Existing law vests the Public Utilities Commission with regulatory authority over public utilities, including electrical corporations. Existing law, except as provided, requires certain uneconomic costs to be applied to each customer based on the amount of electricity purchased by that customer from an electrical corporation or alternate supplier of electricity, subject to changes in usage occurring in the normal course of business. Under existing law, changes in usage occurring in the normal course of business are those resulting from, among other things, the enhancement or increased efficiency of equipment.

This bill would specify that the enhancement or increased efficiency of equipment occurring in the normal course of business includes industrial process heat recovery technology that meets prescribed requirements. The bill would prohibit nonbypassable or departing load surcharges from applying to a reduction in kilowatthours of electricity that an electrical corporation customer consumes from the electrical grid in a metered interval due to industrial process heat recovery technology, up to a cap established by the commission, that meets those prescribed requirements. The bill would also require the commission, in implementing that exemption from the surcharges, to minimize the cost impacts to all nonparticipating customers that are directly attributable to the nonbypassable or departing load charges of customers using industrial process heat recovery technology, as provided.

Under existing law, a violation of the Public Utilities Act, or of an order, decision, rule, direction, demand, or requirement of the commission is a crime.

Because the provisions of this bill would be part of the act, and a violation of a commission action implementing its requirements would be a crime, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law vests the Public Utilities Commission with regulatory authority over public utilities, including electrical corporations. Existing law, except as provided, requires certain uneconomic costs to be applied to each customer based on the amount of electricity purchased by that customer from an electrical corporation or alternate supplier of electricity, subject to changes in usage occurring in the normal course of business. Under existing law, changes in usage occurring in the normal course of business are those resulting from, among other things, the enhancement or increased efficiency of equipment.

This bill would specify that the enhancement or increased efficiency of equipment occurring in the normal course of business includes industrial process heat recovery technology that meets prescribed requirements. The bill would prohibit nonbypassable or departing load surcharges from applying to a reduction in kilowatthours of electricity that an electrical corporation customer consumes from the electrical grid in a metered interval due to industrial process heat recovery technology, up to a cap established by the commission, that meets those prescribed requirements. The bill would also require the commission, in implementing that exemption from the surcharges, to minimize the cost impacts to all nonparticipating customers that are directly attributable to the nonbypassable or departing load charges of customers using industrial process heat recovery technology, as provided.

Under existing law, a violation of the Public Utilities Act, or of an order, decision, rule, direction, demand, or requirement of the commission is a crime.

Because the provisions of this bill would be part of the act, and a violation of a commission action implementing its requirements would be a crime, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law vests the Public Utilities Commission with regulatory authority over public utilities, including electrical corporations. Existing law, except as provided, requires certain uneconomic costs to be applied to each customer based on the amount of electricity purchased by that customer from an electrical corporation or alternate supplier of electricity, subject to changes in usage occurring in the normal course of business. Under existing law, changes in usage occurring in the normal course of business are those resulting from, among other things, the enhancement or increased efficiency of equipment.

This bill would specify that the enhancement or increased efficiency of equipment occurring in the normal course of business includes industrial process heat recovery technology that meets prescribed requirements. The bill would prohibit nonbypassable or departing load surcharges from applying to a reduction in kilowatt-hours kilowatthours of electricity that an electrical corporation customer consumes from the electrical grid in a metered interval due to industrial process heat recovery technology technology, up to a cap established by the commission, that meets those prescribed requirements. The bill would also require the commission to minimize the cost impacts to all nonparticipating customers by prohibiting the costs that are directly attributable to the nonbypassable or departing load charges of customers using industrial process heat recovery technology from being paid by residential or small commercial customers, as defined. technology, as provided.

Under existing law, a violation of the Public Utilities Act, or of an order, decision, rule, direction, demand, or requirement of the Public Utilities Commission commission is a crime.

Because the provisions of this bill would be a part of the act, and because a violation of a commission action implementing its requirements would be a crime, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law vests the Public Utilities Commission with regulatory authority over public utilities, including electrical corporations. Existing law, except as provided, requires certain uneconomic costs to be applied to each customer based on the amount of electricity purchased by that customer from an electrical corporation or alternate supplier of electricity, subject to changes in usage occurring in the normal course of business. Under existing law, changes in usage occurring in the normal course of business are those resulting from, among other things, the enhancement or increased efficiency of equipment.

This bill would specify that the enhancement or increased efficiency of equipment occurring in the normal course of business includes industrial process heat recovery technology that meets prescribed requirements. The bill would prohibit nonbypassable or departing load surcharges from applying to a reduction in kilowatt-hours of electricity that an electrical corporation customer consumes from the electrical grid in a metered interval due to industrial process heat recovery technology that meets those prescribed requirements. The bill would also require the commission to minimize impacts to nonparticipating customers by prohibiting the costs directly attributable to the nonbypassable or departing load charges of customers using industrial process heat recovery technology from being paid by residential or small commercial customers, as defined.

Under existing law, a violation of the Public Utilities Act, or of an order, decision, rule, direction, demand, or requirement of the Public Utilities Commission is a crime. Because

Because this bill would be a part of the act, and because a violation of a commission action implementing its requirements would be a crime, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law vests the Public Utilities Commission with regulatory authority over public utilities, including electrical corporations. Existing law, except as provided, requires certain uneconomic costs to be applied to each customer based on the amount of electricity purchased by that customer from an electrical corporation or alternate supplier of electricity, subject to changes in usage occurring in the normal course of business. Under existing law, changes in usage occurring in the normal course of business are those resulting from, among other things, the enhancement or increased efficiency of equipment.

This bill would specify that the enhancement or increased efficiency of equipment occurring in the normal course of business includes industrial process heat recovery technology that meets prescribed requirements. The bill would prohibit nonbypassable or departing load surcharges from applying to a reduction in kilowatt-hours of electricity that an electrical corporation customer consumes from the electrical grid in a metered interval due to industrial process heat recovery technology that meets prescribed requirements.

Under existing law, a violation of the Public Utilities Act, or of an order, decision, rule, direction, demand, or requirement of the Public Utilities Commission is a crime. Because this bill would be a part of the act, and because a violation of a commission action implementing its requirements would be a crime, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 2109

Author:(Juan Carrillo)

As Amended Ver:August 23, 2024

Majority vote

SUMMARY

Exempts large industrial customers from paying certain surcharges on their reductions in electricity if that reduction is achieved through an industrial process heat recovery technology, as defined.

Senate Amendments

1. Authorizes the CPUC to define the nonbypassable and departing load surcharges that would no longer be collected from industrial heat process recovery participants;
2. Authorizes the CPUC to set a cap on the kilowatt-hours of electricity that would be exempted from the surcharges; and
3. Requires the CPUC to ensure costs are minimized for all nonparticipating ratepayers, not just residential and small commercial customers.

COMMENTS

California's Industrial Sector. California's industrial sector includes a diverse range of facilities, including cement plants, metal processors, oil and gas producers, refineries, paper and glass manufacturers, mining operations, and food processors. Process heat is reportedly the most significant source of energy use and greenhouse gas emissions (GHGs) in the industrial sector, accounting for about 50% of all onsite energy use and 30% of GHGs. In 2020, California's industrial sector was ranked the second-largest total energy consumer in the nation.

What is industrial process heat recovery? Industrial waste heat is energy that is generated in industrial processes that is not put to practical use and is lost, wasted, or dumped into the environment. The exact amount of industrial waste heat is not clearly quantified, but numerous studies have estimated that as much as 40 - 50 % of industrial energy consumption is ultimately discharged as waste heat. Some industrial customers install technology that allows them to use this otherwise-wasted heat energy to generate electricity that the customer uses on site and does not export to the electric grid. This technology is commonly referred to as industrial process heat recovery. A customer who generates electricity for onsite use through application of industrial process heat recovery avoids the cost of purchasing that volume of electricity from an electric utility. However, the customer still faces the cost of what are known as "departing load charges," which capture the value of nonbypassable charges on the volume of electricity the customer would have used if not for the use of industrial process of heat recovery.

This treatment of reduced electric demand is to ensure every customer pays their fair share of system costs, regardless of the volume of electricity they draw form the grid. Otherwise, the electric system risks a situation, whereby electric utility customers seek to install on-site electricity generation simply to avoid socially beneficial charges. These costs do not disappear simply because a customer stops paying for them; rather, the costs are sloughed off to other utility customers who, for whatever reason, are unable to install onsite electricity generation. State policy has long encouraged energy efficiency, and use of industrial process heat recovery is a form of energy efficiency. Yet, rate rules do not apply nonbypassable charges, or departing load charges, to a customer who reduces their electricity use through implementation of most types of energy efficiency measures.

Nonbypassable Charges. The CPUC authorizes the electric utilities under its ratemaking jurisdiction to recover many of their costs through charges on each unit of electricity used by their customers. The CPUC makes many of these charges nonbypassable, which means a customer must continue to pay the charges on each unit of electricity the customer consumes, even if the customer gets that electricity from a source other than the electric utility. Nonbypassable charges cover costs for such programs such as low-income customer assistance programs, the costs associated with decommissioning nuclear powerplants and electricity-related research programs. The logic behind application of nonbypassable charges is that the charges represent the obligations of all the utility's customers, regardless of the amount of electricity the utility supplies to any given customer, so all utility customers should pay them. Yet, the incidence of nonbypassable charges means that customers who use large amounts of electricity pay more in nonbypassable charges.

Federal Investment Opportunities. In March 2024, the U.S. Department of Energy (DOE) announced up to $6 billion from the Infrastructure and Investment Jobs Act (IIJA) for 33 projects across different U.S. states to support the decarbonization of energy-intensive industries. This announcement is the largest investment in industrial decarbonization in American history. The projects will focus on the highest emitting industries where decarbonization technologies will have the greatest impact, including cement and concrete, glass, iron, and steel. As such, this federal funding may provide financial support for industrial heat recovery technology.

According to the Author

According to the author, "It is critical for California to identify and remove hurdles to decarbonize industry sectors to abate the effects of climate change. Specifically, the cement industry must achieve carbon neutrality by 2045, as defined in SB 596 (Becker) Chapter 246 of the Statutes of 2021. Industrial Process Heat Recovery (IPHR) technologies, which are treated as energy efficiency everywhere but California, is a process of capturing high heat generated as part of the industrial manufacturing process and converting that heat into carbon-free electricity to be self-consumed on site. AB 2109 would treat IHPR as energy efficiency in California, and will encourage new investment in zero-carbon IPHR technology, keeping good paying jobs and clean manufacturing throughout the state."

Arguments in Support

The bill is supported by a coalition of environmental organizations, and business associations, among others who believe that Industrial Process Heat Recovery (IPHR) may provide needed solution for addressing California's energy and climate challenges. The Natural Resources Defense Council specifically writes, "This definition of waste heat recovery provides similar climate benefits to energy efficiency and renewables yet is subject to departing load fees which impedes the economics of industrial facilities installing such systems. It is sensible to treat waste heat recovery technologies the same way that other emission reduction technologies are treated. AB 2109 would put waste heat recovery on a level playing field with other decarbonization technologies and remove a key barrier to greenhouse gas emission reductions in one of the state's most carbon-intensive sectors. "

Arguments in Opposition

None on file.

FISCAL COMMENTS

According to the Senate Committee on Appropriations, the CPUC estimates ongoing costs of about $460,000 annually (ratepayer funds) to staff a new rulemaking proceeding related to prescribed requirements. CPUC notes this proceeding would entail modeling alternative scenarios for nonbypassable or departing load surcharges, and revenue recovery across the three major IOUs.

The Public Advocates Office, an independent organization within the CPUC that advocates solely on behalf of utility ratepayers, estimates ongoing costs of more than a million dollars annually (ratepayer funds) by participating in the CPUC proceeding.

Unknown fiscal impact to the state as an electrical utility ratepayer. The State of California is an electric customer, purchasing roughly one percent of the state's electricity.

VOTES:

ASM UTILITIES AND ENERGY: 16-0-0

YES: Petrie-Norris, Jim Patterson, Bauer-Kahan, Calderon, Chen, Connolly, Friedman, Holden, Joe Patterson, Reyes, Santiago, Schiavo, Ting, Wallis, Wood, Zbur

ASM APPROPRIATIONS: 15-0-0

YES: Wicks, Sanchez, Arambula, Bryan, Calderon, Wendy Carrillo, Dixon, Mike Fong, Grayson, Haney, Hart, Jim Patterson, Pellerin, Ta, Villapudua

ASSEMBLY FLOOR: 73-0-7

YES: Addis, Aguiar-Curry, Alanis, Alvarez, Arambula, Bains, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Juan Carrillo, Wendy Carrillo, Chen, Connolly, Davies, Dixon, Essayli, Flora, Mike Fong, Vince Fong, Gallagher, Garcia, Gipson, Grayson, Haney, Hart, Hoover, Irwin, Jackson, Jones-Sawyer, Kalra, Lackey, Lee, Low, Lowenthal, Maienschein, McCarty, McKinnor, Muratsuchi, Stephanie Nguyen, Ortega, Pacheco, Papan, Jim Patterson, Joe Patterson, Pellerin, Petrie-Norris, Quirk-Silva, Ramos, Rendon, Reyes, Rodriguez, Blanca Rubio, Sanchez, Santiago, Schiavo, Soria, Ta, Ting, Valencia, Villapudua, Waldron, Wallis, Ward, Weber, Wicks, Wilson, Wood, Zbur, Robert Rivas

ABS, ABST OR NV: Cervantes, Megan Dahle, Friedman, Gabriel, Holden, Mathis, Luz Rivas

SENATE FLOOR: 39-0-1

YES: Allen, Alvarado-Gil, Archuleta, Ashby, Atkins, Becker, Blakespear, Bradford, Caballero, Cortese, Dahle, Dodd, Durazo, Eggman, Glazer, Gonzalez, Grove, Hurtado, Jones, Laird, Limón, McGuire, Menjivar, Min, Newman, Nguyen, Niello, Padilla, Portantino, Roth, Rubio, Seyarto, Skinner, Smallwood-Cuevas, Stern, Umberg, Wahab, Wiener, Wilk

ABS, ABST OR NV: Ochoa Bogh

UPDATED

VERSION: August 23, 2024

CONSULTANT: Lina V. Malova / U. & E. / (916) 319-2083 FN: 0004875

 THIRD READING  

Bill No: AB 2109

Author: Juan Carrillo (D)

Amended: 8/23/24 in Senate

Vote: 21

SENATE ENERGY, U. & C. COMMITTEE: 14-0, 6/18/24

AYES: Bradford, Ashby, Becker, Caballero, Dodd, Durazo, Eggman, Gonzalez, Limón, Min, Newman, Rubio, Skinner, Stern

NO VOTE RECORDED: Dahle, Grove, Seyarto, Wilk

SENATE APPROPRIATIONS COMMITTEE: 7-0, 8/15/24

AYES: Caballero, Jones, Ashby, Becker, Bradford, Seyarto, Wahab

ASSEMBLY FLOOR: 73-0, 5/21/24 - See last page for vote

SUBJECT: Electricity: surcharge exemption: industrial process heat recovery

SOURCE: California Large Energy Consumers Association

California Nevada Cement Association

DIGEST:

The bill prohibits some non-bypassable or departing load surcharges on electricity utility bills from applying to a reduction in electricity usage due to an industrial customer’s application of industrial heat recovery technology meeting specified requirements.

