In this chapter, the author explores the physical aspects of power factor in greater detail, and illustrates the difference between lagging power factor and leading power factor. He explains and demonstrates potential economic benefit that can be derived from improvement of power factor in AC systems. The author explains the consequence of low power factor on the energy productivity, energy cost and the life of electrical equipment. The total capacitance in the system, could be an aggregate of the capacitances in the system, transmission line capacitance, etc. Leading power factor can also be caused by machines (i.e. certain power generators) that might be operating at a leading power factor, computer switched mode power supplies, etc. Power factor correcting capacitors can also be viewed as devices used to reduce current in power systems. Capacitors do so by providing a leading current to loads that require lagging current. In other words, capacitors provide “off- setting” current for inductive loads.