HB 337-OIL AND GAS PROD. TAX: CREDITS/INTEREST    CO-CHAIR JOHNSON announced that the next order of business would be HOUSE BILL NO. 337, "An Act relating to interest on certain underpayments or overpayments for the oil and gas production tax, to certificates for certain oil and gas production tax credits for qualified capital expenditures, and to alternative tax credits for expenditures for certain oil and gas development and exploration activities for the oil and gas production tax; relating to the use of the oil and gas tax credit fund to purchase certain tax credit certificates; and providing for an effective date." CO-CHAIR JOHNSON stated the document before the committee is Version R. He recalled that Representative Guttenberg had moved Conceptual Amendment 3, labeled 26-GH2057\A.l, Bullock, 8/24/10, at the 3/29/10 meeting; however, the amendment was withdrawn so the meeting could adjourn without any business before it. REPRESENTATIVE GUTTENBERG moved Conceptual Amendment 3, labeled 26-GH2057\A.1, Bullock, 8/24/10, which read: Page 1, line 2: Delete "," Insert "and" Page 1, lines 3 - 4: Delete ", and to alternative tax credits for  expenditures for certain oil and gas development and  exploration activities for the oil and gas production  tax" Page 3, line 7: Delete "AS 43.55.025(f) [AS 43.55.025(f)(2)]" Insert "AS 43.55.025(f)(2)" Page 3, line 9: Delete "AS 43.55.025(f) [AS 43.55.025(f)(2)]" Insert "AS 43.55.025(f)(2)" Page 4, line 5, through page 9, line 5: Delete all material. Renumber the following bill sections accordingly. Page 9, lines 11 - 25: Delete all material. Renumber the following bill sections accordingly. Page 10, lines 2 - 6: Delete all material. Renumber the following bill sections accordingly. Page 10, line 19: Delete "Sections 4 - 12 of this Act take" Insert "Section 5 of this Act takes" Page 10, line 20: Delete "sec. 17" Insert "sec. 9" CO-CHAIR JOHNSON objected for the purpose of discussion. REPRESENTATIVE GUTTENBERG explained that the amendment is conceptual because it was written for a different version of HB 337. The committee took a brief at-ease. [FTR audio recording restored.] 6:42:55 PM REPRESENTATIVE GUTTENBERG, for "practical purposes at this time" withdrew Conceptual Amendment 3. 6:43:10 PM CO-CHAIR NEUMAN informed the committee Version E "does not have the [Alaska Retirement Management (ARM)] Board amendment in there." He then moved to adopt Version E. 6:43:47 PM CO-CHAIR JOHNSON announced the motion to bring back before the committee Version E, the effect of which allows the ARM Board to purchase the credits. REPRESENTATIVE P. WILSON objected for the purpose of discussion. CO-CHAIR NEUMAN pointed out that Version E "does not include the ARM Board version." CO-CHAIR JOHNSON corrected his previous statement. He said, "That's the effect of what [Version E] does, it takes away the ARM Board version." 6:43:55 PM REPRESENTATIVE P. WILSON spoke to her objection and asked why the ARM Board amendment should be removed from the bill. 6:44:30 PM CO-CHAIR NEUMAN explained that his request to remove the ARM Board is not for the purpose of disallowing the board to purchase credits, in fact, he expressed his belief that these opportunities should be expanded; however, the committee received a legal opinion from Don Bullock, Attorney, Legislative Legal Counsel, Legislative Legal and Research Services, advising that the provision may violate the single-subject clause. Because of this advice, he stated that his intent is to provide other opportunities to use for purchases of the credits. In addition, Co-Chair Neuman expressed his understanding that the commissioner of the Department of Revenue said the ARM Board would not purchase the tax credits. 6:46:21 PM PATRICK GALVIN, Commissioner, Department of Revenue (DOR), advised that the inclusion of the ARM Board as a potential market for the credits is no longer necessary as other provisions of the bill remove any barriers to a credit- certificate holder getting 100 percent of his/her cash back from the state, whereas the ARM Board would offer 92 cents on the dollar. Furthermore, given the advice from Legislative Legal and Research that the provision raises the possibility of a single-subject violation, he said the department decided not to put something unnecessary in the bill and risk creating a legal issue. 6:47:21 PM CO-CHAIR JOHNSON expressed his understanding that the bill now allows the state to purchase, "100 cents on the dollar," and there is no need for other options. COMMISSIONER GALVIN said correct. 