[tofflos]

There can't be a competitive market. The entity that operates the grid has a monopoly on all customers in the area. So I would say entities that govern grids fall in a can't-be-allowed-to-fail-category while entities that govern generators do not (unless they buy enough generators in a region to effectively become a monopoly).

[AnthonyMouse]

If you had a monopoly generating company and it failed then the power goes out even if the grid is up. It's just as important as the grid, but it's amenable to competition.

"Operating" the grid isn't the natural monopoly either. The natural monopoly is actually the physical space beneath the grid, i.e. the roads. If a storm knocks down a pole or some transmission lines need to be upgraded you could put out bids to any number of companies to come and do the work. If customers want to buy power from a generator, the grid is used to deliver it, but that doesn't mean the grid operator has to be an intermediary between the supplier and the customer instead of a vendor of the supplier paid to deliver power. It's not even obvious that they should be paying per kWh instead of funding distribution through taxes in the same way as the roads, since a well-functioning grid should never exceed peak capacity but using otherwise-idle transmission capacity has no variable cost.

And then what's the natural monopoly? Just physical ownership of the infrastructure, and some accountants to predict when demand is about to outstrip supply and bids should be put out to expand capacity.