February 21, 2014 Washington Update

____________________________________________ ©2013 Williams & Jensen, PLLC

701 8th Street, N.W. Suite 500 Washington, D.C. 20001

Telephone: (202) 659-8201 Fax: (202) 659-5249 www.williamsandjensen.com

TAXES Camp Confirms Plans to Unveil Comprehensive Tax Reform Proposal Next Week Key Points:

House Ways and Means Committee Chairman announces plan to release draft comprehensive tax reform bill next week

The announcement suggests that House Republican Leadership at the least does not oppose Camp’s doing so

This week, House Ways and Means Committee Chairman Dave Camp (R-MI) confirmed his plans to unveil his comprehensive tax reform draft legislation next week in a letter to Republican Members, asking for their support of the effort.

The letter would indicate that Camp now has approval or a lack of a red light from House Republican leadership to release the discussion draft. The expectation is that this is an opening negotiating position and not the final product. Whether tax reform will advance remains unclear, but undoubtedly any broad discussion draft will be relevant in any future discussions or reform efforts.

This Week in Congress

House –The House was in recess.

Senate – The Senate was in recess. Next Week in Congress

House – The House is expected to consider the “All Economic Regulations Are Transparent Act of 2014” (H.R. 2804) and the “Unfunded Mandates Information and Transparency Act of 2013” (H.R. 899) pursuant to a rule. The House is expected to consider the following under suspension of the rules: the “FOIA Oversight and Implementation Act of 2014” (H.R. 1211); the “Taxpayers Right-to-Know Act” (H.R. 1423); the “Federal Information Technology Acquisition Reform Act” (H.R. 1232); the “Private Property Rights Protection Act” (H.R. 1944); the “Taxpayer Transparency Act of 2014” (H.R. 3308); the “Unlocking Consumer Choice and Wireless Competition Act” (H.R. 1123); the “Taxpayer Transparency and Efficient Audit Act” (H.R. 2530); and the “Protecting Taxpayers from Intrusive IRS Requests Act” (H.R. 2531).

Senate –The Senate is expected to vote on the motion to proceed to the “Comprehensive Veterans Health and Benefits and Military Retirement Pay Restoration Act of 2014” (S.1982).

Table of Contents Taxes 1 Financial Services 4 Energy & Environment 7 Defense 9 Health 14 Transportation & Infrastructure 15 Technology 19

Williams & Jensen – Washington Update February 21, 2014

Williams & Jensen, PLLC

701 8th Street, N.W. Suite 500 Washington, D.C. 20001 Telephone: (202) 659-8201 Fax: (202) 659-5249

www.williamsandjensen.com

Page 2 of 22

Particularly of note in the letter to his Members, Camp confirmed that the Joint Committee on Taxation and Congressional Budget Office will provide a dynamic economic analysis of the macroeconomic effects of the draft. On the other side of the Capitol, new Senate Finance Committee Chairman Ron Wyden (D-OR) has stated that now is not the proper timing for comprehensive reform, though he has shown a continued interest in working on tax extenders legislation in the near future. Below is the text of the letter Camp sent to his Republican Committee Members, in an email written on February 19.

As we travel around our districts, we see first-hand that real families are struggling – they haven’t seen a pay raise in years, many have lost hope and stopped looking for a job and kids coming out of college are buried under a mountain of debt and have few prospects for a good-paying career. We’ve already lost a decade, and before we lose a generation, Washington needs to wake up to this reality and start debating real policies and offering concrete solutions to strengthen the economy and help hardworking taxpayers. As we all know, tax reform is one way we can do that. We also know that many in Washington are scared by the prospects of tax reform; they don’t want to look special interests in the eye and say the game is up. Well, it is. We simply cannot afford the business as usual mentality that keeps Washington comfortable, but complacent. We have to get beyond the talking points and the

political posturing. The American people are fed up and it is time for Washington to put the needs of hardworking taxpayers first. Together, we have seriously and thoughtfully considered the implications and the benefits of tax reform. And, after much work by all of you, the staff (including the staff of the Joint Committee on Taxation) – not to mention several discussion drafts, countless hearings, meetings and invaluable input from job creators and families across the country – it is time to make a choice. We can choose to have a real discussion about what tax reform can mean for American families and employers or we can choose to cower to special interests and maintain the status quo. Clearly, I choose the former. That is why next week I will release a comprehensive discussion draft to overhaul our tax code to make it: (1) simpler and fairer for families and employers, and (2) strengthen our economy – meaning higher wages and more take home pay for the American

Upcoming Dates March 4: OMB’s submits top-lines for Administration’s FY 2015 budget request March 11: OMB submits balance of FY 2015 budget request March 11: Special Election-13th District of Florida November 4, 2014: Midterm Elections March 2015: Debt limit suspension expires

Williams & Jensen – Washington Update February 21, 2014

Williams & Jensen, PLLC

701 8th Street, N.W. Suite 500 Washington, D.C. 20001 Telephone: (202) 659-8201 Fax: (202) 659-5249

www.williamsandjensen.com

Page 3 of 22

worker. As we have discussed, critical to understanding how tax reform can affect families and job creators is having a modern, up-to-date economic analysis that captures the dynamic effect. Only then can we know the real, positive impact tax reform can have on our economy, and more importantly, on family budgets. On that front, there is an important update. While the Joint Committee on Taxation is the sole scorer of tax bills, and will provide a dynamic analysis of the plan, earlier today CBO Director Elmendorf stated that he is willing to provide a dynamic analysis of tax reform. This is something he did for Democrats on the Senate immigration bill. I view this as a positive step. The debate used to be about getting a dynamic score; now we will have a choice of multiple scores. Please enjoy the remainder of the District Work Week, and I look forward to continuing our work to strengthen the economy through comprehensive tax reform when we return to Washington next week. -Dave

Upcoming Hearings and Events February 25 Economic Outlook for Individuals, Families and Communities: The Senate Budget Committee will hold a full committee hearing titled “The Economic and Budget Outlook for Individuals, Families, and Communities.” Scheduled witnesses include: Neera Tanden, President, Center for American Progress; Edith Kimball, Food Services

Professional, Lee Elementary School; Courtney Johnson, English Teacher, Fort Hayes Arts and Academic High School February 26 Retirement Savings: The Senate Finance Subcommittee on Social Security, Pensions and Family Policy will hold a hearing titled “Retirement Savings for Low-Income Workers.” Scheduled witnesses include: Mark Iwry, Senior Advisor to the Secretary and Deputy Assistant Secretary (Tax Policy), Retirement and Health Policy, Department of the Treasury; Diane Oakley, Executive Director, National Institute on Retirement Security; Stephen P. Utkus, Principal and Director, Vanguard Center for Retirement Research; Judy A. Miller, Director of Retirement Policy, American Society of Pension Professionals and Actuaries (ASPPA) and Executive Director, ASPPA College of Pension Actuaries Offshore Tax Evasion: The Senate Homeland Security and Governmental Affairs Subcommittee on Permanent Investigations will hold a hearing titled “Offshore Tax Evasion: The Effort to Collect Unpaid Taxes on Billions in Hidden Offshore Accounts.” The hearing will continue the Subcommittee’s examination of tax haven bank facilitation of U.S. tax evasion, focusing on the status of efforts to hold Swiss banks and their U.S. clients accountable for unpaid taxes. Business Activity Tax Simplification Act: The House Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law will hold a hearing on the Business Activity Tax Simplification Act of 2013. Scheduled witnesses include: Pete Vegas, Founder and President, Sage V. Foods; Tony Simmons, President and CEO, McIlhenny Company; Joseph Henchman, Vice President

Williams & Jensen – Washington Update February 21, 2014

Williams & Jensen, PLLC

701 8th Street, N.W. Suite 500 Washington, D.C. 20001 Telephone: (202) 659-8201 Fax: (202) 659-5249

www.williamsandjensen.com

Page 4 of 22

of Legal and State projects, Tax Foundation; David Quam, Director of Federal Relations, National Governors Association For more information about tax issues you may email or call Christopher Hatcher at 202-659-8201. Tess Illos contributed to this report. FINANCIAL SERVICES Federal Reserve Approves Enhanced Prudential Standards for Large U.S. and Foreign Banks Key Point:

Federal Reserve approves a final rule enhancing prudential standards for large U.S. bank holding companies and foreign banking organizations.

