This paper develops a systematic method of optimally locating and sizing the compensation capacitors on distribution feeders by taking into account the mutual coupling effect among phase conductors. The equivalent circuit models of three-phase, two-phase and single-phase conductors are applied so that the mutual coupling effect could be included in the computer simulation. The optimal capacitor placement is solved by minimizing the objective function which is determined by the combination of system peak power loss cost, energy loss cost and capacitor cost. Both the unbalance IEEE 34 bus test system and the balance 10 bus test feeder are selected for computer simulation to demonstrate the effectiveness of the proposed method. It is found that serious over shunt compensation and extra power loss will be introduced especially for the unbalance distribution system when the mutual coupling effect among phase conductors is ignored. >