Renewable Energy
Increased Geothermal Development Will Depend on Overcoming Many Challenges
Gao ID: GAO-06-629 May 24, 2006
The Energy Policy Act of 2005 (Act) contains provisions that address a variety of challenges that face the geothermal industry, including the high risk and uncertainty of developing geothermal power plants, lack of sufficient transmission capacity, and delays in federal leasing. Among the provisions are means to simplify federal royalties on geothermal resources while overall collecting the same level of royalty revenue. The Act also changes how these royalties are to be shared with local governments (disbursements). This report describes: (1) the current extent of and potential for geothermal development; (2) challenges faced by developers of geothermal resources; (3) federal, state, and local government actions to address these challenges; and (4) how provisions of the Act are likely to affect federal geothermal royalty disbursement and collections.
Geothermal resources currently produce about 0.3 percent of our nation's total electricity and heating needs and supply heat and hot water to about 2,300 direct use businesses, such as district heating systems, fish farms, greenhouses, food-drying plants, spas, and resorts. Recent assessments conclude that future electricity production from geothermal resources could increase by 25 to 367 percent by 2017. The potential for additional direct use businesses is largely unknown because the lower temperature geothermal resources that they exploit are abundant and commercial applications are diverse. One study has identified at least 400 undeveloped wells and hot springs that have the potential for development. In addition, the sales of geothermal heat pumps are increasing. Developers of geothermal electricity plants face many challenges including a capital intensive and risky business environment, developing technology, insufficient transmission capacity, lengthy federal review processes for approving permits and applications, and a complex federal royalty system. Direct use businesses face unique business challenges, remote locations, water rights issues, and high federal royalties. The Act addresses many of these challenges through tax credits for geothermal production, new authorities for the Federal Energy Regulatory Commission, and measures that streamline federal leasing and that simplify federal royalties, which totaled $12.3 million in 2005. In addition, the Department of Energy and the state of California provide grants for addressing technology challenges. Furthermore, some state governments offer financial incentives, including investment tax credits, property tax exclusions, sales tax exemptions, and mandates that certain percentages of the electricity within the state be generated from renewable resources. Under the Act, federal royalty disbursement will significantly change because half of the federal government's share will now go to the counties where leases are located. Although the Act directs the Secretary of the Interior to seek to maintain the same level of royalty collections, GAO's analysis suggests this will be difficult because changing electricity prices could significantly affect royalty revenues. Also, MMS does not collect sales data that are necessary to monitor these royalty collections.
Recommendations
Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director:
Team:
Phone:
GAO-06-629, Renewable Energy: Increased Geothermal Development Will Depend on Overcoming Many Challenges
This is the accessible text file for GAO report number GAO-06-629
entitled 'Renewable Energy: Increased Geothermal Development Will
Depend on Overcoming Many Challenges' which was released on July 11,
2006.
This text file was formatted by the U.S. Government Accountability
Office (GAO) to be accessible to users with visual impairments, as part
of a longer term project to improve GAO products' accessibility. Every
attempt has been made to maintain the structural and data integrity of
the original printed product. Accessibility features, such as text
descriptions of tables, consecutively numbered footnotes placed at the
end of the file, and the text of agency comment letters, are provided
but may not exactly duplicate the presentation or format of the printed
version. The portable document format (PDF) file is an exact electronic
replica of the printed version. We welcome your feedback. Please E-mail
your comments regarding the contents or accessibility features of this
document to Webmaster@gao.gov.
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed
in its entirety without further permission from GAO. Because this work
may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this
material separately.
Report to the Ranking Minority Member, Committee on Energy and Natural
Resources, U.S. Senate:
May 2006:
Renewable Energy:
Increased Geothermal Development Will Depend on Overcoming Many
Challenges:
GAO-06-629:
GAO Highlights:
Highlights of GAO-06-629, a report to the Ranking Minority Member,
Committee on Energy and Natural Resources, U.S. Senate
Why GAO Did This Study:
The Energy Policy Act of 2005 (Act) contains provisions that address a
variety of challenges that face the geothermal industry, including the
high risk and uncertainty of developing geothermal power plants, lack
of sufficient transmission capacity, and delays in federal leasing.
Among the provisions are means to simplify federal royalties on
geothermal resources while overall collecting the same level of royalty
revenue. The Act also changes how these royalties are to be shared with
local governments (disbursements). This report describes: (1) the
current extent of and potential for geothermal development; (2)
challenges faced by developers of geothermal resources; (3) federal,
state, and local government actions to address these challenges; and
(4) how provisions of the Act are likely to affect federal geothermal
royalty disbursement and collections.
What GAO Found:
Geothermal resources currently produce about 0.3 percent of our
nation‘s total electricity and heating needs and supply heat and hot
water to about 2,300 direct use businesses, such as district heating
systems, fish farms, greenhouses, food-drying plants, spas, and
resorts. Recent assessments conclude that future electricity production
from geothermal resources could increase by 25 to 367 percent by 2017.
The potential for additional direct use businesses is largely unknown
because the lower temperature geothermal resources that they exploit
are abundant and commercial applications are diverse. One study has
identified at least 400 undeveloped wells and hot springs that have the
potential for development. In addition, the sales of geothermal heat
pumps are increasing.
Developers of geothermal electricity plants face many challenges
including a capital intensive and risky business environment,
developing technology, insufficient transmission capacity, lengthy
federal review processes for approving permits and applications, and a
complex federal royalty system. Direct use businesses face unique
business challenges, remote locations, water rights issues, and high
federal royalties. The Act addresses many of these challenges through
tax credits for geothermal production, new authorities for the Federal
Energy Regulatory Commission, and measures that streamline federal
leasing and that simplify federal royalties, which totaled $12.3
million in 2005. In addition, the Department of Energy and the state of
California provide grants for addressing technology challenges.
Furthermore, some state governments offer financial incentives,
including investment tax credits, property tax exclusions, sales tax
exemptions, and mandates that certain percentages of the electricity
within the state be generated from renewable resources.
Under the Act, federal royalty disbursement will significantly change
because half of the federal government‘s share will now go to the
counties where leases are located. Although the Act directs the
Secretary of the Interior to seek to maintain the same level of royalty
collections, GAO‘s analysis suggests this will be difficult because
changing electricity prices could significantly affect royalty
revenues. Also, MMS does not collect sales data that are necessary to
monitor these royalty collections.
Figures: Glenwood Hot Springs, Colorado (left) and Geothermal Power
Plant at The Geysers, California (right):
[See PDF for Image]
Source: GAO.
[End of Figures]
What GAO Recommends:
GAO found that it will be difficult for the Department of the Interior
to demonstrate that it intends to collect the same level of royalties
as called for in the Act because the Minerals Management Service (MMS)
does not systematically collect the necessary revenue data from
electricity sales. Therefore, GAO recommends that the Secretary of the
Interior instruct the appropriate managers within MMS to systematically
collect future sales revenues for electricity, and Interior agreed.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-629].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Jim Wells at (202) 512-
3841 or wellsj@gao.gov.
[End of Section]
Contents:
Letter:
Results in Brief:
Background:
Current Geothermal Development Is Limited, and Estimated Potential for
Additional Development Varies:
Geothermal Development Faces Many Challenges:
Efforts by Federal, State, and Local Governments to Address Challenges
Show Promise:
Geothermal Royalty Disbursements Will Change Significantly, and Changes
in Electricity Prices Could Alter Total Royalty Collections:
Conclusions:
Recommendation for Executive Action:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Comments from the Department of the Interior:
Appendix III: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: States with Power Plants and Their Capacity:
Table 2: Estimates of Potential Electricity Generation from Geothermal
Resources:
Table 3: U.S. Geothermal Direct Use Applications as of 2005:
Table 4: Example of Royalties Due under the Netback Process:
Table 5: Impact of Changing Electricity Prices on Royalties Due under
the Energy Policy Act and the Netback Process:
Figures:
Figure 1: Tropical Fish Raised in Oregon with Geothermal Water:
Figure 2: Geothermal Power Plant near Reno, Nevada:
Figure 3: District Heating in Boise, Idaho:
Figure 4: Raising Tropical Fish with Geothermal Resources in Idaho:
Figure 5: Alligator Farm Using Geothermal Resources in Idaho:
Figure 6: Nursery Heated with Geothermal Resources in Idaho:
Abbreviations:
BLM: Bureau of Land Management:
DOE: Department of Energy:
DOI: Department of the Interior:
EA: environmental assessment:
EIS: environmental impact statement:
FERC: Federal Energy Regulatory Commission:
KGRA: known geothermal resource areas:
MMS: Minerals Management Service:
NEPA: National Environmental Policy Act of 1969:
RPS: Renewable Portfolio Standard:
USGS: U.S. Geological Survey:
May 24, 2006:
The Honorable Jeff Bingaman:
Ranking Minority Member:
Committee on Energy and Natural Resources:
United States Senate:
Dear Senator Bingaman:
American families and businesses rely heavily on electricity and
natural gas to heat and light homes and buildings, to power appliances,
to manufacture goods, and to supply services. Increasing demand and
rising prices for electricity and natural gas have increased interest
in alternative forms of energy, including geothermal energy. Geothermal
energy is a unique type of renewable resource in that it can provide
power that is independent of weather and climate, thereby enabling a
consistent and uninterrupted supply of heat and electricity. Geothermal
energy also creates fewer environmental impacts than the production of
natural gas and other conventional fossil fuels that are used to
generate electricity. Because many areas that have the potential to
produce additional geothermal energy are located on federal lands, the
federal government is a major participant in the future development of
geothermal energy.
Geothermal energy is literally the heat of the earth. This heat is
abnormally high where hot and molten rocks exist at shallow depths
below the earth's surface. Water, brines, and steam circulating within
these hot rocks are collectively referred to as geothermal resources.
Geothermal resources often rise to the surface naturally along
fractures to form hot springs, geysers, and fumaroles. For centuries,
people have used naturally occurring hot springs as places to bathe,
swim, and relax. More recently, some individuals have constructed
buildings over these springs, transforming them into elaborate spas and
resorts, thereby establishing the first direct use of geothermal
resources for business purposes. Businesses have also established other
direct uses of geothermal resources by drilling wells into the earth to
tap the hot water for heating buildings, drying food, raising fish, and
growing plants. Where the earth's temperature is not high enough to
supply businesses with geothermal resources for direct use, people have
made use of the ground's heat by installing geothermal heat pumps.
Geothermal heat pumps consist of a heat exchanger and a loop of pipe
extending into the ground to draw on the relatively constant
temperature there for heat in the winter and air conditioning in the
summer.
Geothermal resources can also generate electricity, and this is their
most economically valuable use today. Only the highest temperature
geothermal resources, generally above 200 degrees Fahrenheit, are
suitable for electricity generation. When companies are satisfied that
sufficient quantities of geothermal resources are present below the
surface at a specific location, they will drill wells to bring the
geothermal fluids and steam to the surface. Upon reaching the surface,
steam separates from the fluids as their pressure drops, and the steam
is used to spin the blades of a turbine that generates electricity. The
electricity is then sold to utilities in a manner similar to sales of
electricity generated by hydroelectric, coal-fired, and gas-fired power
plants.
Geothermal resources are found throughout the world. In the United
States, geothermal resources are concentrated in Alaska, Hawaii, and
the western half of the country, primarily on public lands managed by
the Bureau of Land Management (BLM). The Congress set forth procedures
in the Geothermal Steam Act of 1970 for leasing these public lands,
developing the geothermal resources, and collecting federal royalties.
Today, BLM leases these lands and sets the royalty rate, and the
Minerals Management Service (MMS)--another agency within the Department
of the Interior (DOI)--collects the federal geothermal royalties and
disburses to the state governments its share of these royalties as
required by law.[Footnote 1] In 2005, the most recent year for which
data are available, MMS collected $12.3 million in geothermal
royalties, almost all of which was derived from the production of
electricity.
Since 1970, determining the amount of royalty payments has become
increasingly complex due to restructuring in the geothermal industry
and changing economic conditions. Government and industry
representatives formed a task force in late 2004 to devise a simpler
royalty system that would address these changes. During deliberations
on the Energy Policy Act of 2005 (Act), we briefed you on the findings
of this task force and on challenges facing geothermal development.
Shortly thereafter, the Congress passed the Act, which contains
provisions to simplify the federal royalties on electricity generation
and reduce royalties on direct use. The Act also contains other
provisions designed to encourage the development of geothermal
resources. This report formalizes the content of our briefings and our
work since then, including: (1) the current extent of and potential for
geothermal development; (2) challenges faced by developers of
geothermal resources; (3) federal, state, and local government actions
to address these challenges; and (4) how provisions of the Act are
likely to affect federal geothermal royalty disbursements and
collections.
