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The selection of the number and the location of the distribution companies is one of the most sensitive decisions to be made during the reforms programme as the decision is crucial for planners and experts. This paper evolves the criteria of zoning for deciding the sizes of distribution companies that would result in optimum performance in the distribution sector. The paper presents an overview of the ongoing distribution sector reforms in India and subsequently evolves a methodology illustrated with a case study on the state of Madhya Pradesh. The work involved identification of 5 parameters viz. the consumer numbers, energy sales, cultural affinity, area distribution and consumer categories. These parameters were used in conjunction with weightings that were obtained by employing a Delphi study to decide the optimal sizing of distribution companies. The evolved methodology is flexible and can be extended to include more parameters for application in other scenarios.