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This paper presents a new method to evaluate power system unbalance in the presence of harmonic distortion. The balanced, the first unbalanced, and the second unbalanced components are obtained from the original three-phase current and voltage phasors of each harmonic component. The equivalent root-mean-square (RMS) value of three-phase voltage and current is then decomposed into the balanced fundamental, the unbalanced fundamental, the balanced harmonic, and the unbalanced harmonic components. The same decomposition is applied to the apparent power, and the system unbalance can then be evaluated through the proposed system total unbalance distortion factor. The unbalanced fundamental, the balanced harmonic, and the unbalanced harmonic distortion factors are defined. These distortion factors clarify the interleaving between the unbalance and harmonic distortion, and are suitable for unbalance evaluation in the presence of harmonics. Numerical examples are also presented to illustrate the application of the proposed method on the study and characterization of unbalance in power systems.