Power factor has always been a very important parameter in the economics of power systems engineering. It is a very useful figure of merit that represents the utilization of the supply system. The notions established for the definition of power factor considering sinusoidal voltage and current waveforms do not hold true in the presence of distortion and/or unbalance. This paper presents results of the simulations carried out to study the effect of nonlinearity and unbalance on the power factor. In addition, a new nonlinear model (time domain) for the arc furnace has been used in the simulations for power factor calculations. The results obtained therefrom justify the need for accurate modeling of nonlinear loads.