FERC Reinstates Procedures For Producer Tax Credits
FERC last week issued a final rulemaking that reinstates its
authority to make well determinations so that qualifying producers
can obtain Section 29 tax credits for high-cost, hard-to-find gas
produced from certain wells and formations.
In the notice of proposed rulemaking in January, the Commission
sought to restore its authority to process well category
determinations for only those gas wells that were recompleted after
Jan. 1, 1993, when gas prices were completely decontrolled. In the
final rule last week, however, FERC said it also would accept
producer applications for well determinations on qualifying gas
wells that were spudded and/or recompleted before that date.
Recompletions are active wells where no additional drilling to
deepen or extend the well is involved.
In addition, the Commission said it would consider designations
of new tight gas formations by jurisdictional agencies (the states
or other federal agencies) when determining which producers qualify
for the tax credit.
The final rule is an attempt by the Commission to correct an
oversight that occurred when Congress phased out price controls for
natural gas under the Wellhead Decontrol Act of 1989, which
stripped FERC of its authority to set price ceilings for wellhead
The oversight was this: in order for producers to take advantage
of the Section 29 tax credit of the Internal Revenue Code, they
first had to get a ruling from FERC on whether their gas, in fact,
met the definition for high-cost gas eligible for the credit. But
the producers couldn't get such determinations because the
Commission had scrapped its procedures after the total decontrol of
A group of Rocky Mountain producers petitioned FERC last year to
reinstate its well-determination procedures so it could qualify for
the tax credit, which expires in late 2002. The producers'
petition, which was backed by the Department of Energy, and FERC's
final rule are in response to a decision by the Tenth Circuit Court
of Appeals, which addressed the quandary involving the tax credit.
"This order is about doing equity to gas producers, fulfilling
the expectations of large and small producers and royalty owners,
who had no reason to think that these tax credits would not be
available under the statute," said Chairman James Hoecker. "It has
no impact on gas prices, although there may be some supply response
as a result our actions today for new completions in the next two
years." Producer requests for well determinations will mean more
work for FERC staff, but "we are confident that we can handle
[it]," he noted.
The Commission estimated that at least 4,000 recompletions were
performed between 1993-1999 for which a well determination may be
sought at FERC, and that another 1,500 recompletions may occur
between now and 2002. That's when the tax credit is scheduled to
expire, but it could be extended. Susan Parker
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