Governance and Operations of Thermal Energy Networks

What is in this report

1. AAcronyms
2. 1The three decisions
3. 2Who can own a network
4. 3State law is the gate
5. 4Lessons from power, water and district energy
6. 5How service is sold
7. 6How it is paid for
8. 7Paying it back over 40 to 60 years
9. 8Match the model to the site
10. 9City snapshots
11. 10A checklist for a city or state
12. SSources

How to read the sources: each fact carries a short source name and a number, for example (APPA 2026¹). The number links to the full source list at the end. Tags mark facts that are UNCONFIRMED or an ESTIMATE. Gaiergy opinion carries a GAIERGY VIEW tag or sits in a green box. All sources were accessed on 2026-09-30. Select any figure to open it at full size.

Who can own a network

What this section shows: the eight owner types, why each can work, and where each struggles. The strengths and weaknesses are Gaiergy's judgment. The examples are sourced.

PublicGovernment bodies, 1 to 4  |  Split, 5  |  Private owners, 6 to 8Private

1234 5678

Ordered by who holds title: government bodies from local to national, then a public and private split, then private owners from no shareholders to full private return.

1

City or town

Tax-exempt debt, owns the streets

Needs state authority, new skills

Boise, since 1983 (City of Boise⁸)

2

County or regional authority

Serves across town lines

Few heat precedents, slow governance

Washington PUDs, 2024 law (Washington ESHB 2131⁹)

3

State authority

Bond power, statewide reach

Far from local customers, political change

NYPA, TEN role UNCONFIRMED (NY PAL s.1002¹⁰)

4

Federal agency

Large anchor load, energy sales contract

Stays inside the fence; DOE pilots: 5 selected, 3 left (Utility Dive 2024¹¹; DOE 2026¹²)

DOE lists three pilots (DOE 2026¹²)

5

Shared ownership

Public land or debt plus private skill

Split title can block financing

Troy, NY: dropped 2025 (National Grid, Troy Stage 2, 2025¹³)

6

Nonprofit or co-op

Mission first, no shareholder return

No rate or eminent domain power

District Energy St. Paul (District Energy St. Paul¹⁴)

7

Investor-owned utility

Operating skill, most TEN laws use it

Cost, regulator approval

Eversource, Framingham, MA (Eversource¹⁵)

8

Private developer

Speed, bundles with real estate

Costlier capital, may be regulated

Whisper Valley, Austin (EcoSmart¹⁶)

Why it can workWhere it struggles.  Strengths and struggles: GAIERGY VIEW Examples: sourced.