Senate Floor Amendments of 8/23/24 would provide the California Public Utilities Commission (CPUC) with more discretion and flexibility in implementing this bill with the intention to limit cost impacts to other customers. Specifically, the amendments: (a) authorize the CPUC to define the nonbypassable and departing load surcharges that would no longer be collected from installing the industrial heat process recovery; (b) provide explicit authority for the CPUC to set a cap on the kilowatt-hours of electricity that would be exempted from the surcharges; and (c) states explicitly that the CPUC must minimize the costs on all nonparticipating ratepayers. An additional amendment addresses the concerns of the opposition from agricultural customers.

ANALYSIS:

Existing law:

1. Requires all charges demanded or received by any public utility, or by any two or more public utilities, for any product or commodity furnished or to be furnished or any service rendered or to be rendered shall be just and reasonable. Every unjust or unreasonable charge demanded or received for such product or commodity or service is unlawful. (Public Utilities Code §451)
2. Requires the California Public Utilities Commission (CPUC) to apply specific uneconomic costs to each customer based on the amount of electricity purchased by the customer from an electrical corporation or alternate supplier of electricity, subject to changes in usage occurring in the normal course of business. Defines "change in usage" to generally mean changes occurring in the normal course of business resulting from changes in business cycles, termination of operations, departure from the utility service territory, weather, reduced production, modifications to production equipment or operations, changes in production or manufacturing processes. (Public Utilities Code §371)
3. Requires an electrical corporation to purchase from an eligible customer-generator, excess electricity that is delivered to the grid that is generated by a combined heat and power. (Public Utilities Code §2841)
4. Defines “small commercial customer” to mean a customer that has a maximum peak electricity demand of less than 20 kilowatts. (Public Utilities Code §331)
5. Requires the California Air Resources Board (CARB) to prepare and approve a Scoping Plan for achieving the maximum technologically feasible and cost-effective reductions in greenhouse gas (GHG) emissions and to update the Scoping Plan at least every five years. (Health & Safety Code §38561)(h))

This bill:

1. Defines “industrial process heat recovery” to mean a process that captures and reuses heat that would otherwise not be used, without any additional fuel input or supplemental firing, thereby reducing the electrical consumption of the industrial process.
2. Defines “reduction” to mean a reduction from the baseline electrical load of the industrial process before installation of the industrial process heat recovery technology.
3. Prohibits nonbypassable or departing load surcharges, as defined by the CPUC, from applying to a reduction in kilowatt-hours of electricity that an electrical corporation customer consumes from the electrical grid in a metered interval due to industrial process heat recovery technology, up to a cap established by the CPUC.
4. Specifies that the enhancement or increased efficiency of equipment occurring in the normal course of business includes industrial process heat recovery technology that meets the following requirements:
   1. The industrial process heat recovered to produce electricity is integral to, and created by, the industrial process.
   2. No supplemental firing or fuel use occurs to increase or to stabilize the steam’s temperature.
   3. The electricity generated by the industrial process heat recovery technology: has zero marginal GHG emissions associated with it; is fully self-consumed onsite during a manufacturing process; is not exported to the electrical grid for sale into the wholesale market; does not exceed 25 percent of the installing customer’s peak electrical load at the time of the installation; has a minimum name plate rating of 500 kilowatts; and is installed on or after January 1, 2024.
5. Requires the CPUC to minimize the cost impacts to nonparticipating customers that are directly attributable to the nonbypassable or departing load surcharges of customers using industrial process heat recovery technology.

Background

1. Industrial sector. California’s industrial sector includes a diverse range of facilities, including: cement plants, refineries, glass manufacturers, oil and gas producers, paper manufacturers, mining operations, metal processors, and food processors. According to the California Energy Commission’s (CEC) 2023 Integrated Energy Policy Report, combustion of fossil gas, other gaseous fossil fuels, and solid fossil fuels provide energy to meet three broad industry needs: electricity, steam, and process heat. According to the CARB’s 2022 Scoping Plan, industrial processes account for roughly 23 percent of statewide emissions of GHG in 2020 and are the second-largest contributor of GHG emissions in the state, behind transportation. Refineries and hydrogen production represent the largest sources in the industrial sector. Cement production accounts for about two percent of in-state GHG emissions, more than half of those emissions are related to cement production processes and less than half are from fuel and electricity consumption.
2. Industrial process heat. Industrial process heat is defined as heat energy (thermal energy) used for preparation or treatment of materials that produce manufactured goods. Process heat is reportedly the most significant source of energy use and GHGs in the industrial sector, accounting for about 50 percent of all onsite energy use and 30 percent of GHG emissions, according to the 2018 Manufacturing Energy and Carbon Footprint analysis. According to the U.S. Department of Energy’s Office of Energy Efficiency and Renewable Energy (DOE OEERE), process heating systems are emission-intensive because fossil fuel combustion provides 95 percent of industrial heat across the manufacturing sector.
3. Industrial process heat recovery. Energy that is generated in industrial processes that is not put to practical use is lost as waste heat in the form of hot exhaust gases, cooling water, and heat lost from hot equipment surfaces and heated products. According to the DOE OEERE, roughly 20-50 percent of industrial energy inputs are lost as waste heat. The installation and use of industrial process heat recovery technologies allow customers to use this otherwise-wasted heat energy to generate electricity that the customer uses on site and does not export to the electrical grid. This technology is commonly referred to as industrial process heat recovery. The three essential components required for waste heat recovery are: (a) the source of waste heat, (b) a recovery technology, and (c) an end use for the recovered heat.
4. Electricity surcharges. The CPUC authorizes the electric utilities under its ratemaking jurisdiction to recover many of their costs through surcharges on each unit of electricity used by their customers. The CPUC, and in some cases statute, makes many of these charges nonbypassable, which means a customer must continue to pay the surcharges on each unit of electricity the customer consumes. Nonbypassable charges are assessed on a per-kilowatt-hour of usage basis, as such, customers who use large amounts of electricity pay more in nonbypassable charges. Since nonbypassable charges represent the obligations of all the utility’s customers, regardless of the amount of electricity the utility supplies to any given customer, generally, all utility customers should pay them (this includes customers of electrical corporations served by other load-serving entities).
5. Examples of nonbypassable surcharges. Nonbypassable charges, which include departing load charges, are mandated volumetric customer surcharges assessed on each kilowatt-hour of electricity used by the customers to fund a variety of purposes, including public purpose programs (such as low-income rate assistance, energy efficiency procurement, biomass procurement mandates, and research and development), Other nonbypassable surcharges have been authorized to address specific purposes, such as: stranded investments during the electricity deregulation of the late 1990s, procurement costs incurred by the Department of Water Resources on behalf of electrical corporation customers during the Electricity Crisis of 2000-2001, and to fulfill ratepayers’ portion of payments into the Wildfire Fund to settle claims related to certain wildfires. Additional charges assessed by electric utilities are not considered nonbypassable charges, and may be assessed depending on the customer tariff, such as demand charges, standby, and other charges.
6. Departing load charges. A customer who generates electricity for onsite use through application of industrial process heat recovery avoids the cost of purchasing that volume of electricity from an electric utility. However, the customer still faces the cost of what are known as "departing load charges," which capture the value of nonbypassable charges on the volume of electricity the customer would have used if not for the use of industrial process of heat recovery. These charges are intended to ensure the collection of these costs are shouldered by all (or most) customers, thereby reducing the risk that the costs for the electric system aren’t fully recovered. State policy has long encouraged energy efficiency, including by exempting the application of nonbypassable or departing load surcharges to a customer who reduces their electricity use through implementation of energy efficiency. However, the use of industrial process heat recovery technology has not received similar treatment.
7. Federal Investment Opportunities. In March 2024, the U.S. DOE announced up to $6 billion from the Infrastructure and Investment Jobs Act (IIJA) for 33 projects across the country to support the decarbonization of energy-intensive industries – considered the largest investment in industrial decarbonization in American history. Projects funded from the program will focus on the highest emitting industries where decarbonization technologies will have the greatest impact, including cement and concrete, glass, iron, and steel. This federal funding opportunity may provide financial support for industrial heat recovery technology.

Comments

1. Barriers to deploying industrial process heat recovery technologies. Proponents of this bill contend that recovering waste heat losses can generate cost savings, reduce environmental impacts, and improve work flow and productivity. Although there are numerous commercially available technologies for waste heat recovery, due to various barriers, these technologies are not being pursued to the fullest extent possible. The DOE notes barriers include material constraints, greater maintenance costs, as well as, the upfront costs of purchase and installation. The industrial sector supporters of this bill contend that electricity charges, including nonbypassable and departing load surcharges, also pose a barrier to deploying this technology. The CEC also acknowledges as much noting in a March 2021 report on assessment of small combined heat and power market potential, that “Standby rates and departing load charges are significant barriers to combined heat and power technologies in California.”
2. System cost shifts? By treating industrial process heat recovery as energy efficiency, thereby exempting this load from some departing load charges or nonbypassable charges, other customers will be required to shoulder any shortfall from system costs which would have otherwise been recovered by these charges. Based on the criteria and requirements in this bill, electric utilities and sponsors of this bill believe only a handful of large industrial customers will be eligible for the proposed reduction in surcharges, mostly located within the service territory of the Southern California Edison and to a lesser extent Pacific Gas & Electric, and likely none within San Diego Gas & Electric. With the recent amendments, the bill is intended to provide additional ratepayer protections by authorizing the CPUC to determine which surcharges and how much electricity load would be exempted, as well as, which nonparticipating customers would be affected by these changes. Of course, the level of protections will depend on the CPUC’s decisions. The author, supporters, and agricultural customer interests contend the recent amendments address their concerns regarding potential shifting of costs on other customers and other customer classes. Protecting other customers from additional costs may also limit the incentives in the form of reductions to electricity utility bills for eligible customers who install the heat recovery technology. However, the combination of federal funding and a reduction of a portion of the surcharges on electric utility bills, even if more limited, may be sufficient to encourage some industrial customers to elect to install the process heat recovery technology.

Related/Prior Legislation

AB 2083 (Berman, 2024) would have required the CEC to assess the potential for achieving an 85 percent reduction below 1990 levels in emissions from industrial heat application processes by January 1, 2045. The bill was held in the Senate Appropriations Committee.

AB 841 (Berman, 2023) would have required CEC to create a roadmap for electrifying industrial processes, including processes requiring heat, as specified. The bill was held in the Senate Appropriations Committee.

AB 209 (Committee on Budget, Chapter 251, Statutes of 2021) implemented, via the 2021 Budget Act, and required the CEC to establish the INDIGO program to provide incentives for projects at industrial facilities that provide significant benefits to the electrical grid, reduce emissions, and achieve the state’s energy goals.

SB 596 (Becker, Chapter 246, Statutes of 2021) required CARB to develop a comprehensive strategy for the state's cement sector to achieve net-zero GHG emissions no later than December 31, 2045.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes

According to the Senate Committee on Appropriations:

• The California Public Utilities Commission (CPUC) estimates ongoing costs of about $460,000 annually (ratepayer funds) to staff a new ratemaking or rulemaking proceeding to implement ratemaking treatment of commercial and industrial customers with industrial process heat recovery technology that meets prescribed requirements. CPUC notes this proceeding would entail ongoing supporting analysis, modeling alternative scenarios for nonbypassable or departing load surcharges, and revenue recovery across the three major IOUs.
• The Public Advocates Office, an independent organization within the CPUC that advocates solely on behalf of utility ratepayers, estimates ongoing costs of more than a million dollars annually (ratepayer funds) to focus on potential cost impacts to ratepayers that result from the exemption established by AB 2109 consistent with our statutory mandate per PU Code Section 309.5, including participation in the CPUC proceeding, data collection and analysis, conduction of workshops and evidentiary hearings, and provision of written testimony, among other things.
• Unknown fiscal impact to the state as an electrical utility ratepayer. The State of California is an electric customer, purchasing roughly one percent of the state’s electricity. As such, the state incurs costs if electricity rates.

