Uncollected royalties on gas, oil targeted

WASHINGTON — Maria Cantwell, the Senate Democrats' leader on energy matters, has been looking for an issue that would attract taxpayer outrage, gain Republican support and lend itself to the Democrats' general attack on Big Oil.

A controversy over billions in uncollected gas and oil royalties at the Interior Department — with its costs to taxpayers, apparent lack of results and suggestions of an agency cover-up — may fit the bill.

Today, Cantwell will join colleagues on the Energy Committee and Natural Resources Committee for a hearing that is likely to produce drama and could lead to legislation cutting tax breaks and subsidies for the energy industry. Many Republicans in the Senate and House have denounced the problem-plagued royalty program.

After the Nov. 7 elections, the inspector general of the Interior Department briefed staffers for Cantwell and other senators behind closed doors about the energy royalties.

Cantwell had asked the Government Accountability Office a year before to investigate questions about the effectiveness of the program to collect lower royalties from energy corporations for drilling in the Gulf of Mexico, as an incentive for further energy exploration.

News reports suggested that taxpayers could lose up to $10 billion due to botched management of royalty program. In addition, during the fall, several Interior auditors alleged that the agency had prohibited them from collecting other fees from major oil producers.

As a member of the Democratic minority, Cantwell said, "There wasn't much we could demand in terms of answers or responses." But the elections that put Democrats in power also gave them better access to information.

"It was far worse than we thought," Cantwell said Wednesday.

The inspector general told Senate staffers that problems with the royalty program in the Minerals Management Service (MMS) were widespread and that some issues were so serious that a criminal probe by the Justice Department was under way, The New York Times has reported.

Today's Energy Committee meeting is the panel's first oversight hearing of the new Congress.

The inspector general is expected to testify that his agency's detailed report contradicts earlier statements by the head of the MMS, Johnnie M. Burton, regarding when she knew that the government was undercollecting some fees because of badly written contracts. Burton will not testify at the hearing.

In addition, the panel will get a chance to hash over a bipartisan report released Wednesday by the joint Economic Committee, a group of House and Senate members, that indicates the "royalty relief" program has failed to spur more oil and gas development.

"It has done almost nothing as an incentive," Cantwell said.

A call to the Interior Department Wednesday seeking comment wasn't returned.

The royalty controversy has given congressional Democrats impetus to go after tax breaks for energy companies. The House has introduced one such bill, which may pass today.

Meanwhile, Democrats are looking for more ammunition against the Bush administration and the energy industry in whistle-blower lawsuits by four Interior auditors over alleged uncollected royalty fees from energy firms.

"The Interior Department has laid off auditors, and they are not even in a position to thoroughly review how and whether royalties are being collected," Cantwell said.

The offshore leases approved in 1998 and 1999, under the Clinton administration, failed to include a provision that would require higher royalty payments if oil rose above $34 a barrel.

The mistake was discovered in 2000. The new bipartisan report says the Bush administration should have corrected the leases in 2004, when the price of oil reached that level, but did not do so.

That has cost roughly $865 million in the past three years, according to government investigators.

Last fall, Burton of MMS told a House committee that she didn't know the royalties weren't being collected on the higher oil and gas revenues until 2006. But the inspector general's report is expected to say that she knew about it two years earlier.

Alicia Mundy: 202-662-7457 or amundy@seattletimes.com