In responding to these objectives, we reviewed key studies on the
extent and potential of geothermal development and interviewed BLM and
industry officials in California, Nevada, and Utah. To identify the
challenges facing geothermal developers and to assess actions taken by
federal, state, and local governments, we interviewed a variety of
government and industry officials, reviewed substantial supporting
documentation and the Act, and toured geothermal electricity plants in
California and Nevada and direct use facilities in Idaho, Nevada, and
Oregon. To assess how provisions within the Act will affect federal
geothermal royalties, we interviewed MMS and BLM employees; reviewed a
report authored by the Royalty Policy Committee;[Footnote 2] and
analyzed geothermal royalty, production, and sales data from January
2000 through December 2004. We performed our work between May 2005 and
May 2006 in accordance with generally accepted government auditing
standards. A more detailed description of our objectives, scope, and
methodology is provided in appendix I.
Results in Brief:
Although locally important in Hawaii, California, and Nevada,
geothermal resources produce a very small portion of our nation's total
electricity and heating needs, and estimates of the potential for
additional development vary. In 2004, geothermal resources generated
about 0.3 percent of the nation's total electricity and supplied heat
and hot water directly to about 2,300 businesses and organizations,
including district heating systems, fish farms, greenhouses, food
drying plants, spas, and resorts. In addition, the Geothermal Heat Pump
Consortium estimates that 1 million geothermal heat pumps are installed
in the 50 states, tapping the shallow heat of the earth to both heat
and cool individual homes and businesses. Estimates of future
electricity generation from geothermal resources vary widely based on
methodology, sites considered, development costs, and future
electricity prices. The most recent assessments suggest that the
current production of 2,500 megawatts of electricity--enough to supply
2.5 million homes--could increase to between about 3,100 and 12,000
megawatts in 11 years. The future potential of using geothermal
resources in direct use applications is less known because of the wide
variety of applications and the widespread occurrence of suitable
geothermal resources. However, the Geo-Heat Center at the Oregon
Institute of Technology estimates that about 400 undeveloped geothermal
wells and hot springs have the potential to supply heat and hot water
directly to a variety of businesses and other organizations. The
potential for geothermal heat pumps, however, is almost unlimited in
the United States. Heat pumps are the fastest growing sector of the
geothermal industry, with about an 11 percent increase in units added
each year. Finally, the potential for geothermal development is, to
some extent, dependent on the federal government. Whereas nearly all
direct use applications of geothermal resources are on private lands,
geothermal power plants depend upon resources located on federal lands
for about 50 percent of the electricity they generate.
Businesses and individuals face significant financial, technical, and
logistical challenges when trying to develop geothermal resources.
Developers of electric power plants that use geothermal resources face
a capital intensive and risky business environment in which obtaining
financing and securing a contract with a utility are difficult and
where recouping the initial investment takes many years. Geothermal
power plant developers must also use exploration and drilling
technologies that are inadequate because of the unique attributes and
high temperatures associated with geothermal reservoirs. Furthermore,
because portions of the electrical grid lack adequate transmission
capacity and because geothermal resources are often in remote
locations, new geothermal power plants may face costly transmission
expenses. Developers of electric power plants on federal lands face
additional challenges, including: (1) lengthy administrative/
regulatory reviews of lease and permit applications that can become
complicated by lawsuits involving environmental and/or Native American
issues, (2) scattered federal leases that make it difficult to develop
an economically viable project, and (3) a complicated royalty payment
system. Businesses and individuals trying to tap geothermal resources
for direct use face unique marketing, financing, and technical
challenges characteristic of their industry, as well as challenges that
are unique to the site that they hope to develop. In some cases, these
businesses and individuals must also contend with remote locations and
state water rights that may restrict the use of geothermal resources.
In addition, the developers of direct use facilities face higher
federal royalties because royalty payments are based on the price of
natural gas, which has recently risen to levels that substantially
reduce profit margins.
To address the many challenges of developing geothermal resources,
federal, state, and local governments have implemented a number of
incentives and initiatives, including tax credits, technology grants,
requirements to use renewable energy, and leasing and royalty
simplification. Many of these efforts show promise, but it is too early
to assess their overall effectiveness. To address the capital intensive
and risky business environment facing the developers of geothermal
power plants, the Act grants developers a federal tax credit that
allows them to recoup their investments more quickly. The Act also
seeks to lower exploration risk by directing that the Secretary of the
Interior update the U.S. Geological Survey's 1978 assessment of
geothermal resources. Some state governments are addressing the capital
intensive and risky business nature of geothermal development by
granting various tax credits for the production of electricity from
renewable energy and for the construction of renewable energy
facilities and systems. Twenty-two states and the District of Columbia
have further encouraged the production of electricity from renewable
resources with laws or policies containing renewable portfolio
standards. Most of these standards mandate that public utilities
provide a minimum percentage of their electricity from renewable energy
such as geothermal resources. To address technological challenges, the
federal government and the state of California have awarded grants for
research and development efforts through the Department of Energy's
Geothermal Technologies Program and the California Energy Commission,
respectively. To address transmission challenges, the Act gives the
Federal Energy Regulatory Commission (FERC) new authorities to issue
permits for transmission facilities in the national interest, increase
their capacity, and develop incentives. Some states and local
governments have also developed several planning initiatives aimed at
transmission challenges. Finally, the Act contains provisions designed
to improve the efficiency of the federal geothermal program, including
simplifying the federal leasing process, improving coordination between
leasing responsibilities of BLM and the Forest Service, consolidating
small federal leases, and simplifying or reducing federal royalty rates
on electricity generation and direct use facilities.
How federal geothermal royalties are to be shared with local
governments will change significantly after passage of the Act, and the
total amount of royalties collected could change significantly if
electricity prices also change. Prior to passage of the Act, half of
federal geothermal royalties were disbursed to the states, and half
were retained by the federal government. Now, half of the federal
government's share will be disbursed to the counties in which the
geothermal resources are located, leaving the federal government with
25 percent of the total royalty revenue, instead of the original 50
percent. While, for most leases, the Act directs that the Secretary of
the Interior seek to maintain the same level of royalty revenues as
before the Act, our analysis suggests that this will be difficult
because changing electricity prices could significantly affect the
percentage of royalty revenues collected in the future. Furthermore, it
will be difficult for MMS to show that it plans to collect the same
level of royalty revenues from electricity generation because it does
not routinely collect revenue data from electricity sales, and these
data are necessary to calculate and achieve the royalty percentages
prescribed in the Act. Finally, while a provision within the Act lowers
the royalties on direct use applications in order to encourage
additional development, the monetary impact on collections is likely to
be small because total royalty revenues from direct use applications on
federal lands are already minimal.
To demonstrate their attempt to collect the same level of royalty
revenues as prior to passage of the Act, we are recommending that the
Secretary of the Interior instruct the appropriate managers within MMS
to routinely collect future sales revenues for electricity when royalty
payments are due.
Background:
The temperature of geothermal resources generally dictates their use.
Low temperatures from 40 to 70 degrees Fahrenheit (F) that occur in the
ground at shallow depths are best used for geothermal heat pumps.
Geothermal heat pumps, also known as ground-source heat pumps, are
devices that take advantage of the relatively constant temperature
immediately beneath the earth's surface to provide heat in the winter
and air conditioning in the summer. During the winter, a heat pump
transfers the heat of the ground to a fluid filled set of coils and
then pumps this fluid to the building. A heat exchanger then transfers
the heat to another set of coils filled with a refrigerant that boils.
The resulting gas is then compressed and pumped to a condenser, where
it gives up its heat as a fan blows over the condenser coils. During
the summer, heat pumps work in reverse, extracting heat from the
building and transferring it to the ground. Although heat pumps run on
electricity, they produce three to four times the energy that they
consume. As a result, they can reduce energy consumption by 20 to 70
percent relative to conventional electrical heating and cooling
systems. They also can produce hot water for free during the summer and
for about half price during the winter.
Direct use applications begin with geothermal resources that have
temperatures as low as 70 degrees F and can include geothermal
resources as hot as 300 degrees F. Geothermal waters can be mixed with
groundwater or surface water to achieve the most desirable temperature
for the specific application. Geothermal waters with temperatures
between about 70 and 125 degrees F are best used in spas and resorts
for recreational swimming and bathing, in aquaculture operations for
raising fish and other aquatic animals (fig. 1), and within sidewalks
and roads for melting snow. Geothermal resources between about 125 and
300 degrees F can be used for various applications, each of which has
optimal temperature ranges. Specific applications include food
processing; fruit and vegetable drying; space and district heating;
raising flowers, plants, and trees in greenhouses; processing pulp and
paper; drying lumber, cement, and aggregate; curing concrete blocks;
pasteurizing milk; dyeing fabric; making ice; and providing
refrigeration.
Figure 1: Tropical Fish Raised in Oregon with Geothermal Water:
[See PDF for image]
Source: GAO.
[End of figure]
Electricity generation requires geothermal resources of at least 200
degrees F, with higher generation capacity coming from temperatures
above 350 degrees F. Geothermal power plants extract geothermal fluids-
-hot water, brines, and steam--from the earth by drilling wells to
depths of up to 10,000 feet (fig. 2). The geothermal resources are then
used, in lieu of running water or the burning of fossil fuels, to
produce a vapor that turns the blades of a turbine that spins a
generator to produce electricity. Geothermal resources with
temperatures from about 200 to 350 degrees F are best suited for binary
power plants. In a binary plant, the geothermal fluids are passed
through a heat exchanger to heat a secondary fluid, like isopentane,
that vaporizes at a lower temperature than water and spins the power-
producing turbines. The fluid is then condensed back into a gas and
recycled, and the geothermal resources are injected back into the
reservoir. When geothermal resources have temperatures over about 350
degrees F, flash plants are most appropriate. In flash power plants,
highly pressurized hot water is brought to the surface, where the
pressure decreases and part of the water explosively boils, or
"flashes," into steam. The steam is then separated from the remaining
hot water and used to turn the turbines. Residual water is injected
back into the reservoir. In some rare geothermal systems with
temperatures above 455 degrees F, as at an area known as The Geysers
Geothermal Field (The Geysers) in northern California, the geothermal
resources may consist entirely of steam within the reservoir. Dry steam
power plants use the steam directly to spin the turbines. Although some
of the steam condenses back to water that can be injected back into the
reservoir, much water is lost to evaporation in this process. Flash and
binary power plants can also be combined in sequence for the most
efficient generation of electricity. In these hybrid power plants, hot
water is first flashed within a flash plant and then the steam is
condensed, combined with the lower temperature water, and routed to a
binary plant for further generation of electricity.
Figure 2: Geothermal Power Plant near Reno, Nevada:
[See PDF for image]
Source: GAO.
[End of figure]
The leasing of federal lands for geothermal resources is governed by
the Geothermal Steam Act of 1970, as amended.[Footnote 3] To explore
and develop geothermal resources on federal lands, developers must
first obtain a federal lease from BLM. The lease is a contract between
the federal government and the lessee that specifies certain terms for
development and payment of rents and royalties. Regardless of the
federal agency managing the lands where the geothermal resources are
located, BLM has responsibility for issuing these leases after
obtaining concurrence from the federal land managing agency. Before
passage of the Act, BLM designated certain areas that it believed to
have a reasonable potential for the commercial development of
geothermal resources as "known geothermal resource areas (KGRA)."
Within a KGRA, BLM was required to lease lands to the highest qualified
bidder under a formal competitive bidding process, as long as the
highest bid equaled or exceeded fair market value.[Footnote 4] For land
outside of a KGRA, BLM was required to issue a lease noncompetitively
to the first qualified buyer applying for the lease. Under provisions
of the Act, BLM no longer establishes KRGAs, but instead accepts
nominations from parties interested in leasing available lands and
holds a competitive auction at least once every 2 years. If bids are
not received for lands offered in the sale, the Secretary is to make
them available for 2 years for noncompetitive leasing. BLM issues
geothermal leases for 10 years and requires lessees to pay an annual
rental of at least $1 per acre until commercial production is
established. Thereafter, lessees pay a royalty from 10 to 15 percent of
the value of production.
BLM will not issue federal geothermal leases until the federal land
management agency completes an extensive environmental review process.
The leasing and development of these lands must be consistent with the
management objectives for the lands as documented in the appropriate
resource or forest management plan. Should these plans not adequately
address exploration and development of geothermal resources, the
appropriate agency personnel may need to amend or rewrite the plans.