SUPPORT: (Verified 8/13/24)

California Large Energy Consumers Association (co-source)
California Nevada Cement Association (co-source)
American Council for an Energy Efficient Economy

Brad Thompson Company
California Construction & Industrial Materials Association
CalPortland Company
Clean Energy Technologies, Inc.
Environmental Defense Fund
Heat is Power Association
Kanin Energy
Kline Consulting LLC
Mitsubishi Cement Corporation
New Buildings Institute
Natural Resources Defense Council
RMI
Sierra Club California
The Low Carbon Initiative

Waste Hub

OPPOSITION: (Verified 8/13/24)

None received

ARGUMENTS IN SUPPORT: In support of the bill the California Large Energy Consumers Association (CLECA) states:

AB 2109 seeks to encourage new investment in the use of IPHR [industrial process heat recovery], more commonly known as waste heat recovery, by removing economic barriers such as nonbypassable charges. If passed, this measure would treat IPHR as energy efficiency or the same as a renewable source of energy, and manufacturers would no longer be assessed punitive charges. Recovering industrial process heat, which would otherwise simply dissipate into the atmosphere, and turning it into carbon-free power is a proven technology used worldwide. In fact, California agencies encourage industrial customers to adopt efficiency improvements in their normal course of business to decarbonize their operations. However, the nonbypassable fees are a significant economic hurdle, so much so that companies cannot justify investment in IPHR.

ASSEMBLY FLOOR: 73-0, 5/21/24

AYES: Addis, Aguiar-Curry, Alanis, Alvarez, Arambula, Bains, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Juan Carrillo, Wendy Carrillo, Chen, Connolly, Davies, Dixon, Essayli, Flora, Mike Fong, Vince Fong, Gallagher, Garcia, Gipson, Grayson, Haney, Hart, Hoover, Irwin, Jackson, Jones-Sawyer, Kalra, Lackey, Lee, Low, Lowenthal, Maienschein, McCarty, McKinnor, Muratsuchi, Stephanie Nguyen, Ortega, Pacheco, Papan, Jim Patterson, Joe Patterson, Pellerin, Petrie-Norris, Quirk-Silva, Ramos, Rendon, Reyes, Rodriguez, Blanca Rubio, Sanchez, Santiago, Schiavo, Soria, Ta, Ting, Valencia, Villapudua, Waldron, Wallis, Ward, Weber, Wicks, Wilson, Wood, Zbur, Robert Rivas

NO VOTE RECORDED: Cervantes, Megan Dahle, Friedman, Gabriel, Holden, Mathis, Luz Rivas

Prepared by: Nidia Bautista / E., U. & C. / (916) 651-4107

8/25/24 12:49:34

**** END ****

 THIRD READING  

Bill No: AB 2109

Author: Juan Carrillo (D)

Amended: 4/22/24 in Assembly

Vote: 21

SENATE ENERGY, U. & C. COMMITTEE: 14-0, 6/18/24

AYES: Bradford, Ashby, Becker, Caballero, Dodd, Durazo, Eggman, Gonzalez, Limón, Min, Newman, Rubio, Skinner, Stern

NO VOTE RECORDED: Dahle, Grove, Seyarto, Wilk

SENATE APPROPRIATIONS COMMITTEE: 7-0, 8/15/24

AYES: Caballero, Jones, Ashby, Becker, Bradford, Seyarto, Wahab

ASSEMBLY FLOOR: 73-0, 5/21/24 - See last page for vote

SUBJECT: Electricity: surcharge exemption: industrial process heat recovery

SOURCE: California Large Energy Consumers Association

California Nevada Cement Association

DIGEST:

The bill prohibits non-bypassable or departing load surcharges on electricity utility bills from applying to a reduction in electricity usage due to and industrial customer’s application of industrial heat recovery technology meeting specified requirements.

ANALYSIS:

Existing law:

1. Requires all charges demanded or received by any public utility, or by any two or more public utilities, for any product or commodity furnished or to be furnished or any service rendered or to be rendered shall be just and reasonable. Every unjust or unreasonable charge demanded or received for such product or commodity or service is unlawful. (Public Utilities Code §451)
2. Requires the California Public Utilities Commission (CPUC) to apply specific uneconomic costs to each customer based on the amount of electricity purchased by the customer from an electrical corporation or alternate supplier of electricity, subject to changes in usage occurring in the normal course of business. Defines "change in usage" to generally mean changes occurring in the normal course of business resulting from changes in business cycles, termination of operations, departure from the utility service territory, weather, reduced production, modifications to production equipment or operations, changes in production or manufacturing processes. (Public Utilities Code §371)
3. Requires an electrical corporation to purchase from an eligible customer-generator, excess electricity that is delivered to the grid that is generated by a combined heat and power. (Public Utilities Code §2841)
4. Defines “small commercial customer” to mean a customer that has a maximum peak electricity demand of less than 20 kilowatts. (Public Utilities Code §331)
5. Requires the California Air Resources Board (CARB) to prepare and approve a Scoping Plan for achieving the maximum technologically feasible and cost-effective reductions in greenhouse gas (GHG) emissions and to update the Scoping Plan at least every five years. (Health & Safety Code §38561)(h))

This bill:

1. Defines “industrial process heat recovery” to mean a process that captures and reuses heat that would otherwise not be used, without any additional fuel input or supplemental firing, thereby reducing the electrical consumption of the industrial process.
2. Defines “reduction” to mean a reduction from the baseline electrical load of the industrial process before installation of the industrial process heat recovery technology.
3. Prohibits nonbypassable or departing load surcharges from applying to a reduction in kilowatt-hours of electricity that an electrical corporation customer consumes from the electrical grid in a metered interval due to industrial process heat recovery technology that meets the prescribed requirements below.
4. Specifies that the enhancement or increased efficiency of equipment occurring in the normal course of business includes industrial process heat recovery technology that meets the following requirements:
   1. The industrial process heat recovered to produce electricity is integral to, and created by, the industrial process.
   2. No supplemental firing or fuel use occurs to increase or to stabilize the steam’s temperature.
   3. The electricity generated by the industrial process heat recovery technology: has zero marginal GHG emissions associated with it; is fully self-consumed onsite during a manufacturing process; is not exported to the electrical grid for sale into the wholesale market; does not exceed 25 percent of the installing customer’s peak electrical load at the time of the installation; has a minimum name plate rating of 500 kilowatts; and is installed on or after January 1, 2024.
5. Requires the CPUC to minimize impacts to nonparticipating customers by prohibiting the costs directly attributable to the nonbypassable or departing load surcharges otherwise collected by customers using industrial process heat recovery technology from being paid by residential or small commercial customers.

Background

1. Industrial sector. California’s industrial sector includes a diverse range of facilities, including: cement plants, refineries, glass manufacturers, oil and gas producers, paper manufacturers, mining operations, metal processors, and food processors. According to the California Energy Commission’s (CEC) 2023 Integrated Energy Policy Report, combustion of fossil gas, other gaseous fossil fuels, and solid fossil fuels provide energy to meet three broad industry needs: electricity, steam, and process heat. According to the CARB’s 2022 Scoping Plan, industrial processes account for roughly 23 percent of statewide emissions of GHG in 2020 and are the second-largest contributor of GHG emissions in the state, behind transportation. Refineries and hydrogen production represent the largest sources in the industrial sector. Cement production accounts for about two percent of in-state GHG emissions, more than half of those emissions are related to cement production processes and less than half are from fuel and electricity consumption.
2. Industrial process heat. Industrial process heat is defined as heat energy (thermal energy) used for preparation or treatment of materials that produce manufactured goods. Process heat is reportedly the most significant source of energy use and GHGs in the industrial sector, accounting for about 50 percent of all onsite energy use and 30 percent of GHG emissions, according to the 2018 Manufacturing Energy and Carbon Footprint analysis. According to the U.S. Department of Energy’s Office of Energy Efficiency and Renewable Energy (DOE OEERE), process heating systems are emission-intensive because fossil fuel combustion provides 95 percent of industrial heat across the manufacturing sector.
3. Industrial process heat recovery. Energy that is generated in industrial processes that is not put to practical use is lost as waste heat in the form of hot exhaust gases, cooling water, and heat lost from hot equipment surfaces and heated products. According to the DOE OEERE, roughly 20-50 percent of industrial energy inputs are lost as waste heat. The installation and use of industrial process heat recovery technologies allow customers to use this otherwise-wasted heat energy to generate electricity that the customer uses on site and does not export to the electrical grid. This technology is commonly referred to as industrial process heat recovery. The three essential components required for waste heat recovery are: (a) the source of waste heat, (b) a recovery technology, and (c) an end use for the recovered heat.
4. Electricity surcharges. The CPUC authorizes the electric utilities under its ratemaking jurisdiction to recover many of their costs through surcharges on each unit of electricity used by their customers. The CPUC, and in some cases statute, makes many of these charges nonbypassable, which means a customer must continue to pay the surcharges on each unit of electricity the customer consumes. Nonbypassable charges are assessed on a per-kilowatt-hour of usage basis, as such, customers who use large amounts of electricity pay more in nonbypassable charges. Since nonbypassable charges represent the obligations of all the utility’s customers, regardless of the amount of electricity the utility supplies to any given customer, generally, all utility customers should pay them (this includes customers of electrical corporations served by other load-serving entities).
5. Examples of nonbypassable surcharges. Nonbypassable charges, which include departing load charges, are mandated volumetric customer surcharges assessed on each kilowatt-hour of electricity used by the customers to fund a variety of purposes, including public purpose programs (such as low-income rate assistance, energy efficiency procurement, and research and development), Other nonbypassable surcharges have been authorized to address specific purposes, such as: stranded investments during the electricity deregulation of the late 1990s, procurement costs incurred by the Department of Water Resources on behalf of electrical corporation customers during the Electricity Crisis of 2000-2001, and to fulfill ratepayers’ portion of payments into the Wildfire Fund to settle claims related to certain wildfires. Additional charges assessed by electric utilities are not considered nonbypassable charges, and may be assessed depending on the customer tariff, such as demand charges, standby, and other charges.
6. Departing load charges. A customer who generates electricity for onsite use through application of industrial process heat recovery avoids the cost of purchasing that volume of electricity from an electric utility. However, the customer still faces the cost of what are known as "departing load charges," which capture the value of nonbypassable charges on the volume of electricity the customer would have used if not for the use of industrial process of heat recovery. These charges are intended to ensure the collection of these costs are shouldered by all (or most) customers, thereby reducing the risk that the costs for the electric system aren’t fully recovered. State policy has long encouraged energy efficiency, including by exempting the application of nonbypassable or departing load surcharges to a customer who reduces their electricity use through implementation of energy efficiency. However, the use of industrial process heat recovery technology has not received similar treatment.
7. Federal Investment Opportunities. In March 2024, the U.S. DOE announced up to $6 billion from the Infrastructure and Investment Jobs Act (IIJA) for 33 projects across the country to support the decarbonization of energy-intensive industries – considered the largest investment in industrial decarbonization in American history. Projects funded from the program will focus on the highest emitting industries where decarbonization technologies will have the greatest impact, including cement and concrete, glass, iron, and steel. This federal funding opportunity may provide financial support for industrial heat recovery technology.

Comments

1. Barriers to deploying industrial process heat recovery technologies. Proponents of this bill contend that recovering waste heat losses can generate cost savings, reduce environmental impacts, and improve work flow and productivity. Although there are numerous commercially available technologies for waste heat recovery, due to various barriers, these technologies are not being pursued to the fullest extent possible. The DOE notes barriers include material constraints, greater maintenance costs, as well as, the upfront costs of purchase and installation. The industrial sector contends that electricity charges, including nonbypassable and departing load surcharges, also pose a barrier to deploying this technology. The CEC also acknowledges as much noting in a March 2021 report on assessment of small combined heat and power market potential, that “Standby rates and departing load charges are significant barriers to combined heat and power technologies in California.” The report notes these charges pose a significant barrier for customers within the three large investor-owned utility service territories in the state.
2. System cost shifts? By treating industrial process heat recovery as energy efficiency, thereby exempting this load from departing load charges or nonbypassable charges, other customers will be required to shoulder any shortfall from system costs which would have otherwise been recovered by these charges. Based on the criteria and requirements in this bill, electric utilities and sponsors of this bill believe only a handful of large industrial customers will be eligible for the proposed reduction in surcharges, mostly located within the service territory of the Southern California Edison and to a lesser extent Pacific Gas & Electric, and likely none within San Diego Gas & Electric. Per the amendments taken in the Assembly, this bill would prohibit any recovery from residential and small commercial customers for any of the shortfall in costs. As such, these increased collections would need be collected from large commercial, government, agriculture, and industrial customers within the affected utility service territories.

Related/Prior Legislation

AB 2083 (Berman, 2024) would have required the CEC to assess the potential for achieving an 85 percent reduction below 1990 levels in emissions from industrial heat application processes by January 1, 2045. The bill was held in the Senate Appropriations Committee.

AB 841 (Berman, 2023) would have required CEC to create a roadmap for electrifying industrial processes, including processes requiring heat, as specified. The bill was held in the Senate Appropriations Committee.

AB 209 (Committee on Budget, Chapter 251, Statutes of 2021) implemented, via the 2021 Budget Act, and required the CEC to establish the INDIGO program to provide incentives for projects at industrial facilities that provide significant benefits to the electrical grid, reduce emissions, and achieve the state’s energy goals.

SB 596 (Becker, Chapter 246, Statutes of 2021) required CARB to develop a comprehensive strategy for the state's cement sector to achieve net-zero GHG emissions no later than December 31, 2045.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes

According to the Senate Committee on Appropriations:

• The California Public Utilities Commission (CPUC) estimates ongoing costs of about $460,000 annually (ratepayer funds) to staff a new ratemaking or rulemaking proceeding to implement ratemaking treatment of commercial and industrial customers with industrial process heat recovery technology that meets prescribed requirements. CPUC notes this proceeding would entail ongoing supporting analysis, modeling alternative scenarios for nonbypassable or departing load surcharges, and revenue recovery across the three major IOUs.
• The Public Advocates Office, an independent organization within the CPUC that advocates solely on behalf of utility ratepayers, estimates ongoing costs of more than a million dollars annually (ratepayer funds) to focus on potential cost impacts to ratepayers that result from the exemption established by AB 2109 consistent with our statutory mandate per PU Code Section 309.5, including participation in the CPUC proceeding, data collection and analysis, conduction of workshops and evidentiary hearings, and provision of written testimony, among other things.
• Unknown fiscal impact to the state as an electrical utility ratepayer. The State of California is an electric customer, purchasing roughly one percent of the state’s electricity. As such, the state incurs costs if electricity rates.