The facts behind the cards

• City or town. There are 1,998 public power utilities in the United States that serve over 55 million people (APPA 2026¹). Boise, Idaho has run a city geothermal heating system since 1983 (City of Boise⁸). A city needs legal authority first (Section 3). GAIERGY VIEW Most city public works staff have not run wells, heat pumps or customer billing for heat, and a network competes with schools, water and roads for the city's borrowing capacity.
• County or regional authority. In Washington, public utility districts (PUDs) may own, operate, or manage a TEN under a 2024 law (Washington ESHB 2131⁹).
• State authority. The New York Power Authority (NYPA) is a corporate municipal instrumentality of the state under New York Public Authorities Law (PAL) s.1002 (NY PAL s.1002¹⁰). Whether NYPA may own TENs is UNCONFIRMED.
• Federal agency. A federal site can buy energy from a private owner under an Energy Savings Performance Contract Energy Sales Agreement (ESPC ESA). The Federal Energy Management Program (FEMP) describes it for on-site electricity (DOE FEMP¹⁷). Its use for heat is GAIERGY VIEW. DOE selected five district pilots in December 2024 (Utility Dive 2024¹¹). The DOE page now lists three (DOE 2026¹²).
• Nonprofit or co-op. District Energy St. Paul is a nonprofit and runs the largest hot water district system in North America (District Energy St. Paul¹⁴). NRECA has 890 member utilities that serve about 42 million people (NRECA 2026¹⁸). A 501(c)(3) owner can finance a network with tax-exempt qualified 501(c)(3) bonds and keep it (Section 6) (26 USC 145⁷). A member co-op under 26 USC 501(c)(12) is another nonprofit path, and the IRS counts co-ops that provide water and sewer services as like organizations (IRS Publication 557¹⁹). GAIERGY VIEW A thermal water network can be organized the same way, like a mutual water company (Section 6).
• Investor-owned utility. Most TEN laws work through gas or electric utilities (Section 3). New York directs its seven largest utilities to propose at least one and as many as five pilots (NY S9422 text²⁰). Eversource runs a working network in Framingham, Massachusetts: about one mile of main pipe, 90 boreholes, 36 buildings and 135 customer accounts (Eversource¹⁵). It launched in 2024 (Canary Media 2025²¹). The struggle is cost: the Maryland PSC did not approve utility pilots in December 2025 and cited cost (Maryland Matters 2026²²), and National Grid canceled its Lowell pilot in December 2024 because the cost per customer for this project was unfortunately much too high (WBUR 2025²³).
• Private developer. At Whisper Valley in Austin, Texas, EcoSmart designed, installed, owns and operates four district geothermal systems that serve over 800 single-family homes. Homeowners pay EcoSmart an operations fee for continued access to the geothermal system (EcoSmart¹⁶). The fee amount is UNCONFIRMED. Vicinity Energy runs district energy systems in 12 US cities (Vicinity Energy²⁴). A private owner that serves many customers across property lines may be regulated as a utility (NY PSC order, Case 22-M-0429⁵).

Shared ownership

In a shared model, a public body owns one layer (often the wells, Figure 2) and a utility or private firm owns the rest. Troy, New York tested this. The plan put the well field with the Troy Local Development Corporation (LDC), which would charge National Grid a fee. It was dropped in August 2025 (National Grid, Troy Stage 2, 2025¹³). The filing gives these reasons (National Grid, Troy Stage 2, 2025¹³):

• The LDC has no taxing powers or other revenue, so financing was significantly limited, if not altogether, unavailable.
• The LDC would have had to contract out all operations and maintenance to a third-party firm.
• With the whole network under one owner, the project satisfies one important criterion for the federal credit. Under split ownership, credit eligibility was less likely.

National Grid will now build, own and operate the well field. The LDC leases park land from the City and subleases it. The project serves 6 historic buildings and about 100 customers with 200 boreholes, at a forecast total of $90.91M (National Grid, Troy Stage 2, 2025¹³).

Lessons from power, water and district energy

What this section shows: what older public and private utilities teach about TEN ownership. Facts are sourced; the lessons are Gaiergy's view.

Public power and co-ops are proven

The United States has 1,998 public power utilities that serve over 55 million people (APPA 2026¹). NRECA has 890 member utilities that serve about 42 million people (NRECA 2026¹⁸). Public and member ownership of a utility is normal. GAIERGY VIEW The open question for heat is not "can a public body own a utility" but "does this public body have the authority, the skills and the customers."

Buying an existing system is hard

After 10 years of effort to form a city electric utility, Boulder, Colorado voters approved ballot measure 2C in November 2020 and returned to an Xcel franchise (Boulder Beat 2020⁵⁰; City of Boulder⁵¹). In Maine, Question 3 on 2023-11-07 proposed a new consumer-owned Pine Tree Power Company (Maine Office of the Public Advocate⁵²). It got about 30.3% yes and 69.7% no (122,961 to 283,401) (Maine Secretary of State⁵³).

GAIERGY VIEW Both efforts tried to take over a system that already existed. A TEN is usually new. Public ownership is easier to set up at the start than to buy later.

Water works because every building connects

GAIERGY VIEW A city water system has a secure revenue base. Every building needs water, and codes make buildings connect. Heat is different. A building owner can keep a boiler, a furnace or a rooftop unit. So a TEN wins its customers one at a time. That risk shows up in bond ratings, reserves and interest rates.

