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This paper presented an expandable grid-connected power quality compensator with distribution generation interface for three-phase three-wire system. The proposed system not only can control the active power flow, but also mitigate load unbalance, harmonics, and manage reactive power. The power quality compensator can simultaneously perform the two functions of power control station and active power filter or either one. To make the system more flexible, the grid current, instead of output current of the converter, is shaped to be a sinusoidal current in phase with the grid voltage. The reference currents are generated by multiplying the voltage loop controller output by the corresponding grid voltage waveforms. Consequently, harmonic analysis or dq transformation, as required in the conventional design, is not necessary. In this manner, controlling the dc voltage level is equivalent to performing an active power balance for the whole system. As a result, no additional hardware and interface are required. Experimental results verified the effectiveness of the proposed method.