Pursuant to a congressional request, GAO reviewed the Department of Energy's (DOE) Baca Geothermal Demonstration Powerplant Project, a joint effort by DOE and industry to demonstrate the feasibility of operating an electric powerplant with steam obtained from a geothermal reservoir. The project was terminated when sufficient steam to operate the powerplant could not be obtained. Although the cost of the project was to be shared equally, DOE paid 64 percent. GAO focused its review on the causes of the project's termination, the reasons why DOE paid a disproportionate share of the project costs, and the lessons learned which could be applied to other DOE projects.

GAO found that, contrary to preliminary findings and due to unexpected problems with the reservoir and drilling, the reservoir only produced one-third the necessary steam to operate the powerplant's turbine. While it was intended that DOE and industry share the project's costs equally, provisions in the cooperative agreement made DOE responsible for early, nonequipment powerplant costs, and DOE decided to pay additional equipment costs to prevent a delay on the project. DOE may recover a portion of these costs upon sale of the equipment. GAO advised that: (1) when dealing with projects in which the availability of an energy supply is a crucial and unknown factor, strong emphasis should be given to developing the energy supply before proceeding with procurement and construction; and (2) when negotiating future cost-sharing agreements, DOE should strive to have costs borne equally by all participants throughout all phases of the projects. DOE geothermal officials stated that actions are being taken to ensure that similar problems are avoided on future projects.