Old streets are crowded: greenfield beats retrofit

GAIERGY VIEW Under an old downtown street there are water, sewer, gas, electric, telecom and sometimes steam lines. A new pipe threads a path through them. On a new site, the network goes in with the other utilities, in one trench, before the road is paved. Cost and risk are lower.

District energy: mostly private, with one large nonprofit

• Con Edison runs the largest district energy steam system in the United States (Con Edison⁵⁴), with approximately 105 miles of steam pipe across their service territory and more than 1,500 buildings (Con Edison 2022⁵⁵; Con Edison⁵⁴).
• Vicinity Energy runs district energy systems in 12 US cities, including Baltimore, Boston, Cambridge, Philadelphia and Washington, DC (Vicinity Energy²⁴).
• CenTrio, formerly known as Enwave Energy US, was acquired by QIC and Ullico in 2021 (IDEA 2021⁵⁶).
• District Energy St. Paul is a nonprofit and runs the largest hot water district system in North America (District Energy St. Paul¹⁴).

GAIERGY VIEW Most large US district energy systems in this list are private. District energy shows that public and private owners can both run shared heat for a long time. An existing district energy owner is also a natural partner, or competitor, for a new TEN in the same downtown.

How it is paid for

What this section shows: the main ways to finance a TEN, the choice between a general obligation (GO) bond and a revenue bond, what a climate (green) bond label adds, what each financing tool is in law, how a 63-20 corporation differs from a 501(c)(3) corporation, how a tax-exempt P3 fits the pieces together, and how federal tax credits work after the 2025 tax law. Rates are July 2026 estimates.

GO bonds or revenue bonds: who pays it back

A city that borrows for a TEN has two main choices: a general obligation (GO) bond or a revenue bond (SEC Investor.gov⁶⁰). A GO bond is backed by the issuer's full faith, credit and taxing power. A revenue bond is payable from a specific source of revenue, and the issuer does not pledge its taxing power (MSRB, Sources of Repayment⁶¹). In plain terms: every taxpayer in the city stands behind a GO bond. Only the network's customers repay a revenue bond (Figure 9).

A GO bond spreads the risk across every taxpayer in the city, including owners whose buildings never connect (MSRB, Sources of Repayment⁶¹; SEC Investor.gov⁶⁰). A city can still repay a GO bond from network charges first, with taxes as the backstop, as Oregon's Self-supporting GO bonds do (Oregon Treasury, Types of Debt⁶²). A revenue bond puts repayment on the people who use the network, a user pays approach (Oregon Treasury, Types of Debt⁶²). If the pledged revenue becomes inadequate, a default in payment of principal or interest may occur (MSRB, Sources of Repayment⁶¹). Revenue bonds often carry extra terms, such as higher coverage requirements and a debt service reserve fund (Oregon Treasury, Types of Debt⁶²). So buyers want proof that customers will connect and pay (Section 4).

GAIERGY VIEW A GO bond often borrows at a lower rate. Oregon's guide says a revenue bond's limited security may mean a higher rate, but not always. Essential utilities such as water and sewer can borrow at comparable cost (Oregon Treasury, Types of Debt⁶²).

A GO bond may need voter approval, and in Oregon local GO bonds always do (MSRB, Sources of Repayment⁶¹; Oregon Treasury, Types of Debt⁶²). It can also count toward a legal debt limit. In Massachusetts, for example, a city or town may not authorize debt above 5 percent of its equalized valuation, except as the law provides. With approval of the municipal finance oversight board, the limit is 10 percent (M.G.L. c.44 s.10⁶⁵).

Some bonds use both pledges. A double-barreled bond is secured by a revenue source and by the full faith and credit of an issuer with taxing power (MSRB, Sources of Repayment⁶¹). GAIERGY VIEW A city could also split one project. GO bonds could pay for a public well field that serves the whole district, and revenue bonds for the pipes and connections that only customers use. Gaiergy has not found a TEN that has used this split, so it is an option to test with bond counsel. A GO bond fits best when the city sees the network as shared public infrastructure; a revenue bond fits best when signed customers are already in hand.

