Power factor can be thought of a measure of efficiency in the use of electrical current. When power is supplied to an inductive loads ( such as refrigerator, air conditioning, air compressor, washing machine, welding set, ballast or choke types fluorescent lighting, table/wall/ceiling fan ...... ), some of the power is utilized to create a magnetic field necessary for inductive load to operate. This reactive power or energy, expressed in kilovolt amperes reactive or kilovolt amperes hour, does not produce direct useful work, but causes energy losses in TNB's system.
For further info pertaining to penalty charges, please refer to TNB Web Page
Courtesy: TNB
http://www.tnb.com.my/business/charges-and-penalties/power-factor-surcharge.html