A Coal Town Digs Deep for Municipal Clean Heat — Episode 267 of Local Energy Rules

Mathew Mendisco:
What do local governments do really, really well? We put in infrastructure. That’s what we do.

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John Farrell:
There’s an increasing interest in thermal energy networks across the United States, typically formed by a series of interconnected heat pumps that provide heating and cooling to numerous buildings whilst having the same thermal energy resource. Hayden, Colorado caught my attention because its project, to serve a new business park, will be a municipally owned utility. Joining me in February 2026, town manager Mathew Mendisco explained how the project emerged as an alternative to expensive gas line extensions, how it captured several grants, and how it promises to provide lower energy costs to the occupants of the brand new business park. I’m John Farrell, director of the Energy Democracy Initiative at the Institute for Local Self-Reliance, and this is Local Energy Rules, a podcast about monopoly power, energy democracy, and how communities can take charge to transform the energy system.

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John Farrell:
Mathew, welcome to Local Energy Rules.

Mathew Mendisco:
Thank you. Thank you for having me.

John Farrell:
I’m always curious to ask folks about some of their professional background. I’m kind of curious what convergence of interests brought you to the role of town manager, and also in developing this town-run heating and cooling utility for a new business park.

Mathew Mendisco:
Well, let me take those on two questions. So, the first of what brought me to Hayden was I grew up on the Western Slope of Colorado in a town that’s about a third of the size of this one. I was working in a consultancy role for a company in offices all over the US, but this office was on the front range in Denver and worked a lot on local government work. I had spent a little bit of time as a intern at the City of Fruita before I took that job. I had been there for almost 10 years and my partner and I had been thinking about moving out of the front range. We were actually kind of one of the new … It was kind of new. They didn’t call it remote work then. Our company called it Tele and they had a set of offices and you could log in from home, but you could also just show up and use an office and then leave again.
And they were kind of trying out this new concept. I had volunteered. I’d given up my entire office to do it, but we were just kind of thinking about where we wanted to live and what we wanted to do. And I had done a couple interim management consultancy roles. I had helped a lot of local governments that worked for the state of Colorado on various projects. And this job, we started looking. We were pretty selective. And what, long story short, we ended up here. In this job, I interviewed, accepted the position, and I started in December of 2016. So, I’ve been here a little over nine years and we’ve raised … Basically, our daughter was … We have an older daughter who’s in college, but also our youngest daughter was … Let’s see. She was barely three, and my son was five months, and he’s nine years old, going to be 10 today. So, I mean, they basically don’t know anything else. And my daughter, who was three, doesn’t really remember Denver. She was three years old. But yeah.
And then for district and heating and cooling, I think actually I’ve got to say, I think I stumbled upon it by accident because we were developing this business park. We’re a cool transition community, and we have been working on economic development efforts to replace a lot of the jobs, tax base, those sorts of things. We’re facing a pretty drastic future, like some of the other cool communities have mainly driven by a coal mine, called 20 mile mine, which provides a lot of jobs. And then Hayden Station, which is owned by Xcel Energy. Haden Station, just for perspective, represents about 55% assessed value of our fire district’s total assessed value. So you imagine that power plant close away, they lose 55% of their general fund up.
The mine probably goes away because the majority of the coal they supply is to Hayden Station. It’s hundreds of jobs, property tax value, et cetera. But we have been knowing that the plant, it’s been accelerated. So first unit is scheduled to go down next year, and then the following year, 2028, the second unit is scheduled to be turned off. And the future is uncertain. We don’t know. Xcel has said that they want to redevelop the site, but we don’t know what that is. And so we have to assume that it will be nothing, and we have to assume we have to replace this tax base, but also chart a future.
So long story short, this business park was an idea thought of close to the Yampa Valley Regional Airport, which is actually in the town of Hayden and boundaries, the regional airport here. It’s probably the biggest economic driver for the town. And we’re thinking about new industry, that sort of thing. But in this area where we had a lot of potential for light industrial, a lot of the infrastructure wasn’t in place.
So the project started off trying to get infrastructure. And one of the requirements of the federal government with the grant we were applying for, which was ARPA money coming out of the ARPA legislation for coal transition communities. Specifically, there was just a large amount of money that was put away specifically for coal transition communities. Long story short, we got a five some odd million dollar grant, biggest one they handed out from the economic development administration, but we had to own the land. And so we had to not only develop the infrastructure, we had to own the lands, we had to play developer, we had to plot it. We were selling lots. As a matter of fact, I’m closing on one of those lots today.
In any case, in comes the gentleman who used to work on solar co-ops, his name is Bryce Carter, and he works for the state, and he had just started a new job with the state geothermal office. We had told during a different administration, obviously, the economic development administration, and the state of Colorado, the multiple funding sources, they wanted to see about sustainability. And we had said, We will try to make this park the most sustainable light industrial park in Colorado. And at the moment, part of that was just that we couldn’t afford to put in the natural gas infrastructure. We had to pay for everything, right? So it was like everything had a line item, everything. And I was looking at it and I’m going, Oh gosh, we can’t afford this, with the amount of money we have. So it was going to be like all, we’re just going to tell buildings, Hey, you’re just going to have to put in electric air source heat pumps. We can’t put in that natural gas infrastructure.
But in comes Bryce Carter, long story short, with the ITC tax credits, as well as some of the state of Colorado grants, et cetera, we kind of started down this path of like, well, and the question was always, with air source heat pumps in a place like where we live, that ramp up and that energy use and that electric use can be really, really cost burdensome on a utility level. And so we’re like, God, what are we going to do? How do we save our customers money? How do we make Hayden attractive for a business to relocate to? When you’re thinking about it as, you have to put your mind as a private person, right? You have to think, How am I going to get people to build buildings in my new development? And everything counts, right? It’s like property taxes count, rebates count, everything counts.
How are you more competitive than IRA, whoever else, right? And so when he came in and then I started doing the research and we kind of did a deep dive onto geothermal, we started realizing that if we could somehow facilitate this thermal energy network that our customers utility bills on average would be anywhere from 40 to 60% lower than they would even with an air sourced electric heatpump. And we went, wait a minute, but geothermal remains more expensive than a natural gas or air source heat pumps. So we had to think about it and that’s how we entered the space of putting it in as a municipal utility and thinking about this not like individual buildings having their own stuff, but providing a thermal energy network that we manage for the long term because infrastructure is expensive, but what do local governments do really, really well? We put in infrastructure. That’s what we do. At the end of the day for economic development, one of the biggest things a municipality can do, in my view, is make sure that all your offsite improvements for businesses are done. So all they have to do is move in, go vertical and do their onsite lot, drainage or whatever. And so we started thinking about this and that’s how we ended up where we are today, which is putting in this thermal energy network. And yeah, we’re just really excited about it.