Climate (green) bonds

A climate or green bond is a label, not a separate type of security. Under the International Capital Market Association (ICMA) Green Bond Principles, a green bond's proceeds or an equivalent amount will be exclusively applied to eligible green projects. These principles are voluntary guidelines (ICMA Green Bond Principles 2021⁶³). The list of eligible categories includes energy efficiency, such as in new and refurbished buildings, energy storage, district heating (ICMA Green Bond Principles 2021⁶³). ICMA lists a green bond with full recourse-to-the-issuer and a Green Revenue Bond whose credit exposure is to the pledged cash flows (ICMA Green Bond Principles 2021⁶³). So a green GO bond is still a GO bond, and a green revenue bond is still a revenue bond.

How the proceeds are kept separate. The Green Bond Principles have four core components: use of proceeds, project evaluation and selection, management of proceeds, and reporting (ICMA Green Bond Principles 2021⁶³). Net proceeds should be credited to a sub-account, moved to a sub-portfolio or otherwise tracked by the issuer. The issuer should report each year, until all proceeds are spent, on the projects funded, the amounts allocated and their expected impact (ICMA Green Bond Principles 2021⁶³).

The Climate Bonds Standard makes this a certification rule: proceeds must be credited to a sub-account, moved to a sub-portfolio, or otherwise identified. At least 95 percent of net proceeds go to projects that meet its sector criteria. The issuer either earmarks the money or ring-fences it in designated bank accounts that can only fund the specified nominated projects and assets. Money not yet spent sits in cash or other permitted temporary holdings (Climate Bonds Standard v4.2⁶⁴).

Two public examples. The Massachusetts State Treasurer wrote that in 2013 the state became the first municipal issuer of green bonds in the nation. Its green bonds are General Obligations of the Commonwealth and are not priced at a premium over its other GO bonds. All green bond proceeds are held in a segregated account and accounted for separately. For its third green issue, a taxable sale that closed July 7, 2016, the state reported 7 investors that purchased specifically due to the Green label (MA Treasury green bond report 2016⁶⁶).

DC Water, a water and sewer utility, sold its first green bonds in 2014. It said the cost would be supported by future ratepayers who will also benefit (DC Water, 2014-07-10⁶⁷). GAIERGY VIEW For a TEN, a green label can widen the pool of bond buyers. It adds tracking and reporting work. It does not change who repays.

City revenue bonds

A city can issue revenue bonds that are repaid from the network's own charges. Idaho's bond statutes cover a water system for space heating, which is the basis for Boise (Idaho Code 50-1020⁴⁸; Idaho Code 50-1029⁴⁹). The benefit is interest cost. In July 2026, 30-year high-grade municipal bonds yielded about 4.27% and Moody's Aaa corporate bonds about 5.76%, so tax-exempt debt cost about 150 basis points less ESTIMATE (Midwest Trust 2026⁶⁸; FRED Aaa⁶⁹). The risk: bond buyers want proof that customers will connect and pay (Section 4).

Private activity bond test. Under 26 USC 141, a bond is a private activity bond if it meets both the private business use test and the private security or payment test (26 USC 141⁷⁰). GAIERGY VIEW A network that serves private buildings can meet those tests. The usual route is then an exempt facility bond for local district heating or cooling facilities under 26 USC 142(a)(9). The statute defines such a system as a pipeline or network providing hot water, chilled water or steam to 2 or more users (26 USC 142⁷¹). Whether an ambient-temperature loop fits that definition is UNCONFIRMED, and a question for bond counsel.

63-20 and 501(c)(3) nonprofit corporations

Two kinds of nonprofit corporation can sit at the center of a tax-exempt deal. The names sound alike, but the tax code treats them very differently. The key difference for a TEN: under 63-20, the government ends up owning the network. Under 501(c)(3), the nonprofit can keep owning it (Rev. Rul. 63-20; Rev. Proc. 82-26⁶; 26 USC 145⁷).

