Electric power transmission is typically done using alternating current (AC). Big industrial users of power, such as manufacturing, refining and reprocessing, gobble up huge amounts of this power during their daily operation.

The majority of the loads found in these industries are inductive loads, typically in the form of electric machines. As a result, a facility's effective load, from the view of the power company, may be resistive as well as inductive. Now, we know from circuit analysis that when a load with both real and imaginary impedance is connected to the power system, there exists a phase angle Θ between the voltage V at the load and the current I into the load. If the load is a capacitive load, i.e. the imaginary part of Zl is negative, and the current leads the voltage. If the load is an inductive load, i.e. the imaginary part of Zl is positive, and the current lags the voltage.

The phase angle Θ between V and I is called the power factor angle and is very important. Recall that the RMS current, I, is given by V/Z = V/(a + i*b), where a is the resistive part of the load and b is the reactive part. The real power, P, delivered to the load is VI cos(Θ), and the reactive power, Q, delivered to the load is VI sin(Θ). Increase the reactive part of the load, and the RMS current I increases and so does the reactive power, but the real power stays the same. The magnitude of the line voltage and current VI is called the apparent power, and while the units are indeed watts, it is typically written as VA, or volt-amperes.

The point is this: the greater the reactive impedance of the load, the greater the line current has to be to deliver the same real power. Since transmission lines are lossy, the power company has to suck up the loss to provide you the same real power. If your power factor angle is too high, the power company will tell you to do something about it or else. The typical solution is to install a bank of capacitors at the site which that offsets the inductive reactance of the load. The mismatch still exists but it's now at the customer's end instead of the power company's. This is called power factor correction.