This paper presents a rigorous optimal design scheme for sizing and locating shunt capacitors for reactive power compensation, ohmic loss reduction, demand charge, and energy charge savings in distribution networks. This scheme is novel in introducing a practical non-heuristic or explicit search technique as is commonly reported in the literature. Iterative power loss and voltage profile calculations are an integral part of the new scheme. The introduced methodology facilitates several design options that permit utilization of available data and observation measurements and account for load variation. The initial optimization scheme by Grainger et al. (1981), is extended to include voltage profile and practical implementation aspects. The proposed solution algorithm has been implemented and test results are included in this paper.