HB 1007
Department of Legislative Services
Maryland General Assembly
2021 Session
FISCAL AND POLICY NOTE
Enrolled - Revised
House Bill 1007 (Delegate Charkoudian)
Economic Matters Finance
Renewable Energy Portfolio Standard and Geothermal Heating and Cooling
Systems
This bill creates a carve-out for post-2022 geothermal systems in Tier 1 of the State’s
Renewable Energy Portfolio Standard (RPS), beginning in 2023 at 0.05% and increasing
each year until reaching 1.0% in 2028 and later, subject to specified requirements and
alternative compliance payments (ACPs). The Maryland Energy Administration (MEA)
must staff a related workgroup created by the bill and complete a related technical study.
A presently existing obligation or contract right may not be impaired by the bill.
Fiscal Summary
State Effect: Strategic Energy Investment Fund (SEIF) expenditures increase by up to
$250,000 in FY 2022, and those funds are no longer available to be expended for other
purposes. Public Service Commission (PSC) special fund expenditures increase by
$234,100 in FY 2023; PSC special fund revenues increase correspondingly. Maryland
Department of Labor (MDL) general fund expenditures increase by $465,300 in FY 2023.
Future years reflect the elimination of one-time costs. SEIF revenues and expenditures may
increase from ACPs beginning in FY 2024 (not reflected in chart below). The potential
effect on electricity prices is discussed separately below.
(in dollars) FY 2022 FY 2023 FY 2024 FY 2025 FY 2026
SF Revenue $0 $234,100 $225,100 $232,900 $241,000
GF Expenditure $0 $465,300 $365,800 $376,000 $386,500
SF Expenditure $250,000 $234,100 $225,100 $232,900 $241,000
Net Effect ($250,000) ($465,300) ($365,800) ($376,000) ($386,500)
Note:() = decrease; GF = general funds; FF = federal funds; SF = special funds; - = indeterminate increase; (-) = indeterminate decrease
Local Effect: The bill does not materially affect local government finances or operations.
Small Business Effect: Meaningful.
 Analysis
Bill Summary:
Definitions and Eligibility
The definition of “geothermal heating and cooling system” is modified to expand eligibility
by no longer requiring that the system replace certain inefficient heating or cooling
systems. Additional definitions are created to distinguish between geothermal heating and
cooling systems placed in service before and on or after January 1, 2023, and the scope of
system ownership as it pertains to third-party eligibility to receive renewable energy credits
(RECs) is modified.
Low- and Moderate-income Installations
At least 25% of the required post-2022 geothermal percentage required under the bill’s
carve-out each year must be derived from post-2022 systems installed at (1) single or
multifamily housing units that qualified as low- or moderate-income housing, as defined,
on the date the system was installed on the property or (2) institutions that primarily serve
low- and moderate-income individuals and families.
ACPs for the geothermal carve-out must be accounted for separately in SEIF and may only
be used to make loans and grants to promote increased opportunities for the growth and
development of small, minority, women-owned, and veteran-owned businesses in the State
that install geothermal systems in the State.
Large Geothermal System Eligibility
A post-2022 geothermal system with a 360,000 British Thermal Unit capacity is eligible
for inclusion in meeting the RPS only if the company installing the system provides the
following for its employees: (1) family sustaining wages; (2) employer-provided health
care with affordable deductibles and co-pays; (3) career advancement training, as specified;
(4) fair scheduling; (5) employer-paid workers’ compensation and unemployment
insurance; (6) a retirement plan; (7) paid time off; and (8) the right to bargain collectively
for wages and benefits. Compliance with these requirements must be regulated and
enforced by MDL.
Maryland Energy Administration Study and Reporting Requirement
MEA must conduct a comprehensive technical study on the status of geothermal heating
and cooling systems in the State and the potential impact of expanding and incentivizing
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the use of geothermal heating and cooling systems in the State. The study must include
assessments of various aspects of geothermal systems and their use, including:
 the cost and feasibility of increasing the use of geothermal heating and cooling
systems in the State;
 national and international best practices designed to incentivize the use of
geothermal heating and cooling systems;
 the potential for geothermal heating and cooling systems to reduce peak electricity
demand;
 the potential reduction to all Maryland ratepayers in electricity costs associated with
the increased use of geothermal heating and cooling systems, including savings
from reduced peak electricity demand;
 the economic benefits of increasing the use of geothermal heating and cooling
systems to the State;
 the potential to aggregate geothermal RECs;
 the potential greenhouse gas reductions resulting from the use of geothermal heating
and cooling systems;
 the impact of geothermal heating and cooling systems on indoor air quality and
localized pollution; and
 the potential to build neighborhood-scale district geothermal systems or convert
existing utility infrastructure so that it can provide geothermal heating and cooling
to an entire community.
