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Transmission congestion is a major economic and reliability concern in today's electric power systems. However, as the industry undergoes changes, it becomes critically important to better understand the fundamental role of transmission and its technical and financial effects on the electricity provision. Thermal limits, voltage drop regulation, and voltage stability limits are among the most common causes of transmission congestion. In order to relieve congestion, new transmission can be built or reactive power control can be installed. In this paper, simple power systems are analyzed in order to compare costs of different ways of reducing congestion. The length of a transmission line determines the cause and the most cost effective solution. For short lines, the thermal limit is the limiting factor in determining the maximum power flow and building new transmission is the only effective solution. For longer lines, the voltage drop regulation is the limiting factor and adding a shunt capacitor is the most cost effective solution.