Prior to leasing, agency officials must also comply with provisions of
the National Environmental Policy Act of 1969, as amended (NEPA). NEPA
requires federal agencies to prepare an environmental impact statement
(EIS) for major federal actions that may have a significant affect on
the quality of the human environment. When an agency is not sure
whether an activity will have significant impact on the environment,
the agency prepares a less detailed environmental assessment (EA). If
an EA determines that the activity will significantly affect the
environment, the agency then prepares an EIS. During these analyses,
agency personnel analyze potential impacts of geothermal leasing to
various resources such as air and water quality, vegetation, wildlife,
threatened and endangered species, and visual and cultural resources.
In California, state laws also require a similar environmental review.
Agency personnel may also need to comply with provisions of other
federal legislation, such as the Endangered Species Act of 1973, as
amended, and the National Historic Preservation Act, as amended.
Under the Geothermal Steam Act of 1970, as amended, calculating
geothermal royalties was relatively simple because the developers of
the geothermal fields sold steam and hot water to power plants,
establishing a sales price upon which royalties could be based. The
statutory royalty rate specified in the lease, which was from 10 to 15
percent, was multiplied by the sales value of the geothermal resource
each month to yield royalties due. In the 1980s, the developers sold
the fields to the power plants, and this basis for valuing the
geothermal resource was lost. In 1991, MMS issued new regulations that
were in effect until passage of the Act. These regulations established
the value of the geothermal resource based on the value of the
electricity sold. The regulations called for subtracting, or "netting
back" from the electricity's sales revenues, the costs of generation
and transmission. Formulas for netting back these costs were complex
due to different methods of accounting for depreciation, uncertainty
over which costs qualified for deduction, and commingling of federal
and nonfederal resources. The Act contains provisions aimed at
simplifying this process by allowing lessees the option on existing
leases to pay royalties based on a percentage of gross sales revenue
and by prescribing a set schedule of royalty rates for future leases.
In addition, royalties due on direct use facilities prior to passage of
the Act were based on the price of natural gas, which has risen
substantially in recent years, making the direct use of federal
geothermal resources unattractive. The Act provides for replacing this
system of direct use royalties with a schedule of fees that encourages
the development of geothermal resources.
Current Geothermal Development Is Limited, and Estimated Potential for
Additional Development Varies:
Electricity generated from geothermal resources is small, about 0.3
percent of the total electricity produced in the United States, with
about half of this amount coming from federal resources. Recent
estimates of the potential for additional electricity generated from
geothermal resources vary from an increase of about 25 percent by 2015
to 367 percent by 2017. There were over 2,300 businesses and heating
districts that used geothermal resources for heat and hot water in the
United States in 2005, with only two businesses using federal
geothermal resources. The total potential for direct use applications
is largely unknown because of the widespread occurrence of lower
temperature geothermal resources and the many diverse applications.
Electricity Generation from Geothermal Resources Is Small and Relies on
Federal Resources:
Geothermal resources currently produce about 0.3 percent of the annual
electricity in the United States, or 2,534 megawatts--enough
electricity to supply 2.5 million homes. Even though the percentage of
electricity generated from geothermal resources is small nationwide, it
is locally important. For example, geothermal resources provide about
25 percent of the Island of Hawaii's electricity, 5 percent of
California's electricity, and 9 percent of northern Nevada's
electricity. As of January 2006, companies were constructing geothermal
power plants in California, Nevada, and Idaho that collectively will
produce another 390 megawatts of electricity. Table 1 shows the number,
location, and capacity of geothermal power plants that currently
produce electricity or are under construction.
Table 1: States with Power Plants and Their Capacity:
State: California;
Number of existing geothermal power plants: 41;
Total capacity: 2,239;
Number of power plants under construction: 2;
Additional capacity: 285.
State: Hawaii;
Number of existing geothermal power plants: 1;
Total capacity: 30;
Number of power plants under construction: 0;
Additional capacity: 0.
State: Idaho;
Number of existing geothermal power plants: 0;
Total capacity: 0;
Number of power plants under construction: 1;
Additional capacity: 10.
State: Nevada;
Number of existing geothermal power plants: 10;
Total capacity: 239;
Number of power plants under construction: 3;
Additional capacity: 95.
State: Utah;
Number of existing geothermal power plants: 2;
Total capacity: 26;
Number of power plants under construction: 0;
Additional capacity: 0.
State: Total;
Number of existing geothermal power plants: 54;
Total capacity: 2,534;
Number of power plants under construction: 6;
Additional capacity: 390.
Source: The Geo-Heat Center, the Department of Energy (DOE), and BLM.
Note: Each unit of capacity is a megawatt.
[End of table]
Over half of the nation's electricity generated from geothermal
resources, about 1,275 megawatts, comes from geothermal resources
located on federal lands. Of the 54 geothermal power plants, 26 are
located on federal lands managed by BLM, and 28 are located on private
or state lands. As of January 2006, there were 50 federal geothermal
leases from which electricity was produced--48 on BLM lands, and 2 on
Forest Service lands. Twelve of these leases are located in The Geysers
in northern California, and they account for over one-third of the
electricity produced from federal geothermal resources. The other 44
producing federal geothermal leases are located in and near the Sierra
Nevada Mountains of eastern California, near the Salton Sea in the
southern California desert, in southwestern Utah, and scattered
throughout Nevada.
Estimates of the Potential for Additional Electricity Generation from
Geothermal Resources Vary Widely:
Industry and government estimates of the potential for electricity
generation from geothermal resources vary widely, due to differences in
the date by which forecasters believe the electricity will be
generated, the methodology used to make the forecast, assumptions about
electricity prices, and the emphasis placed on different factors that
can affect electricity generation. Five estimates published since 1999
indicate that the potential for electrical generation from known
geothermal resources over the next 9 to 11 years is from about 3,100 to
almost 12,000 megawatts. By 2025, two of these sources estimate that
electrical generation from these known resources will increase to
between 6,800 and 13,000 megawatts. The difference in estimates could
also be due to the different methodologies used to make the forecasts,
such as surveys of experts in the geothermal industry and/or detailed
economic modeling. Placing different emphasis on geothermal development
costs, electricity prices, natural gas prices, and/or reservoir
characteristics also probably led to differences in the estimates.
Table 2 summarizes the estimates of potential electricity generation
from geothermal resources.
Table 2: Estimates of Potential Electricity Generation from Geothermal
Resources:
Source and date of estimate: U.S. DOE, Energy Information
Administration's Annual Energy Outlook, 2004;
Estimate of electricity generation: 6,800 megawatts by 2025 for known
geothermal areas based on stable natural gas prices. This estimate does
not take into account Enhanced Geothermal Systems, which is a DOE
program to create man-made geothermal reservoirs.
Source and date of estimate: California Energy Commission, 2005;
Estimate of electricity generation: 11,822 megawatts by 2017 in
California, Nevada, Arizona, Idaho, Utah, Oregon, and New Mexico from
known geothermal resource areas based on amount of heat in place,
reservoir characteristics, economic factors, and a Monte Carlo
simulation.
Source and date of estimate: Oregon Institute of Technology, Geo-Heat
Center, 2005;
Estimate of electricity generation: 3,160 megawatts based on all
planned capacity at known geothermal areas coming on line by 2015.
Source and date of estimate: Western Governor's Association, 2005;
Estimate of electricity generation: 5,600 megawatts by 2015 and up to
13,000 megawatts by 2025, based on consensus of professional opinions
for known geothermal resource areas and economic modeling of costs and
electricity prices.
Source and date of estimate: Geothermal Energy Association, 1999;
Estimate of electricity generation: Between 6,340 megawatts and 11,700
megawatts using 1999 technology and between 15,080 megawatts and 25,390
megawatts using enhanced technology, based on a survey of expert
opinions and known geothermal areas.
Source and date of estimate: U.S. Geological Survey, 1978;
Estimate of electricity generation: 23,000 megawatts from known
geothermal areas and an additional 72,000 to 127,000 megawatts from
undiscovered resources based on amount of heat in place, reservoir
characteristics, 1978 technology, and a Monte Carlo simulation.
Source: GAO.
[End of table]
A detailed comprehensive study of electricity generation from all
geothermal resources in the United States has not been undertaken since
1978, when the U.S. Geological Survey (USGS) published Circular 790,
"Assessment of Geothermal Resources of the United States--1978." This
assessment, based on the amount of thermal energy in place, estimated
that known geothermal resources could generate 23,000 megawatts if all
of them were developed, significantly more than that estimated by the
five other studies. The other five estimates in table 2 differ from the
USGS estimate in that they attempt to estimate how much electricity
could be economically produced from known resources, given competing
commercial sources of electricity, and they are based on more extensive
reservoir, production, and economic data. In addition, none of the five
estimates include undiscovered resources; the USGS estimated that
undiscovered resources could generate an additional 72,000 to 127,000
megawatts.
Direct Use Applications Are Numerous and Diverse, and Few Are Located
on Federal Land:
Over 2,300 businesses and heating districts in 21 states used
geothermal resources directly for heat and hot water in 2005. About 85
percent of these users are employing geothermal resources to heat
homes, businesses, and government buildings (table 3). While most users
heat one or several buildings, some users have formally organized
heating districts that pipe hot water from geothermal wells to a
central facility that then distributes it to heat many buildings more
economically than other available sources of energy. The largest
concentration of geothermal heating districts occurs in Boise, Idaho,
where four heating districts distribute geothermal waters to over 50
buildings, including the Capitol and City Hall (fig. 3). Geothermal
heating districts supply heat to about 20 commercial and government
buildings in Klamath Falls, Oregon, and to 400 homes in Reno, Nevada.
The next most plentiful direct use applications are resorts and spas,
accounting for over 10 percent of sites. About 244 geothermal resorts
and spas offer relaxation and therapeutic treatments to customers in 19
states. Spas and resorts can be as primitive as an unsheltered hot
spring in the backcountry to an elaborate resort with multiple soaking
pools, an Olympic-sized swimming pool, a 100-room hotel, and gourmet
restaurants. Two percent of geothermal direct use applications consist
of heated greenhouses in which flowers, bedding plants, and trees are
grown. Idaho leads the nation with the most geothermally heated
greenhouses--13, and New Mexico leads the nation with the largest
geothermally heated greenhouse--covering 32 acres. Another 2 percent of
geothermal direct use applications are for aquaculture operations that
heat water for raising aquarium fishes for pet shops; catfish, tilapia,
freshwater shrimp and crayfish for human consumption; and alligators
for leather products and food (fig. 4). Other direct use geothermal
applications include dehydrating vegetables, like onions and garlic,
and melting snow on city streets and sidewalks. Geothermal direct use
applications are summarized in table 3.
Table 3: U.S. Geothermal Direct Use Applications as of 2005:
Application: Space heating;
Number of sites: 1,976.
Application: District heating;
Number of sites: 20.
Application: Resorts and spas;
Number of sites: 244.
Application: Aquaculture;
Number of sites: 48.
Application: Greenhouses;
Number of sites: 44.
Application: Snow melting;
Number of sites: 6.
Application: Agricultural drying;
Number of sites: 3.
Application: Other industrial;
Number of sites: 3.
Application: Total;
Number of sites: 2,344.
Source: The Geo-Heat Center at the Oregon Institute of Technology.
[End of table]
Figure 3: District Heating in Boise, Idaho:
[See PDF for image]
Source: GAO.
[End of figure]
Nearly all direct use businesses and heating districts are currently
located on private lands. Only two direct use businesses that use
federal geothermal resources are currently in operation. One of these
businesses, located at Honey Lake in northern California, uses
geothermal resources to preheat a boiler in which biomass is burned to
create electricity. Four additional businesses--a nursery, a food
processing plant, and two mines--have also used federal resources at
one time in direct use applications. A nursery in New Mexico used
federal geothermal resources for heating greenhouses, but the owner
reported that he stopped using the federal geothermal resources because
he considered the federal royalties to be excessive. Two gold and
silver mines also used geothermal waters from BLM lands in Nevada to
enhance their cyanide heap leeching operations but suspended these
operations, due in part, to high federal royalties. The owner of the
food processing plant, which dried garlic, reported being forced out of
business by lower priced imports from China.
Figure 4: Raising Tropical Fish with Geothermal Resources in Idaho:
[See PDF for image]
Source: GAO.