MEA may contract with a third party to conduct the study. MEA must submit the results
of the study to the Geothermal Energy Workgroup, described below, by October 1, 2021.
Geothermal Energy Workgroup
The Geothermal Energy Workgroup is established consisting of various stakeholders and
chaired by the Director of MEA or the director’s designee. MEA must staff the workgroup.
A member of the workgroup may not receive compensation as a member of the workgroup
but is entitled to reimbursement for travel expenses. The workgroup must:
 study the status and impact of increasing the use of geothermal heating and cooling
systems in the State;
 examine methods for growing the geothermal industry in the State, with a focus on
increasing the use of geothermal heating and cooling systems in environmental
justice communities;
 examine methods for ensuring that any jobs created in the geothermal industry offer
benefits and family-sustaining wages;
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 examine methods for MDL to require geothermal installers to adhere to the labor
and apprenticeship requirements for large-scale geothermal projects required under
the bill;
 examine methods to promote increased opportunities for the growth and
development of small, minority, women-owned, and veteran-owned businesses in
the State that will install geothermal systems in the State and will promote career
training opportunities in the geothermal industry for local residents, minorities,
women, and veterans, including developing a baseline survey of the current levels
of participation of these businesses and workers in the State; and
 develop recommendations for legislation that will encourage and incentivize the use
of geothermal heating and cooling systems in the State.
MEA, in consultation with the workgroup, must develop recommendations for an incentive
structure that will increase the deployment of geothermal heating and cooling systems in
Maryland, as specified.
By December 1, 2021, the Director of MEA, or the director’s designee, must report to the
General Assembly on the results of the MEA technical study, the workgroup’s findings
and recommendations, and the incentive recommendations developed pursuant to the bill.
Current Law: Geothermal, including energy from a geothermal heating and cooling
system, is eligible for inclusion in the State’s RPS under the general Tier 1 requirement,
subject to general Tier 1 ACPs and specified requirements. There are only two carve-outs:
solar and offshore wind. The bill creates a carve-out that is roughly analogous to the solar
carve-out, although smaller. For more information, see the Appendix – Renewable
Energy Portfolio Standard.
State Fiscal Effect:
Public Service Commission
PSC advises that it requires ongoing technical staff expertise to handle the significant
anticipated increase in REC applications for residential and commercial geothermal
systems under the bill – up to several thousand residential systems and up to
100 commercial systems annually as the carve-out phases in. Accordingly, special fund
expenditures for PSC increase by $234,092 in fiscal 2023, which accounts for the
geothermal carve-out not beginning until 2023, despite the bill’s October 1, 2021 effective
date. This estimate reflects the cost of hiring one public service engineer and two regulatory
economists to handle the applications and related responsibilities. It includes salaries,
fringe benefits, one-time start-up costs, and ongoing operating expenses.
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 Positions 3.0
Salaries and Fringe Benefits $209,357
Other Operating Expenses 24,735
Total FY 2023 PSC Expenditures $234,092
Future year expenditures reflect annual salary increases and employee turnover and
ongoing operating expenses. Special fund revenues increase correspondingly from
assessments imposed on public service companies.
Maryland Energy Administration
MEA advises that the required technical study is estimated to cost approximately $250,000
for a consultant to complete. While it is possible that MEA could complete the study with
existing budgeted resources, it would be at the expense of other existing responsibilities.
Therefore, this estimate assumes that special fund expenditures for SEIF increase by up to
$250,000 in fiscal 2021 and/or 2022 for consultant expenses. In either case, amounts spent
on the study are unavailable for other purposes. Costs are assumed to be incurred prior to
the bill’s October 1, 2021 effective date because the report is due that same day. MEA can
staff the workgroup with existing budgeted resources.
Special fund revenues for SEIF increase beginning in fiscal 2024 to the extent that
insufficient geothermal RECs are available and electricity suppliers pay ACPs instead.
SEIF expenditures increase correspondingly for the purposes authorized by the bill.
Maryland Department of Labor
MDL must regulate and enforce compliance with the labor standards for large geothermal
systems in the bill. MDL has no expertise in this area; moreover, many of the standards are
subjective and/or not precisely defined. For example, it is unclear what would constitute
family-sustaining wages, fair scheduling, and affordable healthcare deductibles. There is
also no clear enforcement mechanism or investigative authority. For these reasons, MDL
requires several staff and information technology (IT) expenses to attempt to implement
the bill. Even so, these provisions are difficult to implement in their current form. MDL’s
Division of Workforce Development and Adult Learning (DWDAL) also incurs IT costs
related to career advancement training and apprenticeship requirements.
