Nielson-True Partnership, True Oil Company, Tax Matters Partner - Page 10

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             regulated by FERC.  NGPA section 503, however, does not contain a                                    
             specific reference to or definition of "tight formation gas".                                        
             NGPA section 503 does contain reference to several categories of                                     
             natural gas which are covered under its procedures, including                                        
             "high-cost natural gas".  See 15 U.S.C. sec. 3413(a)(1)(D).                                          
                    NGPA section 503 was enacted in 1978 and did not                                              
             specifically mention tight formation gas.  The introduction of                                       
             tight formation gas to the price incentive provisions, including                                     
             NGPA section 503, did not occur until some later time.  The                                          
             introduction of tight formation gas into this scenario occurred                                      
             as described in Williams Natural Gas Co. v. FERC, 872 F.2d 438,                                      
             441 (D.C. Cir. 1989), as follows:                                                                    
                    NGPA section 107(c)(5) gives the * * * [FERC] the power                                       
                    to prescribe an incentive price for high-cost natural                                         
                    gas which does not fit within the categories enumerated                                       
                    in section 107(c)(1)-(4).  On July 16, 1979, President                                        
                    Carter recommended the establishment of incentives for                                        
                    the production of "tight formation" natural gas.  After                                       
                    conducting a rulemaking, * * * [FERC] promulgated                                             
                    regulations establishing incentive prices for tight                                           
                    formation gas.  [Fn. ref. omitted.]                                                           
             The courts thereafter held that NGPA section 503 is the                                              
             procedural mechanism for the determination of whether a                                              
             particular well's production qualifies for the price incentive as                                    
             tight formation gas vis-a-vis the NGPA section 503 category                                          
             "high-cost natural gas".  See, e.g., Williston Basin Interstate                                      
             Pipeline Co. v. FERC, 816 F.2d 777, 780 (D.C. Cir. 1987).                                            
                    NGPA section 503 contains a four-step process by which                                        
             determinations may be obtained.  First, the local regulatory                                         

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