This paper discusses the optimal allocation of capacitors and dispersed generation units in a medium-voltage distribution system with linear and nonlinear loads. An optimization problem is formulated and solved for optimal siting and sizing, with the objective of minimizing costs sustained by the distributor for reactive power service, even containing the impact of the waveform distortions. A three-step procedure, based on genetic algorithm and decision theory, is applied to obtain a solution for the optimization problem that takes into account the unavoidable uncertainties that the dispersed generation production and the loads introduce. The numeric applications performed on an 18-bus test distribution system demonstrate of the effectiveness of the proposed procedure. DOI: 10.1061/(ASCE)EY.1943-7897.0000036. (C) 2011 American Society of Civil Engineers.