Power Factor Penalty on the Bills, Myth or Fact?

February 6, 2024
May 2020

Utility bills can often be confusing, with various line items and charges that may not be clearly understood by consumers. One such area of confusion is regarding power factor charges. In this blog post, we aim to shed light on this issue and provide clarity for our readers.

Understanding Utility Bills

Utility bills are composed of different components, including maximum demand active power (KWmax), maximum demand apparent power (KVAmax), and energy consumption (KWh). Among these components, demand charges play a significant role, particularly for industrial clients. These charges are based on the peak rate of energy consumption during specific periods, rather than total energy usage over a billing cycle.

The Role of Power Factor

Power factor, a measure of how effectively electrical power is converted into useful work output, is a crucial factor in utility billing. Utilities assess demand charges not only based on peak amounts but also considering the apparent power, rather than just active power.

Impact on Billing

When the power factor falls below a certain threshold (typically 0.9), utilities impose charges based on reactive power (KVAr), regardless of the actual power factor. Conversely, when the power factor exceeds 0.9, charges are applied based on active power (KW), representing the actual power consumption.

utility bills
Figure1: Sample Utility Bill (Power Factor Less than 0.9)

utility bills
Figure2: Sample Utility Bill (Power Factor More than 0.9)


To mitigate the impact of poor power factor charges, businesses can invest in power conditioning units. These units help enhance power factor, ensuring that billing accurately reflects genuine power consumption. By proactively managing power factor, businesses can avoid unnecessary charges for unused capacity.

For a more comprehensive understanding, please refer to our blog titled "How Much Does Electricity Cost for Industries in Canada?"


While utility bills may seem complex, understanding the nuances of power factor charges is essential for businesses to optimize their energy usage and minimize costs. By investing in solutions like power conditioning units, businesses can effectively manage their power factor and avoid penalties for poor power factor.

Evident from billing practices, when the power factor falls below a specified threshold(in this instance, 0.9), utilities impose charges based on apparent power (KVA), irrespective of the actual power factor. Conversely, when the power factor surpasses 0.9, charges are applied based on active power (KW),representing the real power consumption

By leveraging our power conditioning units, you have the opportunity to enhance your power factor, safeguarding against charges for unutilized power. This proactive approach ensures that billing accurately reflects the genuine power consumption, preventing undue charges for unused capacity

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