[End of figure]
The Potential for Developing Additional Direct Use Is Uncertain:
The potential for additional direct use of geothermal resources in the
United States is uncertain due to the geographically widespread nature
of low-temperature geothermal resources and the many different types of
applications. The USGS performed the first national study of low-
temperature geothermal sites in 1982[Footnote 5] and estimated the
amount of heat in-place that could be available for direct use
applications across the United States. However, this study was neither
specific enough to identify individual sites for development, nor did
it estimate the amount of heat that could be recovered and converted
into energy savings for homes or businesses. In 2005, the Geo-Heat
Center at the Oregon Institute of Technology identified 2,211
geothermal wells and springs with temperatures appropriate for direct
use. The Geo-Heat Center estimated that 404 of these wells and springs
might be commercially developed because they are within 5 miles of
communities. The study estimated the minimum amount of heat that could
be produced at each site but did not assess the economics or business
climate of the various direct use applications.
Geothermal Heat Pumps Show Increasing Use:
Geothermal heat pumps have become a major growth segment of the
geothermal industry by making use of the earth's warmer temperature in
the winter to heat buildings and using the earth's cooler temperature
in the summer for air conditioning. The Geothermal Heat Pump Consortium
estimated that 1 million units were in operation in all 50 states as of
January 2006. The number of geothermal heat pumps has steadily
increased over the past 10 years. Because geothermal heat pumps are
effective where ground temperatures are between 40 and 70 degrees F,
they can be installed in almost any location in the United States and,
therefore, are the most widespread geothermal application and have the
greatest potential.
Until 1999, few geothermal heat pumps were installed in federal
facilities. The annual federal investment in geothermal heat pumps has
increased substantially since then, from $6 million in 1999 to $74
million in 2001--the latest year for which data are available. As of
November 2005, federal facilities had installed over 25,000 individual
heat pumps--over 24,000 of them in military bases. The other 1,000 heat
pumps were installed by the Department of Housing and Urban
Development, DOI, the U.S. Postal Service, and the Environmental
Protection Agency.
Geothermal Development Faces Many Challenges:
The development of geothermal resources for electricity production
faces major challenges, including high risk and financial uncertainty,
inadequate technology, and insufficient transmission capacity.
Developers of geothermal power plants face additional challenges when
operating on federal lands. These challenges include: (1) a lengthy
review process for the approval of leases and permits,(2) insufficient
resources at BLM to conduct the necessary reviews, (3) different
priorities between the BLM and the Forest Service when lands under
their jurisdiction occur within a project area, (4) fragmented lease
holdings that make it difficult to develop an economically viable
project, and (5) a complex federal royalty system. Developers of
geothermal resources for direct uses also face a variety of other
business challenges, remote locations, water rights issues, and higher
federal royalties over the past few years. The recently passed Act
addresses some of these challenges and is discussed in the next section
of this report.
Geothermal Power Plants Face High Risk, Financial Uncertainty, and
Technological Impediments:
Geothermal development for the production of electricity is a risky,
expensive, and lengthy process. Geothermal groups reported that most
attempts to develop geothermal resources are unsuccessful, that costs
to develop geothermal power plants can surpass $100 million, and it can
take 3 to 5 years for plants to first produce and sell electricity. The
development of geothermal resources for electricity generation follows
a series of phases, starting with finding the geothermal resources
through exploration, then confirming the magnitude and extent of the
resource, and ending with full field development and power plant
installation. Although some resources are easy to find because they
produce telltale signs such as hot springs or fumaroles, most resources
are buried deep within the earth--at depths sometimes exceeding 10,000
feet--and finding them often requires an in-depth knowledge of the
area's geology, geophysical surveys, remote sensing techniques, and at
least one test well. The Geothermal Energy Association estimates that
average wells cost from $2 million to $5 million and that only about 25
percent of the initial test wells are successful in finding commercial
geothermal fields. Companies must then drill additional wells to assess
the extent, temperature, pressure, and productivity of the reservoir,
thereby allowing companies to confirm the magnitude and extent of the
resource and decide whether it is economically viable. Estimates of
failure rates for wells drilled during this phase run as high as 60
percent. According to the Geothermal Energy Association, developers
typically spend about 10 percent of the total cost for this phase. It
costs $75 million to develop a typical 25 megawatt power plant. Such a
plant can produce enough electricity for 19,000 homes. The drilling of
additional wells to produce and manage the reservoir, installing the
power plant, and connecting the wells to the plant with pipes generally
account for another 23 percent, 54 percent, and 7 percent of the total
costs of the plant, respectively. In addition, operating and
maintenance costs for a plant of this size could be about another $5
million per year.
The risks and high initial costs associated with geothermal development
limit financing and make financing more difficult. Energy consultants
told us that few companies, including venture capitalists, are willing
to provide funding for geothermal projects, particularly for the
initial phases of exploration and confirmation. Industry officials who
do provide funding for geothermal development told us that they would
only fund projects that are either fully confirmed or are in areas of
well-known geothermal potential. Even when fully confirmed, moreover,
few lenders will finance a geothermal project until a contract has been
signed by a utility or energy marketer to purchase the expected
electricity. Geothermal industry officials describe the process of
securing a contract as complicated and costly, especially for small
geothermal developers who are generally unfamiliar with the various
bidding mechanisms that utilities use to establish electricity prices.
Officials with a large utility expressed their reluctance to purchase
more costly electricity from geothermal plants and cited an inability
to pass on the additional cost to ratepayers. Electricity from
geothermal resources may also be unavailable during time frames
specified by the contract because of delays due to environmental
litigation or lack of available transmission. In addition, an energy
consultant told us that most utilities are unfamiliar with geothermal
resources, and they are unlikely to invest the necessary time to assess
geothermal projects because geothermal electricity would make up a
small percentage of their total energy portfolio.
Inadequate technology adds to the high costs and risky nature of
geothermal development. Since geothermal systems are geologically more
complex than oil and gas systems, exploration tools commonly used in
the oil and gas industry, such as geophysical surveys, are less
effective. In general, geothermal reservoirs are located in very hard
and fractured rocks that make drilling difficult. Operators often
experience difficulty in drilling because drill bits wear quickly and
because the medium used to lubricate the borehole and remove rock
fragments, called drilling fluid, is commonly lost into the many
fractures in the rock. Compared with oil and gas wells, the
temperatures encountered when drilling are considerably higher and the
geothermal resources are more corrosive, resulting in corrosion of
drilling equipment and production casing and the failure of electronic
components. Geothermal wells are also larger in diameter than oil and
gas wells drilled to the same depth, which drives up drilling costs.
The recent boom in oil and gas drilling has added to the scarcity and
higher costs for drilling rigs and equipment.
Lack of Adequate Electrical Transmission Hinders Geothermal
Development:
Lack of available transmission creates a significant impediment to the
development of geothermal resources for electricity production. To send
electricity produced at geothermal power plants to utilities,
geothermal companies often need to construct new transmission lines
from their plant to existing lines. In the West, however, many
geothermal resources are located far from existing transmission lines,
making the construction of additional lines economically prohibitive,
according to federal, state, and industry officials. For example, there
are no significant transmission lines between the geothermal resources
in northern Nevada and the populated area of Las Vegas in southern
Nevada. In California, there is a need for new or upgraded transmission
to access renewable resources in Nevada and in the Imperial Valley of
southern California, which has significant geothermal potential. Even
when geothermal resources are near major transmission lines or
developers can fund the construction of an additional transmission
line, adequate transmission capacity may still be unavailable. Many
existing transmission lines are operating at or near capacity and may
not be able to transmit electricity without significant upgrades.
Paramount among transmission concerns is who will pay for the needed
transmission capacity. Transmission costs can be very large. In Nevada,
a BLM official told us that transmission lines there cost over $500,000
per mile. The California Energy Commission said in a June 2005 report
that new transmission lines with interconnections cost between $375,000
and $3.3 million per mile for single circuit lines, depending on their
voltage. In the summer of 2005, FERC denied a request from a utility to
pass the costs for transmission lines on to ratepayers. According to
utility officials, this reaffirms that developers must pay for the
costs since utilities will not voluntarily absorb the costs directly.
Under current rules, when a developer requests new transmission
capacity, the bulk of the costs are assigned to the project that first
pushes the transmission system beyond its existing capacity. In
addition, federal, state, and industry officials note that small
geothermal plants are discouraged from connecting to these large
transmission lines because utilities do not want to bother with the
small amounts of electricity unless there are many of them in the same
area.
Cumbersome planning and permitting processes have hindered the addition
of necessary transmission capacity. In a July 2005 report, a consultant
for the Edison Electric Institute noted that nationally the task of
getting a transmission project planned, approved, permitted, and
financed remained daunting. The authors stated that the investment
climate for transmission remained fragmented by different procedures,
incentives, and constraints from one region of the country to another.
The California Energy Commission noted in a November 2005 report that
the state's inefficient transmission planning and permitting processes
were contributing to worsening the state's transmission problems.
Addressing the same issue, an official of a large California utility
told us that obtaining agreement on where to construct transmission
lines, addressing environmental issues, obtaining approvals, and a "not
in my backyard" philosophy, contributed to the uncertainty and long
lead times in building additional transmission capacity. In addition, a
geothermal developer complained about extensive hearings and an
inability to determine jurisdictions between the state and the federal
government and between agencies within California.
Geothermal Power Plants on Federal Lands Face Delays in Processing
Applications, Fragmented Lease Holdings, and a Complex Royalty System:
Geothermal developers state that the process for approving leases and
issuing permits to drill wells and construct power plants has become
excessively bureaucratic. BLM and Forest Service officials often have
to amend or rewrite resource or forest management plans, which can add
up to 3 years to the approval process, depending upon the complexity of
the proposal and when the last plan was written. Delays in finalizing
resource and forest management plans and in conducting environmental
reviews have resulted in a backlog of 31 lease applications in
California, with an average age of 7.4 years, and 136 lease
applications in Nevada, with an average age of about 2 years. Despite
the high backlog in Nevada, BLM officials noted that they processed 177
lease applications from January 2001 through June 2005. In contrast,
during the same period, BLM did not process any lease applications in
California. Nevada BLM officials reported that they can generally make
decisions on whether to allow leasing and development faster because
the public raises fewer issues and BLM documents its decision within a
shorter document known as an EA. In California, however, the public
raises more environmental issues and concerns involving Native American
spirituality so BLM often prepares a more detailed document called an
EIS, which typically takes 2 years to complete. While geothermal
developers told us that they support environmental analyses, they
complained about the duplication of federal and state documentation in
California and of the appeals and lawsuits filed by groups opposing the
federal and state decisions, citing that it often takes years for their
resolution. The California Energy Commission reported in a June 2005
report that the entire process from exploration to the first production
of electricity can take more than a decade and that it was not unusual
to redo environmental documents because they became outdated.
Geothermal applications, permits, and environmental reviews are also
delayed because of a lack of staff and budgetary resources at the BLM
state and field offices that conduct the necessary work. Nevada and
California BLM officials noted that lack of funding and dedicated staff
to work on lease applications was a constant problem. Lack of funding
in California has slowed completion of BLM resource management plans
and EISs necessary for lease approvals and drilling permits. BLM
officials noted in California that they received only $90,000 to
conduct two extensive EISs for which staff had requested $1.2 million
while Nevada BLM received a one-time allocation of $700,000 for
processing a backlog of lease applications and writing several less
extensive EAs, which generally cost $80,000 to $90,000 each.
Approvals for leases and permits may also be delayed when BLM must
coordinate with the Forest Service, which manages land in some project
areas. The Forest Service manages significant lands on geothermal
projects in Oregon, Washington, California, and Nevada. Although BLM is
the lead federal agency for geothermal development, the Forest Service
must concur with leasing and development, and it has its own permitting
process. BLM and industry officials report that there can be a lack of
coordination between the Forest Service and BLM because of differing
objectives and directives. While both agencies manage their lands
according to the multiple use doctrine, they may have different
priorities for land use and the public often submits more negative
comments concerning geothermal development on Forest Service lands. A
Forest Service official noted that it is important to balance the
competing issue of geothermal development with other land uses such as
preservation and recreation. He cited a limited budget for updating
forest management plans, which can lead to delays, and noted that since
geothermal development generates far less revenue than logging and coal
mining on Forest Service Lands, geothermal development receives less
priority.
Companies may also encounter difficulties in developing geothermal
resources for electricity production due to a patchwork of lease
ownership. Geothermal resources within a project area may be owned by
the federal government, state government, or private entities. Even
when all resources within a project are under federal lease, several
lessees with competing interests and objectives may own these leases.
