In 1978, Public Law 95-356 authorized the Secretary of each military  department to develop, for the use or benefit of the Department of Defense,  any geothermal energy source within lands under the department’s  jurisdiction, other than public lands administered by the Secretary of the  Interior. A contract between the Navy and the power plant operator  has established three sources of annual revenue to the Navy: (1) royalty  payments on the sale of electricity, (2) payments toward the base’s  electricity bill, and (3) bonus payments for voluntarily conserving  electricity usage at the base. The power  plant operator paid, on average, $2.7 million annually toward the Navy’s  electricity bill between 1987 and 2003. Navy Has Spent Its Geothermal Revenues on Energy Conservation Programs and Oversight and Development of Geothermal Resources

Since fiscal year 1990, the first year the Navy spent geothermal revenues,  most of the Navy’s revenues have been used to develop and implement  energy savings projects throughout the Navy and the Marine Corps and at  the China Lake base. The Navy also funded its Geothermal Program Office,  which manages the geothermal resource at China Lake and assesses other  military sites for geothermal development. Navy Has Also Spent Its Geothermal Revenues to Oversee the China Lake Project and to Develop New Geothermal Resources

Between October 1, 1989, and December 31, 2003, the Navy spent about  $56.6 million, or about the remaining one-third of its expenditures from  geothermal revenues, on the Geothermal Program Office at China Lake. Navy’s Internal Energy Policy Board Oversees Budgeting of Most Geothermal Funds

The Navy’s Shore Energy Policy Board oversees the budgeting of the Navy’s  about $11.5 million in average annual geothermal royalties. The board reviews the amounts allocated to  each program in the draft budget, determines whether the funding levels  are appropriate, agrees on final allocations, and approves the budget. Navy’s Geothermal Program Differs from BLM’s Program in its Approach and in Some Key Contractual Provisions

The Navy’s approach to developing and managing geothermal resources on  military lands involves (1) making case-by-case decisions regarding  development, (2) investing in the initial exploration to identify and  characterize geothermal resources, (3) providing close and frequent  oversight of geothermal resources in production, and (4) keeping all  geothermal revenues for use by the military. Also, 50 percent of BLM’s  geothermal revenues are shared with the states of origin. An official from the company that currently operates the power plants at  China Lake told us that the level of oversight the Navy provides is  burdensome and costly. In contrast, BLM leases have a primary  term of 10 years. Agency Comments and Our Evaluation

We provided the Department of Defense and the Department of the  Interior's Bureau of Land Management a draft of our report for review and  comment. In commenting for the Department of Defense, the Navy’s  Geothermal Program Office provided technical comments that we  incorporated as appropriate. In response, we do not believe the report implies BLM is improperly  managing its program. As such, the report does not address whether BLM's management and  oversight are, or are not, proper. To determine how the Navy uses the revenues it collects from the  geothermal facility, we obtained information from (1) the managers of the  Navy’s Energy Program and the Renewable Energy Program office at China  Lake about the principal activities of the energy conservation programs  funded with geothermal revenues and (2) the manager of the Geothermal  Program Office on the principal activities conducted by this office. To determine how the Navy’s geothermal program differs from BLM’s  program, we reviewed the contract between the Navy and its power plant  operator at China Lake that establishes key elements of the Navy’s  approach to geothermal development and the law and regulations that  establish BLM’s approach.
Why GAO Did This Study

Geothermal energy is heat from the earth that can be used to generate electricity. The Department of the Interior's Bureau of Land Management (BLM) has the primary responsibility for leasing public lands to private companies for geothermal development. In addition, the Secretary of each military department has the authority to develop geothermal resources on military lands and to keep the proceeds from the sale of electricity generated from those resources for use by the Department of Defense. The Navy's Geothermal Program Office, located at the China Lake Naval Air Weapons Station in California, manages and develops geothermal resources for the military. Currently, two geothermal power plants at China Lake are the only ones on military lands. A private company, which built, owns, and operates the power plants at China Lake, sells the electricity to a utility company and pays the Navy royalties on these sales as well as other types of compensation. GAO was asked to provide information on (1) the Navy's annual revenues from the geothermal facility at China Lake, (2) how the Navy uses the revenues it collects from the geothermal facility, (3) the budget oversight the Navy provides programs funded from geothermal revenues, and (4) how the Navy's geothermal program differs from BLM's program.

What GAO Found

The Navy received three types of payments from the geothermal power plant operator at China Lake that totaled, on average, $14.7 million annually between 1987 and 2003. During these years, the average annual royalty payment on the sale of electricity was about $11.5 million, payments toward the base's electricity bill were about $2.7 million annually, and bonus payments to the base for using less electricity than it had projected averaged about $500,000 annually. The Navy spent about two-thirds of its geothermal revenues on a variety of energy conservation projects, including solar energy systems and updated climate control systems, as well as other energy conservation programs. The Navy spent the other one-third of its geothermal revenues on its Geothermal Program Office, which oversees the activities of the power plant operator and assesses other military sites for geothermal development. The Navy's Shore Energy Policy Board, which includes representatives of the Secretary of the Navy and the Chief of Naval Operations, oversees the budget for most of the programs funded from the geothermal revenues. Typically, at its annual meeting, the board reviews the draft budget for energy conservation programs, determines whether the funding levels are appropriate, and agrees on final allocations. The China Lake base's Renewable Energy Program office oversees the budget for the remaining geothermal revenues. The Navy's geothermal program differs from BLM's program in significant ways. The Navy makes case-by-case decisions regarding geothermal development, invests in the initial exploration to identify geothermal resources, provides close oversight over geothermal production, and keeps all revenues for use by the military. In contrast, BLM uses a standard approach to geothermal development, does not invest in exploration, and does not provide the same level of oversight over resources in production. Also, 50 percent of BLM's geothermal revenues are shared with the state of origin, with the remainder paid to the Department of the Treasury. The Department of Defense provided technical comments on a draft of the report, which GAO addressed as appropriate. BLM said that the report implies that its program is not properly managed. GAO's report is focused on the Navy's program and does not evaluate BLM's program.