At a February 18 open meeting, the Federal Reserve Board unanimously approved a final rule on enhanced prudential standards (relating to liquidity, risk management, and capital) for large U.S. bank holding companies and foreign banking organizations. The rule requires foreign banking organizations “with a significant U.S. presence to establish an intermediate holding company over its U.S. subsidiaries”. Federal Reserve Board Chair Janet Yellen emphasized the benefits of the rule to the stability of the financial system. She noted that the rule includes increasingly stringent requirements for larger and more systemically important financial institutions. Division of Banking Supervision and Regulation Director Michael Gibson noted that the rule does not impose enhanced prudential standards on non-bank financial companies designated as systemically important financial institutions (SIFIs) by the Financial Stability Oversight Council (FSOC). He stated that these standards will be established through a

separate rulemaking, and that the Federal Reserve will take additional time to consider appropriate standards for insurance companies. He stated that the Federal Reserve does not intend to apply bank-centric capital standards to insurance companies. In response to questioning by Governor Sarah Bloom Raskin, a staff member said that the staff intends to address enhanced prudential standards for non-bank SIFIs through either a rule or an order and that the standards would be crafted to the particular company. Consumer Bureau Official Outlines Steps to Oversee Mortgage Servicing Key Point:

CFPB Deputy Director discusses oversight for mortgage servicers.

In February 19 remarks, Consumer Financial Protection Bureau (CFPB) Deputy Director Steven Antonakes discussed the CFPB’s efforts in overseeing and enforcing its new mortgage servicing rules. Antonakes stated that the CFPB would require of servicers “the kind of basic practices of customer service that should have been implemented long ago.” He then identified the following expectations that the CFPB has for industry: technical issues “be identified and corrected”; outreach be conducted “to ensure that all consumers in default know their options”; loss mitigation applications be assessed “with care”; “close attention [be paid] to servicing transfers”; and “force-placed insurance [be used] as a last resort.” Chair White Outlines 2014 SEC Priorities On February 21, the Securities and Exchange Commission (SEC) Chair Mary Jo White in remarks at the annual SEC Speaks 2014 meeting discussed initiatives that the SEC will

Williams & Jensen – Washington Update February 21, 2014

Williams & Jensen, PLLC

701 8th Street, N.W. Suite 500 Washington, D.C. 20001 Telephone: (202) 659-8201 Fax: (202) 659-5249

www.williamsandjensen.com

Page 5 of 22

undertake in 2014. As outlined in her remarks, the SEC initiatives include some of the following:

Equity Market Structure: White stated that the SEC will prioritize its review of equity market structure, “focusing closely on how it impacts investors and companies of every size.” She noted that she would be “pushing forward is the development and implementation of a tick-size pilot, along carefully defined parameters, that would widen the quoting and trading increments and test.” She also stated that the Consolidated Audit Trail (CAT) “must be accorded the highest priority by all to complete” and the risk of cyber attacks “must be comprehensively addressed across both the public and private sectors.”

Duty of Investment Advisers/Broker-Dealers: White stated that the SEC will intensify its “consideration of the question of the role and duties of investment advisers and broker dealers, with the goal of enhancing investor protection.”

Fixed Income: White expressed support for an increased focus “on the fixed income markets.”

Credit Ratings: White identified the need for “further progress on credit rating agency reform.”

Oversight of Broker-Dealers: White expressed support for increased oversight of broker-dealers through enhanced capital and liquidity standards, and “more robust protections and safeguards for customer assets.”

Addressing Systemic Risk Standards: White stated that the SEC

will “engage with other domestic and international regulators to ensure that the systemic risks to [the] interconnected financial systems are identified and addressed…that takes into account the differences between prudential risks and those that are not.”

JOBS Act and Disclosure Reform: White noted that the focus is on “updating the rules that govern public company disclosure.”

Enhanced Asset Manager Risk Monitoring: White stated that near-term considerations include “expanded stress testing, more robust data reporting, and increased oversight of the largest asset management firms.”

Innovation in Exam Planning: White stated that “the [SEC’s] Office of Risk Assessment and Surveillance is developing exciting new technologies – text analytics, visualization, search, and predictive analytics – to cull additional red flags from internal and external data and information sources.”

Upcoming Hearings and Events February 24 Economic Policy: The National Association for Business Economics (NABE) will hold its Economic Policy Conference entitled: “Policy Choices: Immediate Needs, Enduring Challenges”. Speakers include Douglas Elmendorf, Director of the Congressional Budget Office, and Thomas Hoenig, Vice Chairman of the FDIC. February 25 OFR Advisory Committee Meeting: The Financial Research Advisory Committee for the Treasury’s Office of Financial Research (OFR) is will hold a meeting on “OFR progress on prior committee recommendations, current activities of the OFR, Subcommittee reports to

Williams & Jensen – Washington Update February 21, 2014

Williams & Jensen, PLLC

701 8th Street, N.W. Suite 500 Washington, D.C. 20001 Telephone: (202) 659-8201 Fax: (202) 659-5249

www.williamsandjensen.com

Page 6 of 22

the Committee, and Committee recommendations.” Terrorism Risk Insurance: The Senate Banking Committee will hold a hearing on “Reauthorizing TRIA: The State of the Terrorism Risk Insurance Market, Part II.” Witnesses to testify include: W. Edward Walter, President and CEO, Host Hotels & Resorts, on behalf of the Coalition to Insure Against Terrorism; Carolyn Snow, President, Risk and Insurance Managements Society; Bill Henry, CEO, McQuerry, Henry Bowles and Troy, on behalf of the Council of Insurance Agents & Brokers; Vincent Donnelly, President and CEO, PMA Insurance Group, on behalf of the Property Casualty Insurers Association of America; Warren Heck, CEO and Chairman of the Board, Greater New York Insurance Companies, on behalf of the National Association of Mutual Insurance Companies; and Douglas Elliot, President of Commercial markets, The Hartford, on behalf of the American Insurance Association. Economic Policy: The National Association for Business Economics (NABE) will hold its Economic Policy Conference entitled: “Policy Choices: Immediate Needs, Enduring Challenges”. Speakers include Jason Furman, Chairman, President's Council of Economic Advisers; Daniel Tarullo, Member, Board of Governors of the Federal Reserve System; Ambassador Miriam Sapiro, Deputy United States Trade Representative; and Representative Kevin Brady (R-TX), Chairman, Joint Economic Committee. February 26 CFPB Advisory Meeting on Credit Reporting: The Consumer Financial Protection Bureau’s (CFPB) Consumer Advisory Board will hold a meeting to “discuss

the consumer experience in the credit reporting market.” Oversight of HUD: The House Financial Services Committee’s Oversight and Investigations Subcommittee will hold a hearing entitled: “Inspector General Report: Allegations of Improper Lobbying and Obstruction at the Department of Housing and Urban Development”. Dodd-Frank Act and Asset Backed Securities: The House Financial Services Committee’s Capital Markets and Government Sponsored Enterprises Subcommittee will hold a hearing entitled: “The Dodd-Frank Act’s Impact on Asset-Backed Securities”. Retirement Savings: The Senate Committee on Finance’s Subcommittee on Social Security, Pensions, and Family Policy will hold a hearing on “Retirement Savings for Low-Income Workers”. Witnesses to testify include: J. Mark Iwry, Deputy Assistant Secretary (Tax Policy) Retirement and Health Policy, Department of the Treasury; Diane Oakley, Executive Director, National Institute on Retirement Security, Stephen Utkus, Principal & Director, Vanguard Center for Retirement Research, Judy Miller, Director of Retirement Policy, American Society of Pension Professionals & Actuaries (ASPPA), Executive Director, ASPPA College of Pension Actuaries. February 27 CFPB Advisory Meeting on Credit Reporting: The Consumer Financial Protection Bureau’s (CFPB) Consumer Advisory Board will hold a meeting to “discuss the consumer experience in the credit reporting market.” Monetary Policy: The Senate Banking Committee will hold a hearing on “The