Some BLM officials noted that some developers have reported difficulty
in consolidating the various geothermal leases into an economically
viable project that can recover the costs of the power plant and
transmission line. These developers, according to these BLM officials,
say that speculators often lease geothermal resources not for
development purposes but rather to resell the leases at a significant
profit, running up the cost of the project.
Geothermal developers, BLM officials, and MMS officials concur that the
complex federal royalty system in effect before passage of the Act was
a challenge to the development of geothermal electricity plants. While
developers did not consider this royalty system to be a major obstacle
in constructing a geothermal power plant, some described calculating
royalty payments as burdensome and reported expending considerable time
and expense on royalty audits. Several industry officials cited the
complex royalty system as a reason for advocating revisions to the
Geothermal Steam Act of 1970, as amended.
Direct Uses of Geothermal Resources Face Business Challenges, Remote
Locations, Water Rights, and Royalty Issues:
The small business owners, operators of heating districts, and
individuals who commonly develop geothermal resources for direct use
face a variety of business challenges. Foremost among these challenges
are obtaining capital, overcoming specific challenges unique to their
industry, containing costs, and securing a competitive advantage. While
the amount of capital to start a business that relies on geothermal
resource is small compared with the amount of capital necessary to
build a geothermal power plant, this capital can be large relative to
the financial assets of the small business owner or individual.
Unforeseen problems in well construction, piping, and water disposal
can also increase original funding estimates. Obtaining funding is
difficult as commercial banks are often reluctant to loan money for
unproven projects and ideas that appear risky. Even district heating
systems that are operated by municipalities have encountered financing
difficulties as city or state legislatures may be reluctant to provide
funding or customers may be reluctant to pay for modifications that are
necessary to use geothermal resources in their current heating systems.
We observed a number of business challenges unique to various
industries that the successful owners of direct use businesses were
able to overcome. They used their extensive knowledge of their
respective industries to combat diseases in fish farms; to combat
corrosive waters used in space heating; and to control temperature,
humidity, and light according to the specifications of the various
plant species they grew in nurseries. Escalating costs also pose a
challenge to direct use operations. Rising labor costs and cheaper
imports closed a food processing plant in Nevada. Greenhouses in Idaho
and Oregon remained profitable by shifting from high-cost natural gas
to cheaper geothermal resources for heating. Successful operators of
direct use businesses have secured competitive advantages by entering
specialty niches (see figs. 5 and 6). For example, the operators of two
aquaculture facilities in Idaho and Oregon sell alligator meat,
tilapia, and freshwater shrimp to restaurants. Also, a resort operator
in Alaska that relies on geothermal resources constructed and markets
an "ice museum" where guests can spend the night with interior
furnishings sculptured from ice. We noticed that some greenhouse
operators gained a marketing advantage by selling from their retail
outlet rather than selling at a lower price to wholesalers.
Figure 5: Alligator Farm Using Geothermal Resources in Idaho:
[See PDF for image]
Source: GAO.
[End of figure]
The remote location of many geothermal resources hampers their
development for direct use. Geothermal direct use is constrained
because the geothermal waters cannot be economically transported over
long distances without a significant loss of heat. An official with the
Geo-Heat Center noted that for space heating, spas, and resorts, the
geothermal resources should be located within 5 miles of the location
where they will be used. While some greenhouses, aquaculture
operations, and food processors that rely on geothermal resources have
successfully produced their products far from consumers, they still
need access to adequate transportation and a cheap labor market, both
of which are generally dependent on proximity to population centers.
The distant location from major population centers of geothermal
resources on federal lands contributes to their unattractiveness for
direct use applications.
Figure 6: Nursery Heated with Geothermal Resources in Idaho:
[See PDF for image]
Source: GAO.
[End of figure]
Obtaining water rights can be a significant challenge to direct use
development. Western states are not uniform in classifying geothermal
resources, considering them legally to be mineral, water, or having
characteristics of both minerals and water. Depending sometimes on the
depth and/or the temperature at which they occur, geothermal resources
can be subject to state water laws in the western states and are then
managed by the state agency responsible for protecting groundwater.
Even when not legally classified as water, the production of geothermal
resources for direct use applications may still fall under regulations
enforced by a state agency responsible for groundwater protection. In
areas of high groundwater use, the western states generally regulate
geothermal water according to some form of the doctrine of prior
appropriations, under which specific amounts of water are appropriated
to users in the order when they first made beneficial use of the water.
Additional amounts, if available, are appropriated in the future to
applicants on a first-come basis. Those that have more senior rights
have priority in using the water when use exceeds supply, such as
during a drought. Western states that generally follow the prior
appropriations doctrine when managing the production of geothermal
water for direct use include Utah, Idaho, Oregon, New Mexico, and
Nevada.[Footnote 6] Developers of geothermal resources for direct use
would face problems obtaining appropriations in the Snake River Basin
of Idaho, which consists of much of the state below the panhandle,
because groundwater is fully appropriated there and used predominantly
for irrigation. Over half of the state of Utah also includes areas in
which geothermal resources for direct use would be excluded or
restricted due to prior appropriations, and the state water engineers
in Nevada and New Mexico may also restrict appropriations in some areas
of their states. In addition, applications for development of
geothermal resources for direct use on federal lands may also be
subject to state water laws. Unless the federal government has reserved
water rights on land in which a geothermal developer is interested and
the geothermal development fulfills the specific purpose of the federal
reservation, the development may still be subject to restrictions under
state water laws.
Developers interested in using federal geothermal resources for direct
use were concerned about high federal royalties prior to passage of the
Energy Policy Act of 2005. Royalties were computed according to a
formula that relies on the amount of heat extracted from the resource
and the cost of a reasonably available alternative form of energy.
Since most inquiries into the use of federal resources have been by
operators of greenhouses, this alternative form of energy--natural gas-
-has been the source generally used to heat greenhouses. Average
wellhead natural gas prices in recent years have increased about two
and a half times from $3.68 per million British thermal units in 2000
to $9.50 in September 2005. Operators of greenhouses have told us that
heating greenhouses with natural gas is no longer economically feasible
as the costs of raising plants would exceed the price they obtain for
these plants. During meetings between BLM, MMS, state, and industry
officials, general consensus was reached that natural gas was too
expensive an energy source upon which to base royalties, and a working
group was formed to propose an alternative energy source. In the report
they drafted,[Footnote 7] the group proposed Powder River Basin coal,
which averages about 30 cents per million British thermal units--a
fraction of the price of natural gas. The report states that lower
royalties on direct use may encourage development and result in higher
royalty revenues in the long run. However, based on other challenges
facing the development of direct use applications, the lowering of
federal royalties alone is unlikely to stimulate the direct use of
federal geothermal resources.
Efforts by Federal, State, and Local Governments to Address Challenges
Show Promise:
The Act includes a variety of provisions designed to help the
geothermal industry address numerous challenges, including the high
risk and financial uncertainty of developing renewable energy projects,
lack of sufficient transmission capacity, delays in federal leasing,
and complex federal royalties. Although these efforts show promise, it
is too early to assess their effectiveness. Through the Department of
Energy (DOE) and the California Energy Commission, the federal
government and the state of California are attempting to overcome
technical challenges by awarding cost-share grants for research and
development. State and local governments have also made efforts to
address challenges to geothermal development. Chief among these efforts
are financial incentives, such as tax credits for production from
renewable energy sources, sales and property tax exemptions, and
mandates that certain percentages of the electricity generated within
the state come from renewable energy sources, such as geothermal
resources.
Financial Incentives Are Used to Address the High Risk and Uncertainty
of Geothermal Development:
Provisions within the Act address the high risk and financial
uncertainty of producing renewable energy by providing tax credits and
other incentives for renewable energy producers, including the
producers of geothermal electricity. Starting on January 1, 2005,
section 1301 of the Act extends for 10 years a tax credit on the
production of electricity from geothermal resources for already
existing plants and for any new plants producing by December 31, 2007.
The credit is now 1.9 cents per kilowatt-hour and has future
adjustments for inflation. Although government and industry officials
praised this provision, they told us that for the credit to be more
effective, the date by which plants must produce electricity needs to
be extended. They explained that since it can take 3 years or longer
for the construction of geothermal electricity plants, plants probably
will not qualify unless they are ready to break ground immediately. The
Act also provides a financial incentive for tax-exempt entities that
cannot take advantage of the production tax credit. Section 1303 of the
Act permits the issuance of clean renewable energy bonds by tax-exempt
entities, such as municipalities and rural electric cooperatives, for
the construction of certain renewable energy projects, including
geothermal electricity plants. Investors can purchase the bonds, which
pay back the original principal and also provide a federal tax credit
instead of an interest payment. The Department of the Treasury will
manage the issuance of these bonds and the setting of credit rates. The
total issuance of bonds cannot exceed $800 million, and the bonds are
to be issued between December 31, 2005, and December 31, 2007.
The Act also extends the federal government's Renewable Energy
Production Incentive, which expired on September 30, 2003. This
incentive entitled eligible electric production facilities, including
not-for-profit cooperatives, public utilities, and various government
entities who sell renewable electricity, including that generated from
geothermal resources, annual financial incentive payments from the
federal government. Additionally, section 1333 of the Act makes a $300
tax credit available to purchasers of geothermal heat pumps who place
them in service in 2006 and 2007.
Another provision in the Act may decrease the uncertainty inherent in
geothermal exploration. The Act directs the Secretary of the Interior,
acting through the USGS, to update the 1978 Assessment of Geothermal
Resources made by the USGS. This assessment, published as Circular 790,
is widely considered to be out of date and in need of revision. USGS
officials reported that, since 1978, there have been significant
advancements in technology that are not reflected in Circular 790. Now,
electricity can be generated from lower temperature resources and from
resources located deeper within the earth. Today, according to USGS
officials, scientists and engineers can make more accurate resource
estimates because they are more knowledgeable of reservoir
characteristics and have benefited from the knowledge gained during the
27 years of exploration and development that has occurred since the
original study.
State governments are also offering financial incentives to the
geothermal industry by creating additional markets for their
electricity through Renewable Portfolio Standards (RPS). An RPS is a
state policy directed at electricity retailers, including utilities,
that either mandates or encourages them to provide a specific amount of
electricity from renewable energy sources, which may include geothermal
resources. To date, 22 states plus the District of Columbia have RPSs,
and three other states have set RPS targets. Requirements for the
program vary by state as each RPS is unique, and not all states have
significant geothermal resources. California and Nevada, which have
large geothermal production and potential, have each established an
ambitious RPS. California law mandates that retailers must supply 20
percent of their electrical energy from renewable energy by 2017, and
the state is currently seeking to move this date up to 2010. Nevada
requires certain percentages of its electricity to be generated from
renewable energy each year, with 20 percent by 2015. Since California
and Nevada requirements were implemented, one 20 megawatt-geothermal
plant in Nevada, which has gone on line, and geothermal developers have
signed contracts for three plants in California for as much as 260
megawatts of future geothermal power, which can be attributed to RPSs.
Nevada utilities currently are not meeting their annual RPS
requirements. Officials from two large California utilities told us
that they are interested in purchasing electricity generated from
geothermal resources specifically because of RPS and noted that the RPS
may be instrumental in constructing a new transmission line from the
Imperial Valley to utilities in southern California.
Additional state programs also provide tax credits and other financial
incentives for renewable energy development, including electricity
generation from geothermal resources. These incentives include property
tax incentives, sales tax incentives, and business tax credits. For
example in California, eligible geothermal developers can be awarded
supplemental energy payments from the state if they have a contract for
electricity at above market costs with one of California's three
investor-owner utilities. In Nevada, state law exempts from local sales
and use taxes the sale, storage, and consumption of products or systems
designed to generate electricity from renewable resources. In Utah, the
purchases of equipment to generate electricity from renewable resources
are excluded from state sales tax. Both Nevada and Oregon do not count
the value added by renewable energy systems when assessing property
taxes. Oregon also offers a business energy tax credit of up to 35
percent of the cost of certain renewable energy projects, including
geothermal systems.
Federal and State Grants Are Addressing Technology Challenges:
DOE and the state of California provide financial assistance and grants
to the geothermal industry in trying to overcome technical challenges.
At DOE, the Geothermal Technologies Program's mission is to work in
partnership with U.S. industry to establish geothermal energy as an
economically competitive contributor to the U.S. energy supply. Several
goals of the program include reducing the cost of geothermal
development to 5 cents per kilowatt-hour by 2010 and increasing
electrical capacity from geothermal resources to 40,000 megawatts by
2040. The program seeks to accomplish these goals by competitively
awarding cost-shared grants to industry for research and development.