6:47:34 PM REPRESENTATIVE KAWASAKI recalled previous debate on this version of the bill. He said, Version R is the version that I've marked up, we've passed two amendments, at least discussed two amendments to this version, R. I think that the idea would be that if you don't want the ARM Board in there, that we could later amend it out. ... To switch from version to version I think is confusing, I'd prefer to stick with this version for now.... 6:48:20 PM CO-CHAIR JOHNSON observed that the committee could vote on that, as any member can make a motion. 6:48:28 PM REPRESENTATIVE SEATON observed, "This is actually rescinding an action we took, without rescinding the action." He recalled that the committee had a choice and discussed Version E, but Version R was adopted. He then reminded the committee he had provided a legal memo from 2008 quoting the supreme court, which held that in matters with such themes such as taxation, a "broad breadth" of interpretation is acceptable. Further, testimony by the commissioner pointed out that the bill deals with tax credits and with the ARM Board's ability to buy those specific tax credits in the bill, thus "this is probably the closest call you would ever had." Representative Seaton opined that a precedent has been set on the floor of the House that subjects as varied as scallops, hair crab, and fishing licenses have economic impact, as do Alaska Regional Development Organization (ARDOR) boards; yet these do not violate the single-subject rule. He disagreed with legislative counsel in this regard and objected to the adoption of Version E instead of Version R. 6:50:50 PM CO-CHAIR JOHNSON noted there are two ways to handle this situation, one way is to rescind the committee's action, and both means are technically appropriate. 6:51:12 PM REPRESENTATIVE OLSON asked the commissioner if he was speaking from experience and as a member of the ARM Board. COMMISSIONER GALVIN said he was a member of the ARM Board. In further response, he advised that this has not been an issue for the ARM Board, thus has no previous experience; however, he said the advantages to the ARM Board that were previously identified are being eliminated by the bill. Therefore, he said he did not see the value of having the ARM Board alternative in the bill from the perspective of the credit-certificate holders. From the perspective of the ARM Board, it may have the opportunity to buy the certificates, but there will be no sellers. 6:52:31 PM CO-CHAIR NEUMAN observed that the commissioner finds this provision unnecessary, and expressed his belief that the committee did not discuss Version E. Although there may have been other pieces of legislation that have not been challenged by the single-subject rule, if there is a challenge, it will cost the state money for a defense, which would affect legislation "which is desperately needed." He pointed out the current legal opinion from Mr. Bullock that there is the possibility of a violation, and stated, "Then let's just not even go there." 6:53:52 PM CO-CHAIR JOHNSON agreed that the provision is not needed, and opined the single-subject clause is of less concern than allowing 100 percent on the dollar from the state. 6:54:09 PM REPRESENTATIVE P. WILSON asked whether that is the only difference in the two bills. CO-CHAIR JOHNSON said yes. 6:54:22 PM REPRESENTATIVE KAWASAKI advised it is easier and cleaner working on Version R and "amending out the portions of ARM Board for the folks that object to the ARM Board addition," rather than trying to add amendments into Version E. 6:54:48 PM CO-CHAIR JOHNSON stated his intention "to vote to have Version R, and offer that amendment later." 6:55:17 PM A roll call vote was taken. Representatives Edgmon, P. Wilson, Olson, and Neuman voted in favor of adopting Version E. Representatives Guttenberg, Kawasaki, Tuck, Seaton, and Johnson voted against it. Therefore, Version E failed by a vote of 4-5. 6:56:37 PM CO-CHAIR JOHNSON said, "I'm going to vote no, but I want to qualify that with the amendments coming. And only because we've got amendments made to this, I would hope that everyone would remember this vote." 6:56:39 PM CO-CHAIR NEUMAN moved Conceptual Amendment 4 which read: Page 7 Delete lines 24-31 Page 8 Delete lines 1-2 Title change Delete reference to ARM Board CO-CHAIR JOHNSON restated the conceptual amendment and added that conforming language would also be appropriate. 6:57:29 PM REPRESENTATIVE KAWASAKI objected for purpose of discussion. 6:58:08 PM COMMISSIONER GALVIN pointed out a reference to the ARM Board in Sec. 3 on page 2. 6:58:32 PM CO-CHAIR JOHNSON clarified the conceptual amendment is to remove the ARM Board from the title, and the bill, and for conforming language where appropriate. 