This paper describes a modified phase-shifted carrier-based pulsewidth-modulation (PSC-PWM) scheme for modular multilevel converters (MMC). In order to reduce the average device switching frequency, a reduced switching-frequency (RSF) voltage balancing algorithm is developed. This paper also proposes a circulating current suppressing controller (CCSC) to minimize the inner circulating current in an MMC. Based on the double line-frequency, negative-sequence rotational frame, the three-phase alternative circulating currents are decomposed into two dc components and are minimized by a pair of proportional integral controllers. Simulation results based on a detailed PSCAD/EMTDC model prove the effectiveness of the modified PSC-PWM method and the RSF voltage-balancing algorithm. The proposed CCSC not only eliminates the inner circulating current but also improves the quality of the converter ac output voltage. A simple loss evaluation demonstrates that the RSF voltage-balancing algorithm and the CCSC reduce the converter power losses.