Why is my shop's power bill higher than the kW I actually use?

Your buddy is doing that engineer joke thing where 'real' has a technical meaning. Reactive power is called imaginary in the math becasue it sloshes back and forth instead of being consumed, like pushing a swing. Energy goes out, comes back, goes out again. Net use is basially zero. But the current that carries it is absolutely real, and your utility still has to size thier wires, transformers, and gear to carry it. That's why they bill for it. It costs them real money in losses and capacity even though it doesn't spin your meter much. Those big idle motors are exactly the problem. A motor sitting there humming with no load is still pulling current to magnetize its windings, and that's the borrowed-and-returned stuff. Dust collectors are notorious for this because they run constantly regardless of wether you're actually cutting.

Before you buy anything, look closely at that line item. Some utilities charge a power factor penalty only on commercial accounts, some base it on demand, and some just bake it in. Call them and ask what the charge is based on. No point fixing the wrong thing. If it is a power factor charge, capacitors are the fix and you don't rewire anything. A capacitor stores energy the opposite way a motor's magnetizing field does, so the two cancel locally. The motor still hums the same, but the back-and-forth current stays inside your shop instead of traveling down the utility's lines. They typically get wired right at the motor or at your subpanel, sized to match the motor. Sizing matters because too big a capacitor causes problems of its own, so this is a job for an electrician who can measure what your saw and dust collector actually draw rather than a guess from a chart.

Can confirm the utility call is worth it. I asked mine about a similar charge years ago and they told me they only look at it if my demand dips below some threshold on the bill. Turns out my shop barely registered, so the 'fix' would've cost more than the penalty ever would. Also once your buddy stops laughing, tell him the power company's meter doesn't care about his math jokes.

Agree with the second poster about just calling the utility first. I did the same thing a few years back when I got hit with a similar charge on my shop building. Turned out mine billed it as a percentage thing on commercial rates, and after an electrician threw a cap can on my air compressor the charge shrank enough that it barely shows up anymore. Whole visit took one afternoon and no rewiring, just a box bolted near the panel. So yeah, the money part is real even if the math joke isn't.

Been paying bills since before most of you were born and this stuff used to only hit the big factories. Now they've got the smart meters picking on little shops too. One thing I'll say from running motors for 40 years, don't cheap out and grab some generic cap off the shelf and wire it up yourself guessing at the size. I saw a fella do that on his well pump years back and the motor would barely start after. Let the electrician measure it under real load, saw running, dust collector actually sucking, not just nameplate numbers.