6:58:38 PM A roll call vote was taken. Representatives Tuck, P. Wilson, Olson, Edgmon, Neuman, and Johnson voted in favor of Conceptual Amendment 4. Representatives Guttenberg, Kawasaki, and Seaton voted against it. Therefore, Conceptual Amendment 4 was adopted by a vote of 6-3. 6:59:33 PM REPRESENTATIVE SEATON offered Amendment 5 to rescind the committee's action on 3/29/10, in failing to adopt Amendment 2, labeled R.1, Bullock, 2/29/10, which was drafted to Version R, and which read: Page 7, line 2: Delete "that expenditure" Insert "the expenditures during a calendar year that exceed the average annual well-related expenditures for the calendar years 2008, 2009, and 2010; the producer or explorer shall submit the amount of well-related expenditures for each of the years 2008, 2009, and 2010 at the time an election is made to apply the credit authorized by this subsection" [Amendment 2 was amended on 3/29/10 to delete all references to "2010." REPRESENTATIVE SEATON reminded the committee that Amendment 2 relates expenditures to the average expenditures during 2008 and 2009, thus the credits are extended to expenditures that exceed that average amount. The purpose of the amendment is to accomplish the goal of the bill which is to stimulate additional investment and production. In fact, the amendment would encourage companies to increase their investment and in-field exploration because they would get a higher credit if they exceeded the amount of their current annual expenditures. 7:02:00 PM CO-CHAIR NEUMAN objected for the purpose of discussion. He asked the commissioner how much work it would be for the department to average all well-related expenditures for 2008 and 2009. 7:03:21 PM COMMISSIONER GALVIN explained that it would not be possible for the department to determine this average based on the information received thus far from taxpayers regarding 2008 and 2009. The department would have to request that taxpayers provide supplemental tax returns, including documentation of their well-related expenditures. Currently, the tax reporting system does not break out expenditures in that way. 7:04:12 PM CO-CHAIR NEUMAN asked whether the amendment would set a precedent for the DOR to average well-related expenditures for prior years; and if so, would this affect any changes in the tax code. 7:04:57 PM COMMISSIONER GALVIN explained that it would establish for each taxpayer a fixed number for their 2008-2009 expenditures, and that number would determine whether the 30 percent credit created by the bill is available, or not. 7:05:33 PM CO-CHAIR NEUMAN restated his question about whether there were any changes in the tax code, regulations, or statute since 2008 that affect well-related expenditures. 7:05:53 PM COMMISSIONER GALVIN related that the regulations that define lease expenditures, as well as those that define qualified capital expenditures, have been put in place recently and are retroactive. 7:06:32 PM CO-CHAIR NEUMAN assumed that if there have been changes dealing with well-related expenditures since 2008, additional changes may have negative impacts on companies that have made financial decisions. 7:07:18 PM COMMISSIONER GALVIN clarified that the information submitted to the department for 2008-2009 would not have specified expenditures that were, or were not, well-related. Thus, new information from 2008-2009 would have to be provided so that taxpayers could seek a credit from 2010 forward. He recalled his previous testimony on this amendment, pointing out that taxpayers would be motivated to minimize their well-related expenditures for 2008-2009, perhaps with controversy. He concluded, "It's doable, as long as you take what they say for face value." 7:09:35 PM CO-CHAIR NEUMAN observed that for the governor's bill a determination was made about penalties for taxes that were underpaid. If the state changes the rules, it may create an "inverse" situation that taxpayers would not be able to take advantage of. He also cautioned about the amount of work changes would require of the department and the producers. 7:11:14 PM COMMISSIONER GALVIN advised that this amendment and the in-field drilling credit in the bill would not affect a tax liability from 2008-2009; however, when taxpayers submit a request for an in-field drilling credit, they must show that their well-related expenditures are consistent. The amendment will create some additional accounting issues, but it will not impact the past tax liability. 7:12:41 PM CO-CHAIR NEUMAN noted that it would impact the value of a taxpayer's money. 