The process of geothermal energy development begins with identifying a likely source of geothermal energy through exploration. Identifying geothermal energy sources that can be competitive with other fuels involves obtaining and analyzing a complex variety of geologic (characteristics of rocks), geophysical (variation in magnetic and gravity fields), and geochemical (chemical characteristics of water) data. Although a wide variety of data can be used to identify an area with a high likelihood of containing a geothermal resource, positively identifying and defining the nature of the resource requires drilling a well though the earth’s surface. According to the Department of Energy, exploration can account for as much as 60 percent of the cost of a geothermal power project, and most of the cost of exploration is associated with drilling wells. After wells have been drilled, they can be used to pump hot water or steam to the surface and for returning fluids to the reservoir after they have been used to generate electricity. According to a BLM official, geothermal energy from both public and private land provides about 2,200 megawatts of electric power nationwide. In 2003, geothermal electricity represented less than 1 percent of the nation’s total electricity output. According to data compiled by the Geothermal Energy Association, about 70 percent of the existing geothermal power plants came on line in the 1980s. Geothermal power plant construction has declined significantly in the 1990s because of several factors, including loss of government incentives and the introduction of low-cost electricity generated from natural gas. BLM reviews and approves leases and permits to explore, develop, and produce geothermal energy on public land and certain other federal lands, including national forest lands. The agency is also responsible for ensuring that leaseholders’ geothermal operations comply with BLM’s regulations. In 2003, BLM’s geothermal program had six full-time and seven part-time staff, most of who were located in BLM field offices in the western United States, including California, Nevada, Oregon, Utah, and Idaho, among others. The program’s budget was $1.35 million in fiscal year 2003, which included a targeted amount of $600,000 for one year only to be spent on processing a backlog of lease applications in Nevada. The program’s fiscal year 2004 budget is $1.24 million, which does not include any funds targeted for special projects. There are 34 power plants that use geothermal energy from BLM leases in three states (California, Nevada, and Utah). These power plants have a total electricity production capacity of about 1,200 megawatts, according to BLM. Although BLM has the primary responsibility for leasing public and certain other federal lands for geothermal development, on several occasions, Congress has passed laws that have given the Department of Defense the authority to develop geothermal resources on lands under its jurisdiction. 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. The law specified that the military could contract for a period not to exceed 30 years “for the provision and operation of energy production facilities.” In 1982, Public Law 97-214 expanded the military’s ability to develop and use geothermal resources by extending its authority to public lands set aside for military purposes. In 1984, Public Law 98-407 authorized the Secretary of a military department to sell electricity produced from alternative energy projects, which include geothermal projects, and to credit the proceeds to the account it uses to fund its supply of electricity. The Navy’s geothermal program consists of overseeing the operations of the two power plants at China Lake, known as Navy I and Navy II, and developing geothermal resources at other military facilities, most prominently the Fallon Naval Air Station in Nevada. See figure 1 for the location of the China Lake base in California and the Fallon base in Nevada. In 2003, the Navy’s Geothermal Program Office had a budget of about $6.2 million and a staff of 12, which included a program manager, a geologist, 2 geophysicists, other technical professional staff, a business manager, and clerical staff. The power plants at China Lake convert high temperature water into steam through a process called “flashing” and then use the steam to drive turbines that generate electricity. Each of the two plants contains three turbines. Each turbine has a production capacity of 30 megawatts, making the total production capacity 180 megawatts. See figure 2 for a diagram of how a power plant taps underground heat to produce geothermal electricity. Geothermal resources have not yet been fully utilized. In 1979, the U.S. Geological Survey estimated that known geothermal resources could provide 23,000 megawatts of power and that undiscovered resources might provide five times that amount. However, a comprehensive assessment of the nation’s geothermal energy generation potential has not been conducted since 1979, and there is no current detailed information on the extent and location of geothermal resources in the United States. In a 2003 study by the Departments of Energy and Interior, the lead geothermal staff from each of BLM’s state offices identified, based on their expert judgment, the best sites for future near term geothermal power development within their states. The BLM officials identified a total of 35 sites, including 10 in Nevada, 9 in California, 7 in Oregon, and the remainder in New Mexico, Utah, and Washington. Also, in 2003, a Navy contractor assessed the geothermal energy potential on military lands. The contractor assessed sites at 18 military bases and concluded that only 5 sites had a high potential for producing electricity from geothermal resources: the Nellis Air Force Base and the Fallon Naval Air Station/Dixie Valley Range in Nevada, the Naval Air Facility El Centro/Parachute Test Range in California, Fort Bliss in Texas, and the White Sands Missile Range in New Mexico. The Navy collected, on average, $14.7 million annually in royalties and other revenues from geothermal operations at its China Lake base between 1987 and 2003. 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. In total, the power plant operator received about $2.3 billion from the sale of electricity produced by the China Lake power plants between 1987 and 2003 and has paid approximately $249 million, or about 11 percent, to the Navy. The largest payment the Navy collects is a royalty on the power plant operator’s gross revenue from selling electricity produced at China Lake. The Navy collected, on average, $11.5 million annually in royalties between 1987 and 2003. Royalties ranged from a low of less than $100,000 in 1988 to a high of more than $20 million in 1996. The two power plants at China Lake each have three turbine units—units 1, 2, and 3 in Navy I and units 4, 5, and 6 in Navy II. The Navy assessed royalties on all power produced and sold from units 2 through 6 but not on power produced and sold from unit 1. Other arrangements, including payments toward the base’s electricity bill, which are discussed later in this report, compensate the Navy for power sold from unit 1. Table 1 shows the annual royalties the Navy received from geothermal operations at China Lake. The Navy has established royalty rates in its contract with the power plant operator that increase incrementally from a low of 4 percent to a high of 20 percent. The Navy I and Navy II power plants have different royalty rates that increase in different years of the contract. Table 2 shows the schedule of royalty rates for the Navy I and Navy II power plants. The royalty rate for Navy I was first applied in 1988 and for Navy II in 1990. The Navy's royalty revenues rose consistently between 1988 and 1996 based on the 10-year contract price of electricity the power plant operator agreed to with the local utility (see table 1). However, since the mid-1990s these revenues have fallen from a high of $20.3 million in 1996 to $13.9 million in 2003, the most recent year for which complete data are available. This drop occurred because the price that the utility had agreed to pay for electricity from Navy I fell sharply in 1997 after the 10-year contract price expired. Similarly, the power plant operator’s contract price for power sold from Navy II expired in 2000. The contract prices, while competitive when they were negotiated, were much higher than the market price for electricity when the contract prices expired. Since the Navy's royalties are directly related to the power plant operator's proceeds, when they dropped, the Navy's revenues also decreased. However, about the time the power plant operator's contract prices expired, the Navy's royalty rates increased from 10 percent to 15 and 18 percent, respectively, for electricity sold from each power plant. The increased royalty rates caused the Navy's royalty revenue to decline less dramatically than the power plant operator's proceeds from electricity sales. The second largest Navy revenue source is the payment made by the power plant operator toward the China Lake base’s electricity bill. The power plant operator paid, on average, $2.7 million annually toward the Navy’s electricity bill between 1987 and 2003. These payments, which were made directly to the utility, lowered the base’s electricity costs by about 26 percent annually. This arrangement compensates the Navy for some of the power produced and sold from unit 1 of the Navy I power plant, for which royalties do not apply. Unit 1 is different because the Navy originally intended that electricity produced from this unit would directly support the electricity needs of Navy bases in southern California through electric lines connecting the power plant and Navy facilities.