SUPPORT: (Verified 8/13/24)

California Large Energy Consumers Association (co-source)
California Nevada Cement Association (co-source)
Brad Thompson Company
California Construction & Industrial Materials Association
CalPortland Company
Clean Energy Technologies, Inc.
Environmental Defense Fund
Heat is Power Association
Kanin Energy
Kline Consulting LLC
Mitsubishi Cement Corporation
New Buildings Institute
Natural Resources Defense Council
RMI
Sierra Club California
The Low Carbon Initiative

Waste Hub

OPPOSITION: (Verified 8/13/24)

None received

ARGUMENTS IN SUPPORT: In support of the bill the California Large Energy Consumers Association (CLECA) states:

AB 2109 seeks to encourage new investment in the use of IPHR [industrial process heat recovery], more commonly known as waste heat recovery, by removing economic barriers such as nonbypassable charges. If passed, this measure would treat IPHR as energy efficiency or the same as a renewable source of energy, and manufacturers would no longer be assessed punitive charges. Recovering industrial process heat, which would otherwise simply dissipate into the atmosphere, and turning it into carbon-free power is a proven technology used worldwide. In fact, California agencies encourage industrial customers to adopt efficiency improvements in their normal course of business to decarbonize their operations. However, the nonbypassable fees are a significant economic hurdle, so much so that companies cannot justify investment in IPHR.

ASSEMBLY FLOOR: 73-0, 5/21/24

AYES: Addis, Aguiar-Curry, Alanis, Alvarez, Arambula, Bains, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Juan Carrillo, Wendy Carrillo, Chen, Connolly, Davies, Dixon, Essayli, Flora, Mike Fong, Vince Fong, Gallagher, Garcia, Gipson, Grayson, Haney, Hart, Hoover, Irwin, Jackson, Jones-Sawyer, Kalra, Lackey, Lee, Low, Lowenthal, Maienschein, McCarty, McKinnor, Muratsuchi, Stephanie Nguyen, Ortega, Pacheco, Papan, Jim Patterson, Joe Patterson, Pellerin, Petrie-Norris, Quirk-Silva, Ramos, Rendon, Reyes, Rodriguez, Blanca Rubio, Sanchez, Santiago, Schiavo, Soria, Ta, Ting, Valencia, Villapudua, Waldron, Wallis, Ward, Weber, Wicks, Wilson, Wood, Zbur, Robert Rivas

NO VOTE RECORDED: Cervantes, Megan Dahle, Friedman, Gabriel, Holden, Mathis, Luz Rivas

Prepared by: Nidia Bautista / E., U. & C. / (916) 651-4107

8/21/24 15:34:14

**** END ****

 THIRD READING  

Bill No: AB 2109

Author: Juan Carrillo (D)

Amended: 4/22/24 in Assembly

Vote: 21

SENATE ENERGY, U. & C. COMMITTEE: 14-0, 6/18/24

AYES: Bradford, Ashby, Becker, Caballero, Dodd, Durazo, Eggman, Gonzalez, Limón, Min, Newman, Rubio, Skinner, Stern

NO VOTE RECORDED: Dahle, Grove, Seyarto, Wilk

SENATE APPROPRIATIONS COMMITTEE: 7-0, 8/15/24

AYES: Caballero, Jones, Ashby, Becker, Bradford, Seyarto, Wahab

ASSEMBLY FLOOR: 73-0, 5/21/24 - See last page for vote

SUBJECT: Electricity: surcharge exemption: industrial process heat recovery

SOURCE: California Large Energy Consumers Association

California Nevada Cement Association

DIGEST:

The bill prohibits non-bypassable or departing load surcharges on electricity utility bills from applying to a reduction in electricity usage due to and industrial customer’s application of industrial heat recovery technology meeting specified requirements.

ANALYSIS:

Existing law:

1. Requires all charges demanded or received by any public utility, or by any two or more public utilities, for any product or commodity furnished or to be furnished or any service rendered or to be rendered shall be just and reasonable. Every unjust or unreasonable charge demanded or received for such product or commodity or service is unlawful. (Public Utilities Code §451)
2. Requires the California Public Utilities Commission (CPUC) to apply specific uneconomic costs to each customer based on the amount of electricity purchased by the customer from an electrical corporation or alternate supplier of electricity, subject to changes in usage occurring in the normal course of business. Defines "change in usage" to generally mean changes occurring in the normal course of business resulting from changes in business cycles, termination of operations, departure from the utility service territory, weather, reduced production, modifications to production equipment or operations, changes in production or manufacturing processes. (Public Utilities Code §371)
3. Requires an electrical corporation to purchase from an eligible customer-generator, excess electricity that is delivered to the grid that is generated by a combined heat and power. (Public Utilities Code §2841)
4. Defines “small commercial customer” to mean a customer that has a maximum peak electricity demand of less than 20 kilowatts. (Public Utilities Code §331)
5. Requires the California Air Resources Board (CARB) to prepare and approve a Scoping Plan for achieving the maximum technologically feasible and cost-effective reductions in greenhouse gas (GHG) emissions and to update the Scoping Plan at least every five years. (Health & Safety Code §38561)(h))

This bill:

1. Defines “industrial process heat recovery” to mean a process that captures and reuses heat that would otherwise not be used, without any additional fuel input or supplemental firing, thereby reducing the electrical consumption of the industrial process.
2. Defines “reduction” to mean a reduction from the baseline electrical load of the industrial process before installation of the industrial process heat recovery technology.
3. Prohibits nonbypassable or departing load surcharges from applying to a reduction in kilowatt-hours of electricity that an electrical corporation customer consumes from the electrical grid in a metered interval due to industrial process heat recovery technology that meets the prescribed requirements below.
4. Specifies that the enhancement or increased efficiency of equipment occurring in the normal course of business includes industrial process heat recovery technology that meets the following requirements:
   1. The industrial process heat recovered to produce electricity is integral to, and created by, the industrial process.
   2. No supplemental firing or fuel use occurs to increase or to stabilize the steam’s temperature.
   3. The electricity generated by the industrial process heat recovery technology: has zero marginal GHG emissions associated with it; is fully self-consumed onsite during a manufacturing process; is not exported to the electrical grid for sale into the wholesale market; does not exceed 25 percent of the installing customer’s peak electrical load at the time of the installation; has a minimum name plate rating of 500 kilowatts; and is installed on or after January 1, 2024.
5. Requires the CPUC to minimize impacts to nonparticipating customers by prohibiting the costs directly attributable to the nonbypassable or departing load surcharges otherwise collected by customers using industrial process heat recovery technology from being paid by residential or small commercial customers.

Background

1. Industrial sector. California’s industrial sector includes a diverse range of facilities, including: cement plants, refineries, glass manufacturers, oil and gas producers, paper manufacturers, mining operations, metal processors, and food processors. According to the California Energy Commission’s (CEC) 2023 Integrated Energy Policy Report, combustion of fossil gas, other gaseous fossil fuels, and solid fossil fuels provide energy to meet three broad industry needs: electricity, steam, and process heat. According to the CARB’s 2022 Scoping Plan, industrial processes account for roughly 23 percent of statewide emissions of GHG in 2020 and are the second-largest contributor of GHG emissions in the state, behind transportation. Refineries and hydrogen production represent the largest sources in the industrial sector. Cement production accounts for about two percent of in-state GHG emissions, more than half of those emissions are related to cement production processes and less than half are from fuel and electricity consumption.
2. Industrial process heat. Industrial process heat is defined as heat energy (thermal energy) used for preparation or treatment of materials that produce manufactured goods. Process heat is reportedly the most significant source of energy use and GHGs in the industrial sector, accounting for about 50 percent of all onsite energy use and 30 percent of GHG emissions, according to the 2018 Manufacturing Energy and Carbon Footprint analysis. According to the U.S. Department of Energy’s Office of Energy Efficiency and Renewable Energy (DOE OEERE), process heating systems are emission-intensive because fossil fuel combustion provides 95 percent of industrial heat across the manufacturing sector.
3. Industrial process heat recovery. Energy that is generated in industrial processes that is not put to practical use is lost as waste heat in the form of hot exhaust gases, cooling water, and heat lost from hot equipment surfaces and heated products. According to the DOE OEERE, roughly 20-50 percent of industrial energy inputs are lost as waste heat. The installation and use of industrial process heat recovery technologies allow customers to use this otherwise-wasted heat energy to generate electricity that the customer uses on site and does not export to the electrical grid. This technology is commonly referred to as industrial process heat recovery. The three essential components required for waste heat recovery are: (a) the source of waste heat, (b) a recovery technology, and (c) an end use for the recovered heat.
4. Electricity surcharges. The CPUC authorizes the electric utilities under its ratemaking jurisdiction to recover many of their costs through surcharges on each unit of electricity used by their customers. The CPUC, and in some cases statute, makes many of these charges nonbypassable, which means a customer must continue to pay the surcharges on each unit of electricity the customer consumes. Nonbypassable charges are assessed on a per-kilowatt-hour of usage basis, as such, customers who use large amounts of electricity pay more in nonbypassable charges. Since nonbypassable charges represent the obligations of all the utility’s customers, regardless of the amount of electricity the utility supplies to any given customer, generally, all utility customers should pay them (this includes customers of electrical corporations served by other load-serving entities).
5. Examples of nonbypassable surcharges. Nonbypassable charges, which include departing load charges, are mandated volumetric customer surcharges assessed on each kilowatt-hour of electricity used by the customers to fund a variety of purposes, including public purpose programs (such as low-income rate assistance, energy efficiency procurement, and research and development), Other nonbypassable surcharges have been authorized to address specific purposes, such as: stranded investments during the electricity deregulation of the late 1990s, procurement costs incurred by the Department of Water Resources on behalf of electrical corporation customers during the Electricity Crisis of 2000-2001, and to fulfill ratepayers’ portion of payments into the Wildfire Fund to settle claims related to certain wildfires. Additional charges assessed by electric utilities are not considered nonbypassable charges, and may be assessed depending on the customer tariff, such as demand charges, standby, and other charges.
6. Departing load charges. A customer who generates electricity for onsite use through application of industrial process heat recovery avoids the cost of purchasing that volume of electricity from an electric utility. However, the customer still faces the cost of what are known as "departing load charges," which capture the value of nonbypassable charges on the volume of electricity the customer would have used if not for the use of industrial process of heat recovery. These charges are intended to ensure the collection of these costs are shouldered by all (or most) customers, thereby reducing the risk that the costs for the electric system aren’t fully recovered. State policy has long encouraged energy efficiency, including by exempting the application of nonbypassable or departing load surcharges to a customer who reduces their electricity use through implementation of energy efficiency. However, the use of industrial process heat recovery technology has not received similar treatment.
7. Federal Investment Opportunities. In March 2024, the U.S. DOE announced up to $6 billion from the Infrastructure and Investment Jobs Act (IIJA) for 33 projects across the country to support the decarbonization of energy-intensive industries – considered the largest investment in industrial decarbonization in American history. Projects funded from the program will focus on the highest emitting industries where decarbonization technologies will have the greatest impact, including cement and concrete, glass, iron, and steel. This federal funding opportunity may provide financial support for industrial heat recovery technology.

Comments

1. Barriers to deploying industrial process heat recovery technologies. Proponents of this bill contend that recovering waste heat losses can generate cost savings, reduce environmental impacts, and improve work flow and productivity. Although there are numerous commercially available technologies for waste heat recovery, due to various barriers, these technologies are not being pursued to the fullest extent possible. The DOE notes barriers include material constraints, greater maintenance costs, as well as, the upfront costs of purchase and installation. The industrial sector contends that electricity charges, including nonbypassable and departing load surcharges, also pose a barrier to deploying this technology. The CEC also acknowledges as much noting in a March 2021 report on assessment of small combined heat and power market potential, that “Standby rates and departing load charges are significant barriers to combined heat and power technologies in California.” The report notes these charges pose a significant barrier for customers within the three large investor-owned utility service territories in the state.
2. System cost shifts? By treating industrial process heat recovery as energy efficiency, thereby exempting this load from departing load charges or nonbypassable charges, other customers will be required to shoulder any shortfall from system costs which would have otherwise been recovered by these charges. Based on the criteria and requirements in this bill, electric utilities and sponsors of this bill believe only a handful of large industrial customers will be eligible for the proposed reduction in surcharges, mostly located within the service territory of the Southern California Edison and to a lesser extent Pacific Gas & Electric, and likely none within San Diego Gas & Electric. Per the amendments taken in the Assembly, this bill would prohibit any recovery from residential and small commercial customers for any of the shortfall in costs. As such, these increased collections would need be collected from large commercial, government, agriculture, and industrial customers within the affected utility service territories.

Related/Prior Legislation

AB 2083 (Berman, 2024) would have required the CEC to assess the potential for achieving an 85 percent reduction below 1990 levels in emissions from industrial heat application processes by January 1, 2045. The bill was held in the Senate Appropriations Committee.

AB 841 (Berman, 2023) would have required CEC to create a roadmap for electrifying industrial processes, including processes requiring heat, as specified. The bill was held in the Senate Appropriations Committee.

AB 209 (Committee on Budget, Chapter 251, Statutes of 2021) implemented, via the 2021 Budget Act, and required the CEC to establish the INDIGO program to provide incentives for projects at industrial facilities that provide significant benefits to the electrical grid, reduce emissions, and achieve the state’s energy goals.