7:13:19 PM REPRESENTATIVE GUTTENBERG clarified that new information will be needed whether the amendment is adopted or not; in fact, the department will be looking at new reporting forms for well credits because well credits for capital and operating are all "new ground." He surmised that if the bill passes, auditors will be evaluating numbers from one year to the next to deal with well rework. 7:14:50 PM COMMISSIONER GALVIN agreed that the nature of the credit itself requires a different accounting methodology than what is currently required for a taxpayer, but noted that the amendment does create a requirement for the taxpayer to retroactively resubmit information for 2008-2009. 7:15:20 PM REPRESENTATIVE GUTTENBERG confirmed it does not change the past tax liability in any way. 7:15:34 PM REPRESENTATIVE KAWASAKI asked how a company would view this aspect of the bill. For example, a company may decline the credit to avoid submitting additional information. 7:16:01 PM CO-CHAIR JOHNSON reminded the commissioner that he is not required to answer for oil companies. 7:16:06 PM COMMISSIONER GALVIN opined that if taxpayers are offered an opportunity to save money, they will. 7:16:26 PM REPRESENTATIVE KAWASAKI further asked whether there is reason to believe that the companies may not disclose accurate information. 7:17:06 PM COMMISSIONER GALVIN related that the amendment is something that the department could implement, but it will create complexities for DOR and for the taxpayer. He acknowledged that taxpayers may "low ball" their expenditures and added that, from a tax administration standpoint, the amendment imposes a burden. 7:18:20 PM REPRESENTATIVE KAWASAKI guessed that the companies "are pretty honest when they do their taxes, right?" 7:19:01 PM COMMISSIONER GALVIN advised that taxpayers will interpret the tax code to their maximum advantage, not to violate the statute, but to take advantage of accounting principles. This amendment will motivate taxpayers to lower their 2008-2009 expenditures in order to maximize their ability to obtain credits. 7:20:24 PM REPRESENTATIVE KAWASAKI suggested the assessment of penalties for false claims of tax liability. COMMISSIONER GALVIN assumed the normal tax penalties for misreporting tax return data would apply. 7:21:28 PM CO-CHAIR JOHNSON opined that the amendment sets a policy for a number that only above which an oil company can take a tax credit. This will create a disincentive and affect a decision to complete rework or not. He questioned whether the state wants to encourage in-field work, or create a barrier by setting an arbitrary number. The policy call is to either "raise the bar of disincentive," or to encourage companies to do all the work they can. It is basically whether the state wants more incentive or less incentive. 7:23:25 PM REPRESENTATIVE KAWASAKI expressed his belief that the policy is to try to create an incentive for more investment and more jobs. The baseline set by the amendment identifies a company's present investment, and shows that it can put in more money and apply for a credit. He recalled testimony that companies might spend more in Alaska, but decisions to invest are "made in boardrooms in Houston and London, and they're not made here in the State of Alaska." Thus the amendment goes to the heart of why we are trying to push for credits for better investments and without it, the money goes to other states or countries. 7:24:26 PM CO-CHAIR JOHNSON disagreed. 7:24:35 PM CO-CHAIR NEUMAN read from Amendment 2, 26-GH2057\R.1, Bullock, 8/26/10, [amended and not adopted on 3/29/10] paraphrasing as follows: Expenditures during a calendar year that exceed the average wellhead-related expenditures for '08 and '09 ... the producer or explorer shall submit the amount of well-head, well-related expenditures for those years at the time an election is made, applied, by the credit authorized by this subsection. REPRESENTATIVE NEUMAN pointed out that the aforementioned subsection [found on page 6, line 25, of HB 337, Version R] in the bill deals with credits taken after June 30, 2010, and before July 1, 2016. He surmised the department would go back and average 2008-2009 and apply that information to the credit authorization in the subsection. Representative Neuman questioned whether the time, issues, and dates "all falls in line." 7:26:28 PM COMMISSIONER GALVIN responded that the elimination of 2010 makes it mathematically possible to arrive at an average for comparison. However, the concern for the department is what happens when an attempt is made to isolate individual taxpayers, thus creating anomalies and unintended situations. For example, a taxpayer may have well-related expenditures in 2008, but not in 2009. The other issue of concern is that when taxpayers apply for tax credits, they are also members of partnerships with varied interests dependent upon lease relationships and other considerations. This problem is exacerbated if the state sets up a situation in which one partner is allowed to take a disproportionate advantage of a tax credit, even though "the concept is, you know, pure, the application ends up not being so." He warned that the situation would lead to manipulation, frustrating the underlying purpose. 