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This paper presents a two-level approach for determining the minimum cost expansion pattern (location and size) of new reactive compensation sources that would ensure steady-state secure operation of large scale power systems not only under a given set of operating conditions for the intact system, but also under contingency conditions. This preventive planning problem is decomposed into a var dispatch (Level 1) problem and a var allocation (Level 2) problem which are related together using the generalized Benders decomposition. The methodology has been implemented in a prototype computer package which can handle power systems with up to 1500 buses. Results of testing the package with practical power systems of different sizes and characteristics are presented.