SB 596 (Becker, Chapter 246, Statutes of 2021) required CARB to develop a comprehensive strategy for the state's cement sector to achieve net-zero GHG emissions no later than December 31, 2045.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes

According to the Senate Committee on Appropriations:

• The California Public Utilities Commission (CPUC) estimates ongoing costs of about $460,000 annually (ratepayer funds) to staff a new ratemaking or rulemaking proceeding to implement ratemaking treatment of commercial and industrial customers with industrial process heat recovery technology that meets prescribed requirements. CPUC notes this proceeding would entail ongoing supporting analysis, modeling alternative scenarios for nonbypassable or departing load surcharges, and revenue recovery across the three major IOUs.
• The Public Advocates Office, an independent organization within the CPUC that advocates solely on behalf of utility ratepayers, estimates ongoing costs of more than a million dollars annually (ratepayer funds) to focus on potential cost impacts to ratepayers that result from the exemption established by AB 2109 consistent with our statutory mandate per PU Code Section 309.5, including participation in the CPUC proceeding, data collection and analysis, conduction of workshops and evidentiary hearings, and provision of written testimony, among other things.
• Unknown fiscal impact to the state as an electrical utility ratepayer. The State of California is an electric customer, purchasing roughly one percent of the state’s electricity. As such, the state incurs costs if electricity rates.

SUPPORT: (Verified 8/13/24)

California Large Energy Consumers Association (co-source)
California Nevada Cement Association (co-source)
American Council for an Energy Efficient Economy

Brad Thompson Company
California Construction & Industrial Materials Association
CalPortland Company
Clean Energy Technologies, Inc.
Environmental Defense Fund
Heat is Power Association
Kanin Energy
Kline Consulting LLC
Mitsubishi Cement Corporation
New Buildings Institute
Natural Resources Defense Council
RMI
Sierra Club California
The Low Carbon Initiative

Waste Hub

OPPOSITION: (Verified 8/13/24)

Agricultural Energy Consumers Association

California Farm Bureau

ARGUMENTS IN SUPPORT: In support of the bill the California Large Energy Consumers Association (CLECA) states:

AB 2109 seeks to encourage new investment in the use of IPHR [industrial process heat recovery], more commonly known as waste heat recovery, by removing economic barriers such as nonbypassable charges. If passed, this measure would treat IPHR as energy efficiency or the same as a renewable source of energy, and manufacturers would no longer be assessed punitive charges. Recovering industrial process heat, which would otherwise simply dissipate into the atmosphere, and turning it into carbon-free power is a proven technology used worldwide. In fact, California agencies encourage industrial customers to adopt efficiency improvements in their normal course of business to decarbonize their operations. However, the nonbypassable fees are a significant economic hurdle, so much so that companies cannot justify investment in IPHR.

ARGUMENTS IN OPPOSITION: The Agricultural Energy Consumers Association and California Farm Bureau oppose the bill due to amendments taken in the Assembly which exclude residential and small business customers from paying for the shortfall in collections from the nonbypassable surcharges that would have otherwise been collected. They state:

Rate affordability is not just a residential problem and non-residential rates have seen the same exponential increases in recent years, but despite our best efforts, it has been without the same options for alternatives or focus on addressing the problem. While AB 2109 may provide an alternative for one sector, it should not do so by unduly burdening another. …That cost burden now disproportionately and inequitably falls on agricultural customers who do not have practical applications for participating in the program.

ASSEMBLY FLOOR: 73-0, 5/21/24

AYES: Addis, Aguiar-Curry, Alanis, Alvarez, Arambula, Bains, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Juan Carrillo, Wendy Carrillo, Chen, Connolly, Davies, Dixon, Essayli, Flora, Mike Fong, Vince Fong, Gallagher, Garcia, Gipson, Grayson, Haney, Hart, Hoover, Irwin, Jackson, Jones-Sawyer, Kalra, Lackey, Lee, Low, Lowenthal, Maienschein, McCarty, McKinnor, Muratsuchi, Stephanie Nguyen, Ortega, Pacheco, Papan, Jim Patterson, Joe Patterson, Pellerin, Petrie-Norris, Quirk-Silva, Ramos, Rendon, Reyes, Rodriguez, Blanca Rubio, Sanchez, Santiago, Schiavo, Soria, Ta, Ting, Valencia, Villapudua, Waldron, Wallis, Ward, Weber, Wicks, Wilson, Wood, Zbur, Robert Rivas

NO VOTE RECORDED: Cervantes, Megan Dahle, Friedman, Gabriel, Holden, Mathis, Luz Rivas

Prepared by: Nidia Bautista / E., U. & C. / (916) 651-4107

8/18/24 8:51:29

**** END ****

SENATE COMMITTEE ON

Senator Anna Caballero, Chair

2023 - 2024 Regular Session

AB 2109 (Juan Carrillo) - Electricity: surcharge exemption: industrial process heat recovery

Bill Summary:

This bill would exempt large industrial customers from paying certain surcharges on their reductions in electricity if that reduction is achieved through an industrial process heat recovery technology with specified requirements.

Fiscal Impact:

• The California Public Utilities Commission (CPUC) estimates ongoing costs of about $460,000 annually (ratepayer funds) to staff a new ratemaking or rulemaking proceeding to implement ratemaking treatment of commercial and industrial customers with industrial process heat recovery technology that meets prescribed requirements. CPUC notes this proceeding would entail ongoing supporting analysis, modeling alternative scenarios for nonbypassable or departing load surcharges, and revenue recovery across the three major IOUs.
• The Public Advocates Office, an independent organization within the CPUC that advocates solely on behalf of utility ratepayers, estimates ongoing costs of more than a million dollars annually (ratepayer funds) to focus on potential cost impacts to ratepayers that result from the exemption established by AB 2109 consistent with our statutory mandate per PU Code Section 309.5, including participation in the CPUC proceeding, data collection and analysis, conduction of workshops and evidentiary hearings, and provision of written testimony, among other things.
• Unknown fiscal impact to the state as an electrical utility ratepayer. The State of California is an electric customer, purchasing roughly one percent of the state’s electricity. As such, the state incurs costs if electricity rates.

Background:

Industrial process heat. Industrial process heat is defined as heat energy (thermal energy) used for preparation or treatment of materials that produce manufactured goods. Process heat is reportedly the most significant source of energy use and GHGs in the industrial sector, accounting for about 50 percent of all onsite energy use and 30 percent of GHG emissions, according to the 2018 Manufacturing Energy and Carbon Footprint analysis. According to the U.S. Department of Energy’s Office of Energy Efficiency and Renewable Energy, process heating systems are emission-intensive because fossil fuel combustion provides 95 percent of industrial heat across the manufacturing sector.

Industrial process heat recovery. Energy that is generated in industrial processes that is not put to practical use is lost as waste heat in the form of hot exhaust gases, cooling water, and heat lost from hot equipment surfaces and heated products. According to the U.S. Department of Energy Office of Energy Efficiency and Renewable Energy, roughly 20-50 percent of industrial energy inputs are lost as waste heat. The installation and use of industrial process heat recovery technologies allow customers to use this otherwise-wasted heat energy to generate electricity that the customer uses on site and does not export to the electrical grid. This technology is commonly referred to as industrial process heat recovery. The three essential components required for waste heat recovery are: the source of waste heat, a recovery technology, and an end use for the recovered heat.

Electricity charges. The CPUC authorizes the electric utilities under its ratemaking jurisdiction to recover many of their costs through charges on each unit of electricity used by their customers. The CPUC, and in some cases statute, makes many of these charges nonbypassable, which means a customer must continue to pay the charges on each unit of electricity the customer consumes. Nonbypassable charges, include but are not limited to departing load charges, are mandated volumetric customer charges to be assessed on each kilowatt-hour of electricity used by the customers to fund a variety of purposes, including:

1. Public Purpose Program charges fund a variety of programs, including rate assistance programs, such as the California Alternate Rates for Energy (CARE) low-income assistance program, Energy Savings Assistance Program that provides energy efficiency and weatherization assistance to income-eligible households, Energy Efficiency Procurement, and the Electric Program Investment Charge (EPIC) to fund research and development.
2. Other nonbypassable charges have been authorized to address specific purposes, such as stranded investments during the electricity deregulation of the late 1990s, procurement costs incurred by the Department of Water Resources on behalf of electrical corporation customers during the Electricity Crisis of 2000-01, and to fulfill ratepayers’ portion of payments into the Wildfire Fund to settle claims related to certain wildfires.

Nonbypassable charges represent the obligations of all the utility’s customers, regardless of the amount of electricity the utility supplies to any given customer, so all utility customers should pay them (this includes customers served by community choice aggregators and electric service providers). Since nonbypassable charges are assessed on a per kilowatt of usage basis, customers who use large amounts of electricity pay more in nonbypassable charges.

Additional charges assessed by electric utilities are not considered nonbypassable charges, and may be assessed depending on the customer tariff:

1. Demand charges. These charges are typically applied to customers who use large amounts of electricity. They are based on a customer’s maximum demand incurred during a monthly period or on a customer’s maximum demand over on-peak and over partial-peak hours of the month.
2. Standby charges. These charges serve as an insurance premium for customers who meet their own load (or a portion of their load) every hour of the month via on-site generation. Standby rates and charges are provided electric service when a customer’s generator experiences a partial or complete shutdown. Standby rates are designed to cover the cost of standby electric service when the customer’s generator is not operating as intended. These charges are owed each month, whether or not the customer actually has a generator failure and cover the costs of the electric utility ensuring available service should it be needed.
3. Other charges. Fund renewable electricity program procurement and other programs, including the Self-Generation Incentive Program (SGIP) to fund customer-sited energy storage.

Departing load charges. A customer who generates electricity for onsite use through application of industrial process heat recovery avoids the cost of purchasing that volume of electricity from an electric utility. However, the customer still faces the cost of what are known as "departing load charges," which capture the value of nonbypassable charges on the volume of electricity the customer would have used if not for the use of industrial process of heat recovery. These charges are intended to ensure the collection of these costs are shouldered by all (or most) customers, thereby reducing the risk that the costs for the electric system are recovered. State policy has long encouraged energy efficiency, including by not applying nonbypassable charges or departing load charges to a customer who reduces their electricity use through implementation of energy efficiency. However, such industrial process heat recovery has not received similar treatment.

Federal Investment Opportunities. In March 2024, the U.S. Department of Energy announced up to $6 billion from the Infrastructure and Investment Jobs Act (IIJA) for 33 projects across the country to support the decarbonization of energy-intensive industries. This announcement is the largest investment in industrial decarbonization in American history. The projects will focus on the highest emitting industries where decarbonization technologies will have the greatest impact, including cement and concrete, glass, iron, and steel.

State efforts. Beyond the state’s GHG emissions reduction program, including the cap-and-trade program, at the state level, there are several programs and policies to support energy efficiency or decarbonization of the industrial sector. These include EPIC and Gas Research and Development utility ratepayer funded programs, including those administered by the California Energy Commission (CEC) and the utilities. These programs have funded energy efficiency and decarbonization projects affecting industrial, agriculture, commercial, and water sectors. With the passage of AB 209 (Committee on Budget, Chapter 251, Statutes of 2021), the Legislature and Governor established the Industrial Decarbonization and Improvements to Grid Operations (INDIGO) program to fund industrial projects that increase energy efficiency, including providing incentives for industrial projects that develop and deploy novel decarbonization technologies. Additionally, the Legislature and Governor adopted SB 596 (Becker, Chapter 246, Statutes of 2021) which required CARB to develop a comprehensive strategy for the state’s cement sector to achieve net-zero GHG emissions by 2045. CARB has held several workshops and solicited comments, however, CARB has not yet adopted a strategy.

Proposed Law:

This bill would exempt large industrial customers from paying certain surcharges on their reductions in electricity if that reduction is achieved through an industrial process heat recovery technology with specified requirements. Specifically, this bill would:

1. Define “industrial process heat recovery” to mean a process that captures and reuses heat that would otherwise not be used, without any additional fuel input or supplemental firing, thereby reducing the electrical consumption of the industrial process.
2. Define “reduction” to mean a reduction from the baseline electrical load of the industrial process before installation of the industrial process heat recovery technology.
3. Specify that the enhancement or increased efficiency of equipment occurring in the normal course of business includes industrial process heat recovery technology that meets the following requirements:
   1. The industrial process heat recovered to produce electricity is integral to, and created by, the industrial process.
   2. No supplemental firing or fuel use occurs to increase or to stabilize the steam’s temperature.
   3. The electricity generated by the industrial process heat recovery technology:
      1. has zero marginal GHG emissions associated with it.
      2. is fully self-consumed onsite during a manufacturing process.
      3. is not exported to the electrical grid for sale into the wholesale market.
      4. does not exceed 25 percent of the installing customer’s peak electrical load at the time of the installation.
      5. has a minimum name plate rating of 500 kilowatts.
      6. is installed on or after January 1, 2024.
4. Prohibit nonbypassable or departing load surcharges from applying to a reduction in kilowatt-hours of electricity that an electrical corporation customer consumes from the electrical grid in a metered interval due to industrial process heat recovery technology that meets the prescribed requirements (noted above in 3).
5. Require the CPUC to minimize impacts to nonparticipating customers by prohibiting the costs directly attributable to the nonbypassable or departing load charges of customers using industrial process heat recovery technology from being paid by residential or small commercial customers.

Related Legislation:

AB 2083 (Berman, 2024) requires the CEC to assess the potential for achieving an 85 percent reduction below 1990 levels in emissions from industrial heat application processes by January 1, 2045.

AB 841 (Berman, 2023) would have required CEC to create a roadmap for electrifying industrial processes, including processes requiring heat, as specified. The bill was held on the Suspense File in this committee.

AB 209 (Committee on Budget, Chapter 251, Statutes of 2021) among other changes needed to implement the 2021 Budget Act, the bill required the CEC to establish the INDIGO program to provide incentives for projects at industrial facilities that provide significant benefits to the electrical grid, reduce emissions, and achieve the state’s energy goals.

SB 596 (Becker, Chapter 246, Statutes of 2021) required CARB to develop a comprehensive strategy for the state's cement sector to achieve net-zero GHG emissions no later than December 31, 2045.

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SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS

Senator Steven Bradford, Chair

2023 - 2024 Regular

Bill No: AB 2109 Hearing Date: 6/18/2024

SUBJECT: Electricity: surcharge exemption: industrial process heat recovery

DIGEST: This bill exempts large industrial customers from paying certain surcharges on their reductions in electricity if that reduction is achieved through an industrial process heat recovery technology with specified requirements.

