Power Factor Penalties: The Charge on Your Bill That Nobody Explains.

Power factor is a measure of how efficiently a facility uses the electricity it draws from the grid. A power factor of 1.0 means all drawn power is essentially used productively. Power factors below 0.85 — common in facilities with large motors, variable frequency drives, or significant lighting loads — typically trigger penalty surcharges on most commercial rate schedules, sometimes the threshold is .90 or 90%.

The penalty is calculated based on measured reactive power, typically using interval meter data. When that measurement is done correctly, the penalty is a legitimate charge for grid inefficiency. When it is done incorrectly — using the wrong measurement interval, the wrong calculation methodology, or meter data that includes equipment not associated with the account — the penalty can be substantially inflated.

In our audit work, power factor penalty errors are among the most technically complex findings, but they are also among a high value set of opportunities. A facility incorrectly assessed a 12% power factor surcharge on a $400,000 annual electricity spend is overpaying $48,000 per year.

Correcting a power factor billing error requires the intersection of tariff expertise and electrical engineering knowledge. It is not a correction that internal staff can typically make without specialized assistance. But it is potentially highly recoverable, with refund periods possibly extending to three to six years.