John Farrell:
Can you talk a little bit about what the project will be? So for people who aren’t familiar with network geothermal, maybe just describe a little bit about what this network looks like, what kind of holes you’re drilling in the ground, that kind of thing, how many buildings you’re connecting, and then the service that will provide those buildings.

Mathew Mendisco:
Absolutely. So let’s start off with what a thermal energy network is. At the end of the day, a geothermal energy network, which is providing heating and cooling. And I think it’s very, we need to be really clear. We’re not providing electricity. The thermal can do that, but that’s not what we’re doing. So we’re providing heating and cooling through basically water to water heat pumps, thermal heat pumps in a building. So what’s happening is we’re drilling pretty deep. We’re going up to a thousand feet deep, which is actually about 500 feet deeper than the standard, but we’re going a thousand feet deep. And from a geologic perspective, once you get a certain depth, the ground starts to get warmer as you start to go deeper. So we’re doing these drilling, just like you would, if you looked at, you would think it was like a natural gas rig. It’s just like … poof.
But we’re circulating treated water through this network of piping, and that is heating the water to a certain temperature. Sending it into the building, it’s going through what’s called a heat exchanger, which controls temperature based on what the building’s needs are. Then it goes into the heat pump and that heat pump sends out air for whatever temperature, heating or cooling. And I think that’s important to note that this is a heating and cooling hybrid system. So you don’t have an air conditioner on the outside of your building and a heat pump inside your building, you have one thing and that’s what’s supplying and it’s efficient because its energy load is consistent. So it doesn’t have to like scramp up to push air or not. It’s just very, the base load is just very consistent from an electric standpoint because it’s very easy to convert water from a temperature through refrigeration and I need to be careful because if I get into too much of it, I’ll probably speak our of turn and our engineer will be like, Hey, that’s not exactly the way it works. But essentially that’s the way it works.
And so a thermal energy network and those holes, like I said, a thousand feet deep. Now, if you walk into the business park today, you won’t see anything because it’s all underground. Most people, if there’s geothermal at a building, they don’t even realize it’s there because it’s like under parking lots, it’s like under these places, everybody’s always like, Yeah, I want to come see the network. And I’m like, There’s all the dirt. That’s really helpful. You can show up and see the drill rig, if we’re drilling holes for a certain lot or something like that. And our project’s a little unique. I’ll tell you, typically if you have a thermal energy network, you have a place where all the bore holes are called the bore field. It’s in one central location, you have a big pump, pumps all this water through which, think about water piping, except for ours is a little bit different because our development is a greenfield development and we don’t know in the end, there’ll be 15 buildings attached to the network.
And one of those is an expansion of the Yampa Valley Regional Airport, which just agreed to connect to our network. So they’re doing a 50 some odd thousand square foot expansion of the airport, and they’re going to heat and cool that through our geothermal network. But some lots aren’t developing yet. So how do you build a network, not overdrill, make sure you have the cash flow as a municipality for us for the long term of the project, because the cash will upfront if you were going to do the whole thing and then you don’t know like, Well, did I drill enough holes? You just don’t. And so we came up with a design and we have a, it’s a light industrial park. So the right of way, for municipal geeks out there, your typical right of way, which is the road width, not just the asphalt, but like the whole thing is typically 60 feet.