7:30:14 PM CO-CHAIR NEUMAN observed the problem would compound exponentially when multiple companies are involved. 7:30:50 PM REPRESENTATIVE SEATON reminded the committee that the present structure allows for a 20 percent capital credit of 2008-2009 expenditures - expenditures and credits that were determined by the companies to be adequate incentives for the amount of work that they did. This bill not only allows 30 percent on capital credits, but expands the credits into additional well-related expenditures, which are of a greater proportion than the capital credits. Therefore, the bill allows for a very large credit "on a much broader sweep of expenditures, under this bill, than the 20 percent capital credit which was sufficient to get the amount of work that was done in 2008 and 2009; it's obvious it was enough incentive because they did the work with a 20 percent capital credit." Addressing the complexity involved to implement the amendment, he pointed out that the companies all have joint operating agreements and are sophisticated partners with clear financial arrangements. He acknowledged that since this is a new category of well-related expenditures, the companies will have to develop new computer models, but these will be based on standard accounting principles; in fact, the biggest question is the fiscal impact to the state. Representative Seaton referred to the analysis contained in Fiscal Note #3 **Corrected**, dated 2/08/10, from Tax Division, DOR, and stated that revenues are estimated to be reduced by $325 million in 2011 for doing the same work that is already sanctioned, and that will garner a 20 percent capital credit. The fiscal note further indicates that revenues are estimated to be reduced by $350 million from 2013 to 2016. He concluded that the amendment would likely reduce that loss by $200 million per year. 7:34:33 PM CO-CHAIR JOHNSON interjected that predicting a loss of revenue to the state is speculation, and questioned whether Representative Seaton could "extrapolate the numbers the way you are doing it." 7:35:05 PM REPRESENTATIVE SEATON called attention to the Alaska Department of Revenue presentation dated 3/29/10, slide 2 titled, "Production Tax Revenue with Additional Well-Related Credit Under HB 337," found in the committee packet. The chart illustrated projected FY 08 expenditures in the amount of $245 million, FY 09 expenditures in the amount of $255 million, and FY 10 expenditures in the amount of $297 million. This program will put all well-related expenses in these years in a new category that enjoys a 30 percent tax credit - not only raising the capital credit by 10 percent - but giving 30 percent on the new category of "intangible drilling and development costs." Although the numbers may be speculative, they have been provided by the department and indicate the reduction of the revenue stream, even though the companies are basically operating at exactly the same level as they have operated in the last year. 7:36:36 PM CO-CHAIR JOHNSON acknowledged Representative Seaton's point; however, the facts are unknown and whether the bill spurs development will be known very quickly. 7:36:47 PM REPRESENTATIVE SEATON speculated that the amendment will save the state about $200 million per year, and asked the department whether the additional tax evaluations would be an unsustainable burden. 7:37:43 PM COMMISSIONER GALVIN appreciated the committee's attempt to simplify the issue before it; however, he described the challenges faced by the department as it was trying to write a bill for a credit that will spur the development of additional wells. He cautioned against assuming that there will be the same number of well-related expenditure opportunities from one year to the next. As a matter of fact, companies operate on a basis of opportunity, development, schedules for fields, and sophisticated investment methods, including the economics of a specific well. The state does not have a methodology to discern whether certain costs are for work a company would be doing anyway, and other if costs are "additional stuff." The governor's bill attempts to give an across-the-board credit for well-related work because drilling wells is good for the state. 