Please read the thread on the same subject on 03/22/2008. I have clarified the points in reply to that thread. You should go through earlier threads before putting up a new thread as a matter of ethics.
If your system has lagging power factor you should add capacitors to the system to improve the PF to minimum 0.9 to 0.95 and if it is leading (which very rarely happens as most of the load is inductive) then add inductive reactance to system.This practice is called "Power factor correction" . The low power factor penalty imposed by the electric distribution company is different as per the contract clause. they impose penalty as with low power factor KVAR will be more hence wastage of power with out any useful purpose .