Electric arc furnaces (EAFs) are unbalanced, nonlinear and time varying loads, which can cause many problems in the power system quality. In steel industries, the two arc furnaces often perform in parallel and stand on a single bus, which surely deteriorate the power quality. In this paper, in order to study and analyze the harmful effects of parallel operation of EAFs, first, a three phase arc furnace model, which can simulate all the operational conditions of EAFs are simulated based on Hyperbolic-Exponential Model. In this process, in order to perform exact analysis of EAFs, effects of arc furnace transformer and the mutual inductance of the flexible cables are also considered. In the next step, in order to improve the power quality indices, the TSC and TCR/FC compensators are designed optimally and then simulated. Finally, the simulation results that are accomplished by PSCAD/EMTDC software show the validity of the proposed method in the entire power systems.