Our electrical infrastructure is built on the assumption that generation is going to take place at a distance from most end users. Given the technology we've used to generate power over the last century, this makes sense. Large dams can only go where there's a suitable river and canyon, which may be at a remove from residences and industry. Coal and oil-burning plants and nuclear power plants are much easier to build far from populated areas, due to understandable opposition.
At first generators were often built directly adjacent to large consumers. during World War I, for example, the US government built dedicated electrical power plants for munitions factories. But over the last century our need for power has both grown and become far more decentralized. And so we've built an interconnected system of generators, transmission lines and substations that move electrical power from remote power stations to consumers spread throughout the far corners of the world.
This network is widely referred to as the grid, though there isn't actually just one grid. There are two basic kinds of grids: transmission grids, which move power from large generators to "load centers" -- a.k.a. places where people live and work -- and regional distribution grids, which take power from the transmission grids and as you might deduce from the name, distribute it to consumers. Transmission grids move electrical power at very high voltages, which reduces loss of power due to resistance of the power lines. Distribution grids are run at a lower voltage. When power moves from a transmission grid to a distribution grid, a substation connecting the two "steps down" the voltage by using large transformers. More transformers reduce the voltage even more before it enters your house.
The United States and Canada share two major transmission grids, the Western and Eastern Interconnections, with a few regional ones in the mix as well.
These transmission grids are connected to each other, but only in a limited fashion. Each may operate its alternating current at a different frequency from the others, and just hooking them all up directly wouldn't work well. The transmission grids must therefore use direct current links to hook up to the other grids. The equipment involved in converting from AC to DC and then back again is expensive, so connections among North American transmission grids are quite limited. There's a plan in the works to build what's called the "Tres Amigas SuperStation" in New Mexico, which would be essentially a gigantic adapter the Eastern and Western Interconnections and the minor transmission grid covering Texas could plug into, after which it would theoretically be much easier for a utility in California to buy power from a wind installation in Nova Scotia. Until Tres Amigos is built, though, each interconnection is essentially independent.
The complexity doesn't stop there. Transmission grids aren't really entities unto themselves. Each one is made up of power stations, transmission lines, substations and other equipment that may be owned by many different companies, municipalities or other agencies. That would be one thing if the grid was like a farmers' market, with each producer bringing what they thought they could sell and each consumer shopping around for the best bargain, changing his or her mind on a whim. But electrical power distribution doesn't work that way. Supply always has to outstrip demand, or else brownouts and blackouts happen. And yet supply can't outstrip demand too much, because that would overload network components and cause significant damage.
So the overall grid must be tightly regulated, with an overriding authority supervising both long-term and hourly balancing of supply, demand, and grid maintenance. In the United States, that overriding authority is the Federal Energy Regulatory Commission (FERC), which delegates much of the day-to-day responsibility for load-balancing to regional Independent System Operators (ISOs), and in some places larger-scale Regional Transmission Organizations (RTOs.). California isn't served by an RTO, but a non-profit consortium called the Western Electricity Coordinating Council that fulfills similar functions yet escapes much FERC oversight. The California ISO is responsible for maintaining the grid, planning load balancing, and managing the wholesale power market within the state.
Most of us only really notice the job an ISO does when something goes wrong. In California, the example that comes to mind is of the electricity crisis of 2000-2001, when power shortages were artificially created by people trying to game the power market. As a result of these shortages, CaISO had to keep demand lower than supply by instituting "rolling blackouts," in which distinct sets of distribution grids had their power cut off deliberately to reduce load on the system. That way engineers can plan for the outage, where an unplanned blackout might cause a cascade of damage that could take days or weeks to correct.
The 2011 California blackout underscores an increasing characteristing of the grid: its fragility. A technician made a single error in maintenance work at a substation in Arizona, and within 11 minutes upwards of 7 million people had lost power in Southern California, Arizona, and Northern Mexico. It was the largest blackout in California's history, and technicians didn't get everyone back online for a day or more.
Advocates of distributed generation point out that creating power with many thousands of small-output generators reduces our need for the transmission grid, also reducing the likelihood that a single point of failure will cause a cascade blackout like the one in 2011.