Williams & Jensen – Washington Update February 21, 2014

Williams & Jensen, PLLC

701 8th Street, N.W. Suite 500 Washington, D.C. 20001 Telephone: (202) 659-8201 Fax: (202) 659-5249

www.williamsandjensen.com

Page 7 of 22

Semiannual Monetary Policy Report to the Congress.” Federal Reserve Chair Janet Yellen is to testify. February 28 Equity Market Structure: The House Financial Services Committee’s Capital Markets and Government Sponsored Enterprises Subcommittee may hold a hearing on Regulation NMS and equity market structure. March 26 SEC Roundtable on Cybersecurity: The Securities and Exchange Commission (SEC) will hold a roundtable “to discuss cybersecurity and the issues and challenges it raises for market participants and public companies, and how they are addressing those concerns.” April 10 SEC Advisory Meeting: The Securities and Exchange Commission’s (SEC) Investor Advisory Committee will hold a meeting that could include a discussion on crowdfunding, proxy impartiality, and decimalization. For more information about financial services issues you may email or call Joel Oswald at 202-659-8201. Eric Robins, Rebecca Konst, and Alex Barcham contributed to the articles. ENERGY AND ENVIRONMENT Congressional Concern Over Propane Supply Issues Key Points:

Propane supply issues in the Midwest and Northeast have affected consumers this winter.

Senators and Members of Congress have called for federal action to alleviate the shortages.

Senators are raising concerns regarding propane supply shortages that have struck during this winter’s heating season. This week the Vermont delegation sent a letter to Secretary of Commerce Penny Pritzker, calling on the Administration to “act quickly to temporarily restrict propane exports to increase the domestic supply of propane”. The letter, written by Senators Pat Leahy (D-VT) and Bernard Sanders (I-VT), and Representative Peter Welch (D-VT), calls on Secretary Pritzker to use the authority granted under the Export Administration Act to impose temporary limits on propane exports. Last week, a bipartisan group of 29 Senators wrote to the President calling on him “to identify and implement sensible strategies, provided by law, to guide federal agencies in assisting states with efforts to mitigate the effects of the current propane shortage.” In the letter, the Senators asked the President to “review all available options to facilitate and enable the transportation of propane to areas with shortages, via interstate pipelines and other modes of transportation.” They noted the work done already by propane industry and agencies such as the Department of Energy and Department of Transportation to mitigate the impact of the supply shortfall. On February 11, the Federal Energy Regulatory Commission issued an order extending “priority treatment” for pipeline shipments of propane to the Northeast and Midwest. The Energy Information Administration provided a “Propane Situation Update” on February 12. DOE Finalizes Nuclear Loan Guarantee Key Point:

Williams & Jensen – Washington Update February 21, 2014

Williams & Jensen, PLLC

701 8th Street, N.W. Suite 500 Washington, D.C. 20001 Telephone: (202) 659-8201 Fax: (202) 659-5249

www.williamsandjensen.com

Page 8 of 22

The $6.5 billion in federal loan guarantees will aid in construction in the first new nuclear reactors to be built in the U.S. in decades.

On Thursday, the Department of Energy finalized $6.5 billion in federal loan guarantees that will help finance construction of two reactors at the Vogtle nuclear power plant in Georgia. As described in a Department of Energy press release: “[t]he two new 1,100 megawatt Westinghouse AP1000 nuclear reactors at the Alvin W. Vogtle Electric Generating Plant will supplement the two existing reactor units at the facility. According to industry projections, the project will create approximately 3,500 onsite construction jobs and approximately 800 permanent jobs once the units begin operation.” The Department is issuing the loan guarantees to two of the project’s partners, Georgia Power Corporation (a subsidiary of Southern Company) and Oglethorpe Power. Secretary of Energy Ernest Moniz said that “[t]he innovative technology used in this project represents a new generation of nuclear power with advanced safety features and demonstrates renewed leadership from the U.S. nuclear energy industry.” Upcoming Hearings and Events February 24 Oil Exports: The New York Energy Forum will hold an event titled “Lifting the US Crude Export Bans: The Debate Over Refining and Gasoline Prices”. February 25 Pipeline Safety: The Pipeline and Hazardous Materials Safety Administration’s (PHMSA) Gas Pipeline Advisory Committee (GPAC), and Liquid Pipeline Advisory Committee (LPAC), will hold a meeting “to discuss

whether or not to adopt section 4.2 of ASTM D2513-09a, ‘Standard Specification for Polyethylene (PE) Gas Pressure Pipe, Tubing, and Fittings,’ for PE materials.” February 26 Rail Safety: The House Transportation and Infrastructure Committee will hold a hearing on “Oversight of Passenger and Freight Rail Safety”. This hearing is also expected to cover safety issues related to the rail transportation of crude oil. February 27 Water and Hydropower Legislation: The Senate Energy and Natural Resources Committee’s Water and Power Subcommittee will hold a hearing on the following bills: the “Marine and Hydrokinetic Renewable Energy Act of 2013” (S. 1419); the “Crooked River Collaborative Water Security Act of 2013” (S. 1771); the “Bureau of Reclamation Transparency Act” (S. 1800); “a bill to amend the Reclamation Safety of Dams Act of 1978 to modify the authorization of appropriations” (S. 1946); “a bill to amend the East Bench Irrigation District Water Contract Extension Act to permit the Secretary of the Interior to extend the contract for certain water services” (S. 1965); the “SECURE Water Amendments Act of 2014” (S. 2019); and the “Bureau of Reclamation Conduit Hydropower Development Equity and Jobs Act” (H.R. 1963). Electric Power: The House Energy and Commerce Committee’s Energy and Power Subcommittee will hold a hearing titled “Benefits of and Challenges to Energy Access in the 21st Century: Electricity”. March 6 Energy Transportation: The House Energy and Commerce Committee’s Energy and

Williams & Jensen – Washington Update February 21, 2014

Williams & Jensen, PLLC

701 8th Street, N.W. Suite 500 Washington, D.C. 20001 Telephone: (202) 659-8201 Fax: (202) 659-5249

www.williamsandjensen.com

Page 9 of 22

Power Subcommittee will hold a hearing that “will focus on the critical need for modern infrastructure to meet new challenges of increasing U.S. energy abundance, including the transmission, storage, and distribution of fuel for consumers.” According to the Committee, “the hearing will explore how rail, pipelines, and trucking play a key role in moving supplies to markets...[and] will also examine how inadequate infrastructure has contributed to recent regional shortages of natural gas and propane.” TBD Rail Safety: The Senate Commerce Committee’s Surface Transportation and Merchant Marine Infrastructure, Safety, and Security Subcommittee will hold a hearing titled “Enhancing Our Rail Safety: Current Challenges for Passenger and Freight Rail”. The hearing “will examine the current state of safety on the nation’s passenger and freight rail networks, including discussion of recent high-profile rail accidents, positive train control implementation, and other key safety challenges.” The hearing is expected to include a discussion of safety issues related to rail transportation of crude oil. This hearing was originally scheduled for February 13, and could be rescheduled for February 26. For more information about energy and environment issues you may email or call Frank Vlossak at 202-659-8201. Updates on energy and environment issues are available during the week on twitter. DEFENSE Assessment of NATO Plans for Afghan Forces in Post-2014 Afghanistan Key Points:

