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"Power Factor" is not a concern when discussing our residential power bills. Yes, we have motors running within our homes. Our refrigerators, furnace blowers, and air conditioner compressors contain the largest motors and exhibit the longest running times. Other motors we might have included well pumps, sump pumps, garbage disposals, and room fans. These motors, like all others, require a magnetic field in which to operate and therefore consume reactive power. So, why don't we care about the power factor at home?
Simply because our electricity supplier does not bill us for the reactive power required to operate these motors, this is universal across the nation (and probably around the world) for residential customers. So, at home, there is no additional cost.
The situation can be quite different for those responsible for paying the electric bill for a commercial or industrial facility. Not all, but many electricity suppliers have been billing such facilities for reactive power (the cause of poor power factor) for some time. Many more are now beginning to apply power factor penalties or charges for reactive power to their commercial and industrial customers’ bills.
Before we begin to think that the electric utilities are being unfair by charging for reactive power, let me say that, the reactive power required by motors and transformers is genuine and measurable. The electric generation plants consume additional energy (coal, gas, oil, wind, water, etc.) to generate that reactive power. They must also size their transmission lines and equipment to deliver that additional power. As in nearly every other business, the costs of producing the product are justifiably included in the product's price.
Each utility seems to have its unique way of charging for reactive power. Some utilities bill directly for it. And this will generally be a price per reactive volt-amp ($0.XX/KVAR). Other utilities impose a power factor penalty (a multiplier to your kilowatt demand).
Remember that the power factor is based on a ratio of real power (kilowatts) to apparent power (kilo volt-amps). So, if you are being billed a penalty for power factor, you are not being billed for reactive power directly but instead based upon what percentage of your load is reactive—still, other utilities bill on a combination of these two methods. For instance, there will be no additional charges if your power factor is above some value (typically 0.85 pF or 0.90 pF). However, a per-unit charge ($0.XX/KVAR) is assessed below that value. Your individual utility may use yet another method of quantifying your reactive power usage.
How the utilities charge for reactive power is insignificant for the most part. All the different calculations will generally result in a similar figure. Your cost will be based upon the dollar amount they apply to that figure, similar to the dollar amount they use to your kilowatt demand. So, unless you are a residential customer—or get your power from one of a minority of utilities that do not yet have a power factor charge in their rate schedule for commercial or industrial customers—you are paying for reactive power.
Written by Christopher T. Burke, P.E., Lead Electrical Engineer