Power factor (PF) is a measure of the efficient use of energy and is defined as the ratio of the supplied power (kVA) by St. Thomas Energy Inc and the actual power used (kW). Ideally, customers should operate at a PF of between 1 (100%) and 0.9 (90%). Most industrial and commercial customers have PF less than 0.9 due to the reactive power introduced by the inductive loads such as motors, transformers and magnetic ballasts. By regulation, electric utilities like STEI apply surcharges to customers when PF is below 0.9.

Low power factor is caused by inductive loads (such as transformers, electric motors, and high-intensity discharge lighting), which are a major portion of the power consumed in industrial and commercial complexes. Unlike resistive loads that create heat by consuming kilowatts (kW), inductive loads require the current to create a magnetic field, and the magnetic field produces desired work. The total or apparent power required by an inductive device is a composite of real power (kW) and reactive power (kVAR), the non-working power caused by magnetizing current ->required to operate the device. Reactive power required by inductive loads increases the amount of apparent power (kVA). The increase in reactive and apparent power causes the power factor to decrease.