Well, in our park, it’s a hundred. And so we had all this room with no utilities in it. And our public works director, Brian Richards, who is an amazing individual, said, Hey, wait a minute, maybe we just put these in the right of way and that’ll allow us to drill over time and then connect it together through a series of valves and things like that where we can do this sharing. And the reason you have a thermal energy network is for efficiency of the system. And sometimes, and for example, like we’ll have a building that’s 40,000 square feet, but right next to it, we might have a building that’s only four. And so this 4,000 square foot building doesn’t have a lot of heat load, but this 40,000 square foot building has a ton. And so because those buildings are also sending water back out of the building back into the network, it’s recirculating and then coming back. So it’s important for people to understand this isn’t like a water system where we’re consistently using water. This is a closed loop system. So I think our engineers told me that on average in a year we might have like a gallon or two loss maybe so it’s non-consumptive. And what that means is it doesn’t affect like water use in the town. It’s not like our water plant is continually pumping water up there. We basically have a waterline and we have a valve to the system that if we need to, we can like turn to push some water into the system. It’s all treated. So it’s not like it’s all water or anything else. So it’s really efficient. And like I said, we’ll have 15 buildings. Those vary in size, by the way. The airport’s 56,000 square feet. One of the buildings is 40, one of them’s four, one of them’s a hotel, one of them’s all various things because in geothermal, it just doesn’t really matter what matters.
And by the way, other than what you would consider, I guess, the electric output of like greenhouse gas emissions or whatever the case may be, geothermal is pretty much net zero carbon. And when you think about greenhouse gas emissions on the electric grid, because geothermal has such a low demand on the grid, it benefits the grid, especially in off peak demand, like at night. So it’s wintertime here. All our heaters are going during the nighttime. So actually in a mountain town, the electric spikes at night. And what people don’t understand sometimes with like solar or whatever else is that in a place like here, the biggest demand is not during the day. It’s at night, even though our lights go off, heaters demand more electricity, but the sun’s not out at night, so what do we do? You’re going to have battery storage. Or with geothermal, it has such a low base demand. It’s not putting the demands on the system like a natural gas furnace or whatever.
And so that’s kind of the way it works basically. And it’s really … And the maintenance of it, I think this is the coolest part. Waterline, life expectancy, typical municipal water line is about 30 years. And you would think about your typical water lines that would go from that to your house, that deliver water, whatever. The lines for geothermal, the warranty on the lines is 80 years. And the heat pumps are like 30 to 40. So the maintenance of the system, once it’s built, it’s not a lot. Controls, you got to make sure flow, right? Once in a while you might have to adjust flow and that’s all done digitally. So once it’s built, it’s pretty low maintenance.
And it basically has a meter on the outside of that. Think of your water meter or your gas meter. Your gas meter is registering BTUs going in and basically, and that’s how it’s telling the gas company how much heat you’re using. This is the same thing. There’s a BTU meter on the outside of the building. It measures the temperature of the water coming in and the water coming out, and then there’s, they call it a Delta T. And it’s like the difference between the temperature going in, temperature going out, and then that’s how we bill our customers is that heat variation. And I mean, in the summertime, oftentimes you’re probably going to, with cooling, you’re actually going to have customers rejecting heat from their building, which helps recharge the system. So you need to think of the earth as like a battery. So the earth is a battery and it’s heating, but it’s getting charged during the summertime with the sun and everything else. And then the earth is spinning and it’s also kind of charging from the bottom.
But you have to recharge the battery. You can’t just continue to suck out heat our of the ground. Eventually the ground will have no more heat left. So you got to inject that heat back in. So during the summertime, that’s typically what happens when you’re cooling is you’re rejecting heat back into the system. So the bills for customers during the summertime to get cooling will be virtually nothing. But let’s just say you run like Oklahoma, right? Well, that’s a cooling dominant place. It’s just the opposite here, right? Your electric needs are higher in the wintertime. There they’re higher in the summer. But overall, I think it’s like 4X to 6X more efficient, therefore you just look at your energy bill and that. It’s kind of like having solar on your house without having solar.

