Power factor correction – learn how to reduce your hydro bill

Understand just what your company is being billed for 

For most printers, utilities represent a major cost of operations, and with hydro rates increasing it makes staying competitive difficult.  A large obstacle to reducing hydro costs is understanding what exactly your company is being billed for. Hydro bills are so complex and the accounting staff, who are often the people reviewing these bills, may not have the required engineering background to understand the charges.

Due to the complexity of hydro bills we will focus on one component that is most likely leading to penalties and surcharges that you are not even aware of – power factor.

What is the power factor?

Power factor is the ratio of actual energy used, called real power measured in kW (kilowatts) divided by the amount of energy your company uses at peak demand, called reactive power measured in kVar (kilovolt amperes reactive). This number varies between 0 and 1 and is given as a percentage on your hydro bill. Hydro companies apply a surcharge to business customers whose factor drops below 90%.

Why do I have to pay a surcharge?

When your power factor is below 100% your facility is drawing both reactive power and real power. However, the energy charges (cents per kWh) applied to your account only reflect the cost of providing your facility with real power you have consumed.

A power factor surcharge is applied to your account when it is below 90%. The surcharge is used to recover the cost of supplying reactive power to your facility, which isn’t included in other charges.

What causes poor power factor?

Poor power factor quality may be caused by surges from turning on equipment and machinery that have power transformers and electric motor driven loads ie. starting up printing presses and packaging machinery in a facility. Also, equipment that does not use a consistent supply of electricity such as variable-speed drives and compressors, computers, compact fluorescent and LED lighting, electrical chargers, induction furnaces and many other devices may also contribute to low power factor in a facility. Other contributing factors to low power factor is poor quality in areas often referred to as dirty power.

Power factor surcharges

Below is a chart of power factor surcharges for British Columbia.

100% but 90% or more None
90% but 88% or more 2%
88% but 85% or more 4%
85% but 80% or more 9%
80% but 75% or more 16%
75% but 70% or more 24%
70% but 65% or more 34%
65% but 60% or more 44%
60% but 55% or more 57%
55% but 50% or more 72%
50%   80%

Most hydro companies begin billing a company power factor surcharges once the power factor is below 90%. The first 10% of extra electricity required is free of charge. The lower your power factor, the more a company pays — and the amount goes up rapidly. If your power factor is 87%, you pay a surcharge of 4% on your electricity usage. But if your power factor drops to 77% for example, your surcharge is 16%.

How to correct low power factor

If your facility is experiencing low power factor, you should contact an electrician who can help you. Here are some recommendations for improving power factor:

Install capacitors  Most electrical loads in a plant are inductive, leading to increased reactive power unless there is a counterbalancing capacitive load installed to improve the power factor.

Harmonic filters  These may be needed in your facility to improve power factor if the cause is a non-linear load.

Load rating  Sometimes operational changes in a facility are all that are needed to improve power factor. For example, you can operate a motor closer to the full-load rating.

The benefits of correcting your power factor

There are many reasons for improving power factor including:

Reducing electricity bills by eliminating power factor surcharges. Enhancing equipment operation by improving voltage. Eliminating or reducing transformer maintenance or upgrades.


Bonny Koabel CPA, CGA is President of AKR Consulting Canada a Mississauga, ON firm specializing in Government Grants, Subsidies, Tax Credits, Refunds and Rebates since 2003.