Independent entity concludes that in order to succeed, NATO’s plans for Afghan forces

require greater funding, more troops, and increased support

This assessment is “in direct contradiction” to NATO’s 2012 plans

On February 20, the CNA’s Center for Strategic Studies (CNA) released a report required by Congress and concluded “that proceeding with the drawdown of the ANSF as announced at the Chicago [NATO] Summit [in 2012] will put the current U.S. policy goal for Afghanistan at risk.” CNA recommended “that the international community establish a new plan to fund and sustain the Afghan National Security Forces (ANSF) at an end-strength of about 373,400, with a proportionally sized assistance mission (including advisors), through at least 2018.” CNA stated that “[w]e conclude that the security environment in Afghanistan will become more challenging after the drawdown of most international forces in 2014, and that the Taliban insurgency will become a greater threat to Afghanistan’s stability in the 2015–2018 timeframe than it is now.” CNA asserted that “[w]e therefore conclude that international enabler support—to include advisors—will be essential to ANSF success through at least 2018.” CNA conceded that “[w]e were unable to conduct a detailed analysis of the cost of an ANSF sized at 373,400 personnel, due to a lack of data to support an independent cost estimate…[but] [r]ough estimates using two existing models put the sustainment costs of the 373,400-member force in the range of $5-6 billion per year, though these are highly approximate and further work should be done to develop a more accurate cost estimate.” CNA noted that “[o]ur calculated ANSF of 373,400 personnel is significantly larger, and likely to be more expensive, than the force envisioned by the United States and NATO at the Chicago Summit.” CNA explained that

Williams & Jensen – Washington Update February 21, 2014

Williams & Jensen, PLLC

701 8th Street, N.W. Suite 500 Washington, D.C. 20001 Telephone: (202) 659-8201 Fax: (202) 659-5249

www.williamsandjensen.com

Page 10 of 22

“[o]ur earlier conclusion that the threat in Afghanistan is likely to increase in 2015–2018 stands in direct contradiction to the assumption of a reduced insurgent threat made at the Chicago Summit” (emphasis in the original.) In the “Chicago Summit Declaration on Afghanistan,” NATO asserted that “[t]he pace and the size of a gradual managed force reduction from the ANSF surge peak [of 352,000 plus 30,000 ALP] to a sustainable level will be conditions-based and decided by the Government of the Islamic Republic of Afghanistan in consultation with the International Community.” NATO claimed that “[t]he preliminary model for a future total ANSF size, defined by the International Community and the Government of Islamic Republic of Afghanistan, envisages a force of 228,500 with an estimated annual budget of US$4.1billion, and will be reviewed regularly against the developing security environment.” Hagel and Pritzker Reiterate Goals of Rebalance Key Points:

The Obama Administration defends its shifting of diplomatic, trade, and military focus to western Pacific

Hagel and Pritzker call for greater measures to ensure security and prosperity

On February 17, Secretary of Defense Chuck Hagel and Secretary of Commerce Penny Pritzker published an opinion piece in the Wall Street Journal titled “America Is Committed to Asia” in which they sought to construe the Obama Administration’s rebalancing to the western Pacific as a means of ensuring prosperity and security for Asian nations. Many of the challenges Hagel and Pritzker highlighted are being driven, in large part, by

the conduct of the People’s Republic of China, notably disputes with neighboring nations in the East and South China Seas over scarcely populated islands that may hold vast energy resources. Hagel and Pritzker argued that the “Departments of Defense (DOD) and Commerce are working side by side to help keep trends moving in the right direction and promote greater security and prosperity” on the Pacific Rim. Hagel and Pritzker asserted that “[t]hese efforts are particularly important because the Asia-Pacific region is confronting historical animosities and disputes that fuel tensions, increase uncertainty and risk wider conflict.” They argued that “[t]hese disagreements may begin with sovereignty concerns, but they create risk for nations across the globe…[and] [d]oubts can cause a ripple effect of negative consequences that range from wasted resources and delayed private investments to miscalculation and conflict—meaning that all Pacific nations would stand to lose far more than what any one country stands to gain.” Hagel and Pritzker stated that “[i]n the security realm, it means creating a space where our militaries can better communicate intentions, work through difficult problems, and collaborate on common interests.” They noted that “[t]he United States has already begun working with nations in the region, including China, to foster transparency and develop clear rules of the road in critical areas such as sea and air travel, space, cybersecurity and a code of conduct for the South China Sea…[and] [t]hese efforts build habits of cooperation that can be expanded to other areas.” Hagel and Pritzker claimed that “we should continue to build international partnerships that simultaneously strengthen industry and

Williams & Jensen – Washington Update February 21, 2014

Williams & Jensen, PLLC

701 8th Street, N.W. Suite 500 Washington, D.C. 20001 Telephone: (202) 659-8201 Fax: (202) 659-5249

www.williamsandjensen.com

Page 11 of 22

defense relationships…[which] will not only help improve security, but also help create new economic opportunities.” They stated that the DOD “has supported this by co-developing a new missile interceptor with Japan, which will be able to defeat the next generation of advanced ballistic missile threats and shows how leveraging collective technological expertise can help meet 21st century security challenges in a cost-effective way.” Hagel and Pritzker asserted that “the Departments of Defense, State and Commerce are rolling out reforms of the controls on the export of military items to our close partners and allies such as Australia, New Zealand, Japan and South Korea.” They claimed that “[t]hese changes will strengthen U.S. and regional security by increasing military interoperability with these allies while also enhancing our collective economic interests.” Hagel and Pritzker stated that “[a]lthough we do not permit exports of military or military-related items to China, the United States will continue to encourage exports of high-tech commercial items to China for civilian purposes.” F-35 Buy For FY 2015 Reduced; Program is Scrutinized by 60 Minutes Key Points:

The DOD may request funds for fewer F-35s than planned for FY 2015

60 Minutes calls into question the costs, timetable, and efficacy for F-35 program

In advance of the FY 2015 budget request, rumors and leaks continue to emanate from the Department of Defense (DOD) and the service branches on potential cuts and funding changes the Obama Administration will seek in the next fiscal year. Notably this week, it was reported that the DOD will request funds to procure 34 Joint Strike Fighters F-35s, a reduction of 8 as compared to the projections in the FY 2014

Future Years Defense Program (FYDP), a the five-year budget plan included with each budget request. Specifically, the DOD would request 26 F-35As for the Air Force, 4 F-35Bs for the Marine Corps, and 2 F-35Cs for the Navy. Additionally, the DOD may be planning on requesting seven fewer F-35s for FY 2016 under the FY 2015 FYDP. On February 16, CBS News 60 Minutes aired a piece on the F-35, which argued that “the F-35 has not performed as advertised…[and is] seven years behind schedule and $163 billion over budget, or as [the F-35 Lightning II Joint Program Office Program Executive Officer Lieutenant General Christopher Bogdan] told us, ‘basically the program ran itself off the rails.’” 60 Minutes’ David Martin asserted that the F-35s “coming off the Lockheed Martin assembly line in Fort Worth cost $115 million apiece, a price tag Bogdan has to drastically reduce if the Pentagon can ever afford to buy the 2,400 planes it wants.” However, Under Secretary of Defense for Acquisitions, Technology, and Logistics Frank Kendall III was quoted as claiming that the F-35 is “now under control.” Kendall had famously referred to the issue of concurrency plaguing the F-35 program as “acquisition malpractice.” The F-35’s increased costs with respect to procurement and operating the fifth generation fighters have been well documented. In an April 2013 assessment of the F-35, the Government Accountability Office (GAO) remarked that “[t]he F-35 program made progress in 2012 on several fronts” but contended that “[a]t a cost approaching $400 billion [for 2,457 F-35s], the F-35 is the DOD’s most costly and ambitious acquisition program.” At the beginning of the F-35 procurement in October 2001, the total cost of buying 2,852 F-35s was projected to be $233 billion (in then-year dollars.) In March 2013,

