Energy and applied technology holding company Vectren ( VVC) said Tuesday it will opt out of its participation in the production of synthetic fuel, as tax credits for its sale are to be phased out.

The company has an investment of about $2.9 million in Pace Carbon Synfuels, a limited partnership that operates four projects to produce and sell coal-based synthetic fuel.

Under existing law, synfuel tax credits scheduled to expire at the end of 2007 will begin to be phased out if the current year's annual average price of oil exceeds certain levels.

Current Nymex oil prices indicate that a significant phase out in 2006 is likely, Vectren said.

The company is obligated to fund the partnership on an installment basis for working capital and as tax credits are earned. Depending on the actual phase out of credits, the funding obligation could total $5 to $7 million

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