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Facebook In January, as part of their "100 hours agenda," House Democrats passed a measure designed to fix a $10 billion mistake that gave huge royalty breaks to oil companies that drill on federal land. Now, two key Democrats with political ties to the oil and gas industry are contemplating a gentler approach to correcting what the Interior Department's Inspector General has called "a jaw-dropping example of bureaucratic bungling." INSPECTOR: Blunder was made worse by inaction Sens. Dianne Feinstein and Jeff Bingaman, who both represent energy-producing states, say worries over a possible lawsuit from the oil industry have led them to consider other alternatives, including an industry-supported plan that would offer three-year lease extensions to companies that agree to begin paying royalties. At issue is a foul-up that happened under President Clinton and was compounded by inaction during the Bush administration. A price cap was left out of offshore drilling leases negotiated in 1998 and 1999, and the missing language allowed the companies to avoid royalties when oil prices spiked. Inspector General Earl Devaney concluded that the omission was inadvertent, but in January, he faulted what he called the "shockingly cavalier" response when top Interior officials became aware of it in 2004. If it remains uncorrected, the mistake is slated to cost taxpayers $10 billion. The government so far has lost at least $1 billion, according to the Government Accountability Office. No proposal would recover that money, because royalties can't be imposed retroactively. The House bill seeks to require companies to renegotiate their faulty leases or pay a conservation fee. Those that decline would be banned from future deals. Just six of 59 leaseholders have voluntarily renegotiated to date, according to the Interior Department. But Bingaman, D-N.M., who chairs the Energy and Natural Resources Committee, said in an interview this week that he believes the House plan may not be legal. The oil industry and the Bush administration have argued it threatens the sanctity of signed contracts. "I would prefer to find something that would withstand legal challenge," said Bingaman, who said he was still weighing options. "The way I would like to proceed is to find something that the administration thinks will pass muster." The Bush administration has come out publicly for a plan that has drawn criticism from environmentalists: Entice the oil companies to renegotiate the faulty leases by extending their five- to 10-year contracts for three years without bids. Bingaman hasn't endorsed that plan, but Feinstein, D-Calif., who chairs the Appropriations subcommittee that funds the Interior Department, publicly embraced it two weeks ago during a committee hearing. Bingaman was the top recipient of oil and gas contributions among Senate Democrats in 2001-06, raising $115,484, according to figures from the Center for Responsive Politics, a non-partisan group that tracks campaign money. The donations included $5,000 from ChevronTexaco's political action committee, $8,000 from El Paso Corp.'s PAC and $7,315 from Dominion's PAC, according to the non-partisan PoliticalMoneyLine. Their subsidiaries hold some of the leases in question and have declined to renegotiate, according to the Interior Department. "The oil and gas industry is a significant part of the economy here in New Mexico," Bingaman said, but the contributions in no way "affect my view that they need to pay a fair and reasonable royalty." Feinstein has received $50,000 from oil and gas interests in the past six years, including $10,000 from ChevronTexaco's PAC, the center says. Her spokesman, Scott Gerber, said campaign money does not influence her. He also sought to temper her previous public statement, saying she favors the House approach "unless we can find a better alternative." House Democrats question why companies should be rewarded for correcting what most agree was an error. They point out that the non-partisan Congressional Research Service said the House bill would pass legal muster. "I think that the House has constructed a formula which will result in the American people receiving every dollar," said Rep. Ed Markey, D-MA, one of the authors of the House language. "I don't see any reason to give the oil companies an additional windfall profit." The American Petroleum Institute, the oil industry's advocacy arm, considers the House plan "a step backwards for U.S. energy security," spokeswoman Karen Matusic said. The oil industry spent $72.5 million lobbying Congress last year. Sen. Pete Domenici, R-N.M., the ranking Republican on the Energy and Natural Resources Committee, believes the House plan will prompt lawsuits that could suspend offshore drilling, spokesman Matt Letourneau said. "This whole notion that litigation is going to shut down oil and gas leasing in the Gulf of Mexico is kind of ludicrous," countered Erich Pica, of the environmental group Friends of the Earth. Many Republican senators have raised more from the oil industry than Feinstein and Bingaman, including Domenici, who received $196,558 from industry interests during his last term, according to the center. "At no time do campaign contributions affect Sen. Domenici's decision-making," Letourneau said. "It's his goal to make the treasury as whole as possible; however, he believes we should do it in a way that does not threaten domestic energy production." Share this story: Digg del.icio.us Newsvine Reddit Facebook Enlarge By Chris Graythen, AP An oil rig in the Gulf of Mexico. 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