Williams & Jensen – Washington Update February 21, 2014

Williams & Jensen, PLLC

701 8th Street, N.W. Suite 500 Washington, D.C. 20001 Telephone: (202) 659-8201 Fax: (202) 659-5249

www.williamsandjensen.com

Page 12 of 22

the GAO stated in a report that “[t]he current sustainment cost projection by CAPE for all U.S. aircraft, based on an estimated 30 year service life, exceeds $1 trillion.” The GAO added that “[o]nce acquired, the current forecasts of life cycle sustainment costs for the F-35 fleet are considered unaffordable by defense officials.” HASC Chair Calls For Unfunded Priorities List Key Points:

McKeon requests lists of programs that are not included in DOD’s FY 2015 budget request but are vital to services, combatant commands, and National Guard

News reports suggest that the Obama Administration may revive the discontinued practice

On February 17, House Armed Services Committee Chairman Buck McKeon (R-CA) sent letters “to each military service, combatant command (COCOM), and the National Guard Bureau (NGB) on Friday, asking for a list of military requirements that are not funded in the President’s Fiscal Year (FY) 2015 budget request.” As explained in a press release, “[n]ews that the President’s FY15 budget request will include $26 billion in unfunded requirements as part of an “investment fund” led McKeon to ask the services, COCOMs, and NGB directly for their unfunded priority lists.” In the last few weeks, leaks from the Administration have indicated that the Department of Defense (DOD) would resume the practice with a new name: an “investment fund.” If true, this suggests that the Administration will once again submit a DOD budget request above the spending caps put in place by the “Budget Control Act pf 2011”

while identifying programs that might otherwise be cut in the investment fund. The practice of services submitting unfunded priorities lists had been ended by former Secretary of Defense Robert Gates in order for the Office of the Secretary of Defense (OSD) to assert greater control over budget requests. Former Deputy Secretary of Defense and DOD Comptroller John Hamre was quoted in 2009 as asserting that the practice of submitting unfunded priorities lists allowed the services to “beg Congress” for funding the Pentagon’s civilian leaders were not interested in requesting. He added that “[t]his broadly corrosive climate of indiscipline was created inside the Department, enabled, and in many instances encouraged, by the Congress.” Upcoming Hearings and Meetings

February 25 Nominations: The Senate Armed Services Committee will hold a hearing to consider the nominations of Robert Work to be Deputy Secret of Defense, Michael McCord to be Under Secretary of Defense (Comptroller), Christine Wormuth to be Under Secretary Of Defense For Policy, Brian McKeon to be Principal Deputy Under Secretary Of Defense For Policy, David Shear to be Assistant Secretary Of Defense For Asian And Pacific Security Affairs, and Eric Rosenbach to be Assistant Secretary Of Defense For Homeland Defense. Nominations: The Senate Select Committee on Intelligence will hold a hearing to consider the nominations of John Carlin to be Assistant Attorney General for National Security and Francis X. Taylor to be the Under Secretary for Intelligence and Analysis at the Department of Homeland Security.

Williams & Jensen – Washington Update February 21, 2014

Williams & Jensen, PLLC

701 8th Street, N.W. Suite 500 Washington, D.C. 20001 Telephone: (202) 659-8201 Fax: (202) 659-5249

www.williamsandjensen.com

Page 13 of 22

February 26 Sexual Assault: The Senate Armed Services Committee’s Personnel Subcommittee will hold a hearing titled “The Relationships Between Military Sexual Assault, Posttraumatic Stress Disorder and Suicide, and on Department of Defense and Department of Veterans Affairs Medical Treatment and Management of Victims of Sexual Trauma.” DOD IT: The Senate Armed Services Committee’s Readiness and Management Support Subcommittee will hold a hearing titled “Department of Defense Information Technology Acquisition Processes, Business Transformation, and Management Practices.” Northern Command and Southern Command: The House Armed Services Committee will hold a hearing on “[t]he Posture of the U.S. Northern Command and U.S. Southern Command.” Defense Health Agency: The House Armed Services Committee’s Military Personnel Subcommittee will hold a hearing on the Defense Health Agency. DHS Secretary’s “Vision for the Future”: The House homeland Security Committee will hold a hearing with testimony from Secretary of Homeland Security Jeh Johnson. Electromagnetic Pulse: The House Homeland Security Committee’s Cybersecurity, Infrastructure Protection, and Security Technologies will hold a hearing titled “Electromagnetic Pulse (EMP): Threat to Critical Infrastructure.” February 27 STRATCOM/CYBERCOM: The Senate Armed Services Committee will hold a hearing “[t]o receive testimony on U.S. Strategic

Command and U.S. Cyber Command in review of the Defense Authorization Request for Fiscal Year 2015 and the Future Years Defense Program.” Worldwide Threats: The Senate Armed Services Committee will hold a closed hearing titled “Current and Future Worldwide Threats.” March5 FY 2015 DOD Budget Request: The Senate Armed Services Committee will hold a hearing “[t]o receive testimony in review of the Defense Authorization Request for Fiscal Year 2015 and the Future Years Defense Program.” FY 2015 Nuclear Forces Budget Request: The Senate Armed Services Committee’s Strategic Forces Subcommittee will hold a hearing “[t]o receive testimony on nuclear forces and policies in review of the Defense Authorization Request for Fiscal Year 2015 and the Future Years Defense Program.” March 6 CENTCOM/AFRICOM: The Senate Armed Services Committee will hold a hearing on the U.S. Central Command and U.S. Africa Command “in review of the Defense Authorization Request for Fiscal Year 2015 and the Future Years Defense Program.” March 11 SOCOM: The Senate Armed Services Committee will hold a hearing on the U.S. Special Operations Command “in review of the Defense Authorization Request for Fiscal Year 2015 and the Future Years Defense Program.”

TBD Acquisition Reform: The House Armed Services Committee will hold a hearing titled

Williams & Jensen – Washington Update February 21, 2014

Williams & Jensen, PLLC

701 8th Street, N.W. Suite 500 Washington, D.C. 20001 Telephone: (202) 659-8201 Fax: (202) 659-5249

www.williamsandjensen.com

Page 14 of 22

“Overcoming Obstacles in Acquisition Reform.” Intelligence Community Contractors: The Senate Homeland Security and Governmental Affairs Committee will hold a hearing titled “The Intelligence Community: Keeping Watch Over Its Contractor Workforce.” For more information on defense issues you may email or call Michael Kans at 202-659-8201. HEALTH

House Republicans Offer Bill to Delay Individual Mandate Key Points:

Legislation would delay individual insurance mandate until employer mandate takes effect

Additional House action on ACA-related bills expected in coming months

On February 14, House Republican Study Committee Chairman Steve Scalise (R-LA) joined Representative Susan Brooks (R-IN) to introduce legislation to delay the Affordable Care Act’s (ACA) individual mandate to purchase health insurance until the employer mandate is fully enforced. The “Freeing Americans from Inequitable Requirements (FAIR) Act” (H.R. 4064,) would retroactively delay the individual mandate, which took effect on January 1, 2014. A press release from Scalise cites the Obama Administration’s announcement last week that the employer mandate would be delayed until 2016 for businesses with 50 to 99 full-time employees. As part of the “Final Regulations Implementing Employer Shared Responsibility Under the Affordable Care Act (ACA) for 2015,” employers now have until 2016 to comply with the mandate to provide health

insurance to their employees. Last year, the Administration delayed the mandate from taking effect until 2015. President Barack Obama said these changes will help facilitate a smooth transition to the new requirements by giving businesses additional time to comply. It is not clear if House Floor time will be scheduled for the legislation in the next several weeks, but House Leadership has already indicated that the full House will vote on the “Save American Workers (SAW) Act” (H.R. 2575,) which repeals the ACA’s definition of a full-time worker as an individual who works 30 or more hours per week. Later this year, the House also plans to vote on a number of bills that Republicans describe as an alternative to the ACA. Upcoming Hearings and Meetings February 25 Mental Health Treatment: The Senate Health, Education, Labor and Pensions Committee will hold a hearing titled "Examining Mental Health: Treatment Options and Trends." February 26 Medicare Part D: The House Energy and Commerce Committee’s Health Subcommittee will hold a hearing entitled “Messing with Success: How CMS’ Attack on the Part D Program Will Increase Costs and Reduce Choices for Seniors.” Alzheimer's Biomedical Research Outlook: The Senate Appropriations Committee’s Labor, Health and Human Services, Education and Related Agencies Subcommittee will hold a hearing on the economic impact of Alzheimer's disease in America and the state of Alzheimer's prevention and treatment research.

