Though power companies were demanding more from the grid, they had no incentive to upgrade it. Every penny a utility spent on grid improvement would potentially benefit plants owned by rivals. And states that exported cheap energy resisted plans for costly new transmission projects, fearing they would lead to higher in-state rates—and angry voters.

As a consequence, the grid has fallen into disrepair, with few major efforts to fix it. Today, utilities allocate just 2 percent of revenue to research. "For God's sake, we contribute less to R&D than the pet food industry does," says Jeffrey Byron of the California Energy Commission. So the grid remains hobbled by unreliable electromechanical switches and analog controllers. During the early minutes of the Northeast blackout of 2003, the Ohio utility whose damaged hardware started the cascade couldn't even monitor its own wires; employees had to phone a regional overseer and beg for updates. By that time, it was too late.

...

How did the giant utility come around to embracing the smart grid? Probably not out of the goodness of its corporate heart. The costs of building new generation facilities—and the tumbling prices of plug-and-play gadgets—likely made raising the grid's IQ a more efficient way to improve Duke's long-term prospects. Look at the company's recent push toward IP-based open standards for all its grid hardware. Open standards will help operators communicate with one another regardless of utility—turning the grid into an Internet-like ecosystem rather than a scattered network of proprietary islands. But there may be another reason for Duke to become an evangelist of the approach: Open standards would make it easier for the large utility to gobble up and incorporate smaller rivals, since their systems could be integrated with minimal effort.

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