ANALYSIS:

Existing law:

1. Establishes and vests the California Public Utilities Commission (CPUC) with regulatory authority over public utilities, including electrical corporations. (Article XII of the California Constitution)
2. Requires all charges demanded or received by any public utility, or by any two or more public utilities, for any product or commodity furnished or to be furnished or any service rendered or to be rendered shall be just and reasonable. Every unjust or unreasonable charge demanded or received for such product or commodity or service is unlawful. (Public Utilities Code §451)
3. Requires the CPUC to apply specific uneconomic costs to each customer based on the amount of electricity purchased by the customer from an electrical corporation or alternate supplier of electricity, subject to changes in usage occurring in the normal course of business. (Public Utilities Code §371(a))
4. Defines "change in usage" to generally mean changes occurring in the normal course of business resulting from changes in business cycles, termination of operations, departure from the utility service territory, weather, reduced production, modifications to production equipment or operations, changes in production or manufacturing processes. (Public Utilities Code §371(b))
5. Requires an electrical corporation to purchase from an eligible customer-generator, excess electricity that is delivered to the grid that is generated by a combined heat and power. (Public Utilities Code §2841)
6. Defines “small commercial customer” to mean a customer that has a maximum peak [electricity] demand of less than 20 kilowatts. (Public Utilities Code §331)
7. Requires the California Air Resources Board (CARB) to prepare and approve a Scoping Plan for achieving the maximum technologically feasible and cost-effective reductions in greenhouse gas (GHG) emissions and to update the Scoping Plan at least every five years. (Health & Safety Code §38561)(h))

This bill:

1. Defines “industrial process heat recovery” to mean a process that captures and reuses heat that would otherwise not be used, without any additional fuel input or supplemental firing, thereby reducing the electrical consumption of the industrial process.
2. Defines “reduction” to mean a reduction from the baseline electrical load of the industrial process before installation of the industrial process heat recovery technology.
3. Specifies that the enhancement or increased efficiency of equipment occurring in the normal course of business includes industrial process heat recovery technology that meets the following requirements:
   1. The industrial process heat recovered to produce electricity is integral to, and created by, the industrial process.
   2. No supplemental firing or fuel use occurs to increase or to stabilize the steam’s temperature.
   3. The electricity generated by the industrial process heat recovery technology:
      1. has zero marginal GHG emissions associated with it.
      2. is fully self-consumed onsite during a manufacturing process.
      3. is not exported to the electrical grid for sale into the wholesale market.
      4. does not exceed 25 percent of the installing customer’s peak electrical load at the time of the installation.
      5. has a minimum name plate rating of 500 kilowatts.
      6. is installed on or after January 1, 2024.
4. Prohibits nonbypassable or departing load surcharges from applying to a reduction in kilowatt-hours of electricity that an electrical corporation customer consumes from the electrical grid in a metered interval due to industrial process heat recovery technology that meets the prescribed requirements (noted above in 3).
5. Requires the CPUC to minimize impacts to nonparticipating customers by prohibiting the costs directly attributable to the nonbypassable or departing load charges of customers using industrial process heat recovery technology from being paid by residential or small commercial customers.

Background

Industrial sector. California’s industrial sector includes a diverse range of facilities, including cement plants, refineries, glass manufacturers, oil and gas producers, paper manufacturers, mining operations, metal processors, and food processors. According to the California Energy Commission’s 2023 Integrated Energy Policy Report, combustion of fossil gas, other gaseous fossil fuels, and solid fossil fuels provide energy to meet three broad industry needs: electricity, steam, and process heat. According to the CARB’s 2022 Scoping Plan, industrial processes account for roughly 23 percent of statewide emissions of GHG in 2020 and are the second-largest contributor of GHG emissions in the state, behind transportation. Refineries and hydrogen production represent the largest sources in the industrial sector. Cement production accounts for about two percent of in-state GHG emissions, more than half of those emissions are related to cement production processes and less than half are from fuel and electricity consumption.

Industrial process heat. Industrial process heat is defined as heat energy (thermal energy) used for preparation or treatment of materials that produce manufactured goods. Process heat is reportedly the most significant source of energy use and GHGs in the industrial sector, accounting for about 50 percent of all onsite energy use and 30 percent of GHG emissions, according to the 2018 Manufacturing Energy and Carbon Footprint analysis. According to the U.S. Department of Energy’s Office of Energy Efficiency and Renewable Energy, process heating systems are emission-intensive because fossil fuel combustion provides 95 percent of industrial heat across the manufacturing sector.

Industrial process heat recovery. Energy that is generated in industrial processes that is not put to practical use is lost as waste heat in the form of hot exhaust gases, cooling water, and heat lost from hot equipment surfaces and heated products. According to the U.S. Department of Energy Office of Energy Efficiency and Renewable Energy, roughly 20-50 percent of industrial energy inputs are lost as waste heat. The installation and use of industrial process heat recovery technologies allow customers to use this otherwise-wasted heat energy to generate electricity that the customer uses on site and does not export to the electrical grid. This technology is commonly referred to as industrial process heat recovery. The three essential components required for waste heat recovery are: the source of waste heat, a recovery technology, and an end use for the recovered heat.

Electricity charges. The CPUC authorizes the electric utilities under its ratemaking jurisdiction to recover many of their costs through charges on each unit of electricity used by their customers. The CPUC, and in some cases statute, makes many of these charges nonbypassable, which means a customer must continue to pay the charges on each unit of electricity the customer consumes. Nonbypassable charges, include but are not limited to departing load charges, are mandated volumetric customer charges to be assessed on each kilowatt-hour of electricity used by the customers to fund a variety of purposes, including:

1. Public Purpose Program charges fund a variety of programs, including rate assistance programs, such as the California Alternate Rates for Energy (CARE) low-income assistance program, Energy Savings Assistance Program that provides energy efficiency and weatherization assistance to income-eligible households, Energy Efficiency Procurement, and the Electric Program Investment Charge (EPIC) to fund research and development.
2. Other nonbypassable charges have been authorized to address specific purposes, such as stranded investments during the electricity deregulation of the late 1990s, procurement costs incurred by the Department of Water Resources on behalf of electrical corporation customers during the Electricity Crisis of 2000-01, and to fulfill ratepayers’ portion of payments into the Wildfire Fund to settle claims related to certain wildfires.

Nonbypassable charges represent the obligations of all the utility’s customers, regardless of the amount of electricity the utility supplies to any given customer, so all utility customers should pay them (this includes customers served by community choice aggregators and electric service providers). Since nonbypassable charges are assessed on a per kilowatt of usage basis, customers who use large amounts of electricity pay more in nonbypassable charges.

Additional charges assessed by electric utilities are not considered nonbypassable charges, and may be assessed depending on the customer tariff:

1. Demand charges. These charges are typically applied to customers who use large amounts of electricity. They are based on a customer’s maximum demand incurred during a monthly period or on a customer’s maximum demand over on-peak and over partial-peak hours of the month.
2. Standby charges. These charges serve as an insurance premium for customers who meet their own load (or a portion of their load) every hour of the month via on-site generation. Standby rates and charges are provided electric service when a customer’s generator experiences a partial or complete shutdown. Standby rates are designed to cover the cost of standby electric service when the customer’s generator is not operating as intended. These charges are owed each month, whether or not the customer actually has a generator failure and cover the costs of the electric utility ensuring available service should it be needed.
3. Other charges. Fund renewable electricity program procurement and other programs, including the Self-Generation Incentive Program (SGIP) to fund customer-sited energy storage.

Departing load charges. A customer who generates electricity for onsite use through application of industrial process heat recovery avoids the cost of purchasing that volume of electricity from an electric utility. However, the customer still faces the cost of what are known as "departing load charges," which capture the value of nonbypassable charges on the volume of electricity the customer would have used if not for the use of industrial process of heat recovery. These charges are intended to ensure the collection of these costs are shouldered by all (or most) customers, thereby reducing the risk that the costs for the electric system are recovered. State policy has long encouraged energy efficiency, including by not applying nonbypassable charges or departing load charges to a customer who reduces their electricity use through implementation of energy efficiency. However, such industrial process heat recovery has not received similar treatment.

Federal Investment Opportunities. In March 2024, the U.S. Department of Energy announced up to $6 billion from the Infrastructure and Investment Jobs Act (IIJA) for 33 projects across the country to support the decarbonization of energy-intensive industries. This announcement is the largest investment in industrial decarbonization in American history. The projects will focus on the highest emitting industries where decarbonization technologies will have the greatest impact, including cement and concrete, glass, iron, and steel.

State efforts. Beyond the state’s GHG emissions reduction program, including the cap-and-trade program, at the state level, there are several programs and policies to support energy efficiency or decarbonization of the industrial sector. These include EPIC and Gas Research and Development utility ratepayer funded programs, including those administered by the California Energy Commission (CEC) and the utilities. These programs have funded energy efficiency and decarbonization projects affecting industrial, agriculture, commercial, and water sectors. With the passage of AB 209 (Committee on Budget, Chapter 251, Statutes of 2021), the Legislature and Governor established the Industrial Decarbonization and Improvements to Grid Operations (INDIGO) program to fund industrial projects that increase energy efficiency, including providing incentives for industrial projects that develop and deploy novel decarbonization technologies. Additionally, the Legislature and Governor adopted SB 596 (Becker, Chapter 246, Statutes of 2021) which required CARB to develop a comprehensive strategy for the state’s cement sector to achieve net-zero GHG emissions by 2045. CARB has held several workshops and solicited comments, however, CARB has not yet adopted a strategy.

Comments

Need for this bill. The author states:

It is critical for California to identify and remove hurdles to decarbonize industry sectors to abate the effects of climate change. Specifically, the cement industry must achieve carbon neutrality by 2045, as defined in SB 596 (Becker) chapter 246 of the statutes of 2021. Industrial Process Heat Recovery (IPHR) technologies is a process of capturing high heat generated as part of the industrial manufacturing process, and converts that heat into carbon free electricity to be self-consumed on site. AB 2109 will encourage new investment in zero-carbon IPHR technology, keeping good paying jobs and clean manufacturing throughout the state. AB 2109 will also protect residential and small commercial ratepayers, should there be a cost shift.

Barriers to deploying industrial process heat recovery technologies. Recovering waste heat losses can generate cost savings, reduce environmental impacts, and improve work flow and productivity. Although there are numerous commercially available technologies for waste heat recovery, due to various barriers, these technologies are not being pursued to the fullest extent possible. The U.S. Department of Energy notes barriers include material constraints, greater maintenance costs, as well as, the upfront costs of purchase and installation. The industrial sector contends that electricity charges, including nonbypassable and departing load charges, also pose a barrier to deploying this technology. The CEC also acknowledges as much noting in a March 2021 report on assessment of small combined heat and power market potential, that “Standby rates and departing load charges are significant barriers to combined heat and power technologies in California.” The report notes these charges pose a significant barrier for customers within the three large investor-owned utility service territories.

Cost shifts. By treating industrial process heat recovery as energy efficiency and thereby exempting this load from departing load charges or nonbypassable charges, other customers will be obliged to fund the shortfall in charges. Based on the criteria and requirements in this bill, electric utilities and sponsors of this bill believe only a handful of customers will be eligible for this treatment, mostly located within the service territory of the Southern California Edison and to a lesser extent Pacific Gas & Electric, and likely none within San Diego Gas & Electric. Per the amendments taken in the Assembly, this bill would prohibit any recovery from residential and small commercial customers for any of the shortfall. As such, these increased collections would be obtained from large commercial, government, agricultural, and industrial customers.

Prior/Related Legislation

AB 2083 (Berman, 2024) requires the CEC to assess the potential for achieving an 85 percent reduction below 1990 levels in emissions from industrial heat application processes by January 1, 2045. The bill is pending before this committee.

AB 841 (Berman, 2023) would have required CEC to create a roadmap for electrifying industrial processes, including processes requiring heat, as specified. The bill was held in the Senate Committee on Appropriations.

AB 209 (Committee on Budget, Chapter 251, Statutes of 2021) among other changes needed to implement the 2021 Budget Act, the bill required the CEC to establish the INDIGO program to provide incentives for projects at industrial facilities that provide significant benefits to the electrical grid, reduce emissions, and achieve the state’s energy goals.

SB 596 (Becker, Chapter 246, Statutes of 2021) required CARB to develop a comprehensive strategy for the state's cement sector to achieve net-zero GHG emissions no later than December 31, 2045.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes

SUPPORT:

California Large Energy Consumers Association, Co-sponsor
California Nevada Cement Association, Co-sponsor
Brad Thompson Company
California Construction & Industrial Materials Association
CalPortland Company
Clean Energy Technologies, Inc.
Environmental Defense Fund
Heat is Power Association
Kanin Energy
Kline Consulting LLC
Mitsubishi Cement Corporation
New Buildings Institute
Natural Resources Defense Council
RMI
Sierra Club California
The Low Carbon Initiative

OPPOSITION:

None received

ARGUMENTS IN SUPPORT: In support of the bill the California Large Energy Consumers Association (CLECA) states:

CLECA is proud to sponsor this measure which seeks to assist California in achieving its carbon neutrality goal by 2045, reduce stress off the state’s electricity grid, and keep jobs, and manufacturing in California. …AB 2109 seeks to encourage new investment in the use of IPHR [industrial process heat recovery], more commonly known as waste heat recovery, by removing economic barriers such as nonbypassable charges. If passed, this measure would treat IPHR as energy efficiency or the same as a renewable source of energy, and manufacturers would no longer be assessed punitive charges. Recovering industrial process heat, which would otherwise simply dissipate into the atmosphere, and turning it into carbon-free power is a proven technology used worldwide. In fact, California agencies encourage industrial customers to adopt efficiency improvements in their normal course of business to decarbonize their operations. However, the nonbypassable fees are a significant economic hurdle, so much so that companies cannot justify investment in IPHR.