What a 63-20 corporation is. It is a corporation organized under a state's general nonprofit corporation law that issues bonds on behalf of a government (Rev. Rul. 63-20; Rev. Proc. 82-26⁶). If it meets the five conditions of Revenue Ruling 63-20, its bonds are treated as the government's own bonds. The government approves the corporation and each bond issue, holds a beneficial interest while the debt is outstanding, and gets full legal title when the debt is retired (Rev. Rul. 63-20; Rev. Proc. 82-26⁶).

What a 501(c)(3) corporation is. It is a charity: a corporation organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes (among other listed purposes), whose net earnings do not benefit any private person. It is exempt from federal income tax (26 USC 501⁷²). It cannot issue tax-exempt bonds in its own name, because the exclusion covers an obligation of a State or political subdivision thereof (26 USC 103⁷³). Instead, a government issuer sells "qualified 501(c)(3) bonds" for the charity's project. GAIERGY VIEW In practice this is often a conduit issuer that lends the proceeds to the charity. The financed property is to be owned by a 501(c)(3) organization or a governmental unit (26 USC 145⁷), so the charity keeps the asset.

What the IRS requires of a 63-20 corporation. Revenue Ruling 63-20 holds that the bonds of a nonprofit corporation will be considered issued on behalf of a governmental unit if five conditions are met (Rev. Rul. 63-20; Rev. Proc. 82-26⁶):

1. the corporation engages in activities that are essentially public in nature;
2. the corporation is not organized for profit, except to the extent of retiring indebtedness;
3. the corporate income does not inure to any private person;
4. the governmental unit has a beneficial interest in the corporation while the indebtedness is outstanding, and it obtains full legal title to the property of the corporation with respect to which the indebtedness was incurred upon retirement of the indebtedness; and
5. the corporation and the specific obligations to be issued by the corporation have been approved by the governmental unit on whose behalf the obligations are issued.

Revenue Procedure 82-26, section 3, sets the operating rules the IRS applies before it will rule that the five conditions are met (Rev. Rul. 63-20; Rev. Proc. 82-26⁶):

• s.3.01, public activities. The corporation's activities and purposes are permitted under the general nonprofit corporation law of the state. The financed property is located within the geographical boundaries of or has a substantial connection with the government.
• s.3.02, not for profit. The corporation is organized under the general nonprofit corporation law of the government's state, and its articles say it is not organized for profit.
• s.3.03, no private inurement. The articles provide that the corporate income will not inure to any private person, and in fact, the corporate income does not inure to any private person.
• s.3.04, government beneficial interest while the debt is outstanding. One of three: (a) the government has exclusive beneficial possession and use of property worth 95 percent or more of its fair rental value; (b) the corporation has that use, and the government appoints or approves the appointment of at least 80 percent of the members of the governing board and can remove members for cause; or (c) the government has the right at any time to obtain unencumbered fee title and exclusive possession of the property by paying off (defeasing) the bonds. Unless the government uses the property under (a), it also gets an exclusive option to purchase the property for the debt owed if the corporation defaults.
• s.3.05, full legal title when the debt is retired. The bonds are issued on behalf of no more than one governmental unit, and unencumbered fee title to the property will vest solely in that governmental unit when the obligations are discharged. All proceeds go to tangible real or tangible personal property, not working capital. At payoff the government gets title and possession without demand or further action on its part, and all leases, management contracts, and other similar encumbrances must terminate. Before the bonds are issued, the government adopts a resolution that it will accept title. Later refunding or improvement bonds end by the original final maturity date. Insurance money rebuilds the property or goes to the government. At final maturity the property keeps at least 20 percent of the original cost in value and a remaining useful life of the longer of one year or 20 percent of its original life. (The refunding-date rule and the value and life rule do not apply where the government uses the property under s.3.04(a).)
• s.3.06, government approval. This is met if, within one year prior to the issuance of the obligations, the governmental unit adopts a resolution approving the purposes and activities of the corporation and the specific obligations to be issued by the corporation. One resolution can cover a series of bonds for one project issued over up to five years.

