The distribution feeder was one of the components of the power distribution system. Based on the scheme of connection, the radial distribution feeder belonged to the simplest distribution feeder that was used to carry the transported power incoming from the primary substation to secondary distribution transformers. In this thesis, Bahir Dar_1 substation 15KV R 6.2 was taken as a case study. In the study, some portion of power was lost during the transportation process due to higher route length and more loaded feeders. Thus, the overall active power loss minimization with voltage distribution improvement subject to constraints of line currents, bus voltages, and reactive powers was taken as the main objectives. The best allocation and size for capacitor banks at the distribution feeder was an optimization technique that was applied to minimize the power loss. The method used for this optimization technique was TSO in MATLAB because of its much higher power loss reduction ability as compared to AVO. The TSO algorithm was described briefly and then tested for the best allocation and sizing of capacitor banks. The load flow of the distribution feeder was computed using the backward/forward sweep method in MATLAB. The sensitive buses were selected based on the loss sensitivity factor (LSF1) and using TSO. For validation, the test was made at different load levels. Using TSO in the respective order, at heavy load, and maximum load: the power loss in percent was reduced from (7.623%, 5.8155%) to (4.7196%, 3.7251%); and the power losses reduction in percent were 38.0878%, and 35.9455%; the minimum voltage profile was improved from (0.86962, 0.89852) to (0.9024, 0.91981); the maximum voltage profile was improved from (0.99918, 0.99935) to (0.99948, 0.99962); the maximum voltage drop in percent was reduced from (13.0377%, 10.1479%) to (9.7603%, 8.0188%); the optimal allocation and sizes of capacitor banks were as shown in Table 7 and 8 in the respective order; after optimal capacitor banks allocation and sizing, the total annual cost of active power losses in $ were 188096.6723, and 118769.3305; the total investment cost of capacitor banks in $ were 8064, and 7308 with payback period 0.0589 year and 0.0926 year, respectively. TSO-based optimal capacitor bank allocation and sizing was the best optimization method for loss reduction. Hence, feeders of Bahir Dar city have been recommended compensating. Keywords: optimal allocation and sizing of capacitor, loss reduction, voltage improvement, distribution feeder, sensitivity factor, AVO, TSO, backward/forward