This paper presents a smart residential electric power supply system, which is named smart gateway grid (SGG). It can enable residential distributed generations (DGs) and energy storage system (ESS) to participate in system operation, which will improve the reliability of power supply and help households secure a high quality service while reducing the cost of consumption. The SGG operation modes and associated transition strategies are analyzed in the paper. And the control strategy is developed to guarantee the whole system operating satisfactorily. To meet the demand of the typical U.S. household, a low cost and high efficiency SGG configuration is designed as a case study. Finally, analysis, simulation, and experimental results are presented and they show that the proposed SGG has the attractive features.