FERC 'Dusts Off' Old Rules to Get Tax Credit for Producers
The Federal Energy Regulatory Commission last week proposed
reinstating its authority to make well determinations so that
qualified producers can obtain Section 29 tax credits for high-cost
gas wells that were drilled prior to 1993.
In a notice of proposed rulemaking (NOPR), the Commission is
seeking to remedy an oversight that occurred when Congress phased
out price controls for natural gas under the Wellhead Decontrol Act
of 1989, which ultimately stripped FERC of its authority to set
ceiling prices for natural gas at the wellhead.
The oversight is this: in order for producers to take advantage
of the Section 29 tax credit of the Internal Revenue Code, they
first must get from FERC a ruling on the geological formation of
their wells - which determines whether the gas can qualify for the
tax credit. But the producers can't get such determinations because
the Commission scrapped its procedures after the total decontrol of
A group of producers, who are mostly active in the Rocky
Mountain region, petitioned the Commission last year to re-instate
its well determination procedures so that they could qualify for
the tax credit, which expires in 2002. The producers' petition,
which was backed by the Department of Energy, and the subsequent
NOPR are in response to a decision by the Tenth Circuit Court of
Appeals, which addressed the quandary involving the tax credit.
Only wells drilled prior to 1993, when gas prices were totally
decontrolled, can qualify for the credit. Also, only high-cost,
hard-to-produce gas (as defined under Section 107 of the NGA) is
eligible for the tax credit.
In the NOPR, FERC essentially proposes to take out its old well
procedures and "dust them off" to determine whether producers
qualify for the Section 29 tax credit, according to a staff member.
The Commission's action does not require congressional approval
because FERC isn't seeking to re-establish its authority to set gas
prices, a spokeswoman said.
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