Accordingly, general fund expenditures for MDL increase by $465,276 in fiscal 2023,
which accounts for the geothermal carve-out not beginning until 2023, despite the bill’s
October 1, 2021 effective date. This estimate reflects the cost of hiring one assistant
Attorney General, one investigator, and two administrative staff. It includes salaries, fringe
benefits, one-time start-up costs, IT expenses, and ongoing operating expenses.
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 Positions 4.0
Salaries and Fringe Benefits 270,735
Labor and Industry IT Costs 52,061
DWDAL IT Costs 110,000
Other Operating Expenses 32,480
Total FY 2023 MDL Expenditures $465,276
Future year expenditures reflect annual salary increases and employee turnover, ongoing
operating expenses, and ongoing IT expenses.
Small Business Effect: Small geothermal installation companies benefit from significant
financial incentives (geothermal RECs) available for such systems. That income stream
can be used as an incentive for purchasers of such systems, or, if the company adopts a
leasing model, it could provide direct revenue to the company. In either case, more
expensive RECs make the projects more financially viable.
Additional Comments: While the effect on electricity prices due to the bill is unknown,
based on the size of the carve-out and the associated ACPs, the bill has a maximum
compliance cost of $0.05 per megawatt-hour in 2023 ($3.0 million), which escalates over
time to $0.65 per megawatt-hour by 2028 ($39.0 million). These estimates are based on
the ACP being paid for all geothermal RECs in that year. The Department of Legislative
Services cannot advise on the likelihood, or not, of geothermal REC prices approaching
ACP amounts or what portion of the carve-out would be met with ACPs.
Additional Information
Prior Introductions: None.
Designated Cross File: SB 810 (Senator Feldman) - Finance.
Information Source(s): Public Service Commission; Maryland Energy Administration;
Maryland Department of Labor; Maryland Department of the Environment; Department of
Housing and Community Development; Office of People’s Counsel; Harford and
Montgomery counties; City of Bowie; Department of Legislative Services
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Fiscal Note History: First Reader - February 23, 2021
rh/lgc Third Reader - March 30, 2021
Revised - Amendment(s) - March 30, 2021
Revised - Updated Information - March 30, 2021
Enrolled - April 14, 2021
Revised - Amendment(s) - April 14, 2021
Analysis by: Stephen M. Ross Direct Inquiries to:
(410) 946-5510
(301) 970-5510
HB 1007/ Page 7
 Appendix – Renewable Energy Portfolio Standard
Maryland’s Renewable Energy Portfolio Standard (RPS) was enacted in 2004 to facilitate
a gradual transition to renewable sources of energy. There are specified eligible (“Tier 1”
or “Tier 2”) sources as well as carve-outs for solar and offshore wind. Electric companies
(utilities) and other electricity suppliers must submit renewable energy credits (RECs)
equal to a percentage specified in statute each year or else pay an
alternative compliance payment (ACP) equivalent to their shortfall. Historically, the
requirements have been met almost entirely through RECs, with negligible reliance on
ACPs. The Maryland Energy Administration must use ACPs to support new renewable
energy sources.
Chapter 757 of 2019 significantly increased the percentage requirements, which now
escalate over time to a minimum of 50% from Tier 1 sources, including 14.5% from solar,
by 2030. In 2021, the requirements are 30.8% for Tier 1 sources, including at least 7.5%
from solar. Tier 2, which has been extended several times, terminated after 2020.
Generally, a REC is a tradable commodity equal to one megawatt-hour of electricity
generated or obtained from a renewable energy generation resource. In other words, a REC
represents the “generation attributes” of renewable energy – the lack of carbon emissions,
its renewable nature, etc. A REC has a three-year life during which it may be transferred,
sold, or redeemed. REC generators and electricity suppliers are allowed to trade RECs
using a Public Service Commission (PSC) approved system known as the Generation
Attributes Tracking System, a trading platform designed and operated by PJM
Environmental Information Services, Inc. that tracks the ownership and trading of RECs.
Tier 1 sources include wind (onshore and offshore); qualifying biomass; methane from
anaerobic decomposition of organic materials in a landfill or wastewater treatment plant;
geothermal; ocean, including energy from waves, tides, currents, and thermal differences;
a fuel cell that produces electricity from specified sources; a small hydroelectric plant of
less than 30 megawatts; poultry litter-to-energy; waste-to-energy; refuse-derived fuel; and
thermal energy from a thermal biomass system. Eligible solar sources include
photovoltaic cells and residential solar water-heating systems commissioned in fiscal 2012
or later. Tier 2, when it was in effect, eventually included only large hydroelectric power
plants.
RPS Compliance
According to the most recent RPS compliance report on PSC’s website,
electricity suppliers retired 11.4 million RECs at a cost of $134.5 million in 2019, as
average REC prices rose from their 2018 levels, as shown in Exhibit 1.
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 Exhibit 1
RPS Compliance Costs and REC Prices
2015-2019
2015 2016