California industrial facilities produce enormous amounts of energy every day — as heat. Cement kilns, steel furnaces, glass melters, and gas processing all reject high-temperature heat that proven technology can convert into electricity with zero marginal emissions: no new fuel burned, no new combustion, power generated from energy the process already produced and consumed entirely on site.
The problem: a surcharge on self-help
Under current rate design, a manufacturer that installs process heat recovery generation reduces its purchased kilowatt-hours — and California's nonbypassable and departing-load surcharges treat that reduction as load that has "departed" the system, subject to charges designed for customers leaving utility service. The result is perverse: the cleanest generation a factory can build is penalized with surcharges as if it were a cost-shift, even though it imposes no new costs on other customers and reduces strain on a constrained grid.
What AB 2109 does
AB 2109 (Carrillo), sponsored by CLECA, creates a narrow, carefully bounded exemption. Qualifying industrial process heat recovery generation is exempt from those surcharges — but only if it meets strict criteria: the heat must be integral to and created by the industrial process itself; no supplemental fuel or firing; zero marginal greenhouse gas emissions; at least 500 kW of nameplate capacity but no more than 25 percent of the customer's peak load; and all output consumed on site, with no export to the grid. The CPUC sets a statewide cap and implementing rules, and is directed to minimize cost impacts on nonparticipating customers.
The approach is not novel — it parallels how California already treats other forms of energy efficiency and clean on-site generation. A facility that reduces its purchased power through an efficiency upgrade or qualifying clean self-generation is not charged departing-load surcharges on the energy it no longer buys. AB 2109 simply extends that same principle to process heat recovery.
Why this is good policy
The exemption aligns three goals that California policy too often puts in tension. Affordability: waste heat recovery lowers a facility's energy costs without subsidy — the barrier was never economics, it was the surcharge penalty. Climate: every megawatt-hour of recovered-heat generation is a megawatt-hour that doesn't need to be generated, transmitted, or backed with capacity. Competitiveness: for Emissions-Intensive, Trade-Exposed manufacturers facing rates roughly triple those of neighboring states, self-help that pencils is a reason to keep production — and its emissions — under California's rules.
The Legislature agreed, unanimously: 73–0 in the Assembly, 38–0 in the Senate. Follow the implementation on our legislation page.