The program's budget was $25.3 million in fiscal year 2005. In the
past, program funds have been used to pioneer new drill bits,
demonstrate the large scale use of binary technology, produce new
seismic interpretation methods, commercialize geothermal heat pumps,
develop slimhole (reduced diameter) drilling for exploration, and
produce a strategy for reinjection at The Geysers. Within the program,
an initiative called GeoPowering the West provides technical and
institutional knowledge on opportunities to use geothermal resources
and on how to overcome challenges. Goals of this initiative are to
increase the number of homes using geothermal energy to 7 million by
2010 and to double the number of states producing geothermal
electricity to eight by 2006.
California provides financial and technical support for geothermal
development through grants under two programs administered by the
California Energy Commission. Under the Geothermal Resources
Development Account, grants are competitively awarded to promote
research, development, demonstration, and commercialization of
geothermal resources in California. Funding is provided from a portion
of the federal geothermal royalties disbursed to the state. The
program's costs are shared with awardees. One noteworthy project funded
by the program was the piping of treated wastewater from Santa Rosa,
California, to The Geysers, where it was injected into the geothermal
reservoir, increasing reservoir pressure and boosting electricity
production by an estimated 10 percent. For California's fiscal year
2006, $3.9 million in funding is available for 12 to 15 projects. The
state's Public Interest Energy Research Program also funds awards for
renewable resource projects, including geothermal projects. Money comes
from a surcharge on California residents' electricity bills. Of the $62
million collected by the state in 2005, $2 million was available for
geothermal projects.
Expanded FERC Authority and Planning Initiatives Are Aimed at
Transmission Challenges:
The Act may also address transmission challenges by providing FERC with
new authorities in permitting transmission facilities and in developing
incentive-based rates for electricity transmission in interstate
commerce. FERC can now approve new transmission lines in certain
instances in a "national interest electric corridor" when a state fails
to issue a permit within 1 year of a company's filing of an
application. The Act also authorizes companies that obtain FERC permits
for transmission facilities to acquire rights of way through eminent
domain proceedings. In addition, the Act directed FERC to develop
incentive-based rates for transmission of electricity in interstate
commerce to promote increased investments in transmission. Within 1
year of passage of the Act, FERC is to issue a rule establishing
incentive based rates. In November 2005, FERC initiated the rulemaking
process for establishing these rates.
Several planning initiatives are aimed at addressing challenges to
transmission. In the West, a number of regional entities composed of
state public utility commissions, local governments, utilities, and
others are working on transmission planning. These entities include
Southwest Transmission Expansion Planning, the Northwest Transmission
Assessment Committee, and the Rocky Mountain Area Transmission Study.
Certain utilities are also being proactive. The Los Angeles Water and
Power District is proposing that the City of Los Angeles spend $240
million to help construct or upgrade a transmission line from the
Salton Sea, an area rich in geothermal resources near the Mexican
border, to the Los Angeles area. Similarly, San Diego Gas and Electric
is proposing a new transmission line from the Imperial Valley to its
service area.
Provisions within the Energy Policy Act and BLM Planning Efforts May
Address Leasing and Royalty Issues:
Provisions within the Act are aimed at streamlining or simplifying the
federal leasing system, principally by mandating competitive geothermal
lease sales every 2 years, by combining prospective federal lands into
a single lease, and by improving coordination between DOI and the
Department of Agriculture, which manages lands in the National Forest
System. Since companies can nominate tracks of federal land for sale,
some geothermal companies see the competitive sale provision as a
mechanism to jump start leasing in areas where it has stalled in recent
years. BLM officials speak positively of both this provision and the
provision that allows combining prospective lands into a single lease,
saying that these provisions make it more likely that companies with
the financial resources to develop the lands can do so. The Act also
requires the Secretary of the Interior and the Secretary of Agriculture
to enter into a memorandum of understanding that establishes an
administrative procedure for processing geothermal lease applications
and that establishes a 5-year program for leasing of Forest Service
lands and reducing its backlog of lease applications, as well as
establishing a joint data retrieval system for tracking lease and
permit applications. A senior official with the Forest Service's
Geothermal Program said that, since the Forest Service already has a
memorandum of understanding with BLM, drafting the new memorandum
should not be difficult.
The Act also contains provisions that simplify federal geothermal
royalties on resources that generate electricity and simplify and or
reduce royalties on resources put to direct use. For electricity
production, the Act defines three types of leases and provides
different incentives for each. For the first type--leases that
currently produce electricity--the Act allows lessees to negotiate a
royalty rate equal to a percentage of gross sales revenues, instead of
using the significantly more complex process known as "netback." For
the second type of lease--those that were issued prior to the Act and
will first produce electricity within 6 years following the Act's
passage--lessees can elect for the first 4 years of production to pay
50 percent of the royalties that would have been due. For the third
type of lease--those that have not yet been issued--lessees will pay
according to a schedule in which royalties are equal to certain
percentages of gross sales revenues. In addition, the Act significantly
changes royalties due in the future on direct use applications. The Act
directs the Secretary of the Interior to establish a schedule of fees,
in lieu of the current complicated system, that encourages the
development of direct use resources.
BLM's 5-year strategic plan for its geothermal program also attempts to
address some challenges to federal leasing. The plan calls for annual
workforce planning documents to reflect the skills and staffing
necessary to implement an active geothermal program. A BLM official
within the Geothermal Program said that this provision will allow the
state and field offices to identify current budgetary needs so that
they can process geothermal applications and permits in a timely
manner. The strategic plan also calls for BLM to develop an inspection
and enforcement plan, which it currently does not have. Such a program
could help in ensuring that the federal government collects the correct
royalty revenues from the sale of electricity generated from geothermal
resources.
Geothermal Royalty Disbursements Will Change Significantly, and Changes
in Electricity Prices Could Alter Total Royalty Collections:
Under provisions of the Act, geothermal royalties retained by the
federal government will be cut in half because half of the royalties
that originally were retained by the federal government will now have
to be disbursed to the counties in which the federal leases are
located. Although provisions within the Act may change the royalties
due on specific types of leases, the overall revenue impact of these
provisions should be minor if electricity prices remain relatively
stable and if the Secretary of the Interior relies on past royalty
histories in determining future royalties. However, it is not possible
to predict with reasonable assurance how electricity prices will change
in the future, and price changes could significantly impact future
royalty collections if they are not accounted for in royalty
calculations.
The Energy Policy Act Redistributes a Greater Portion of Federal
Royalties:
A royalty provision of the Act redistributes the federal royalties
collected from geothermal resources--cutting in half the overall
geothermal royalties previously retained by the federal government. Set
by the Geothermal Steam Act of 1970, as amended, the prior distribution
provided for 50 percent of geothermal royalties to be retained by the
federal government and the other 50 percent to be disbursed to the
states in which the federal leases are located.[Footnote 8] The Act
changes this disbursement. While the Act provided that 50 percent of
federal geothermal royalties will continue to be disbursed to the
states in which the federal leases are located, an additional 25
percent will now be disbursed to the counties in which the leases are
located, leaving only 25 percent to the federal government.
The Act also changes how the federal government's share of geothermal
royalties can be used. Prior to passage of the Act, 40 percent of the
federal government's share was deposited into the reclamation fund
created by the Reclamation Act of 1902, and 10 percent was deposited
into the general fund of the Department of the Treasury. For the first
5 fiscal years after passage of the Act, the federal government's share
is now to be deposited into a separate account within the Department of
the Treasury that the Secretary of the Interior can use without further
appropriation and fiscal year limitation to implement both the
Geothermal Steam Act and the Act. DOI officials explained that some of
these funds could be used for activities such as issuing geothermal
leases, conducting environmental reviews, collecting geothermal
royalties, and inspecting geothermal leases.
Provisions of the Energy Policy Act Are Likely to Have Little Impact on
Overall Royalty Revenues Only if Electricity Prices Remain Relatively
Constant:
Despite several provisions of the Act that alter the amount of
royalties due on both the generation of electricity and direct use
operations, federal geothermal royalties could remain about the same,
but only if electricity prices remain stable. However, electricity
prices are not possible to predict with certainty, and price changes
could significantly impact royalty revenues on electricity sales, which
account for about 99 percent of total geothermal royalty revenues. The
Act contains provisions for each of three specific types of leases that
generate electricity: (1) leases that currently produce electricity,
(2) leases that were issued prior to passage of the Act and will first
produce electricity within 6 years following the Act's passage, and (3)
leases that have not yet been issued. There is also a provision in the
Act that replaces the current method of calculating royalties due on
direct use operations with a schedule of fees that shall encourage the
development of geothermal resources. Since direct use royalties
accounted for less than 1 percent of total geothermal royalties from
2000 through 2004, the financial impact of the switch to a schedule of
fees is likely to be minimal.
For leases that currently produce electricity, the Secretary of the
Interior is to seek to collect the same level of royalties over the
next 10 years but under a simpler process. Prior to passage of the Act,
lessees of 13 of the 15 geothermal electricity projects paid federal
royalties according to a provision within MMS's geothermal valuation
regulations referred to as the "netback process." To arrive at
royalties due under this process, lessees are to first subtract from
the electricity's gross sales revenue[Footnote 9] their expenses for
generation and transmission and then multiply that figure by the
royalty rate specified in the geothermal lease, which is from 10 to 15
percent.[Footnote 10] The Act simplifies the process by stating that
within the 18 months after the effective date of the final regulations
issued by DOI, lessees who were producing electricity prior to passage
of the Act have the option to request a modification to their royalty
terms. This modification allows for royalties to be computed as a
percentage of the gross sales revenues from the electricity so long as
this percentage is expected to yield total royalty payments equal to
what would have been received for comparable production under the
royalty rate in effect before passage of the Act. MMS has already
implemented a procedure similar to this provision for the two projects
that produce electricity at The Geysers, setting their future royalties
equal to a percentage of gross sales revenues based largely on past
royalty histories and future projections.
Royalty revenues from a geothermal lease currently producing
electricity will remain the same if the lessee elects not to convert to
the new provision within the Energy Policy Act. In this case, the
lessee will continue to calculate and pay royalties just as the lessee
did before passage of the Act. Royalty revenues from a geothermal lease
currently producing electricity should also remain about the same if
the lessee does convert to the simpler method of calculating royalties
in the Act, provided that DOI negotiates with the lessee a future
royalty percentage based on past royalty history and provided that
electricity prices remain relatively constant. This situation is
illustrated in table 4, which uses data based on actual royalty data
from a geothermal project on federal lands. According to table 4, the
lessee pays royalties equal to $20,000 under the netback process.
Royalties are equal to the production of 8,000 megawatt hours times the
sales price of $100 per megawatt hour less $600,000 in expenses times
the statutory royalty rate of 10 percent. Figures in table 4 represent
averages over a 5-year period and show that royalties are equal to 2.5
percent of gross sales revenue. If production remains the same and if
electricity prices average $100 per megawatt hour, future royalty
revenues will remain the same whether royalties are calculated under
the netback process or if royalties are calculated at 2.5 percent of
gross sales revenues.
Table 4: Example of Royalties Due under the Netback Process:
Production: 8,000;
Sales price: $100;
Gross sales revenue: $800,000;
Expenses: $600,000;
Net sales revenue: $200,000;
Statutory royalty rate: 10%;
Royalties due: $20,000;
Royalties as a percent of gross sales revenues: 2.5%.
Source: GAO.
Note: Production is in megawatt hours, and sales price is dollars per
megawatt hour.
[End of table]
However, if electricity prices increase and royalties are based on
historic percentages of gross sales revenues, royalty revenues will
actually decrease relative to what the federal government would have
collected prior to passage of the Act. More revenue would have been
received under the netback process because expenses for generation and
transmission do not increase when electricity prices increase and the
higher 10 percent statutory royalty rate would have applied to all of
the increase in sales revenues. This impact is illustrated in table 5.
Using the historic average of 2.5 percent computed in table 4, the
royalties will actually be $12,000 less than what would have been
collected under the netback process when the average price increases by
$20 per megawatt hour. On the other hand, if average electricity prices
drop by $20 per megawatt hour, royalty revenues will increase by
$12,000 relative to what would have been collected under the netback
process.
Table 5: Impact of Changing Electricity Prices on Royalties Due under
the Energy Policy Act and the Netback Process:
Sales price: $100;
Change in sales price: $0;
Gross sales revenue: $800,000;
Royalties due under the Act: $20,000;
Royalties due under netback: $20,000;
Change in royalties due: $ 0.
Sales price: $120;
Change in sales price: +$20;
Gross sales revenue: $960,000;
Royalties due under the Act: $24,000;
Royalties due under netback: $36,000;
Change in royalties due: - $12,000.
