Reactive Demand
&
Reactive Demand Charges

What is a Reactive Demand Charge?
The Reactive Demand Charge on an electric bill can be one of the largest justifications of improving a plant's power factor. It is not an energy related savings, but rather a penalty-avoidance savings. The charge exists to deter a utility customer from drawing excessive current flow to his plant due to poor power factor.

(If you are unclear about this concept, finish reading this section. If you then feel that you need a better understanding of Power Factor, go to our Homepage....thats what this site is all about!)

Many electric bills don't have a Reactive Demand charge. Usually only the rate structures for larger customers contain this charge.

The reason for the Reactive Demand Charge is twofold and both are related to equipment capacities. The first is related to the generation of power, and the second has to do with delivering that power to the end-user.

Power Plant Generators
Power Plant Generators are capable of supplying a fixed amount of current (amperage). It doesn't matter if the generator's current is used to supply the power requirements of customers or just the magnetic fields of the customer's equipment. If the Utility invests in a generator and the customer is pulling in excess current due to a low power factor, the customer is eating into the generator's capacity and thus cuts down the Utility's ability to make money by selling power to other customers with that generator. (You know that's not going to happen.) The utility will often install the capacitors themselves, to supply the magnetizing current being demanded by the customer, thus freeing up the generator's current carrying capacity to deliver power.

Transmission Lines and Transformer Capacities
Transmission lines and transformers are also capable of carrying a fixed amount of current. Beyond that amount, they begin to heat and can potentially fail, thus the limit. So if the Utility invests in a transmission line or a transformer and the customer is pulling in current to supply his power requirements plus the excess current associated with a low power factor (current that could be supplied locally by the customer with capacitors), the customer is eating into the capacity of the utility's transmission equipment and thus restricts their ability to sell power to other customers with those investments.

How is a Reactive Demand Charge Calculated?There are many versions of imposing this charge to customers; however, the concept usually goes as follows. Use the Terminology page as a reference, if required.

A kW is a rate of power consumption. A kVAr is a rate of exchanging energy with magnetic fields. If the customer pulls a certain amount of current into his plant, even for a short time, the utility must assume, and allow for that amount to be pulled in at any time. This helps determine the capacity available on that transmission line. Hence, the highest rate of kVAr (usually the highest 1 hour average rate for the month), less an allowance of kVAr (which is usually a percentage of the kW for that same hour), is the value that is used to calculate the charge.