Clajon Gas Co., L.P., Aquila Gas Pipeline Corp., Tax Matters Partner - Page 14

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          have helped producers produce and sell their gas in the market              
          does not mean that the systems are exploration or production                
          assets within * * * asset class 13.2.”  Id.                                 
               In reversing our decision in Duke Energy, the Court of                 
          Appeals for the Tenth Circuit reasoned that “the plain language             
          of Asset Class 13.2 leads most logically to a reading that                  
          includes Duke’s gathering systems even though they are ‘used by’            
          producers through contractual arrangements with Duke.”  Duke                
          Energy Natural Gas Corp. v. Commissioner, 172 F.3d at 1259.  The            
          Court of Appeals stated that “Duke’s gathering systems are                  
          literally used by producers for gas production in a number of               
          different ways”, id. at 1258, noting the parties’ agreement that            
          “producers would not be able to produce natural gas in the                  
          absence of an adequately designed gathering system”, id.  After             
          reviewing the overall function and usage of gathering systems,              
          the Court of Appeals stated that “the economic character of                 
          Duke’s gathering activities is more akin to production than                 
          pipeline operation.”  Id. at 1259.  The Court of Appeals rejected           
          the Government’s argument that the words “used by” in 13.2                  
          incorporate an ownership requirement, reasoning:  “‘Use’ does not           
          mean ‘own’ in either the legal dictionary definition of the word            
          use * * * nor in everyday parlance.”  Id.   Ultimately, the Court           
          concluded as follows:                                                       

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