A system and method for detecting and localizing excess voltage drop in single or multiple phases of three-phase AC circuits is disclosed. An electrical distribution circuit is provided that includes an input connectable to an AC source, an output connectable to terminals of an electrical machine, the output configured to provide three-phase voltages and currents to the electrical machine, and a diagnostic system configured to detect an excess voltage drop (EVD) in the electrical distribution circuit. The diagnostic system includes a processor that is programmed to receive measurements of the three-phase voltages and currents provided to the electrical machine, compute a negative sequence voltage from the three-phase voltages and currents, determine a localization reference phase angle for each phase based in part on the three-phase voltages and currents, and calculate an EVD in the electrical distribution circuit based on the negative sequence voltage and the localization reference phase angles.