Electric power distribution is the final stage in the delivery of electricity. Electricity is carried from the transmission system to individual consumers. Distribution substations connect to the transmission system and lower the transmission voltage to medium voltage ranging between 2 kV and 33 kV with the use of transformers. Primary distribution lines carry this medium voltage power to distribution transformers located near the customer's premises. Distribution transformers again lower the voltage to the utilization voltage used by lighting, industrial equipment and household appliances. Often several customers are supplied from one transformer through secondary distribution lines. Commercial and residential customers are connected to the secondary distribution lines through service drops. Customers demanding a much larger amount of power may be connected directly to the primary distribution level or the subtransmission level.

The transition from transmission to distribution happens in a power substation, which has the following functions:

Urban distribution is mainly underground, sometimes in common utility ducts. Rural distribution is mostly above ground with utility poles, and suburban distribution is a mix. Closer to the customer, a distribution transformer steps the primary distribution power down to a low-voltage secondary circuit, usually 120/240 V in the US for residential customers. The power comes to the customer via a service drop and an electricity meter. The final circuit in an urban system may be less than 15 metres (50 ft) but may be over 91 metres (300 ft) for a rural customer.

Electric power distribution become necessary only in the 1880s, when electricity started being generated at power stations. Until then, electricity was usually generated where it was used. The first power-distribution systems installed in European and US cities were used to supply lighting: arc lighting running on very-high-voltage (around 3,000 V) alternating current (AC) or direct current (DC), and incandescent lighting running on low-voltage (100 V) direct current. Both were supplanting gas lighting systems, with arc lighting taking over large-area and street lighting, and incandescent lighting replacing gas lights for business and residential users.

The high voltages used in arc lighting allowed a single generating station to supply a string of lights up to 7 miles (11 km) long. And each doubling of voltage would allow a given cable to transmit the same amount of power four times the distance than at the lower voltage (with the same power loss). By contrast, direct-current indoor incandescent lighting systems, such as Edison's first power station, installed in 1882, had difficulty supplying customers more than a mile away because they used a low voltage (110 V) from generation to end use. The low voltage translated to higher current and required thick copper cables for transmission. In practice, Edison's DC generating plants needed to be within about 1.5 miles (2.4 km) of the farthest customer to avoid even thicker and more expensive conductors.

The problem of transmitting electricity over longer distances became a recognized engineering roadblock to electric power distribution, with many less-than-satisfactory solutions tested by lighting companies. But the mid-1880s saw a breakthrough with the development of functional transformers that allowed AC power to be "stepped up" to a much higher voltage for transmission, then dropped down to a lower voltage near the end user. Compared to direct current, AC had much cheaper transmission costs and greater economies of scale — with large AC generating plants capable of supplying whole cities and regions, which led to the use of AC spreading rapidly.

In the US the competition between direct current and alternating current took a personal turn in the late 1880s in the form of a "war of currents" when Thomas Edison started attacking George Westinghouse and his development of the first US AC transformer systems, highlighting the deaths caused by high-voltage AC systems over the years and claiming any AC system was inherently dangerous. Edison's propaganda campaign was short-lived, with his company switching over to AC in 1892.

AC became the dominant form of transmission of power with innovations in Europe and the US in electric motor designs, and the development of engineered universal systems allowing the large number of legacy systems to be connected to large AC grids.