Russia's power system is enormousconsisting of more than 200 gigawatts of generationcapacity, most of it interconnected by 2.5 millionkilometers of high-voltage transmission lines spanning anarea only slightly smaller than the United States and Canadacombined. In early 1997 the Russian government approved inprinciple the now-common model of electricity sector reform:vertically separating generation, transmission, anddistribution; introducing competition where possible;strengthening the regulation of functions less amenable tocompetition; and divesting government ownership. This modelhas been implemented in many countries, and the story of thereform would be relatively routine if not for specialcharacteristics of the Russian power system: its size,diverse ownership, high level of nonpayments, and thecombined heat and power role of many generating plants. ThisNote outlines the challenges posed by these characteristicsand reports on reform achievements so far.