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To improve the power quality of traction power system, a novel active power quality compensator (APQC) and a new compensating currents detection method are proposed. The APQC consists of a three-phase voltage source converter and a Scott transformer. The Scott transformer, taken as an isolation transformer, not only connects the three-phase converter to the traction power system, but also converts the traction power system to a nearly balanced three-phase power system. Therefore, a general three-phase converter could be used in APQC. Regarding the traction substation as a compensating object, the power quality of a traction substation can be improved integrally. Simulation and prototype experimental results show that the proposed APQC is able to compensate reactive power, harmonic, and negative-sequence currents in two feeders of a traction substation.