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 2109

Author:(Juan Carrillo)

As Amended Ver:April 22, 2024

Majority vote

SUMMARY

Exempts large industrial customers from paying certain surcharges on their reductions in electricity if that reduction is achieved through an industrial process heat recovery technology, as defined.

Major Provisions

1. Includes "industrial process heat recovery technology" in the existing statutory definition of enhancement or increased efficiency of equipment.
2. Exempts from certain surcharges on each kilowatt of electricity consumed – known as nonbypassable charges and departing load charges – a reduction in kilowatt-hours of electricity that a customer of an electrical corporation consumes from the electrical grid due to industrial process heat recovery technology.
3. Directs the California Public Utilities Commission (CPUC) to prohibit the costs directly attributable to the nonbypassable or departing load charges of customers using industrial process heat recovery technology from being paid by residential or small commercial customers.

COMMENTS

California's Industrial Sector. California's industrial sector includes a diverse range of facilities, including cement plants, metal processors, oil and gas producers, refineries, paper and glass manufacturers, mining operations, and food processors. Process heat is reportedly the most significant source of energy use and greenhouse gas emissions (GHGs) in the industrial sector, accounting for about 50% of all onsite energy use and 30% of GHGs. In 2020, California's industrial sector was ranked the second-largest total energy consumer in the nation.

What is industrial process heat recovery? Industrial waste heat is energy that is generated in industrial processes that is not put to practical use and is lost, wasted, or dumped into the environment. The exact amount of industrial waste heat is not clearly quantified, but various studies have estimated that as much as 40 - 50 % of industrial energy consumption is ultimately discharged as waste heat. Some industrial customers install technology that allows them to use this otherwise-wasted heat energy to generate electricity that the customer uses on site and does not export to the electric grid. This technology is commonly referred to as industrial process heat recovery. A customer who generates electricity for onsite use through application of industrial process heat recovery avoids the cost of purchasing that volume of electricity from an electric utility. However, the customer still faces the cost of what are known as "departing load charges," which capture the value of nonbypassable charges on the volume of electricity the customer would have used if not for the use of industrial process of heat recovery.

This treatment of reduced electric demand is to ensure every customer pays their fair share of system costs, regardless of the volume of electricity they draw form the grid. Otherwise, the electric system risks a situation, whereby electric utility customers seek to install on-site electricity generation simply to avoid socially beneficial charges. Of course, such costs do not disappear simply because a customer stops paying for them; rather, the costs are sloughed off to other utility customers who, for whatever reason, are unable to install onsite electricity generation. State policy has long encouraged energy efficiency, and use of industrial process heat recovery is a form of energy efficiency. Yet, rate rules do not apply nonbypassable charges, or departing load charges, to a customer who reduces their electricity use through implementation of most types of energy efficiency measures.

Nonbypassable Charges. The CPUC authorizes the electric utilities under its ratemaking jurisdiction to recover many of their costs through charges on each unit of electricity used by their customers. The CPUC makes many of these charges nonbypassable, which means a customer must continue to pay the charges on each unit of electricity the customer consumes, even if the customer gets that electricity from a source other than the electric utility. Nonbypassable charges cover costs for such programs such as low-income customer assistance programs, the costs associated with decommissioning nuclear powerplants and electricity-related research programs. The logic behind application of nonbypassable charges is that the charges represent the obligations of all the utility's customers, regardless of the amount of electricity the utility supplies to any given customer, so all utility customers should pay them. Yet, the incidence of nonbypassable charges means that customers who use large amounts of electricity pay more in nonbypassable charges.

Federal Investment Opportunities. In March 2024, the U.S. Department of Energy (DOE) announced up to $6 billion from the Infrastructure and Investment Jobs Act (IIJA) for 33 projects across different U.S. states to support the decarbonization of energy-intensive industries. This announcement is the largest investment in industrial decarbonization in American history. The projects will focus on the highest emitting industries where decarbonization technologies will have the greatest impact, including cement and concrete, glass, iron, and steel.

According to the Author

According to the author, "It is critical for California to identify and remove hurdles to decarbonize industry sectors to abate the effects of climate change. Specifically, the cement industry must achieve carbon neutrality by 2045, as defined in SB 596 (Becker) chapter 246 of the statutes of 2021. Industrial Process Heat Recovery (IPHR) technologies, which are treated as energy efficiency everywhere but California, is a process of capturing high heat generated as part of the industrial manufacturing process and converting that heat into carbon-free electricity to be self-consumed on site. AB 2109 would treat IHPR as energy efficiency in California, and will encourage new investment in zero-carbon IPHR technology, keeping good paying jobs and clean manufacturing throughout the state."

Arguments in Support

The bill is supported by National Resources Defense Council who argue that, "Waste heat recovery is defined in AB 2109 to only apply to "heat that would otherwise not be used, without any additional fuel input or supplemental firing, thereby reducing the electrical consumption of the industrial process." This definition of waste heat recovery provides similar climate benefits to energy efficiency and renewables yet is subject to departing load fees which impedes the economics of industrial facilities installing such systems. It is sensible to treat waste heat recovery technologies the same way that other emission reduction technologies are treated."

Arguments in Opposition

This bill is opposed by San Diego Gas and Electric which asserts that, "AB 2109 would create a technology-specific policy that benefits customers who install industrial heat process technologies. Those customers would continue to receive this benefit regardless of how electric rate design is revised in the future. The impact of this means higher bills for those that do not have industrial heat process technologies. Customers that have to pay those extra costs will not know why their bill went up because those costs are embedded in rates and fluctuations will not be immediately apparent to the ratepayer."

FISCAL COMMENTS

According to the Assembly Appropriations Committee, the CPUC estimates it will need (a) the full-time effort of an administrative law judge (ALJ), at an annual cost of $249,000 and (b) a regulatory analyst at an annual cost of $210,000. The Committee notes the only clearly ongoing activity described by the CPUC is the work of the regulatory analyst; the other costs may be shorter term.

VOTES

ASM UTILITIES AND ENERGY: 16-0-0

YES: Petrie-Norris, Jim Patterson, Bauer-Kahan, Calderon, Chen, Connolly, Friedman, Holden, Joe Patterson, Reyes, Santiago, Schiavo, Ting, Wallis, Wood, Zbur

ASM APPROPRIATIONS: 15-0-0

YES: Wicks, Sanchez, Arambula, Bryan, Calderon, Wendy Carrillo, Dixon, Mike Fong, Grayson, Haney, Hart, Jim Patterson, Pellerin, Ta, Villapudua

UPDATED

VERSION: April 22, 2024

CONSULTANT: Lina Malova / U. & E. / (916) 319-2083 FN: 0003234

Date of Hearing: May 8, 2024

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Buffy Wicks, Chair

ABPCA Bill Id:AB 2109

Author:(Juan Carrillo) – As Amended Ver:April 22, 2024

Urgency: No State Mandated Local Program: Yes Reimbursable: No

SUMMARY:

This bill exempts large industrial customers from paying certain surcharges on the reductions in electricity us they achieve through industrial process heat recovery.

Specifically, this bill includes “industrial process heat recovery technology” in the existing statutory definition of enhancement or increased efficiency of equipment. The bill also exempts from certain surcharges on each kilowatt of electricity consumed—known as nonbypassable charges and departing load charges—a reduction in kilowatt-hours of electricity that a customer of an electrical corporation consumes from the electrical grid due to industrial process heat recovery technology. The bill directs the California Public Utilities Commission to prohibit the costs directly attributable to the nonbypassable or departing load charges of customers using industrial process heat recovery technology from being paid by residential or small commercial customers.

FISCAL EFFECT:

The CPUC would need to undertake a new proceeding to implement ratemaking treatment of commercial and industrial customers with industrial process heat recovery technology, as required by this bill. The proceeding would entail ongoing analysis, as well as modeling alternative scenarios for nonbypassable or departing load surcharges and for revenue recovery across the three major investor-owned electric utilities (IOUs). The CPUC estimates, to complete the proceeding, it will need (a) the full-time effort of an administrative law judge (ALJ), at an annual cost of $249,000 and (b) a regulatory analyst at an annual cost of $210,000 (Public Utilities Commission Utilities Reimbursement Account. The ALJ would oversee the proceeding, while the regulatory analyst would lead analytical efforts to support the proceeding, monitor and oversee implementation of the tariff and recommend to decision-makers any adjustments needed to conform to changing system conditions over time. All costs would come from the Public Utilities Commission Utilities Reimbursement Account.

The only clearly ongoing activity described by the CPUC is the work of the regulatory analyst to monitor and oversee implementation of the tariff and recommend to decision-makers any adjustments needed to conform to changing system conditions over time. It seems the costs for the ALJ would be limited to between one and three years, as would most of the efforts of the regulatory analyst. However, the CPUC contends it will need to implement the rate treatment required by this bill over the course of several years as it reviews and approves the general rate case of each of the three large investor-owned electric utilities, which each occur every four years on a staggered schedule.

COMMENTS:

1. Purpose. The author intends this bill to incentivize use of industrial process heat recovery technologies to lower greenhouse gas emissions from the industrial sector. According to the author:

It is critical for California to identify and remove hurdles to decarbonize industry sectors to abate the effects of climate change. Specifically, the cement industry must achieve carbon neutrality by 2045, as defined in SB 596 (Becker) chapter 246 of the statutes of 2021. Industrial Process Heat Recovery (IPHR) technologies, which are treated as energy efficiency everywhere but California, is a process of capturing high heat generated as part of the industrial manufacturing process and converting that heat into carbon-free electricity to be self-consumed on site. AB 2109 would treat IHPR as energy efficiency in California, and will encourage new investment in zero-carbon IPHR technology, keeping good paying jobs and clean manufacturing throughout the state.

1. Background. The CPUC authorizes the electric utilities under its ratemaking jurisdiction to recover many of their costs through charges on each unit of electricity used by their customers. The CPUC makes many of these charges nonbypassable, which means a customer must continue to pay the charges on each unit of electricity the customer consumes, even if the customer gets that electricity from a source other than the electric utility.

Nonbypassable charges cover costs for such things as low-income customer assistance programs, the costs associated with decommissioning nuclear powerplants and electricity-related research programs. The logic behind application of nonbypassable charges is that the charges represent the obligations of all the utility’s customers, regardless of the amount of electricity the utility supplies to any given customer, so all utility customers should pay them. Yet, the incidence of nonbypassable charges means that customers who use large amounts of electricity pay more in nonbypassable charges.

Industrial waste heat is energy that is generated in industrial processes that is not put to practical use and is lost, wasted and dumped into the environment. Some industrial customers install technology that allows them to use this otherwise-wasted heat energy to generate electricity that the customer uses on site and does not export to the electric grid. This technology is commonly referred to as industrial process heat recovery. A customer who generates electricity for onsite use through application of industrial process heat recovery avoids the cost of purchasing that volume of electricity from the electric utility. However, the customer still faces the cost what are known as “departing load charges,” which capture the value of nonbypassable charges on the volume of electricity the customer would have used if not for the use of industrial process of heat recovery.

This treatment of reduced electric demand is to ensure every customer pays their fair share of system costs, regardless of the volume of electricity they draw form the grid. Otherwise, the electric system risks a beggar-thy-neighbor situation, whereby electric utility customers seek to install on-site electricity generation simply to avoid socially beneficial charges. Of course, such costs do not disappear simply because a customer stops paying for them; rather, the costs are sloughed off to other utility customers who, for whatever reason, are unable to install onsite electricity generation.

State policy has long encouraged energy efficiency, and use of industrial process heat recovery is form of energy efficiency. Yet, rate rules do not apply nonbypassable charges, or departing load charges, to a customer who reduces their electricity use through implementation of most types of energy efficiency measures. Industrial process heat recovery increases the efficient use of energy. Arguably, rate policy should treat this application of energy efficiency technology just as it treats other applications of energy efficiency. This is precisely the argument bill proponents make. For example, as the National Resources Defense Council writes:

Waste heat recovery is defined in AB 2109 to only apply to “heat that would otherwise not be used, without any additional fuel input or supplemental firing, thereby reducing the electrical consumption of the industrial process.” This definition of waste heat recovery provides similar climate benefits to energy efficiency and renewables yet is subject to departing load fees which impedes the economics of industrial facilities installing such systems. It is sensible to treat waste heat recovery technologies the same way that other emission reduction technologies are treated.

Opponents disagree, contending the bill will unfairly burden some ratepayers with other ratepayers’ costs. As energy utility San Diego Gas and Electric asserts:

Today, when a customer reduces their energy through efficiency programs, net energy metering (NEM) or by just lowering their energy use in general, they will see a bill reduction because they are using less energy from the grid. However, some of those energy costs are associated with public purpose programs (PPP) which are collected through rates. The program costs do not change no matter how much energy is used by each individual customer. So, when one customer lowers their use, other customers have to pay extra to make up the difference.

AB 2109 would create a technology-specific policy that benefits customers who install industrial heat process technologies. Those customers would continue to receive this benefit regardless of how electric rate design is revised in the future. The impact of this means higher bills for those that do not have industrial heat process technologies. Customers that have to pay those extra costs will not know why their bill went up because those costs are embedded in rates and fluctuations will not be immediately apparent to the ratepayer.

It may be worth considering whether volumetric charges are the best way to recover the costs of certain socially beneficial programs. Fortunately, such consideration is well underway.

Analysis Prepared by: Jay Dickenson / APPR. / (916) 319-2081

Date of Hearing: April 17, 2024

ASSEMBLY COMMITTEE ON UTILITIES AND ENERGY

Cottie Petrie-Norris, Chair

ABPCA Bill Id:AB 2109 (

Author:Juan Carrillo) – As Introduced Ver:February 5, 2024

SUBJECT: Electricity: surcharge exemption: industrial process heat recovery

SUMMARY: Defines industrial process heat recovery to mean a process that reuses waste heat and exempts energy efficiencies achieved at an industrial facility using this form of heat recovery from nonbypassable or departing load charges. Specifically, this bill:

Specifically, this bill: Exempts any reduction in industrial customer electricity consumption from nonbypassable or departing load charges imposed by an electrical corporation if that reduction is achieved due to an industrial process heat recovery technology, as defined.

