institute of Science and Technology (NIST), 2011. Draft NIST Framework and Roadmap for Smart Grid Interoperability Standards, Release 2.0.
 Faruqui, A., 2011. The Tao of The Smart Grid. The Brattle Group, August 24, 2011.