Wiring up the developing world was one of history's great engineering feats. It allowed cheap power to flow continuously from efficient, centralized generating plants to every corner of every town. And-maybe a bit of a mixed blessing-it turned a society of early-to-bed candlelight readers into people who take for granted the ability to do whatever they want whenever they want in total comfort, regardless of the outside temperature or position of the sun. But then the utility industry just stopped. While the Internet was allowing merchants and hackers to trace our surfing habits down to the level of seconds spent staring at a web page, the electrical grid stayed one way, with power flowing out but no detailed information about usage flowing back. On the old "dumb" grid-which is still the norm in most places-information flow between electric utilities and their customers consists almost entirely of 12 meter readings a year and 12 monthly power bills.

So when the temperature spikes in August and people crank up the air conditioning and watch their plasma TVs in cool, well-lit rooms, the utility pumps out as much juice as it can-until it can't. Then it either buys power from neighboring utilities at extortionate rates or gives up and allows all or part of its network to go black. This is both annoying and really, really costly. The Electric Power Research Institute calculates that power outages cost U.S. business at least $50 billion a year. And Americans are among the lucky ones for whom outages are rare and brief. South Africa's mining and manufacturing sectors were brought to a virtual halt in early 2008 by widespread blackouts. And in Lahore, Pakistan, increasingly frequent outages were reportedly causing a run on batteries and backup power systems. It's the same story around the world. Grids are overloading and going down more frequently, in large part because power is being used inefficiently by people who have no real-time sense of what it's costing.

The direct cost of blackouts is just the tip of the inefficiency iceberg. In order to be prepared for periodic spikes in demand, utilities have to maintain peak power-generating capacity that's about twice what is needed on an average day. All those plants and lines sitting idle for most of their working lives are wildly expensive. And the gap between peak demand and supply is widening: The North American Electric Reliability Council expects peak electricity demand to rise by 18 percent, or about 13.5 gigawatts in the United States during the next decade, while peak generating capacity will grow by only 8.4 percent. And then there's the environmental impact: Despite the inroads now being made by solar and wind, the vast bulk of peak power generation comes from burning coal and natural gas, so the need to draw on such sources is a prime contributor to atmospheric CO2. Today's grid, in short, is dirty, fragile, and expensive and not nearly flexible enough to manage, say, millions of rooftop solar panels and electric cars. But tomorrow's grid will be up to the task, as power companies, at last, build two-way communications capabilities.

Learn How they'll do it with Smart Metering and Demand Response