7:40:25 PM REPRESENTATIVE TUCK acknowledged that the purpose of the bill is to change behavior, create jobs, and increase the flow of oil in the Trans-Alaska Pipeline System (TAPS). He stressed that the hope is to have production above and beyond what is already taking place, but the bill gives tax credits for work that is already being done. On the other hand, the amendment offers credit to those companies that are going above and beyond, thereby producing more jobs, more revenue for the state, and more oil for TAPS. Representative Tuck acknowledged the difficulties created by the amendment, and related that he supported the new capital and exploration credits, but said he had concerns about the operating portion. Spending more on its operating budget to produce more oil is beneficial to a company and to the state, but testimony before the committee has indicated that doing that may be hindered because of the current tax regime. Without the amendment, he said he was hesitant to include operating expenses, although he supported the original proposals that gave capital credits "where we know we're successful, and give a little bit more for that." 7:42:53 PM REPRESENTATIVE EDGMON said a clear picture is not evident; in fact, there remains an element of false economy and speculation. Hearing the debate leads him to support the amendment, and he recalled that previous testimony on oil and gas topics failed to reveal the financial aspects of the industry. He cautioned, however, that the bill may not do what it intends to do, and it could cost the state money in the process. Representative Edgmon then called the question. 7:43:56 PM REPRESENTATIVE GUTTENBERG restated the estimated production tax revenue credits from aforementioned slide 2: $297 million in FY 10; $327 million in FY 11; $336 million in FY 12; $390 million in FY 13. He suggested that the companies will be happy with this bill in any form, even if they have to hire accountants, because they will receive unexpected credits for work that they were going to do anyway. 7:45:02 PM CO-CHAIR JOHNSON observed that the bill may not work, and the amount of money involved is unknown; however, what is known is that employment on the slope continues to decline, and the state is losing $100 million per year in revenue. The focus of the committee is on the loss of revenue to the state, but the committee did not even discuss the number of jobs that these credits create. 7:45:50 PM REPRESENTATIVE NEUMAN maintained his objection to the motion. CO-CHAIR JOHNSON clarified that a yes vote [on Amendment 5] would put Amendment 2 before the committee. 7:47:16 PM A roll call vote was taken. Representatives Kawasaki, Tuck, P. Wilson, Seaton, Edgmon, and Guttenberg, voted in favor of [Amendment 5] rescinding the previous vote on Amendment 2. Representatives Olson, Neuman, and Johnson voted against it. Therefore, Amendment 5 was adopted by a vote of 6-3. 7:47:19 PM CO-CHAIR JOHNSON announced that Amendment 2 was before the committee. 7:47:26 PM REPRESENTATIVE SEATON moved to adopt Amendment 2. CO-CHAIR JOHNSON objected. COMMISSIONER GALVIN pointed out that Amendment 2 originally affected 2008, 2009, and 2010, but there was an amendment to the amendment. CO-CHAIR JOHNSON, in response to Commissioner Galvin, clarified that Amendment 2, as amended, removes 2010 from the years that are averaged. 7:48:39 PM A roll call vote was taken. Representatives Kawasaki, Tuck, Seaton, Edgmon, and Guttenberg voted in favor of Amendment 2, as amended. Representatives P. Wilson, Olson, Neuman, and Johnson voted against it. Therefore, Amendment 2, as amended, was adopted by a vote of 5-4. 7:48:41 PM CO-CHAIR JOHNSON announced that HB 337 was before the committee. 7:48:47 PM CO-CHAIR NEUMAN moved to report CSHB 337, out of committee with individual recommendations and the accompanying fiscal notes. He then withdrew his motion. 7:49:24 PM CO-CHAIR JOHNSON, hearing no objection to the withdrawal of the motion, announced that the bill was before the committee. 7:49:35 PM REPRESENTATIVE KAWASAKI offered Conceptual Amendment 6, which read as follows: On page 3, line 1 Delete the word "three" Insert the word "five" 7:50:06 PM REPRESENTATIVE TUCK said that was an error that was previously noted. 7:50:24 PM CO-CHAIR JOHNSON, hearing no objection, announced that Conceptual Amendment 6 was adopted. 