Electric Bill Components - Power Factor Penalty

An electric rate may also include additional charges when the customer has a power factor less than some preset limit, typically between 80 and 90 percent. This is called a power factor penalty since it is a penalty assessed on the customers electrical bill for lower than optimum power factor. Special devices called capacitors can be installed by either the utility or the customer to improve a poor power factor. The power factor penalty is an incentive for the customer to pay attention to the power factor at their operation and consider installation of power factor correction capacitors rather than pay a penalty. Power factor correction can be tricky to calculate. Always refer to the appropriate electric rate tariff sheet and have the calculations checked by a professional.

The power factor penalty is commonly structured as an additional demand charge. If the normal demand charge was $5 per kW per month, the power factor penalty might add $2 additional per kW per month to the charge for a total of $7 per kW per month. This extra amount would be the penalty paid because of the low power factor.