John Farrell:
I love this because I live in Minneapolis, so kind of similar climate, high winter demand, low summer demand. And the heat pump’s great, except the cold weather thing. I remember when talking to the contractor, we ended up doing a hybrid system because the electricity use in the winter, especially if it’s really, really cold, the heat pump just can’t keep up, or if it can keep up, it’s very expensive.

Mathew Mendisco:
Right. You have an air source heat pump, right?

John Farrell:
Yeah, it’s an air source heat pump. Yep, exactly. But with the backup gas furnace, if we had been able to do something like this, if there had been a network geothermal option, it would’ve been great because obviously you don’t have that problem. And just to put in context what you said about the very consistent low energy use, you mentioned the grid impact. I saw a study a few years ago in Minnesota and they were saying like, Okay, well, what if everybody in Minnesota goes with air source heat pumps? If you’re choosing as individuals, which is usually how people buy their HVAC systems, right? You just find a contractor, your furnace went out, your AC is broken, whatever, they’re like, well, it’ll double the demand on the grid overall because those really cold days, air source heat pumps need a lot more energy input for that in a way a geothermal doesn’t. So I think that’s terrific to know that you’re capturing that benefit.

Mathew Mendisco:
Yeah. The calculations right now, and granted this is an estimate because we don’t know all the building sizes yet, right? So we’re making some assumptions. We have an average square footage of 15,000 square feet that we’re using if we don’t already know what the building size is. But when this thermal energy network is built, because of some of our granting requirements from the state, we actually have an estimate of how much electric savings will happen versus natural gas that’s just the marker because that’s the most consistent heating that’s used. And if everybody had natural gas furnaces for their buildings, because they’ll have geothermal, we will actually save four megawatts a year for the grid with our system just by them having geothermal thermal heat pumps.
So in the long term, if that system would’ve been built out with natural gas, the demand would’ve went up by four megawatts. As is, it’ll actually just almost be like … There’ll be demand, of course, but it’ll be four megawatts less than it would’ve been.
And there’s a really great, if you wanted to look into, there was a guy in Oklahoma and I could send it to you afterwards, but he was in charge of an electric utility and peak demand was just like their problem. And they were like, We can’t build another coal plant or we can’t do whatever. We got to figure this out. What they did is they went and they installed like 1,200 heat pumps and everybody’s homes pay for it. The thermal heat pump, geothermal like, Hey, we’re going to come in, we’re going to put it in your home. This costs you nothing. You just got to let us come in. They were able to save enough demand on the grid that they didn’t have to actually upgrade their generation infrastructure. They were just able to get geothermal heat pumps. So he’s like, Everybody needs to do this. Every utility should just start doing this right now. And we had a big event here in Hayden where we had like 150 people and he was one of our keynote speakers.

John Farrell:
Oh, very cool.

Mathew Mendisco:
Yeah, amazing guy.

John Farrell:
Do send me that story. I would love to hear more about it and we can link to it in the show notes too for the people who are curious. I wanted to come back to one thing. When you talked about the boreholes earlier on, you mentioned that they’re going down to a thousand feet and that’s more than usual. And there was a note, there was an inside climate news story about your project and it talked to us as well about what you did about how the temperature increases as you go deeper. So was that intentional? You drill deeper because you actually get more higher temperature water or is there some other reason for that choice?

