As power factor falls below unity the current in the system increases with the following effects. I2R power loss increases in cables and windings leading to overheating and consequent reduction in equipment life, cost incurred by power company increases and efficiency as a whole suffers because more of the input is absorbed in meeting losses. Distribution losses cost the utilities a very big amount of profit and reduce life of equipment. The system is considered as efficient when the loss level is low. So, attempts at power loss minimization in order to reduce electricity cost, and improve the efficiency of distribution systems are continuously made. This paper investigates the losses in a 34 bus distribution system and how the installation of capacitors at some points in the system can significantly reduce losses in circuits and cables, ensure that the rated voltage is applied to motors, lamps, etc, to obtain optimum performance, ensure maximum power output of transformers is utilized and not used in making up losses, enables existing transformers to carry additional load without overheating or the necessity of capital cost of new transformers, and achieve the financial benefits which will result from lower maximum demand charges.