Reactive power planning and operating in the deregulated power utilities

In the deregulated power industry, questions such as: Who is responsible for the reactive power compensation?; Are the reactive power service providers, especially generation owners, entitled to get paid to recover their costs?; Do consumers need to pay for reactive power loads?; What roles should generators play in reactive power compensation?; etc., are often raised. This paper intends to provide answers by means of examples. This proposal suggests that the reactive power compensations are made by distribution and transmission companies and the generator reactive power capacities are reserved for contingencies. The reactive power compensation at distribution level is to keep load site power factor near unity. The transmission companies need to provide the required reactive power to ensure the proper power delivery in transmission network under normal conditions. Generators operate nearly at unity power factor under normal conditions. For contingencies, generators are responsible for the additional reactive power requirements.