EXISTING LAW:

1. Requires California Air Resources Board (CARB) to prepare and approve a Scoping Plan for achieving the maximum technologically feasible and cost-effective reductions in GHG emissions and to update the Scoping Plan at least every five years. (Health & Safety Code (HSC) § 38561)(h))
2. Requires an electrical corporation to purchase from an eligible customer-generator, excess electricity that is delivered to the grid that is generated by a combined heat and power. (Public Utilities Code § 2840)
3. Requires the California Public Utilities Commission (CPUC) to apply specific uneconomic costs to each customer based on the amount of electricity purchased by the customer from an electrical corporation or alternate supplier of electricity, subject to changes in usage occurring in the normal course of business. (Public Utilities Code § 371(a))
4. Defines "change in usage" to generally mean changes occurring in the normal course of business resulting from changes in business cycles, termination of operations, departure from the utility service territory, weather, reduced production, modifications to production equipment or operations, changes in production or manufacturing processes. (Public Utilities Code § 371(b))
5. Provides authorization for cost recovery to accommodate implementation of direct access (Public Utilities Code § 376)

FISCAL EFFECT: Unknown. This bill is keyed fiscal and will be referred to the Committee on Appropriations for its review.

BACKGROUND:

California’s Industrial Sector. California’s industry sector includes a diverse range of facilities, including cement plants, metal processors, oil and gas producers, refineries, paper and glass manufacturers, mining operations, and food processors.^[1] According to CARB’s 2022 Scoping plan, the industrial sector accounts for the second largest source of California’s emissions after transportation.^[2] Approximately, 80 percent of the industrial sector’s emissions come from combustion-based processes, and 20 percent of its emissions come from fugitive emissions^[3] associated with chemical conversions intrinsic in some industrial processes. Combustion of fossil gas and fossil fuels provides energy to meet three broad industry needs: electricity, steam, and process heat. Industrial process heat is defined as heat energy (thermal energy) used for preparation or treatment of materials that produce manufactured goods. Process heat is reportedly the most significant source of energy use and greenhouse gas emissions (GHGs) in the industrial sector, accounting for about 50% of all onsite energy use and 30% of GHGs.^[4] In 2020, California’s industrial sector was ranked the second-largest total second-largest total energy consumer in the nation.^[5]

There have been various efforts to reduce energy consumption to improve industrial energy efficiency such as the use of energy efficient equipment for processes used in manufacturing such as boilers, furnaces, dryers, pumps or changing the processes or techniques to manufacture products.⁷ An alternative approach has been to capture and reuse the lost or "waste heat" that is inherent to all industrial manufacturing.⁸ Industrial waste heat is the energy that is generated in industrial processes which is not put into any practical use and is lost, wasted and dumped into the environment. Sources of waste heat include combustion gases discharged to the atmosphere, heated products exiting industrial processes, and heat transfer from hot equipment surfaces. The exact amount of industrial waste heat is not clearly quantified, but various studies have estimated that as much as 40 - 50 percent of industrial energy consumption is ultimately discharged as waste heat. This waste heat can be repurposed through waste heat technologies to generate electricity preheat furnaces, and for space heating.

Source of waste heat (E.g., Process exhaust, combustion exhausts)

Recovery Technology (E.g., waste heat boiler

End Use of Recovered heat (E.g., (Electricity Supply), preheating furnaces)

Figure 1: 6 Three Essential Components Required for Waste Heat Recovery

As shown in Figure 1, the three essential components required for waste heat recovery are: the source of waste heat, a recovery technology, and an end use for the recovered heat. Emerging technologies may hold promise for replacing existing technologies in some cases, enabling heat recovery from “new” heat sources not typically considered for recovery, and increasing “end use” options for heat recovery.

Distinct charges for an electricity Bill. A variety of charges appear on a typical electricity bill and each of the electrical corporations (PG&E, SCE, SDG&E) present the charges differently, depending on the format of their billing system. Some of these charges apply only to certain types of customers, such as industrial customers. Some apply to nearly all customers, and some customers have received statutory or CPUC exemptions from these charges as illustrated below.

Nonbypassable charges. Nonbypassable charges, which included but are not limited to departing load charges, are mandated volumetric customer charges to be assessed on each kilowatt-hour of electricity used by a customer. These charges provide funds for a variety of purposes, including:

1. Public Purpose Program charges fund a variety of programs, including the California Alternate Rates for Energy (CARE) low-income rate assistance program, the Energy Savings Assistance program that provides energy efficiency retrofits for low-income households, Energy Efficiency Procurement, and the Electric Program Investment Charge. Since these charges are assessed based on the amount of electricity used, large energy users tend to contribute a proportionally larger amount of money to these programs.
2. Other nonbypassable charges have been authorized to address specific purposes, such as stranded investments during electricity deregulation, procurement costs incurred by the Department of Water Resources on behalf of electrical corporation customers during the Electricity Crisis of 2000-2001, and to fulfill ratepayers’ portion of broader payments into the Wildfire Fund created to settle claims related to certain types of wildfires.

These charges are not considered nonbypassable charges and, depending on the tariff (the customer's rate schedule), they may or may not be assessed:

1. Demand charges. These charges are typically applied to customers who use large amounts of electricity. They are based on a customer’s maximum demand incurred during a monthly period. They can also be based on customers’ maximum demand over on-peak and over partial-peak hours of the month.
2. Standby charges. They serve like an insurance premium. As such they are dollar-per-kilowatt charges typically assessed to customers who regularly meet their own load (or a portion of their load) every hour of the month via on-site generation, but who pay the serving utility to “stand by” with immediate power if/when their generator has an unexpected outage. The charges are owed each month, whether or not the customer actually has a generator failure that month.
3. Other charges. Fund renewable electricity program procurement and other programs, such as the Self Generation Incentive Program are among the charges assessed, along with other charges, in monthly distribution service charges.

State Initiatives. Electric Program Investment Charge (EPIC) and Gas R&D programs at the California Energy Commission (CEC) are ratepayer funded. These programs have funded energy efficiency and decarbonization projects affecting the industrial, agriculture, and water sectors, among others. For FY 2023/2024, the budget for its Industrial, Agriculture, and Water R&D program was $40 million. The CEC does not have an industrial energy efficiency program funded with ratepayer funds to directly subsidize the deployment of commercially available industrial decarbonization technologies. However, the Industrial Decarbonization and Improvements to Grid Operations Program (INDIGO) established by Assembly Bill 209 (Committee on Budget, Chapter 251, Statutes of 2021), can fund industrial projects that increase energy efficiency, among other purposes. Among other criteria, the program can provide incentives for industrial projects that develop and deploy novel decarbonization technologies.

Federal Opportunities. On March 25, 2024, the U.S. Department of Energy (DOE) announced up to $6 billion from the Infrastructure and Investment Jobs Act (IIJA) for 33 projects across different U.S. 20 states to support the decarbonization of energy-intensive industries.^[6] This announcement is the largest investment in industrial decarbonization in American history.^[7] The projects will focus on the highest emitting industries where decarbonization technologies will have the greatest impact, including cement and concrete, glass, iron, and steel. Additionally, in February 2024, the DOE in partnership with Treasury and Internal Revenue Service (IRS) announced the intent to release $ 4 billion for tax credits to industrial or manufacturing facilities with equipment designed to reduce GHGs by at least 20 percent through the installation of industrial technology designed to reduce GHGs.

COMMENTS:

1. Author’s statement. According to the author, “It is critical for California to identify and remove hurdles to decarbonize industry sectors to abate the effects of climate change. Specifically, the cement industry must achieve carbon neutrality by 2045, as defined in SB 596 (Becker) chapter 246 of the statutes of 2021. Industrial Process Heat Recovery (IPHR) technologies, which are treated as energy efficiency everywhere but California, is a process of capturing high heat generated as part of the industrial manufacturing process and converting that heat into carbon-free electricity to be self-consumed on site. AB 2109 would treat IHPR as energy efficiency in California, and will encourage new investment in zero-carbon IPHR technology, keeping good paying jobs and clean manufacturing throughout the state.”
2. What is industrial process heat recovery? There are different kinds of industrial process heat recovery (IPHR) According to the author, industrial process heat recovery (IPHR) technology or industrial waste heat recovery can be used interchangeably to mean a form of energy efficiency. As such, this bill specifically defines industrial process heat recovery as a form of energy efficiency. This bill further allows industrial users using IPHR to achieve energy efficiency to avoid charges assessed for specific purposes that would otherwise apply in the case of substantially-reduced electricity demand under these circumstances.
3. The Case of Departing Load Charges. This bill seeks to exempt electrical corporation customers who use industrial process heat recovery technology during their normal business hours from departing load charges. According to a California Energy Commission Report, “Standby rates and departing load charges are significant barriers to combined heat and power (CHP) technologies in California.”^[8] As such, the author contends that these charges serve as a significant disincentive to investing in zero-carbon emissions IPHR technologies.
4. Cost shifting. This bill would allow IPHR technology to be exempt from departing load charges. In order to provide this exemption, other ratepayers will be obliged to fund the shortfall in charges (utility revenues) that this exemption would create. The overall revenue each utility is collecting will have already undergone review by the CPUC to determine if it is just and reasonable, so choosing not to collect it in one part of the rate base necessitates collecting it elsewhere. These increased collections would be obtained from other customers, such as residential, small commercial, large commercial, government, agricultural, and industrial customers. Furthermore, as eluded earlier, these departing load charges provide funding for a variety of public purpose programs that serve low-income ratepayers. According to a 2023 report by the California State Auditor, California has the seventh-highest average electricity rates and the 10th-highest average residential natural gas prices in the nation.^[9] For context, about 2.4 million customers of California’s three largest utilities are behind on their bills, accounting for approximately $1.8 billion in energy debt.^[10] Sadly, these trends show no indication of slowing down.

As such, the committee recommends that residential customers and non-residential customers with peak loads no greater than 20 kW are exempt from any lost revenues that are directly attributable to the nonbypassable charges that would otherwise be paid by customers receiving the exemption for industrial process heat recovery pursuant to subdivision (a).

1. Prior Legislation

SB 596 (Becker) would require the state board to establish interim targets for reductions in the greenhouse gas intensity of cement used within the state relative to the average greenhouse gas intensity of cement used within the state during the 2019 calendar year, with the goal of reducing the greenhouse gas intensity of cement used within the state to 40% below the 2019 average levels by December 31, 2035. Status: Chapter 246, Statutes of 2021.

SB 32 (Pavley) requires the CARB to ensure that statewide GHG emissions are reduced to 40% below the 1990 levels by 2030. Status: Chapter 249, Statutes of 2016.

AB 1365 (Bonta, 2021) would require the Department of General Services to establish a maximum acceptable global warming potential for concrete, as specified, and require an awarding authority to require an environmental product declaration prior to the installation of any concrete products. Died in Assembly Natural Resources Committee.

AB 966 (Bonta, 2019) would have required the state’s cement plants to submit a facility-specific Environmental Product Declaration to ARB to disclose the environmental impacts of the plant. Status: Held in the Assembly Appropriations Committee.

AB 1452 (Skinner, 2009) would have required ARB to develop and adopt limitations on GHG emissions that result from the production of all cement sold in the state. Status: Held in the Assembly Appropriations Committee.

AB 32 (Nunez) - California Global Warming Solutions Act of 2006 designates CARB, as the state agency responsible for monitoring and regulating sources emitting greenhouse gases (GHGs). Requires CARB to prepare and approve a scoping plan for achieving the maximum technologically feasible and cost-effective reductions in GHG emissions and to update the scoping plan at least once every five years. Status: Chapter 488, Statutes of 2006.

REGISTERED SUPPORT / OPPOSITION:

Support

Argyle Earth

California Construction & Industrial Materials Association

California Large Energy Consumers Association

California Manufacturers and Technology Association

California Nevada Cement Association (CNCA)

Electratherm by Bitzer Group

Environmental Defense Fund

Heat Is Power (HIP)

Kanin Energy

Mavericks Microgrids, INC.

Mitsubishi Cement Corporation

New Buildings Institute

Nrdc

Rmi

Sierra Club California

The Low Carbon Initiative

Turboden

Vacom Technologies

Opposition

Sempra Energy and Its Affiliates: San Diego Gas & Electric Company and Southern California Gas Company

The Utility Reform Network (TURN)

Analysis Prepared by: Lina V. Malova / U. & E. / (916) 319-2083

1. Pg.165,CARB, “DRAFT 2022 SCOPING PLAN UPDATE,” MAY 10, 2022 ↑

2. Pg.30, CARB; “California Greenhouse Gas Emissions for 2000 to 2020 Trends of Emissions and Other Indicators; ↑

3. Fugitive emissions refer to the unintentional release of gases or vapors into the atmosphere from industrial processes, equipment, or infrastructure. These emissions can occur during the extraction, production, processing, storage, transportation, and distribution of various substances, including fossil fuels like oil and natural gas. Fugitive emissions contribute to air pollution and can include greenhouse gases such as methane and volatile organic compounds. ↑

4. Office of ENERGY EFFICIENCY & RENEWABLE ENERGY, “Process Heat Basics.” https://www.energy.gov/eere/iedo/process-heat-basics ↑

5. U.S Energy Information Administration, “ California State Profile; https://www.eia.gov/state/?sid=CA ↑

6. Office of Clean Energy Demonstrations, “OCED Announces $6 Billion to Transform America's Industrial Sector, Strengthen Domestic Manufacturing, and Slash Planet-Warming Emissions.” March 25, 2024 ↑

7. Ibid ↑

8. Pg, 91, “A Comprehensive Assessment of Small Combined Heat and Power Technical and Market Potential in California.” March 2021 ↑

9. Pg. 7, California State Auditor; Electricity and Natural Gas Rates; Report 2022-115; August 2023. ↑

10. November 2023 Disconnection Settlement Monthly Reports of PG&E, Southern California Edison, and SDG&E (R.18-07-005). ↑