Power factor is a ratio between actual power and apparent power in a circuit. A low power factor is caused by inductive loads like motors and transformers which draw lagging current. Improving power factor through devices like capacitors reduces line losses, improves voltage regulation, lowers electricity bills, and allows for more load to be served. Properly locating power factor correction equipment such as installing capacitor banks at substations instead of individual loads provides the benefits of power factor improvement in a cost effective manner.