This report describes the rationale behind the smart grid. It provides a clear vision for the power system and the milestones necessary to achieve the goals towards the smart grid of the 21st century. In addition to continuing the traditional approach of large, remote, centralized generating stations providing energy to consumers using extensive transmission systems, this vision recognizes the major benefits the distribution system and end user involvement can provide. By blending the traditional centralized model with one that embraces distributed resources, demand response, advanced operational tools, and networked distribution systems, we can enjoy the benefits of both and minimize the negative aspects of each. The application of modern computing, communications, and materials sciences will enable this transformation.