Mathew Mendisco:
There’s two reasons. One, the difference between 500 feet and a thousand feet, I think it’s like about 10 degrees, but that 10 degrees is actually pretty substantial. But second, so there’s a test called the thermal conductivity test, and that basically tells you how many tons, that’s what geothermal uses as a measurement, how many tons per hole you’re going to get. And we measure heat load and tons for a building if we’re doing geothermal. So like an average home would need five tons. And that’s usually like two boreholes. Well, I can get one borehole because the further I go, I get more, I think about it as like the water’s going down, I’m getting more surface area of warmth to warm the water. So it’s almost like more density. So as it goes down further and it comes back up further and then kind of does this, I can get more time in the ground with the water, which helps me heat the water and keep it warmer, longer, consistently.
And so there’s a density and it depends on your geology. We’re lucky because our geology is where we’re drilling is pretty homogeneous, which basically just means it’s pretty consistent versus like some other places. You might have a limitation of 300 feet because you hit this like granite shelf and you can’t go any further without just intense equipment to get through it. And geothermal drill rigs are not. I mean, they’re like a big truck and they show up and they’re drilling, they don’t have the capacity of like a natural gas, like big tower to get through that stuff. So that’s it. But for us, we’re very lucky. We have this homogeneous kind of clay and shell riverbed kind of thing, and it just works out. So in one aspect, we’re kind of lucky, but that density is a really big … It’s a really big thing.
And so a lot of it’s just geology and physics, right? The longer I can warm the water down and the warmer is on the bottom, the longer I can send that water down and back up. One, if I needed 14 holes, if I go to a thousand feet, I might only need 11. And the most expensive part about this whole thing is the drilling. But as my driller tells me, Bedrock Energy, who is our drilling company, I am more efficient if I can sit here for two days and drill a hole to a thousand feet versus going boom, boom, boom, boom, boom, boom, every 500 feet. So actually what I’m doing is I’m saving you money if I can go deeper because I can actually drill quicker if I can stay in one place.

John Farrell:
Oh, interesting.

Mathew Mendisco:
Yeah. Yeah. So because the mobilization between holes actually takes quite a bit of time.

John Farrell:
I can imagine that. Yeah.

Mathew Mendisco:
It’s almost like a day. So if you think about how many days you would save, it doesn’t seem like a lot, but it is.

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John Farrell:
We’re going to take a short break. When we come back, I ask Mathew about the project financing, whether they’ve sought an existing utility partner and who will own this new thermal utility. You’re listening to a Local Energy Wolves podcast with Mathew Mendisco, town manager from Hayden, Colorado.
Hey, thanks for listening to Local Energy Rules. We’re so glad you’re here. If you like what you’ve heard, please help other folks find us by giving the show a rating and review on Apple Podcasts or Spotify, five stars if you think we’ve earned it. As a bonus, I’ll gladly read your review aloud on the show if it includes an energy-related joke or pun. Now back to the program.

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John Farrell:
I wanted to go back. You mentioned that you had some funding from the federal government through ARPA that sounded like also through the state of Colorado.

Mathew Mendisco:
Okay. So the state of Colorado, yes, geothermal, but not through the federal government. We will be taking advantage of the ITC tax credit because the unique, I’m sure everybody knows this, but when they did the Inflation Reduction Act, one of the key things they did to inspire utilities, I’m going to call it utility scale energy, so geothermal was in there, et cetera, was they allowed local governments to also apply. So we as a local government can apply and get the same tax credit as a private entity, say the energy company or whatever, and I can get the same 50% tax credit back that they did. And I can also, this is mindboggling to me, but I can get credit back on a grant from the state of Colorado. So if I get a grant from the state and I match that, I get 50% on my match and their money from the federal.
And so it really is kind of like, never happened. In this structure, there’s nuances to it like everything else that the IRS does, there’s nuances to it, which we’ve had to navigate and that’s been interesting. But nonetheless, we have a tax firm. We work with Clifton Larson Allen who is very … They have a department dedicated to the ITC tax credits. And so they’re the ones who are the experts helping us when we’re filing. But still nonetheless, that money comes in and helps me offset my next cycle. So federal government money was just for the water, sewer, roads, all of that stuff. State of Guff was for the geothermal, and then we will bring our first system, first building online in, gosh, like two weeks, and that is a complete system. And so in January of 2027, we’ll make our first IRS tax filing, and then we’ll get that 50% tax credit back.
And then the state of Colorado also has programs in terms of tax credit. They call it the acronym is GetCo, but it’s a geothermal energy tax credit offering. And then we also got a grant from the state of Colorado through the Department of Local Affairs for $2 million in the Climate Resiliency Challenge, which has also helped. I mean, so every time we’re applying for various cycles of things or whatever, there’s actually a Department of Energy grant that we’re targeting coming up here. But one of the unique things about geothermal, I always say through the big, beautiful bill, there was a lot of changes to the ITC tax credits and a lot of changes to whatever, but geothermal was kept and it survived. I think it expires in like 2034 or something. I mean, gosh, well, we might be through two presidents by then, who knows, right?
But nonetheless, it survived. And so I think that was an acknowledgement, a bipartisan acknowledgement that geothermal has a future, we like it. Chris Wright has said the Department of Energy secretary has said, geothermal is a great thing. We love it. Let’s do it. And so I think it’s just one of those things where that was our confirmation, we are gas pedal.

