What it costs you — and what actually fixes it. A plain-language guide for commercial and industrial operators in Northern California.
"Poor power factor is a systemic building problem — it cannot be solved by any single piece of equipment, any single habit change, or any single upgrade. It requires a systemic solution applied at the facility level."
When your utility delivers electricity, two types of power flow simultaneously into your building. Understanding the difference between them is the foundation of everything else in this report.
Think of a pint of beer. The liquid is Real Power — what you actually paid for. The foam is Reactive Power — you were charged for a full glass but cannot use the foam.
A low Power Factor means your glass is mostly foam. Your utility still had to generate it, deliver it, and size every transformer and conductor for it — and they charge you accordingly.
A Power Factor of 1.0 is perfect efficiency — every amp your utility delivers is doing useful work. A PF of 0.75 means 25% of all current delivered to your building is wasted as reactive power. Your utility still had to generate it, deliver it, and size every transformer and conductor for it.
Your utility calculates your power factor by measuring how many reactive kVAR-hours your facility drew over the entire billing month, compares that to your total kWh consumed, and derives your average monthly power factor from that ratio. It is a monthly average — not a snapshot — rounded to the nearest whole percent.
Commercial utility tariffs — such as PG&E Schedules B-19 and B-20 — typically set 85% as the baseline power factor. Every percentage point above or below that threshold triggers an adjustment to your entire monthly bill:
Because the penalty is applied per kilowatt-hour across your entire monthly bill, a facility with high energy use pays a proportionally larger penalty for the same power factor reading. A facility losing $500 per month to a PF penalty at low consumption could be losing multiples of that at high consumption — for the exact same ratio.
The equipment inside most commercial and industrial facilities is exactly what drives poor power factor. None of it is unusual — it is the standard load profile of any operating business.
"Most commercial and industrial facilities operate between 0.70 and 0.85 without correction — meaning the majority are at or below the 85% penalty threshold. If you have not had your power factor measured, there is a reasonable chance you are already paying a penalty every month without knowing it."
Power factor is a power quality problem — not a consumption problem. Anything that only reduces kilowatt-hours used has no meaningful effect on your PF penalty.
Here is why: your power factor penalty is based on the ratio of reactive power to real power — not on how much total energy you consume. If your facility draws 100 units of real power and 30 units of reactive power, your power factor is determined by that 30-to-100 relationship. If solar reduces your real power draw to 50 units but your motors still generate 15 units of reactive power, the ratio — and the penalty — has not changed.
| Improvement | Effect on Power Factor Penalty |
|---|---|
| Solar panels | No effect. Reduces kWh drawn from grid, but reactive power is still pulled by motors and equipment. The ratio does not change. |
| Battery storage | No effect. Stores and discharges real power (kWh). Batteries do not generate or absorb reactive power. |
| LED lighting upgrades | Minimal. Improves PF modestly over old magnetic ballasts, but motors and HVAC dominate reactive demand. Lighting is a small fraction of the problem. |
| Turning off lights / closing dock doors | No effect. Reduces energy use, not reactive power. Motors and compressors still run. |
| Capacitor banks at service entrance | Addresses the problem directly. Generates reactive power locally — so equipment gets what it needs without pulling it from the grid. |
| Automatic Power Factor Correction (APFC) | Optimal solution. Monitors load in real time and switches capacitor stages on and off as equipment cycles. Consistent correction regardless of load profile. |
Commercial customers are billed on three distinct cost layers — not two. Understanding all three is essential to managing your bill.
"That one 15-minute spike is a tax on your entire month. A compressor startup, simultaneous HVAC cycling on a hot afternoon, or equipment coming back online after a shutdown can set a demand ceiling you pay for 30 days straight."
Summer (June–September) carries the highest demand rates, making accidental spikes especially costly during those months.
The highest-impact solution addresses all three billing layers simultaneously: eliminate the PF penalty, reduce the peak kW demand ceiling, and lower per-kWh consumption. When peak kW demand is reduced, that lower ceiling persists — every month going forward, your demand charge is calculated from a smaller number.
Electrical devices installed at your main service panel or near individual motors that generate reactive power locally — so your equipment gets what it needs without pulling it from the grid. Your power factor rises, the penalty disappears, and your apparent power draw drops. Payback is typically 1–3 years.
Unlike fixed capacitor banks, APFC systems monitor your load in real time and switch capacitor stages on and off automatically as your equipment cycles. The result is consistent power factor correction regardless of how your load profile changes throughout the day.
A computerized control platform that manages HVAC, lighting, and equipment scheduling automatically. When programmed for demand management, it can pre-cool your facility before 4 PM, then ease setpoints during the peak window — reducing HVAC demand precisely when utility rates and demand charges are highest.
In facilities where feasible, staggering large motor startups by even 30–60 seconds can reduce the 15-minute peak reading. In most commercial settings this is a supporting strategy, not a primary one — but in high-motor environments, the impact is real.
"For many commercial facilities, the demand charge is the single largest line item on the electric bill. Lowering it permanently is the difference between managing your utility costs and controlling them."
This report references PG&E tariff structures and schedules as the primary example. PG&E is the dominant commercial electric utility in Northern and Central California. All California electric utilities — including publicly owned utilities such as City of Lodi Electric — file their own tariff schedules with the CPUC. While thresholds, rates, and schedule names differ by provider, the underlying billing drivers — demand charges, power factor penalties, and reactive power costs — follow the same fundamental structure. Contact Westbrook Utility Management for a review specific to your utility and tariff schedule.
We review 12 months of your utility bills, evaluate your facility systems, and separate rate-driven cost from system-driven cost precisely. If there is correctable cost in your operation, we quantify it and show you exactly what it is.
These three questions let us review your specific situation before we ever get on a call — so we're not starting from zero.
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