Phase-wise unbalanced reactive power compensations are required in distribution systems for dynamic power factor correction and terminal voltage stabilization. Shunt compensators are generally used to reduce or cancel the phase-wise unbalanced reactive power (VAR) demand and to minimize the reactive power drawn from the AC supply lines. Static VAR compensators are preferred over traditional VAR compensators for this purpose. The operation of thyristor-controlled compensators at various conduction angles can be used advantageously to meet the unbalanced reactive power demands in a system. However such an operation introduces harmonic currents in to the AC system. In such cases it becomes necessary either to minimize harmonic generation internally or provide external harmonic filters. In this paper, an approach is presented for operation of VAR compensators for minimization of the effect of the harmonics using the telephone influence factor (TIF) and the Total Harmonic distortion factor (THD) for a typical distribution system. © 2004 IEEE.