Section 4 adds rules for refunding bonds (Rev. Rul. 63-20; Rev. Proc. 82-26⁶). Revenue Procedure 82-26 describes when the IRS will ordinarily issue an advance ruling, and it says its operating rules are not to be used as tests for determining the taxability of bond interest (Rev. Rul. 63-20; Rev. Proc. 82-26⁶). Revenue Procedure 2026-1 still points ruling requests for "on behalf of" issuers to Revenue Procedure 82-26 (IRS Rev. Proc. 2026-1⁷⁴). GAIERGY VIEW A deal that misses any of the five conditions cannot rely on Revenue Ruling 63-20 to treat its bonds as the government's. It would need another legal basis, which is a question for bond counsel.

How a 63-20 corporation can be used for a TEN.

• It can hold a public-purpose network and issue tax-exempt bonds for it during the bond term, if the network is in or closely tied to the sponsoring government (Rev. Rul. 63-20; Rev. Proc. 82-26⁶).
• It can repay the bonds from network revenue or from payments by the government. GAIERGY VIEW Revenue Procedure 82-26 does not limit the source of repayment.
• It can hire a private builder and operator under contract. Revenue Procedure 82-26 expects management contracts, since they end at payoff (Rev. Rul. 63-20; Rev. Proc. 82-26⁶). Bonds issued on behalf of a government are still tested under 26 USC 141: an issue is a private activity bond if more than 10 percent of the proceeds go to private business use and the payment or security test is also met (26 USC 141⁷⁰). GAIERGY VIEW So an operator contract has limits, and its terms are a question for bond counsel.
• Whether it keeps the debt off the city's own books is UNCONFIRMED. The saved sources do not address it.
• It cannot keep the network after the bonds are paid. Title vests solely in one government, and leases and management contracts end (Rev. Rul. 63-20; Rev. Proc. 82-26⁶).
• It cannot pay profit to any private person, or use bond money for working capital (Rev. Rul. 63-20; Rev. Proc. 82-26⁶).
• It cannot act without government approval of the corporation and of each bond issue (Rev. Rul. 63-20; Rev. Proc. 82-26⁶).
• It cannot keep a nonprofit or a co-op as the long-term owner. GAIERGY VIEW That follows from the title rule above. That plan fits a 501(c)(3) owner with qualified 501(c)(3) bonds better, or a 501(c)(12) member co-op (below).

Side by side.

Scroll sideways to see the full table.

GAIERGY VIEW In plain terms: 63-20 fits when the plan is for the government to own the network at bond payoff. A 501(c)(3) owner with qualified 501(c)(3) bonds fits when a nonprofit is to keep it. A 501(c)(12) member co-op fits when the buildings on the network are to own it together.

A third nonprofit path: the 501(c)(12) member cooperative

Federal tax law also exempts mutual ditch or irrigation companies, mutual or cooperative telephone companies, or like organizations (26 USC 501⁷²). The exemption holds only if 85 percent or more of the income consists of amounts collected from members for the sole purpose of meeting losses and expenses (26 USC 501⁷²). The IRS counts co-ops that provide water and sewer services or natural gas services as like organizations (IRS Publication 557¹⁹). Revenue Ruling 2002-54 treats electricity, gas, steam or water as public utility type services, traditionally with rates set or approved by a state or similar body, and with extensive infrastructure (IRS Rev. Rul. 2002-54⁸¹). GAIERGY VIEW A thermal network that moves heat in water pipes to its members can be organized the same way as a mutual water company. Gaiergy did not find an IRS ruling on a thermal network co-op, so how the IRS would treat one is UNCONFIRMED.

The members are the customers. They choose the management, get service at cost, and get any surplus back as patronage (IRS Publication 557¹⁹). Section 501(c)(12) has no rule that passes title to a government, so the co-op keeps the network (26 USC 501⁷²). One caution: the exclusion for government grants covers only telephone and electric co-ops (26 USC 501⁷²; IRS Publication 557¹⁹). GAIERGY VIEW So a large grant can count as non-member income and put a thermal co-op below 85 percent in that year.

