Clajon Gas Co., L.P., Aquila Gas Pipeline Corp., Tax Matters Partner - Page 35

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               FOLEY, J., dissenting:  I disagree with the majority’s                 
          analysis and holding.                                                       
          I. The Texas Gathering Systems (TGS) Were Production Assets                 
               Revenue Procedure 87-56 states that asset class 13.2                   
          includes “assets used by * * * natural gas producers for * * *              
          production of * * * natural gas, including gathering pipelines”.            
          As the trial judge I concluded, after analyzing all of the                  
          relevant evidence and testimony, that Clajon’s pipelines were               
          gathering systems “used by” producers in the production of                  
          natural gas.  Gathering systems are essential to the production             
          process because they treat unprocessed natural gas by removing              
          water, hydrogen sulfide, and carbon dioxide.1  Without                      
          dehydration and treatment, the gas cannot be used, and                      
          transmission companies would not accept it for transportation to            
          ultimate consumers.  Indeed, without a properly designed                    
          gathering system the gas would never be produced at all but would           
          simply remain in the ground.  Thus, the services provided by                
          Clajon were an integral part of the production process.                     

               1  Pipes in a gathering system, generally, deteriorate                 
          faster and have to be replaced more frequently than long-distance           
          transmission pipelines.  Because gathering system pipes have                
          shorter physical lives than transmission pipelines, it is                   
          reasonable to conclude that Clajon’s gathering systems are within           
          the asset class with the shorter recovery period.                           

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