Sales price: $80;
Change in sales price: -$20;
Gross sales revenue: $640,000;
Royalties due under the Act: $16,000;
Royalties due under netback: $4,000;
Change in royalties due: +$12,000.
Source: GAO.
Note: This example is for currently producing leases for which the
lessee elects to change royalty to a percentage of gross sales revenue.
The sales price is per megawatt hour. The example assumes constant
production of 8,000 megawatt hours, constant expenses of $600,000,
royalty rate equal to 2.5% of gross sales revenue under the Act, and
10% under netback.
[End of table]
For the second type of lease--leases that were issued before the Act
and that will first produce electricity within 6 years after the Act's
passage--royalty revenues are likely to drop somewhat because lessees
are likely to take advantage of an incentive within the Act. The Act
allows for a 50 percent decrease in royalties for the first 4 years of
production so long as the lessee does not elect to pay royalties based
on a percentage of gross sales revenues and continues to use the
netback process.[Footnote 11] Because of the substantial reduction in
royalties, it is likely that lessees owning leases issued before
passage of the Act will elect to pay only 50 percent of the royalties
due on new production for the 4-year period allowed by the Act. This
incentive also applies to sales revenues from the expansion of a
geothermal electricity plant that exceeds 10 percent. Owners of
geothermal electricity plants currently paying royalties under the
netback process may elect to take the production incentive for new
plant expansions if they perceive that the royalty reduction is worth
the additional effort and expense in calculating payments under the
netback process and worth the possibility of being audited. BLM
officials said that leases in Utah, California, and Nevada may become
subject to the royalty reduction provisions within the Act for new
production and new plant expansions.
It is difficult to predict exactly how royalty revenue from the third
type of lease--leases that have not yet been issued--will change, but
it appears that revenue impacts are likely to be minor, based on our
review of historic royalty data. The Act specifies that the Secretary
of the Interior should seek to collect the same level of royalty
revenues over a 10-year period as before passage of the Act, but it
will be difficult for DOI to compare an estimate of what royalty
revenue would have been without the Act with royalty revenues after the
Act because the production and expenses of future plants could vary
substantially due to their unique geological, engineering, and economic
attributes. The Act provides that, for future leases, royalties on
electricity produced from federal geothermal resources should be not
less than 1 percent and not greater than 2.5 percent of the sales
revenue from the electricity generated in the first 10 years of
production. After 10 years, royalties should be not less than 2 percent
and not greater than 5 percent of the sales revenue from the
electricity.
We attempted to analyze the revenue impact on future leases by using
historic royalty data maintained by MMS and sales revenue data
maintained by BLM. A detailed description of our methodology is in
appendix II. First, we attempted to analyze revenue impacts on the
first 10 years of electricity production, but we had difficulty
obtaining relevant royalty data so we could not complete this analysis.
Next, we examined the impact on royalties after the first 10 years of
production by analyzing data for seven geothermal projects from 2000
through 2004. In analyzing royalty data, we found that MMS did not
maintain gross sales revenue data so we used data that BLM supplied to
MMS. We also found that 40 percent of the royalty data maintained by
MMS was erroneous or missing so we corrected or obtained these data as
necessary. We then calculated royalties paid as a percentage of gross
sales revenues for each project. This analysis showed that lessees were
paying a wide range of percentages--from 0.2 to 6.3 percent. Three of
the seven projects paid under the minimum 2 percent royalty rate
prescribed in the Act, suggesting that some projects in the future
could pay more under the Act's new provisions than they would otherwise
have paid. On the other hand, one project paid greater than the maximum
5 percent prescribed in the Act, suggesting that it is possible for a
plant to pay less in the future than it would otherwise have paid.
However, both the royalty revenue that the one plant would have
overpaid and the total of the royalty revenues that the three plants
would have underpaid are small--about 0.2 percent and 0.01 percent,
respectively, of all geothermal royalties reportedly paid during the
period of our analysis.
Even though provisions within the Act may decrease royalties on direct
use applications, the impact of these provisions is likely to be small
because total royalty collections from direct use applications are
minimal. In fiscal years 2000 through 2004, MMS reported collecting
annually about $79,000 from two direct use projects, or less than 1
percent of total geothermal royalties. In addition, MMS reported
collecting an additional $222,000 during this period in settlement for
royalties owed on a direct use project from 1987 through 2003. While a
provision within the Act may encourage the use of federal geothermal
resources for direct use by lowering the federal royalty rate, we
believe based on challenges facing developers that it is unlikely that
this royalty incentive alone will stimulate substantial new revenues to
compensate for the loss in revenue due to the lower royalty rate. We
believe that, in order to substantially increase the development of
federal direct use applications, developers must overcome the
relatively high capital costs for investors, unique business
challenges, and water rights issues.
MMS Does Not Routinely Collect the Royalty Data Necessary to Maintain
the Same Level of Royalty Collections:
MMS does not routinely collect meaningful data on the revenue from
electricity sales. Since the Act requires the Secretary of the Interior
to seek to achieve the same level of royalty revenues when issuing new
royalty regulations, these data are necessary to know how future
royalties will compare with what would have been collected before
passage of the Act. To make these comparisons, MMS needs to calculate
the percentage of gross sales revenues that lessees pay in royalties.
MMS requires royalty payors to record sales revenue data on Form MMS-
2014 under the data field "sales value." MMS's Geothermal Payor
Handbook instructs royalty payors using the netback method to record in
this field its net sales revenue, which is equal to gross sales
revenues less deductions for expenses such as generation and
transmission. As such, this sales value cannot be used as one of the
factors to calculate the percent of gross sales revenues paid in
royalties.
In preparing an analysis for the Royalty Policy Committee, MMS obtained
gross sales revenue data from BLM for many of the geothermal projects.
While BLM regulations require geothermal plant operators to report to
BLM the amount of electricity produced, these regulations do not
require the reporting of gross sales revenues. Nevertheless, BLM
officials said that they collect the sales revenue data. BLM officials
in Nevada and southern California reported examining the production and
gross sales revenue data for reasonableness and patterns in order to
check on the accuracy of royalty reporting. A BLM official also
reported collecting sales revenue and production data at The Geysers in
northern California, but he said that BLM lacked the resources to
examine these data and was unable to compile these data either for MMS
or for us. These data from The Geysers are important because they
represent about 61 percent of total federal geothermal royalties. Some
royalty data from The Geysers were obtained and audited by the state of
California, but an MMS official said that it would be more efficient
and timely if MMS collects gross sales revenue data directly, rather
than having to ask BLM or the states for these data. The official also
said that MMS could use the gross sales revenue data in the future to
conduct general compliance audits by comparing the percent of gross
sales revenue paid in royalties with percentages prescribed within the
Act and by examining trends in the data, without having to undertake
lengthy and expensive on-site visits to the geothermal plants.
Conclusions:
The Energy Policy Act of 2005 addresses a wide variety of challenges
facing developers of geothermal resources. The Act incorporates many of
the lessons learned by state governments and federal agencies in an
attempt to make federal processes more efficient and provide financial
incentives for further development. However, the Act is new and
insufficient time has passed to assess its effectiveness. Several of
the Act's major provisions will be left to the federal agencies within
DOI for implementation, and the drafting and public comment period for
regulations that implement these provisions will take time. Agencies
will also need to spend considerable time and effort in working out the
details for implementation and securing the necessary budgets to
implement the new system. To assist in these efforts, the Congress has
authorized the agencies to use the federal government's share of
royalty collections to implement the geothermal program for 5 years.
All the while, the Act directs the Secretary of the Interior to seek to
maintain the same level of geothermal royalty revenues over the next 10
years as would have been collected prior to the Act. This is a tall
mandate, as one of the factors that can most affect geothermal royalty
revenue--the price of electricity--is outside the control of the
managing agencies. Although it is impossible to predict with reasonable
assurance how these prices will change in the future, the federal
agencies must make their best effort to mitigate the impact of changing
prices if federal royalty revenue are to remain the same. This
mitigation can only be achieved if there is timely and accurate
knowledge of the revenues that lessees collect when they sell
electricity. Without such knowledge, MMS will have difficulty
collecting the same level of royalties from lessees that elect to use
the new royalty process.
Recommendation for Executive Action:
To assist in achieving the same level of geothermal royalties as would
have been collected prior to the Energy Policy Act of 2005, we
recommend that the Secretary of the Department of the Interior instruct
the appropriate managers within the Minerals Management Service to take
the following two actions:
* Correct erroneous and missing royalty data, when necessary, so that
it will have an accurate baseline of royalty collections for each
payor; and:
* Routinely collect from royalty payors the gross sales revenues for
electricity sold in order to compare these revenues with past royalty
collections and to verify compliance with the percentages prescribed
within the Act for leases to be issued in the future.
Agency Comments and Our Evaluation:
We provided a draft of this report to the Department of the Interior
for review and comment. DOI provided written comments, which are
presented in appendix II. DOI agreed with our recommendations and
emphasized the importance of correct and relevant data in fulfilling
the requirement to collect the same level of geothermal royalties as
would have been collected prior to the Energy Policy Act of 2005.
Specifically, DOI stated that MMS plans to take steps to correct
erroneous and missing royalty data, including initiating an audit and
directing payors to correct data. DOI also stated that MMS is drafting
new geothermal regulations as part of implementing the Act and that
these regulations will refer to instructions that require payors to
report to MMS the gross sales revenues for electricity sold. MMS also
provided several technical comments that we have incorporated in the
report.
As agreed with your office, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 15 days
from the report date. At that time, we will send copies to other
interested congressional committees. In addition, we will send copies
of this report to the Secretary of the Interior, the Director of BLM,
the Director of the Minerals Management Service, the Secretary of the
Department of Agriculture, the Chief of the Forest Service, and the
Secretary of Energy. We also will make copies available to others upon
request. In addition, the report will be available at no charge on the
GAO Web site at [Hyperlink, http://www.gao.gov].
If you or your staff have any questions about this report, please
contact me at (202) 512-3841 or W [Hyperlink, WellsJ@gao.gov]
ellsJ@gao.gov. Contact points for our Offices of Congressional
Relations and Public Affairs may be found on the last page of this
report. Key contributors to this report are listed in appendix III.
Signed by:
Jim Wells:
Director, Natural Resources and Environment:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
In this report, we discuss (1) the current extent and potential for
geothermal development; (2) challenges faced by developers of
geothermal resources; (3) federal, state, and local government actions
to address these challenges; and (4) how provisions of the Energy
Policy Act of 2005 (Act) are likely to affect federal geothermal
royalty collections.
To describe the current extent and potential for geothermal
development, we reviewed key studies on the extent and potential of
geothermal development that were published by the Department of Energy,
the California Energy Commission, the U.S. Geological Survey, the
Western Governors' Association, the Geo-Heat Center at the Oregon
Institute of Technology, the Geothermal Energy Association, and the
state of Utah. We contacted and visited the authors of the studies
prepared by the Department of Energy in Golden, Colorado; the
California Energy Commission in Sacramento, California; and the Geo-
Heat Center in Klamath Falls, Oregon. We also visited the Geothermal
Resources Council in Davis, California. We obtained statistics on
federal geothermal leases from the Bureau of Land Management (BLM) and
data on geothermal heat pumps from the Geothermal Heat Pump Consortium,
the Department of Energy's Geothermal Technologies Program, and the
General Services Administration.
To identify the challenges facing geothermal developers and to assess
actions taken by federal, state, and local governments, we interviewed
a variety of government and industry officials, reviewed substantial
supporting documentation and the Act, and visited geothermal
facilities. We interviewed BLM officials in Washington, D.C;
California; Nevada; and Utah, as well as Forest Service officials in
Washington, D.C; Minerals Management Service (MMS) officials in
Lakewood, Colorado; and Department of Energy officials in Washington,
D.C; and Golden, Colorado. We contacted state officials in California,
Nevada, and Idaho. We also interviewed geothermal industry
representatives in Washington, D.C; California; Nevada; and New Mexico
and toured geothermal electricity plants in California and Nevada and
direct use facilities, including heating districts, food processing
plants, greenhouses, aquaculture operations, and a spa in Idaho,
Nevada, Oregon, and Colorado. Specifically to assess financial
challenges faced by the geothermal industry, we also interviewed
officials with public utilities and officials who specialize in
arranging financing for geothermal plants. In assessing challenges
specific to federal lands, we also reviewed processes for approving
lease applications and conducting environmental analyses under the
National Environmental Policy Act of 1969; examined federal regulations
addressing leasing, geothermal operations, and royalty valuation for
both electricity production and direct use; and read the 148-page
Geothermal Valuation Handbook.