State conduit issuers and instrumentalities

A conduit issuer lends its name to a bond. The borrower repays it from project revenue. These entities get their powers from a state statute, not from the 63-20 ruling. Examples:

Maryland

MEDCO

Maryland Economic Development Corporation

State instrumentality

An instrumentality of the State; created 1984; nonrecourse bonds; debt not debt of the State (Maryland DLS 2026⁸²)

MCEC

Maryland Clean Energy Center

State instrumentality

Authorized 2008 as an instrumentality of the State (Chapter 137, Acts of 2008) (Maryland Manual, MCEC⁸³)

New York

NYPA

Power Authority of the State of New York

Corporate municipal instrumentality

PAL s.1002 (NY PAL s.1002¹⁰)

DASNY

Dormitory Authority of the State of New York

Public benefit corporation

Established 1944 (DASNY FY2025-26⁸⁴)

Build NYC Resource Corporation

Helps 501(c)(3) organizations and other exempt facilities access low-cost debt through tax-exempt bond financing (Build NYC⁸⁵)

Massachusetts

MassDevelopment

Massachusetts Development Finance Agency

Public instrumentality

G.L. c.23G s.2 (Mass. G.L. c.23G s.2⁸⁶)

MassCEC

Massachusetts Clean Energy Center

Public instrumentality

G.L. c.23J s.2 (Mass. G.L. c.23J s.2⁸⁷)

InstrumentalityPublic benefit corporation

501(c)(3) development corporations

Many cities work through a nonprofit development corporation. The Baltimore Development Corporation (BDC) is a 501(c)(3) with a tax exemption issued in January 1992 (ProPublica, BDC⁸⁸). The New York City Economic Development Corporation (NYCEDC) describes itself as a mission-driven, nonprofit organization (NYCEDC 2026⁸⁹). GAIERGY VIEW These groups can plan, assemble sites and run procurements. Being a nonprofit does not make them a 63-20 corporation. A 501(c)(3) can still borrow tax-exempt money through a conduit issuer, if it owns the financed assets and meets 26 USC 145 (26 USC 145⁷).

Putting it together: a tax-exempt P3

GAIERGY VIEW A tax-exempt public-private partnership (P3) can combine these pieces. A public sponsor, such as a city or its economic development agency, signs a P3 Project Agreement with a nonprofit project company. The nonprofit company borrows through a conduit issuer and owns the network. A private partner, a third-party company, forms a partner special purpose vehicle (SPV) and owns it. The partner SPV designs, builds, finances, operates and maintains the network under a Project Implementation Agreement (Figures 12 and 13).

Who owns what. The 501(c)(3) nonprofit project company owns the network and keeps its nonprofit status. The private partner's SPV designs, builds, finances, operates and maintains the network as a component of, and a partner in, the nonprofit structure. Partners in the structure do not have to be nonprofits: a private partner can be a contractor within the 501(c)(3) structure or a partner in it.

GAIERGY VIEW During construction, bond money flows from bondholders through the conduit issuer to the nonprofit company, which pays the partner SPV to build. The private partner adds at-risk equity. Once the network runs, customers pay thermal service charges to the public sponsor, and the sponsor makes availability payments to the nonprofit company. The nonprofit company pays debt service to bondholders and pays the partner SPV its return, tax and operating costs. The partner SPV is a component of, and a partner in, the nonprofit project structure.

Why the nonprofit owner matters for the bonds. Because the nonprofit company owns the network, the deal can use qualified 501(c)(3) bonds. These require that all property which is to be provided by the net proceeds of the issue is to be owned by a 501(c)(3) organization or a governmental unit (26 USC 145⁷). They sit outside the state volume cap: for the cap, the term private activity bond does not include any qualified 501(c)(3) bond (26 USC 146⁷⁸). An exempt facility bond for local district heating or cooling facilities under 26 USC 142(a)(9) has no such exception. Sections 146(g) and 146(h) list the exempt facility bonds left out of the cap, in whole or in part, and paragraph (9) is not among them (26 USC 146⁷⁸; 26 USC 142⁷¹). A private activity bond is a qualified bond only if its issue meets the applicable requirements of section 146 (26 USC 141⁷⁰). So a district heating bond draws on the state's volume cap.