John Farrell:
Did you ever have … One of the things I found interesting is some states, Minnesota’s included in this, some states in Northeast are basically telling gas utilities, you should look into this. Did you have any options at any point where there was an existing gas utility that was interested in working with you on this? I don’t know if Xcel offers gas service in Colorado, but they do in Minnesota as well.

Mathew Mendisco:
Yeah. Xcel’s not our gas provider. It’s Atmos Energy in our area. And I don’t believe that they’re a producer of gas. I think they’re just like they purchase and then supply. But nonetheless, no, actually we approached originally. I approached them, Atmos Energy and I said, because in Colorado there was some legislation passed that they have to do a clean energy project or a pilot project. And I was like, Hey, do you want my project to be your project? At the end of the day, which I do not blame them for, they really weren’t interested, not because they didn’t think it was a good idea. They actually wrote a letter of support for our project. They’ve been very supportive. They’re kind of like, Hey, right now we do natural gas. We’re trying to do a clean natural gas project. And I don’t blame them for that. It’s actually a lot of people are like, Well, is this an attempt to not do natural gas? It’s like, No, it’s not. One, we couldn’t afford it in the beginning. I’m not going to get any grants for natural gas. Forget it. And so that would’ve been on our taxpayers, which this project was supposed to have the least impact on our taxpayers. That was one of the goals of our council was we need to do this economic development, but it can’t be at the expense of our taxpayers. Like, a little bit, but we can’t raise taxes because of this.
And so one of my challenges was that, and I just looked at the council, I’m like, $2 million with the natural gas line and blah, blah, blah, but we can’t afford it. But because of the ITC tax credit, because of all the grants the state of Colorado has, whatever, those didn’t exist. I got to be honest, people would have electric airsource heat pumps. We couldn’t afford it. And so it’s because those things were put in place. We were able to do it. And I’ve had conversations with Atmos Energy. I’ve had conversations with Xcel Energy. Xcel has been a big supporter of our project as well. They’ve written letters of support for our project. And yeah, it’s just been pretty collaborative, to be honest.

John Farrell:
That’s great.
I wanted to ask you a little bit about the ownership structure. One of the other network geothermal projects that I followed is one that was in West Union, Iowa. It was a downtown redevelopment network that I’m sure you’ve heard of because it seems to be the one that a lot of people point to. I think that one’s interesting because if I understand correctly, the infrastructure, the pipes are publicly owned, but the operation is actually private. They’ve sort of outsourced it. I was curious how the Hayden network is going to be operated. Is it just going to be a municipal utility like so many others?