To assess how provisions within the Act will affect federal geothermal
royalties, we interviewed MMS employees in Lakewood, Colorado, and BLM
employees in California, Utah, and Nevada and reviewed a report
authored by the Royalty Policy Committee. We reviewed in detail how
provisions of the Act address the disbursement of federal geothermal
royalties and specifications for geothermal royalty collections from
leases that are currently producing electricity, leases that will first
start to produce electricity within the 6 years following passage of
the Act, and leases that have not yet been issued.
To assess how provisions of the Act could impact royalty revenue from
the sale of electricity, we started by trying to obtain monthly
geothermal royalty data and sales revenue data from MMS for January
2000 through December 2004 for 10 geothermal projects paying royalties
according to the netback process. We discovered that MMS does not
require payors to submit gross sales revenue data but instead collects
these data from BLM. We assessed whether MMS's royalty data and BLM's
sales revenue data were complete enough and accurate enough for MMS to
determine what percentage of gross sales revenues is equivalent to the
current level of royalties being paid, should lessees elect to convert
to paying a percentage of gross sales revenues, as allowed by the Act.
We reviewed MMS's and BLM's data for reasonableness and completeness.
While we found BLM's data to be reasonably complete and accurate for
the 10 geothermal projects, we found that BLM could not furnish us with
sales revenue data for the 2 steam projects at The Geysers Geothermal
Field in northern California. We also found that about 40 percent of
the monthly royalty data maintained by MMS for the 10 projects was
missing or erroneous. The most common error, accounting for 73 percent
of erroneous and missing data, was not paying the 0.1 percent minimum
royalty required by MMS regulations. This error did not result in
significant monetary underpayments; monthly underpayments for this type
of error generally amounted to less than $500. After assuming that the
correct royalty due was 0.1 percent of net sales revenue for those
months in which underpayments were less than the minimum royalty
calculation, we determined that royalty data was reasonably accurate
and complete for January 2000 through December 2004 for 6 of the
projects and for January 2003 through December 2004 for one additional
project.
In assessing revenue impacts from leases that were currently issued and
producing electricity, we considered MMS's past history of approving
royalty calculations based on a percentage of gross sales revenues at
The Geysers. We also reviewed MMS's calculations of the percentages of
gross sales revenues that appear in the report to the Royalty Policy
Committee. Based on these considerations, we assumed that MMS could
determine a percentage of gross sales revenues equal to what would have
been collected prior to the Act if electricity prices do not change. We
also determined the impact of changing prices on royalty revenues as
illustrated in table 5. In assessing revenue impacts from leases that
were currently issued and not producing, we contacted BLM officials to
ascertain the likelihood for these leases to first start producing in
the next 6 years and the likelihood of producing leases to expand their
production by more than 10 percent. We also discussed with industry
officials their opinions on paying royalties according to the netback
process.
To assess how royalty collections from future leases could be impacted,
we began to examine royalty data from the first 10 years for the 15
federal geothermal projects, all of which first started producing prior
to 1987. We abandoned this attempt after conversing with MMS officials.
MMS officials noted that contracts for the sale of electricity prior to
2000 were different and would probably not be representative of future
situations. In addition, sales in the 1980s often involved the sale of
geothermal resources such as steam and hot water rather than
electricity, complicating the use of MMS's royalty data. Although some
industry officials said that their projections suggest that royalties
during the first 10 years of a project's life are substantially less
than the royalties during the remainder of the project's life, we could
not verify this estimate without actual royalty data.
To assess how royalty collections from future leases could be impacted
10 years after they first produce, we proceed with examining royalty
data for 7 of the projects from our original sample of 10 geothermal
projects. We calculated royalties as a percentage of gross sales
revenues from January 2000 through December 2004 and compared their
range with the range of percentages prescribed within the Act for
production after the first 10 years. We also compared royalties as the
percentages of gross sales revenues for five of the flash plants with
royalties as a percentage of gross sales revenues for two of the binary
plants.[Footnote 12] We found that flash plants paid royalties from 0.6
to 6.3 percent of gross sales revenues while binary plants paid from
0.2 to 2.6 percent of gross sales revenues. It appeared to us that each
project, whether flash or binary, faces unique geological, economic,
and engineering situations that can combine to yield different
percentages of gross sales revenues. In addition, the small number of
observations and the significant overlap in range of the data indicated
to us that generalizations about the difference in percentages between
the two types of plants would be inaccurate.
To determine the impact of the Act on royalties from direct use of
geothermal resources, we obtained direct use royalty data from MMS and
reviewed the calculations on an alternative to the current calculation
of direct use royalties that appears in the report to the Royalty
Policy Committee.
[End of section]
Appendix II: Comments from the Department of the Interior:
United States Department of the Interior:
Office Of The Secretary:
Washington, DC 20240:
May -9 2006:
Take Pride In America:
Mr. Jim Wells:
Director, Natural Resources and Environment:
U.S. Government Accountability Office:
441 G St., N.W.:
Washington, DC 20548:
Dear Mr. Wells:
Thank you for the opportunity to comment on the draft report entitled
"Renewable Energy: Increased Geothermal Development Will Depend on
Overcoming Many Challenges," (GAO-06-629).
In general, we concur with the report's recommendations. The Department
of the Interior understands the requirement to achieve the same level
of geothermal royalties as would have been collected prior to the
Energy Policy Act, and is taking steps to support that requirement. The
MMS agrees that an accurate baseline of royalty collections is
important, and that gross sales revenue figures should accompany future
royalty payments on geothermal-related electrical production. We will
take the following actions to implement these two recommendations:
Recommendation 1. Correct erroneous and missing royalty data to form an
accurate baseline of royalty collections for each payor.
1. MMS concurs.
During 2006, MMS plans to audit the one geothermal property with
significant royalty revenue problems. (Page 51 of your report defines
"significant" as greater than $500.) The company uses the netback
royalty method and has admitted to us that they reported royalty
incorrectly for a period. In addition, BLM has informed us that the
company operating this property is under-reporting its electricity
sales revenues. The other incorrect or missing royalty data is
relatively minor, according to the GAO. The MMS will direct the
applicable companies to correct this data. We will complete the audit
of the one geothermal property and notify the other companies by
December 2006.
Recommendation 2. Routinely collect from royalty payors the gross sales
revenue for electricity sold in order to compare these revenues with
past royalty collections and to verify compliance with the percentages
prescribed within the Act for leases to be issued in the future.
2. MMS concurs.
MMS is drafting a new geothermal regulation as part of the
implementation of the Energy Policy Act of 2005. The draft proposed
regulation will refer to the Oil and Gas Payor Handbook for Reporting
Instructions (210.355). MMS will revise the geothermal chapter (Chapter
7) of the Oil and Gas Payor Handbook to instruct payors who use the
percent-of-gross-proceeds method would be required to report their
gross proceeds from electricity sales as the "Sales Value" on Form MMS-
2014.
As indicated in the Draft Report, two payors represent the bulk of the
geothermal-derived electricity royalties. The MMS will instruct the two
payors, who are currently under a percent-of-gross-proceeds royalty
method, by letter to include their gross proceeds from electricity
sales as the "Sales Value" on Form MMS-2014.
It will be a simple compliance procedure for percent of gross proceeds
payors for MMS to divide the royalties paid by the reported gross sales
value to derive their percentage of gross proceeds paid. This
calculated percentage can then easily be compared to what their
percentage is expected to be under the Energy Policy Act. These royalty
and gross sales data will require periodic audits or compliance reviews
to ensure accuracy of reporting under the projects' sales contracts.
This new reporting procedure will be in the revised Oil and Gas Payor
Handbook, Chapter 7. This Handbook will be revised after the new
geothermal rule is published, scheduled for December, 2006.
Again, thank you for providing the opportunity to review and comment on
this report. If you have any questions regarding this response, please
contact Mr. James Witkop, MMS's Audit Liaison Officer, at (202) 208-
3236.
Sincerely,
Signed by:
R. M. "Johnnie" Burton:
Acting Assistant Secretary:
Land and Minerals Management:
Enclosure:
[End of section]
Appendix III: GAO Contact and Staff Acknowledgments:
GAO Contact:
Jim Wells (202) 512-3841:
Staff Acknowledgments:
In addition to the individual named above, Dan Haas, Assistant
Director; Jeanne Barger; Ron Belak; John Delicath; Randy Jones; Frank
Rusco; Anne Stevens; and Barbara Timmerman made key contributions to
this report.
(360566):
FOOTNOTES
[1] Beginning in 1978, the Congress passed laws that also gave the
Secretary of each military department the authority to develop
geothermal resources on lands under his jurisdiction. A comparison of
BLM's system for geothermal leasing and the Department of the Navy's
system for geothermal leasing at China Lake appears in GAO, Geothermal
Energy: Information on the Navy's Geothermal Program, GAO-04-513
(Washington, D.C.: June 4, 2004).
[2] The Royalty Policy Committee is a group of state, tribal, federal,
corporate, and public representatives that provide advice on royalty
management and mineral policies to the Secretary of the Interior.
[3] 30 U.S.C. §§ 1001-1027.
[4] Fair market value is the price agreed to by a willing buyer and a
willing seller.
[5] U.S. Geological Survey, Assessment of Low-Temperature Geothermal
Resources of the United States, 1982.
[6] California treats geothermal resources as minerals, and they are
managed by the California Division of Oil, Gas, and Geothermal
Resources.
[7] Royalty Policy Committee, Geothermal Valuation Subcommittee Report,
May 2005.
[8] 30 U.S.C. § 191 (a). The state of Alaska is an exception to this
provision, receiving 90 percent.
[9] The valuation regulations 30 C.F.R. § 206.352 (c) (1) (ii) actually
call for using gross proceeds, not sales revenue, in this calculation.
The Act also refers to the term gross proceeds. Gross proceeds are all
financial compensation accruing to the lessee from the sales of
electricity. Since sales revenues are generally the largest component
of gross proceeds, we use the two terms synonymously in this report for
simplicity.
[10] Deductions are estimates that are to be recalculated at the
beginning of each year. Prior year's deductions are to be adjusted
based on actual costs during that year.
[11] Pub. L. No. 109-58 § 224 (2005).
[12] Of the 15 geothermal projects on federal lands, two other
geothermal projects pay royalties on a negotiated percentage of gross
sales revenues and three other projects have both binary and flash
operations--one of which has produced electricity intermittently and is
currently shut down.
GAO's Mission:
The Government Accountability Office, the investigative arm of
Congress, exists to support Congress in meeting its constitutional
responsibilities and to help improve the performance and accountability
of the federal government for the American people. GAO examines the use
of public funds; evaluates federal programs and policies; and provides
analyses, recommendations, and other assistance to help Congress make
informed oversight, policy, and funding decisions. GAO's commitment to
good government is reflected in its core values of accountability,
integrity, and reliability.
Obtaining Copies of GAO Reports and Testimony:
The fastest and easiest way to obtain copies of GAO documents at no
cost is through the Internet. GAO's Web site ( www.gao.gov ) contains
abstracts and full-text files of current reports and testimony and an
expanding archive of older products. The Web site features a search
engine to help you locate documents using key words and phrases. You
can print these documents in their entirety, including charts and other
graphics.
Each day, GAO issues a list of newly released reports, testimony, and
correspondence. GAO posts this list, known as "Today's Reports," on its
Web site daily. The list contains links to the full-text document
files. To have GAO e-mail this list to you every afternoon, go to
www.gao.gov and select "Subscribe to e-mail alerts" under the "Order
GAO Products" heading.
Order by Mail or Phone:
The first copy of each printed report is free. Additional copies are $2
each. A check or money order should be made out to the Superintendent
of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or
more copies mailed to a single address are discounted 25 percent.
Orders should be sent to:
U.S. Government Accountability Office
441 G Street NW, Room LM
Washington, D.C. 20548:
To order by Phone:
Voice: (202) 512-6000:
TDD: (202) 512-2537:
Fax: (202) 512-6061:
To Report Fraud, Waste, and Abuse in Federal Programs:
Contact:
Web site: www.gao.gov/fraudnet/fraudnet.htm
E-mail: fraudnet@gao.gov
Automated answering system: (800) 424-5454 or (202) 512-7470:
Public Affairs:
Jeff Nelligan, managing director,
NelliganJ@gao.gov
(202) 512-4800
U.S. Government Accountability Office,
441 G Street NW, Room 7149
Washington, D.C. 20548: