This paper examines the evolution of electric power systems from their earliest days in the 1880s through World War I and the barriers to achieving interconnected distribution systems. In the very earliest days of electricity, there were no gains to interconnection. Beginning in the 1910s, interconnection of independent distribution systems would have offered lower cost and higher reliability, but utilities instead relied on their own excess capacity and on acquisition of adjoining utilities. Transactions costs associated with incomplete contracting acted as barriers to achieving interconnection. World War I generated electricity demand far outstripping supply in some locations, such as Niagara Falls and the Pittsburgh region. The problems associated with excess demand led the military to intervene and force interconnection between Pittsburgh and Youngstown. Military intervention temporarily lowered the coordination costs and transaction costs associated with state public utility commissions and allowed regional interconnection in selected areas.