7:50:36 PM REPRESENTATIVE KAWASAKI offered Conceptual Amendment 7, which read as follows: On page 6, line 26, After the word "expenditure" Insert "incurred" 7:51:00 PM There being no objection, Conceptual Amendment 7 was adopted. 7:51:47 PM REPRESENTATIVE NEUMAN moved to report CSHB 337, 26-GH2057\R, as amended, out of committee with individual recommendations and the accompanying fiscal notes. REPRESENTATIVE GUTTENBERG objected for the purpose of discussion. He spoke to his objection by first reminding the committee the purpose of the bill is to encourage a heightened level of jobs for Alaskans and an increased level of oil production through TAPS; however, no analysis to support this result has been offered. Although passage of the bill implies that more jobs will be available after the industry is granted these credits, there is no guarantee, but only speculation. He read from written testimony given by an oil and gas attorney, Spencer Hosie, Hosie McArthur, San Francisco, California, to the Regulatory Commission of Alaska (RCA) [date and source not provided]: Under the duty to develop, a royalty owner's project need not be the most economic development project on the producers' platter. After the lease is signed, the royalty owner is not in competition with other potential projects in this country and abroad for the producers' development dollars. Under the lease agreements, the producers' obligation is to continue to produce from and develop a field if reasonably economic, despite individual preferences to defer development or invest capital dollars elsewhere. 7:58:10 PM REPRESENTATIVE GUTTENBERG explained that Mr. Hosie is saying that a company that signs an oil and gas lease with the state is obligated to put the state on equal footing; in fact, the duty to develop the leases means they must. The only way the company is not obligated to do all the things the state grants credits for, is for the state to "let them off the hook." Furthermore, there is a duty to develop in the development clause of the resources section of the state constitution, thus when the state signs a lease agreement it expects development for the good of all Alaskans. Routinely, leaseholders ask for and receive credits for development; however, Mr. Hosie advises that the leaseholders alone have the duty to develop. Representative Guttenberg gave the example of former Governor Murkowski's statement that the leaseholders at Point Thomson have an obligation to develop. He concluded that well drilling, in- field drilling, and processes to enhance production are part of the schedule that every oil field has and now, 20-30 years into production, the obligation to enhance production remains with the leaseholder. He restated his objection to giving credits for actions that the leaseholders "knew that they were going to do." On the other hand, the standing of the bill would be improved if the sponsors provided definitive answers on jobs, the flow of oil, and revenue for the state. Representative Guttenberg said he could not support the bill. 7:58:26 PM CO-CHAIR NEUMAN questioned the objectivity of the testimony quoted by Representative Guttenberg because the testimony was solicited by the state. He agreed that leases call for the due regard for the interests of the landowner, which is the state, and to that regard, he said the governor and the commissioner recognized the recent large increases in oil production along with a decrease in new investment. He said he disagreed with some earlier testimony about, "how we're giving this money away, well, it's just money that we're not taking." Representative Neuman opined that the "trade-out" is the sweet spot of the policy call that must be made by the legislature. He recalled that at the introduction of the bill, he assumed the governor and the commissioner believed the bill provides incentives for further exploration. Although there is less money coming in as revenue due to the credits, there is also less oil flowing through TAPS, and the solution is more exploration, more oil flowing through TAPS, more jobs, more economic diversification, and more benefits to the state and the economy. He expressed his support for the bill. REPRESENTATIVE GUTTENBERG maintained his objection. 8:01:14 PM A roll call vote was taken. Representatives Tuck, P. Wilson, Olson, Seaton, Edgmon, Neuman, and Johnson voted in favor of HB 337, Version R, as amended. Representatives Guttenberg and Kawasaki voted against it. Therefore, CSHB 337(RES) was reported out of the House Resources Standing Committee by a vote of 7-2. 8:02:26 PM REPRESENTATIVE SEATON asked Co-Chair Johnson to ensure that the committee receives copies of the revised fiscal note. 8:02:37 PM CO-CHAIR JOHNSON agreed.