This paper describes a simulation model of PHEV integration with the grid. This model provides primary PHEV charging and discharging scenarios based on the general PHEV owner behaviors and the typical PHEV charging circuitry configuration. Initially, the uncontrolled PHEV charging scenarios are performed to evaluate the impact of the PHEV loading on the distribution grid operation. The night charging scenario is chosen for detailed analysis and the load flow is used to calculate the power distribution and loss on the 33-bus test power network. The results indicate the inadequacy of current power capacity to meet the growing electricity demand from PHEVs. A simple control method of off-peak charging is performed to show the improvement in voltage levelling and line loading. Therefore, the appropriate control scheme should be derived for regulating the PHEV charging and discharging. An optimal algorithm is proposed for utilizing the PHEV charging and discharging power in a distribution system to minimize the total real power loss. During charging period, the power rate of individual battery charging is coordinated according to the optimal objective and constraints of charger, battery and power grid. Compared to the uncontrolled PHEV charging results, the optimal algorithm can achieve the maximum loss reduction for each charging scenario. Moreover, voltage drop at each node is limited in a tolerable range while the tightened branch current restrictions are satisfied.