Mathew Mendisco:
It is. And actually, I got to be honest, the model that you’re talking about in Iowa, that is the typical model right now that’s happening because what municipalities are doing is they’re saying, Well, we’re going to repurpose these gas pipes, which is the kind of piping you basically use for geothermal as well as ductile, certain type. So they’re saying, Okay, we’re going to repurpose these gas pipes. So it’s like a really cheap way for municipality to get geothermal to homes, yet have somebody come in and operate the utility privately.
We talked with a couple of companies and we considered that, but at the end of the day, this isn’t cheap and we’re trying to think about what return on investment for local municipality. And because of all the tax credits and the grants and everything else, like I said, and being a municipal utility, if I did, let’s just say we had a funding gap, we could pass revenue bonds to help offset those costs over time, but the only customers that are affected are the revenue bonds of the customers, which are the customers pointing at the business park, it’s up there and that’s it. And it doesn’t impact all the rest of the homeowners that are here.
And so, yeah, the consultant company I came from, I used to do a lot of work with water districts, sewer districts, utilities. I used to do utility rate studies. I used to do all of that. So when I ran in-house, I kind of created our utility model for geothermal. And when I was doing that, it obviously, because my council kept saying like, Well, we’re going to spend all this money. What’s the return on investment on this? And they were like, That’s important, but is that making us more economically viable? And my answer to that question when we started thinking about it was this municipal utility. And I think if you look, we’re one of the only ones in the nation that are actually doing it as a true municipal utility.
So those customers, when they get their water bill, there’s going to be an extra light on there, and it’s going to say heating and cooling geothermal, and they’re going to pay that as well. And that will be just as competitive as any utility could provide. Their electric bill’s going to go down because it would have been higher had they had an air source heat public like we talked about. And this was actually one of the only alternative technologies one of my council members would agree to because, to your point, you got an airsource heat pump. And if you’re in it for carbon reduction, awesome. But he’s like, How are we going to be competitive if we’re going to make our buildings utility bills higher? I don’t understand that. And he’s a home builder. And so he’s like, I don’t get it. But geothermal, he’s like, Oh yeah, electric bills will come down.
And so that’s why we decided to do it the way we did because we want that local investment to come back to our community because in the long term, we would love to actually start doing this even within our town proper as a utility. So if a home needs to redo something or whatever, we may be like the Oklahoma people and be like, Hey, you just start paying the utility, we’ll show up, we’ll drill you a hole, we’ll help offset the cost of your heat pump and you pay for what your cost would’ve been, we’ll pay the delta as a utility, and then we’ll start billing you as a customer, your electric bills can come down and we’ll get some return on investment for our investment in you. And at the same time, we know our investment in you has actually helped you become more economically sustainable because you have this system that’s going to last forever and go from there. So I mean, really, if you think about it from a community equity standpoint, it makes a lot of sense.
You have to think about it almost like I’ve told people, you have to think about like a water utility, right? People need heating and cooling, especially where I live. And so that’s where we went with it. So our governor, State of Colorado, Jared Polis told me, because he was the chair of the Western Governor’s Association or something like that, or he was actually the chair I think of the Governor’s Association, like the national thing a couple years ago or … Anyway, he told me, he visited our site and he told me, he’s like, I think you’re the only ones doing it this way in the nation. I don’t know if that’s really true, but we don’t have a private partner is the point. It’s wholly owned by our municipality.

John Farrell:
I was going to ask you this idea of potentially serving the town proper. Is the business park close enough that you would actually be connecting it to that or would you sort of be creating a second network within the town?

Mathew Mendisco:
So here lies, I think actually a really important thing, which is right now you have right of ways, they have water lines, they have sewer lines, they have all this stuff, right? With geothermal, you have the ability to go development to development and not clutter your major thoroughfares because it’s wholly contained within the site. And so as long as you have enough room for the borefield itself, you can keep it contained to that neighborhood or that area without getting on your major thoroughfares because it’s closed boot because it would not be efficient to like send all that water from the business park two and a half miles, by the way, down to town proper, but it does make sense if I can put a bore field behind town hall and then supply four neighbors from that borefield. And then we have another spot right here, maybe we can supply more neighbors or whatever.
Or you could just do a single structure, which means geothermal, like you just do it single structure, which is actually the model that’s used mostly with residential that I’ve seen because it’s with commercial, it’s really efficient, but I’ve had companies make the argument that it’s the heat loss to a resident because those heat pumps are so much smaller, a district network system is actually, it just isn’t sufficient. And so it makes more sense economically to just go to a home, put their bore field in their yard. You’ll never see it anyway, drill a hole right there, leave, put a heat pump in, and then just meter it. So you just have like a thousand bore fields, but at the end of the day, it’s like one hole and that’s it for a home. Typically, a home requires one bore hole, like maybe two. And for a resident, you don’t have to go a thousand feet deep, probably go like 300. So I think eventually we would like to expand into that. If we can’t, that’s okay, but I mean, it’s a thought process.

John Farrell:
I think you already, when we were talking about the tax credits, you already kind of gave a sense of the status of the project. It sounds like you have your first business park customer moving in very soon. Is that right?

