A method for operating a power generation system that supplies real and reactive power to a grid includes receiving a reactive power demand made on the power generation system at an operating state of the power generation system and a grid state. Further, the method includes decoupling reactive power control and voltage control between a generator and a reactive power compensation device so as to reduce an oscillatory response of a reactive power output from the reactive power compensation device and the generator. Moreover, the method includes operating, via a device controller, the reactive power compensation device in a reactive power control mode to generate at least a portion of the reactive power demand.