The performance analysis of a three-phase parallel active power filter that compensates PCC voltage and the unbalanced loads is presented in this paper. The proposed scheme in this paper employs a PWM voltage-source inverter and has two operation modes. Firstly, it operates as a conventional active filter with reactive power compensation when PCC voltage is within the 15% voltage drop range. Secondly, it operates as a voltage compensator when PCC voltage is not within the 15% voltage drop range. And both APF and voltage compensator compensate asymmetries caused by nonlinear loads. Finally, two methods of detecting the negative sequence are reviewed, and the validity of this scheme is investigated through analysis of simulation and experimental results for a prototype active power filter system rate at 10KVA.