Abstract This paper presents a novel approach for Integrated Generation and Primary–Secondary Distribution System Expansion Planning (IGDSEP) in the presence of wholesale and retail markets. The proposed method uses a model to explore the impacts of wholesale and retail market on IGDSEP procedure. This algorithm decomposes the IGDSEP problem into six subproblems to achieve an optimal expansion planning of a system, in which the investment and operational costs are minimized, while the reliability of the system is maximized. The proposed model of IGDSEP is a Mixed Integer Non Linear Programming (MINLP) problem and a Scenario Driven MINLP (SCMINLP) method is proposed for solving the problem. The algorithm was successfully tested for an urban distribution system.