The Federal Energy Regulatory Commission last week proposedreinstating its authority to make well determinations so thatqualified producers can obtain Section 29 tax credits for high-costgas wells that were drilled prior to 1993.

In a notice of proposed rulemaking (NOPR), the Commission isseeking to remedy an oversight that occurred when Congress phasedout price controls for natural gas under the Wellhead Decontrol Actof 1989, which ultimately stripped FERC of its authority to setceiling prices for natural gas at the wellhead.

The oversight is this: in order for producers to take advantageof the Section 29 tax credit of the Internal Revenue Code, theyfirst must get from FERC a ruling on the geological formation oftheir wells – which determines whether the gas can qualify for thetax credit. But the producers can’t get such determinations becausethe Commission scrapped its procedures after the total decontrol ofgas prices.

A group of producers, who are mostly active in the RockyMountain region, petitioned the Commission last year to re-instateits well determination procedures so that they could qualify forthe tax credit, which expires in 2002. The producers’ petition,which was backed by the Department of Energy, and the subsequentNOPR are in response to a decision by the Tenth Circuit Court ofAppeals, which addressed the quandary involving the tax credit.

Only wells drilled prior to 1993, when gas prices were totallydecontrolled, can qualify for the credit. Also, only high-cost,hard-to-produce gas (as defined under Section 107 of the NGA) iseligible for the tax credit.

In the NOPR, FERC essentially proposes to take out its old wellprocedures and “dust them off” to determine whether producersqualify for the Section 29 tax credit, according to a staff member.The Commission’s action does not require congressional approvalbecause FERC isn’t seeking to re-establish its authority to set gasprices, a spokeswoman said.

Susan Parker

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