Williams & Jensen – Washington Update February 21, 2014

Williams & Jensen, PLLC

701 8th Street, N.W. Suite 500 Washington, D.C. 20001 Telephone: (202) 659-8201 Fax: (202) 659-5249

www.williamsandjensen.com

Page 15 of 22

Self-Insurance Health Plans: The House Education and the Workforce Committee’s Health, Employment, Labor and Pensions Subcommittee will hold a hearing on health insurance plans. February 27 2015 Appropriations: The House Appropriations Committee’s Labor, Health and Human Services, Education, and Related Agencies Subcommittee will hold hearings on proposed fiscal 2015 appropriations for agencies, programs and activities under its jurisdiction. Combating Counterfeit Drug Supply: The House Energy and Commerce Committee’s Oversight and Investigations Subcommittee will hold a hearing titled “Counterfeit Drugs: Fighting Illegal Supply Chains.”

For more information about healthcare issues you may email or call Matthew Hoekstra or George Olsen at 202-659-8201. TRANSPORTATION AND INFRASTRUCTURE New Rulemaking on Fuel Efficiency Standards for Medium and Heavy Truck Key Points:

Administration announces latest executive action on climate change that would put in place new rules by early 2016

This rulemaking follows 2011 rulemaking for medium- and heavy-duty that require increased fuel efficiency standards

On February 18, President Barack Obama announced the second phase of a new rulemaking that would increase fuel efficiency standards for medium- and heavy-duty vehicles

that would take effect by March 2016. These new efficiency standards follow in the wake of standards implemented in 2011 for these vehicles and new standards for cars and light-duty trucks in 2012. Specifically, Obama is directing the Environmental Protection Agency (EPA) and the Department of Transportation’s (DOT) National Highway Traffic Safety Administration (NHTSA) to issue a Notice of Proposed Rulemaking (NPRM) by March 2015 with final rules one year later. This announcement is the latest in a string of executive actions to address climate change. In a speech given in conjunction with the announcement, Obama stated that “[o]ur levels of dangerous carbon pollution that contributes to climate change has actually gone down even as our production has gone up….[a]nd one of the reasons why is because we dedicated ourselves to manufacturing new cars and new trucks that go farther on a gallon of gas -- and that saves families money, it cuts down harmful pollution, and it creates new advances in American technology.” He asserted that “after taking office, my Administration worked with automakers, autoworkers, environmental advocates, and states across the country, and we set in motion the first-ever national policy aimed at both increasing gas mileage and decreasing greenhouse gas pollution for all new cars and trucks sold in the United States.” Obama explained that “[h]eavy-duty trucks account for just 4 percent of all the vehicles on the highway…[b]ut they’re responsible for about 20 percent of carbon pollution in the transportation sector.” He stated that “[s]o trucks like these are responsible for about 20 percent of our on-road fuel consumption….[a]nd because they haul about 70 percent of all domestic freight…every mile that we gain in fuel efficiency is worth thousands of dollars of savings every year.”

Williams & Jensen – Washington Update February 21, 2014

Williams & Jensen, PLLC

701 8th Street, N.W. Suite 500 Washington, D.C. 20001 Telephone: (202) 659-8201 Fax: (202) 659-5249

www.williamsandjensen.com

Page 16 of 22

In a Fact Sheet, the White House provided more details on the “plan to improve the fuel efficiency of American trucks – bolstering energy security, cutting carbon pollution, and spurring manufacturing innovation:

Directing the Environmental Protection Agency (EPA) and the Department of Transportation (DOT) to Set the Next Round of Fuel Efficiency Standards for Medium- and Heavy-Duty Vehicles. Today, the President is directing the EPA and the DOT’s National Highway Traffic Safety Administration (NHTSA) to develop and issue the next phase of medium- and heavy-duty vehicle fuel efficiency and greenhouse gas standards by March 2016. Under this timeline, the agencies are expected to issue a Notice of Proposed Rulemaking (NPRM) by March 2015. This second round of fuel efficiency standards will build on the first-ever standards for medium- and heavy-duty vehicles (model years 2014 through 2018), which were proposed and finalized by this Administration and will save vehicle owners and operators an estimated $50 billion in fuel costs and save a projected 530 million barrels of oil.

Partnering with Private-Sector Leaders to Deploy Advanced Vehicles. In addition, the President highlighted the success of the National Clean Fleets Partnership that he launched to speed the deployment of clean, energy-efficient vehicles and the infrastructure to support their use. This public- private partnership helps the nation’s largest fleet operators reduce diesel and gasoline use in their fleets by incorporating alternative fuels, electric vehicles and fuel-saving measures. To

date, 23 major national companies, such as ARAMARK, Coca-Cola, Staples, UPS, AT&T, Enterprise Holdings, and Waste Management have joined the National Clean Fleets Partnership. Collectively, the National Clean Fleets Partners operate more than one million commercial vehicles nationwide. The President has directed his Department of Energy to provide each company that wants to partner with specialized resources, technical expertise and support in developing a comprehensive strategy to reduce fuel use and achieve greater efficiency and cost savings.

Expanding Fuel Choices for American Drivers. In addition to taking executive action to make America more energy independent and cut carbon pollution, the President is also renewing his call for Congress to end subsidies to oil and gas companies and create an Energy Security Trust Fund to fund research and development for advanced vehicle technologies. And he is proposing to support investment in advanced vehicles and infrastructure through a new tax credit and an extension of tax credits to support cellulosic biofuels.

Foxx Calls For Action on Highway Trust Fund Key Points:

Secretary of Transportation reiterates need to address projected shortfalls in highway funding as early as this summer, ideally in a surface transportation reauthorization passed by Congress

In calling on Congress to fundamentally change revenues for highway and transit projects, Foxx does not suggest new funding sources

Williams & Jensen – Washington Update February 21, 2014

Williams & Jensen, PLLC

701 8th Street, N.W. Suite 500 Washington, D.C. 20001 Telephone: (202) 659-8201 Fax: (202) 659-5249

www.williamsandjensen.com

Page 17 of 22

On February 20, the U.S. Chamber of Commerce held the Second Annual Infrastructure Intersection Summit, which examined the important role transportation infrastructure plays across major sectors of America’s economy and looked at five key infrastructure intersections: energy, manufacturing, agriculture, retail and healthcare. Secretary of Transportation Anthony Foxx gave the opening address and reiterated the Obama Administration’s focus on addressing the nation’s “massive infrastructure deficit.” He claimed that “if this deficit is not addressed, it will stunt the recovery we’ve begun and cripple our economy.” Foxx said that “[i]t gets more complicated when you consider that a number of commentators are talking about what happens at the end of FY ‘14 when the Highway Trust Fund runs out of its ability to stay solvent.” Foxx claimed that “the Highway Trust Fund is on track to bounce checks before FY ‘15 begins, as soon, perhaps, as this August.” Foxx asserted that “when we add all of this up, crumbling infrastructure, significant new capacity needs, economic costs associated with not addressing these needs, a Congress either unable or unwilling to handle business under -- until emergencies loom, a Highway Trust Fund fast approaching insolvency, a Surface Transportation bill close to expiring, and the rest of the world running faster towards building 21st century infrastructure than we are.” He conceded that “it’s good and constructive that members of Congress are now offering ideas about how to fund our transportation system…[and] [i]t’s encouraging that Chairman Shuster of the House Transportation and Infrastructure Committee has said that he hopes to have a bill out before the August