Mathew Mendisco:
Correct. So they’ve already built their building. It’s kind of just sitting there. We had to actually, our heat exchanger was like 16 weeks out, so we had to wait because we were going to make the filing in January and then their company was like, Actually, we can’t get this to you until March. And so they’re just kind of sitting there waiting for this heat exchanger to come in. That’s all we’ve got to do. The heat pump’s there. Everything is like the heat exchanger is in the middle between the heat pump and the bore field. And there’s also a circulation pump which circulates everything and we’re literally waiting to connect that. But from the IRS standpoint, you can’t just file and say, Well, we’ve put some of it in. The requirement is that you have a complete system and a complete system in a building is from a heat pump to the bore field and everything in the middle.
So I mean, it makes sense. It’s not a big deal. So you have to have some carrying costs because like us, you can only file once per year, so we’re going to have to wait all the way till January, but we’re going to have some other buildings come online this year. So in the end, it won’t be one building, but one filing, it’ll be like four buildings.

John Farrell:
Are there other Colorado communities or places around the country that saw the news story like I did or whatnot and have reached out about replicating your model?

Mathew Mendisco:
I’ve talked to several people about it. I’m not sure if anybody is replicating the municipal model. They’re replicating geothermal and they’re doing thermal energy networks, right? But are they doing the municipal way? I don’t think so. Now lots of people have been interested because like, okay, how are you guys getting this done? And once we walk through the finances and we walk through everything, it starts to click for people that it’s possible. Talked to somebody in Chicago. I’ve talked to some other folks. I think it’s like the upfront cost is the big hurdle. And so that’s where those private companies come in, right? Those private utility companies, they come in because they’ll spend their capital and then they’ll do what Xcel or any other utility would do, right? They’re going to capitalize those costs over 40 years. Well, we’re going to do the same thing, except because we’ve been able to get the grant funds we have and everything else, our out-of-pocket costs have been pretty minimal.
Hayden’s been really good over the last nine years, and maybe I’ll take credit. I’ve been here for nine and a half years, basically or nine years and almost two months, but our grant to capital construction project ratio is like 80% to 20%. So 20% out of pocket, 80% grant funding. So we’ve been really, really good about capital stacking and understanding how to do that. So if you just have this big chart of capital stack for this project, and if you could follow it, at the end of the day, you’d be like, Oh gosh, yeah, as long as it works out, it’s fine. And everybody said, Well, what if it doesn’t work out? And I’ve said, Then those buildings just have to do electric air source sea pumps because the thermal energy network, we’re connecting them as we’re building them. So if we had to stop, we’d connect everybody who was connected, call it a day, everybody else would have to have electric airsource heat pumps, buildings still get built.
And so we had this fallback. It wasn’t like people would have no heat. It’s exciting to do it this way. And it’s dynamic. It’s, gosh, we’re adjusting on the fly almost every week. I feel like we’re having to change something. But at the same time, if you get out of the mindset of like, Well, this is how government does things. And you get into the mindset of like, Well, what would an entrepreneur do and how would they make it work? I think that’s when municipalities or governments can do really great things. You just have to keep your citizenry always in mind, right? At the end of the day, you’re providing a service. We’re a service organization. We serve our taxpayers. But if you can do that and make it better, why not?

John Farrell:
Absolutely. Mathew, thank you so much for taking the time to walk me through all of this project. It’s such an inspiration, the work that you’ve done to put this together, and I really love your municipal model. I hope other cities think about it. The revenue bond thing, for example, just always comes to mind as ways that there are tools that cities have to do the financing, but I think just giving them the inspiration of there is a way to approach this and to maybe even do it yourself is pretty exciting.

Mathew Mendisco:
Sure. Our buildout model right now shows complete build out in four years for the business park. That includes the airport. They’ll be the biggest customer, at least right now they will be. And like I said today, I have a lot closing that’s actually an Amazon warehouse and they were excited because they’re like, This is great. It’s with our sustainability goals. We’ll be able to celebrate this. So it’ll be their first building connected to geothermal, I think. So they’re excited about it.

John Farrell:
Very cool. Well, thank you again, Mathew. I really appreciate your time.

Mathew Mendisco:
No problem. Have a good one.

*****

John Farrell:
Thank you so much for listening to this episode of Local Energy Rules with Mathew Mendisco, town manager of Hayden, Colorado, where we discuss the network geothermal project serving the town’s new business park. On the show page, look for some photos from the construction process, as well as several news stories covering the project’s development. We’ll also have links to some ILSR resources on network geothermal, including a short video overview of how it addresses some of the issues from electrification that Mathew and I discussed, such as the increased electric grid demand. Local Energy Rules is produced by myself and Ingrid Behrsin with editing provided by audio engineer Drew Birschbach. Tune back into Local Energy Rules every two weeks to hear how we can take on concentrated power to transform the energy system. Until next time, keep your energy local and thanks for listening.