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 gas prices.

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.

Susan Parker

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