Client in Denver, Xcel Energy Schedule SG. They have both a demand charge AND a power factor penalty on their bill. The power factor is running 0.78 and the demand is hitting 620 kW. Xcel charges a reactive demand penalty when PF drops below 0.90. Im trying to figure out which one to tackle first ? correcting PF or reducing demand. Which delivers bigger ROI?
Power factor penalties vs demand charges ? which costs more?
Robert ? fixing power factor almost always comes first because its cheaper and faster. Capacitor banks to correct PF from 0.78 to 0.95 will cost maybe $15,000-20,000 for that load size. But heres the kicker: improving PF also reduces apparent demand. At 0.78 PF, if real power is 620 kW the apparent demand is about 795 kVA. Fix PF to 0.95 and apparent demand drops to 653 kVA. Some utilities bill on kVA not kW, so you get a double benefit.
David is right on the double benefit. But check the Xcel tariff carefully. Schedule SG bills demand in kW not kVA. The power factor penalty is calculated separately as an adjustment. So correcting PF eliminates the penalty surcharge but doesnt directly reduce the kW demand charge. You still save money, just through the PF penalty elimination rather than demand reduction. Two separate line items.
Good distinction Hector. So for this client Id calculate savings from PF correction (eliminating the reactive penalty) and savings from demand reduction (different measures entirely) as separate recommendations?
Portland General bills demand on kW with no PF penalty at all on their Schedule 83 commercial rate. But they DO adjust the demand charge using a PF multiplier when PF drops below 0.85. So its not a separate line item penalty ? its baked into the demand charge calculation. Three different approaches to the same problem across three utilities.
In Utah, Rocky Mountain Power Schedule 6 bills demand on kW but has a minimum PF requirement of 0.85. If you fall below they can install corrective equipment and bill you for it ? not a penalty per se but a capital cost recovery charge. Ive seen clients get hit with $8,000-12,000 for utility-installed capacitors that cost half that to install privately.
This threads a good reminder that demand charges and power factor are interrelated but the mechanism varies enormously by utility. My rule of thumb in Kansas City: always read the specific tariff demand provision before recommending corrective action. What works for Evergy doesnt necessarily apply to KCP&L legacy accounts even though theyre technically the same company now.
I see this exact confusion with AEP Texas accounts in Corpus Christi. AEP bills commercial demand on kVA for some tariffs and kW for others. When they bill on kVA, power factor correction IS demand reduction ? same line item. When they bill on kW with a separate PF penalty, its two different savings streams. Always check whether the demand charge is kW-based or kVA-based before advising the client.