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high but did little to encourage development of high-cost tight
formation gas when prices were low. See Texaco Inc. v.
Commissioner, 101 T.C. 571 (1993). Consequently, in enacting the
nonconventional energy production tax credit under section 29
(formerly section 44D), Congress provided an additional incentive
to compensate for the extra costs and risks of producing high-
cost fuel, including tight formation gas. See S. Rept. 96-394,
at 87 (1979), 1980-3 C.B. 131, 205.
Turning to the legislative history, the nonconventional
fuels tax credit first appeared in COWPTA. The conference
committee report states:
For purposes of the credit, the definition of
natural gas from geopressured brine, coal seams, and
Devonian shale is the same as that determined by the
Federal Energy Regulatory Commission (FERC) under the
Natural Gas Policy Act of 1978 (NGPA). Until FERC
defines the term "tight formation" under section
107(c)(5) of the NGPA, tight sands gas is defined in
terms of average matrix permeability to gas. [H. Conf.
Rept. 96-817, at 138 (1980), 1980-3 C.B. 245, 298.]
In addition, the conference report for the COWPTA stated:
Conference agreement.--The conference agreement
adopts a modified version of the Senate amendment.
This provision is intended to provide producers of
alternative fuels with protection against significant
decreases in the average wellhead price for the
uncontrolled domestic oil, with which alternative fuels
frequently compete. * * *
* * * * * * *
Sources eligible for the credit, and the
definitions of those sources, generally are the same as
those in the Senate amendment. Natural gas produced
from a tight formation, however, has the same
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