GAIERGY VIEW For a TEN, that is the main appeal of a nonprofit owner: its bonds do not compete for volume cap with housing and other private activity bonds. Whether a given deal qualifies is a question for bond counsel.

Tax increment financing (TIF)

TIF repays debt from the growth in property tax inside a set district. WORKING DEFINITION GAIERGY VIEW It can fit a TEN that serves a new development district, where new buildings create the tax growth. It is harder to use for a retrofit of an existing district with flat tax values.

Green banks

NY Green Bank is a division of NYSERDA, the New York State Energy Research and Development Authority (NY Green Bank⁹⁰). In Maryland, MCEC and the City of Baltimore report a $121M pipeline of geothermal projects (ICLEI USA and MCEC 2026⁹¹). GAIERGY VIEW Green banks can fill gaps that bond buyers and commercial lenders avoid, such as early-stage or first-of-a-kind risk.

Federal tax credits after the 2025 tax law

• Geothermal heat pump credit (IRC s.48). 30% (with prevailing wage and apprenticeship rules, or under 1 MW) if construction begins before 2033. Then 26% in 2033, 22% in 2034, and none after. Adders for domestic content and energy communities still exist (26 USC 48⁴).
• One owner. Under Treasury final rules, the credit owner owns the ground loop and at least one connected heat pump (Treasury T.D. 10015²).
• New IRC 50(e). The One Big Beautiful Bill Act (OBBBA) added a rule: ownership of geothermal heat pump property is decided without regard to whether such property is readily usable by a person other than the lessee or service recipient (Pub. L. 119-21⁹²). The reading that this helps third-party loop ownership is an inference with no IRS guidance yet UNCONFIRMED.
• Direct pay. Under 26 USC 6417, an "applicable entity" can take the credit as a cash payment. The list includes tax-exempt organizations, states and their political subdivisions, the Tennessee Valley Authority, tribal governments, Alaska Native Corporations and rural electric co-ops (26 USC 6417⁷⁹). Other owners can sell the credit under 26 USC 6418 (26 USC 6418⁹³).
• Tax-exempt bond cut. Section 48(a)(4) applies the rule of 45(b)(3): the credit is reduced by the share financed with tax-exempt bonds, up to 15% (26 USC 48⁴; 26 USC 45³).
• Direct pay and domestic content. For direct pay, s.48(a)(13) applies rules similar to 45(b)(10) (26 USC 48⁴). Under 45(b)(10), the credit is multiplied by an "applicable percentage." It is 100% for a facility that meets the domestic content rules or has a maximum net output of less than 1 megawatt (as measured in alternating current). For other facilities, the codified text sets 100% if construction began before 2024 and 90% if it began in 2024. It states no percentage for later years. Treasury exceptions apply if US content raises construction cost by more than 25% or is not available (26 USC 45³). GAIERGY VIEW A direct-pay project of 1 MW or more that starts in 2026 and does not meet domestic content risks losing some or all of the credit; the exact result is UNCONFIRMED. The text also does not say how the 1 MW (AC) test applies to a heat pump system, which produces heat, not electricity UNCONFIRMED.
• No dedicated TEN credit. There is no federal credit written for TENs. The geothermal direct use fallback credit is 0% for construction starting on or after 2025-06-16 (26 USC 48⁴; Pub. L. 119-21⁹²).
• DOE pilots. DOE selected five community geothermal projects in December 2024: Chicago; Ann Arbor, Michigan; Framingham, Massachusetts; Hinesburg, Vermont; and Shawnee, Oklahoma (Utility Dive 2024¹¹). The DOE page now lists three: Ann Arbor, Framingham and Shawnee (DOE 2026¹²). The Framingham contract ($8.6M) was finalized on 2025-09-30 (Canary Media 2025²¹).