Reactive power plays an important role in supporting the real power transfer by maintaining voltage stability and system reliability. It is a critical element for a transmission operator to ensure the reliability of an electric system while minimizing the cost associated with it. The traditional objectives of reactive power dispatch are focused on the technical side of reactive support such as minimization of transmission losses. Reactive power cost compensation to a generator is based on the incurred cost of its reactive power contribution less the cost of its obligation to support the active power delivery. In this paper an efficient Particle Swarm Optimization (PSO) based reactive power optimization approach is presented. The optimal reactive power dispatch problem is a nonlinear optimization problem with several constraints. The objective of the proposed PSO is to minimize the total support cost from generators and reactive compensators. It is achieved by maintaining the whole system power loss as minimum thereby reducing cost allocation. The purpose of reactive power dispatch is to determine the proper amount and location of reactive support. Reactive Optimal Power Flow (ROPF) formulation is developed as an analysis tool and the validity of proposed method is examined using an IEEE-14 bus system.