recess.” He added that “[i]t’s encouraging when [Senate Environment and Public Works Committee Chairman and Ranking Member] Boxer and Vitter have agreed that they want to have a bill by April.” Foxx stated that “I’m also encouraged by our Administration and the President for putting ideas on the table, too, including in his State of the Union speech, when he put forward a proposal to fund surface transportation with the savings from corporate tax reform.” Foxx remarked that “we need to aim at the right target…[and] [f]or years, our national dialogue has focused on how to get the Highway Trust Fund leveled off.” He asserted that “[t]o translate that into business terms, we’ve been trying to reach the same level of sales revenue and expenditures as the last year, instead of growing revenue and expenditures to meet customer demand.” Foxx said that “[t]he plain fact is that the gas tax is spinning off less and less revenue…[and] [m]eanwhile, we’re anticipating 100 million more people in the U.S. by 2050, and we’re going to have to move 4 more tons of freight by 2050.” He noted that “[l]ess revenue, more people, more freight, more gridlock -- that is not a formula for success.” Foxx declared that “in my view we should stop aiming just to get the Highway Trust Fund level again…[and] [w]e should aim to cut into a bigger piece of the infrastructure deficit by investing more and investing more now.” Also on February 20, the Center for American Progress (CAP) released a fact sheet titled “Understanding the Highway Trust Fund and the Perils of Inaction.” CAP explained that “[d]ramatic improvements in vehicle fuel efficiency and reduced driving have substantially decreased the amount of gas tax revenue deposited in the Highway Trust Fund (HTF) each year…[and] [i]n fact, gas tax

Williams & Jensen – Washington Update February 21, 2014

Williams & Jensen, PLLC

701 8th Street, N.W. Suite 500 Washington, D.C. 20001 Telephone: (202) 659-8201 Fax: (202) 659-5249

www.williamsandjensen.com

Page 18 of 22

revenues have fallen so dramatically that since fiscal year 2008, Congress has transferred $54 billion in general fund revenues into the HTF to prevent insolvency.” CAP noted that “current projections show that the highway account will run out of money as early as this August…[and] [u]nder federal law, the HTF cannot run a negative balance.” CAP claimed that “[i]n order to guard against this, the U.S. Department of Transportation…will begin taking special administrative actions this summer during the heart of construction season.” CAP stated that “[s]pecifically, when the highway account dips below $4 billion, USDOT will either substantially delay payments to states or pay a reduced share—65 cents on the dollar, for example—and special measures will take effect when the mass transit account dips below $1 billion.” CAP placed in context the last increase in the gas tax in 1993 from 14.1 cents to 18.4 cents per gallon. CAP asserted that “[s]ignificant improvements in vehicle efficiency and inflation have combined to lower gas tax revenues and reduce the purchasing power of the remaining dollars:

In inflation-adjusted terms, the gas tax is worth only 11.5 cents today.

In 1993, the gas tax represented 18 percent of the cost of an average gallon of gasoline. Today, it represents only 5 percent.

If gas and diesel taxes had been indexed to keep pace with inflation, today they would be 29 cents and 38 cents per gallon, respectively.

The corporate average fuel-economy standards will rise to 54.5 miles per gallon for cars and light-duty trucks by model year 2025. This will approximately double the efficiency of vehicles compared to current levels and dramatically reduce the amount of tax

revenue flowing to the HTF, crippling federal surface transportation programs.

NHTSA Proposes Rules on Alternative Fuel Usage Key Points:

Agency proposes rules to drive use of alternative fuels

On February 20, the National Highway Traffic Safety Administration (NHTSA) issued a Notice Of Proposed Rulemaking (NPRM) “to require badges, labels and owner’s manual information for new passenger cars, low speed vehicles (LSVs) and light-duty trucks rated at not more than 8,500 pounds gross vehicle weight in order to increase consumer awareness regarding the use and benefits of alternative fuels.” NHTSA noted that “[i]n the Energy Independence and Security Act of 2007 (EISA), Congress directed the Secretary of Transportation to develop and implement varied and wide-ranging consumer information and education initiatives related to fuel economy, greenhouse gas, alternative fuels and thermal management technologies.” NHTSA stated that it “is implementing these new information and education initiatives through several different rulemakings.” NHTSA stated that “[t]his proposed rule would implement specific statutory mandates that manufacturers be required to: Identify each vehicle capable of running on an alternative fuel by means of a permanent and prominent display affixed to the exterior of the vehicle; add proposed text describing the capabilities and benefits of using alternative fuels to the owners’ manuals provided for alternative fuel vehicles; and identify each vehicle that is capable of running on an alternative fuel by means of a label in the fuel filler compartment.”

Williams & Jensen – Washington Update February 21, 2014

Williams & Jensen, PLLC

701 8th Street, N.W. Suite 500 Washington, D.C. 20001 Telephone: (202) 659-8201 Fax: (202) 659-5249

www.williamsandjensen.com

Page 19 of 22

Upcoming Hearings and Meetings February 26 Surface Transportation Reauthorization: The House Transportation and Infrastructure Committee’s Highways and Transit Subcommittee will hold a panel discussion titled “Surface Transportation Reauthorization Roundtable.” Rail Safety: The House Transportation and Infrastructure Committee will hold a hearing on “Oversight of Passenger and Freight Rail Safety” with testimony from: Federal Railroad Administration Administrator Joseph Szabo; Pipeline and Hazardous Materials Safety Administration Administrator Cynthia L. Quarterman, Administrator; National Transportation Safety Board Member Robert L. Sumwalt; Brotherhood of Locomotive Engineers and Trainmen Vice President & National Legislative Representative John Tolman; American Petroleum Institute President and Chief Executive Officer Jack N. Gerard; American Public Transportation Association President, American Public Transportation Association Michael Melaniphy; and Association of American Railroads President and Chief Executive Officer Edward R. Hamberger. February 27 Highway Freight Network: The House Transportation and Infrastructure Committee’s Highways and Transit Subcommittee will hold a hearing titled “Improving the Nation’s Highway Freight Network.” March 4 Maritime Transportation: The House Transportation & Infrastructure Committee will hold a hearing titled “Maritime Transportation Regulations: Impacts on Safety, Security, Jobs and the Environment, Part II.”

TBD Rail Safety: The Senate Commerce, Science, & Transportation Committee will hold a hearing titled “Enhancing our Rail Safety: Current Challenges for Passenger and Freight Rail.” For more information on transportation issues you may email or call Michael Kans at 202-659-8201. Nicole Ruzinski and Greg Frink contributed to this report. TECHNOLOGY Wheeler Announces Beginning of “Open Internet” Rulemaking Key Points:

FCC Chairman sketches path forward on reinstituting some of the Net Neutrality rules struck down last month

However, the FCC will not reclassify ISPs and the new regime may allow for some Internet services to be charged (e.g. Netflix)

As indicated in a speech last week, Federal Communications Commission (FCC or Commission) Chairman Tom Wheeler sketched a path to possibly re-implementing some of the Net Neutrality rules struck down in January by a federal appellate court. However, it should be noted that Wheeler is not proposing that the FCC reclassify broadband providers as a “telecommunications service,” at which point the FCC would be on more solid legal ground to impose Net Neutrality rules. Instead, the FCC would propose rules that could open the door for Internet Service Providers (ISP) to charge fees for some Internet traffic. However, Wheeler suggested that the FCC’s new regime would bar unfair blocking of Internet while also leaving open the possibility that the FCC could revisit the classification of ISPs in the future.

