[Propriety of a Modification to a Navy Contract With the China Lake Joint Venture]

The Naval Facilities Engineering Command requested GAO views as to the propriety of a modification to a Navy contract with a joint venture for the development of geothermal resources. The contract, as drafted, provides for the expansion of the electrical generating facility at a weapons center and requires delivery by the contractor of electricity in excess of the weapons center and other naval facilities in California. Because delivery of excess electricity to other naval facilities would require its sale to a public utility and the purchase of similar amounts of electricity from that company or other utility companies, the Command asked whether such an arrangement would be in accord with the federal regulation which authorizes the sale of Navy-generated electricity under limited circumstances. Regulations authorize the secretaries of military departments to develop, or authorize the development of any geothermal energy resource within lands under its jurisdiction for the use or benefit of national defense operations. Furthermore, secretaries of military departments may provide and operate energy production facilities and they may purchase energy produced from such facilities. Another regulation precludes the sale of excess power generated by a Navy plant to a utility company. Electricity sales under that regulation are authorized only to nongovernment purchasers in the immediate vicinity of the installation where electric service is otherwise unavailable. Therefore, GAO concluded that the procedures whereby a contractor would sell electricity to a utility at public utility regulation rates and purchase equivalent amounts from the same utility or another utility are not barred by federal regulations. However, GAO suggested that the contract be modified to spell out the contractor's obligation to arrange with the public utilities involved for delivery of agreed upon amounts of electricity to the Navy and payment therefor by the contractor at commercial rates. Proposed legislation specifically clarifies the Navy's authority under such circumstances.