updated 1/23/2006 8:37:34 PM ET 2006-01-24T01:37:34

Natural gas producers reportedly took advantage of inconsistent federal rules to avoid paying the U.S. government about $700 million in royalties in 2005, but the head of the Interior Department defended those rules and said taxpayers were not being shortchanged.

After a three-month investigation, The New York Times wrote Monday that a complicated set of federal regulations allowed energy companies to provide the Interior Department and the Securities and Exchange Commission different data when reporting the value of the natural gas they sold.

To the SEC, the industry reported a market price. But to the Interior Department, it gave a lower so-called wellhead price, which is the value of the gas before factoring in processing and transportation costs, and profit margins. Royalties are set at around 12 percent to 16 percent of the wellhead price.

If the royalty payments had been based on the market price, the Times computed, the U.S. government would have collected an additional $700 million. The paper did not allege that any laws were broken.

Interior Secretary Gale Norton said in an interview late Monday that "overall we think the taxpayers are getting the amount they are due." Norton said her agency conducts regular audits, but that it is trying to improve that system.

"There are problems," she said. "There are times when we ask companies for more than they paid."

Industry executives denied any wrongdoing, saying that different rules apply when calculating prices for different agencies. "The price of gas downstream is always going to be higher because you have costs that have to be recouped for getting it to the customer," a spokesman for Exxon Mobil Corp. was quoted as saying.

Still, Sen. Charles E. Schumer of New York said Monday that the Interior Department should provide Congress with an explanation of the matter within 30 days.

"I am deeply disturbed by the possibility that as American families are paying significantly higher prices to heat their homes, they may also be getting short-changed through underpaid royalties by the same companies that have reaped extraordinary profits from increased energy prices," Schumer said in a letter to the Interior Department's Inspector General Earl E. Devaney.

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