Williams & Jensen – Washington Update February 21, 2014

Williams & Jensen, PLLC

701 8th Street, N.W. Suite 500 Washington, D.C. 20001 Telephone: (202) 659-8201 Fax: (202) 659-5249

www.williamsandjensen.com

Page 20 of 22

In a February 19 statement, Wheeler claimed that “[i]n its Verizon v. FCC decision, the United States Court of Appeals for the District of Columbia Circuit invited the Commission to act to preserve a free and open Internet.” He asserted that “I intend to accept that invitation by proposing rules that will meet the court’s test for preventing improper blocking of and discrimination among Internet traffic, ensuring genuine transparency in how Internet Service Providers manage traffic, and enhancing competition.” Wheeler contended that “[p]reserving the Internet as an open platform for innovation and expression while providing certainty and predictability in the marketplace is an important responsibility of this agency.” Wheeler stated that “[t]oday we initiate several steps to ensure that the Internet remains a platform for innovation, economic growth, and free expression.” Among the steps Wheeler detailed are:

Propose new rules. I intend to ask my fellow commissioners to:

o Enforce and enhance the transparency rule. The Court of Appeals has affirmed the Open Internet Order’s transparency rule, which requires that network operators disclose how they manage Internet traffic.

o Fulfill the “no blocking” goal. The D.C. Circuit recognized the importance of the Open Internet Order’s ban on blocking Internet traffic, but ruled that the Commission had not provided sufficient legal rationale for its existence. We will carefully consider how, consistent with the court opinion, we can ensure that edge providers are not unfairly blocked, explicitly or implicitly,

from reaching consumers, as well as ensuring that consumers can continue to access any lawful content and services they choose.

o Fulfill the goals of the non-discrimination rule. We will carefully consider how Section 706 might be used to protect and promote an Open Internet consistent with the D.C. Circuit’s opinion and its earlier affirmance of our Data Roaming Order.

Keep Title II authority on the table. As the Court of Appeals noted, as long as Title II – with the ability to reclassify Internet access service as a telecommunications service – remains a part of the Communications Act, the Commission has the ability to utilize it if warranted. Accordingly, the Commission’s docket on Title II authority remains open.

Forgo judicial review of the Verizon decision. In light of the Court’s finding that the Commission has authority to issue new rules under Section 706 and the ongoing availability of Title II, the Commission will not initiate any further judicial action in connection with the Verizon decision.

In a statement, Commissioner Mike O’Reilly said that “I am deeply concerned by the announcement that the FCC will begin considering new ways to regulate the Internet.” He remarked that “[a]s I have said before, my view is that Section 706 does not provide any affirmative regulatory authority…[and] [w]e should all fear that this provision ultimately may be used not just to regulate broadband providers, but eventually edge providers.” O’Reilly asserted that “[i]nstead of fostering

Williams & Jensen – Washington Update February 21, 2014

Williams & Jensen, PLLC

701 8th Street, N.W. Suite 500 Washington, D.C. 20001 Telephone: (202) 659-8201 Fax: (202) 659-5249

www.williamsandjensen.com

Page 21 of 22

investment and innovation through deregulation, the FCC will be devoting its resources to adopting new rules without any evidence that consumers are unable to access the content of their choice.” Reaction on Capitol Hill split largely along party lines with many Democrats supporting Wheeler’s announcement and many Republicans articulating their opposition. House Energy and Commerce Committee Chairman Fred Upton (R-MI) and Communications and Technology Subcommittee Chairman Greg Walden (R-OR) issued a statement in which they asserted that “[t]hese regulations are a solution in search of a problem, and with the many issues on its plate, including implementation of the spectrum incentive auctions, it would be wise for the Commission to focus on fostering economic growth, job creation, and competition.” Nonetheless, they insisted that Wheeler “pursue an open and transparent process, consistent with the recommendations of the Commission’s Report on FCC Process Reform, as these regulations move forward.” House Energy and Commerce Committee Ranking Member Henry Waxman (D-CA) stated in his press release that “I welcome FCC Chairman Wheeler’s announcement today that the Commission will reinstate rules to preserve a free and open Internet.” He stated that “Chairman Wheeler is committed to achieving the same goal administratively that the bill [the “Open Internet Preservation Act” (H.R. 3892)] I introduced earlier this month with Rep. Eshoo and Sen. Markey would achieve legislatively: stopping broadband providers from using their market power to block or interfere with the content consumers want to access.”

Senate Commerce, Science, and Transportation Committee Chairman John Rockefeller IV (D-WV) released a statement, explaining that “I am happy that Chairman Wheeler has decided to move forward quickly to respond to the D.C. Circuit court’s net neutrality decision…[and] I have always supported the FCC’s use of its full authority under the Communications Act to accomplish these goals.” Senate Commerce, Science, and Transportation Committee Ranking Member John Thune (R-SD) issued a statement in which he claimed that “Chairman Wheeler’s announcement today is a bit of déjà vu and is an unnecessary overreaction to the D.C. Circuit striking down most of the Open Internet Order.” He added that “[t]he Chairman must have little faith that the FCC’s latest attempt to regulate the Internet will hold up under legal review, otherwise why bother keeping the Title II reclassification docket open?” Electromagnetic Spectrum Strategy Released Key Points:

DOD releases a document with steps it will take to meet the Administration’s goal of making more than 500 MHz of Federal and nonfederal spectrum available in order to increase broadband access

On February 20, the Department of Defense (DOD) released its “Electromagnetic Spectrum Strategy” (EMS), which will “increase available spectrum in order to meet growing demand from the commercial wireless industry while maintaining critical military capabilities.” The EMS is the first articulation of the DOD’s role in the Administration’s plans to make more electromagnetic spectrum available in order to increase broadband access. The so-called revolution in military affairs has provided for the Pentagon’s precision guided munitions and

Williams & Jensen – Washington Update February 21, 2014

Williams & Jensen, PLLC

701 8th Street, N.W. Suite 500 Washington, D.C. 20001 Telephone: (202) 659-8201 Fax: (202) 659-5249

www.williamsandjensen.com

Page 22 of 22

Intelligence, Surveillance, and Reconnaissance (ISR) capabilities are based in significant part on the use and mastery of this spectrum. DOD Chief Information Officer Terry Takai remarked that “[i]n order to reach balanced decisions about relocating from or sharing spectrum, we need time, funding and comparable spectrum.” She asserted that “[t]hrough the established goals and objectives of the EMS Strategy and our close work with the White House Office of Science and Technology Policy (OSTP), the National Telecommunications and Information Administration NTIA and industry partners, we are confident in our ability to meet the requirements set forth by the President while maintaining the needs of our nation’s military requirements.” In the EMS, the DOD explained that “[a] Roadmap and Action Plan will be developed to supplement this strategy and will provide the actions, associated lead organizations, cost, schedule, deliverables, and metrics needed to implement and monitor the progress of the strategy goals and objectives.” In his 2010 “Presidential Memorandum: Unleashing the Wireless Broadband Revolution,” President Barack Obama directed a number of departments and agencies “to make available a total of 500 MHz of Federal and nonfederal spectrum over the next 10 years, suitable for both mobile and fixed wireless broadband use.” He added that “[t]he spectrum must be available to be licensed by the Federal Communications Commission (FCC) for exclusive use or made available for shared access by commercial and Government users in order to enable licensed or unlicensed wireless broadband technologies to be deployed.” In a 2013 “Presidential Memorandum: Expanding America’s Leadership in Wireless Innovation,” Obama noted that “[a]lthough existing efforts will

almost double the amount of spectrum available for wireless broadband, we must make available even more spectrum and create new avenues for wireless innovation.” He claimed that “[o]ne means of doing so is by allowing and encouraging shared access to spectrum that is currently allocated exclusively for Federal use.” Upcoming Hearings & Events February 26 Wireless Competition: The Senate Judiciary Committee’s Antitrust, Competition Policy and Consumer Rights Subcommittee will hold a hearing titled “An Examination of Competition in the Wireless Market.” February 27 Electronics Recycling: The Senate Homeland Security and Governmental Affairs Committee will hold a hearing titled “Recycling Electronics: A Common Sense Solution for Enhancing Government Efficiency and Protecting Our Environment.” For more information on technology issues you may email or call Michael Kans at 202-659-8201. This Week in Congress was written by Laura Simmons.