The second session of the 112 th Congress convened on January 3, 2012.

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1 Public Policy Agenda Number 5. Attachment 1. January 24, 2012 The second session of the 112 th Congress convened on January 3, The following Legislative Issues Update outlines the status of the Boardapproved Legislative Agenda as well as other relevant federal issues. Issue Status as of January 24, CAP FEDERAL LEGISLATIVE AGENDA EPA Rulemaking regarding The National Renewable Energy Laboratory Navajo Generating Station (NREL) report on Navajo Generating (NGS) Emissions Controls - Station was released on January 18. The Continue efforts to engage report was commissioned by the elected officials, stakeholders, Department of the Interior (DOI) to and governmental agencies in investigate the complex issues affecting influencing the EPA to apply NGS and the addition of emission control due weight to the economic technologies to improve visibility in impacts of its BART surrounding Class I areas. DOI is accepting determination for NGS. written comments to the report that are limited to two-pages; comments are due by February 6. Climate Change and Energy Legislation - Monitor legislative efforts and respond appropriately to mitigate potential impacts on CAP operations and on the sale of Navajo surplus power. With many of the climate change measures stalled in Congress, an effort may be made to pass a set of energy efficiency bills that have more bipartisan support. Senator Bingaman (D-NM) also has indicated that he will move legislation early this session that would create a federal clean energy standard (CES) requiring utilities to generate a certain percentage of their electricity from low-carbon sources. Additionally, it is possible that a compromise could be reached on a set of regulatory reform bills. Post-2017 Hoover Power Reallocation - Work with the appropriate stakeholders to seek final passage of this legislation. The Hoover Power Allocation Act was signed by the President on December 20, After the bill became law, the Western Area Power Administration (WAPA) formally announced it would withdraw its proposed rulemaking process for allocating Hoover power.

2 Clean Water Restoration Act - Continue to oppose expansion of the coverage of the Clean Water Act from "navigable waters of the United States" to "waters of the United States." Navajo/Hopi Water Rights Settlement Legislation - Continue to seek a settlement of these water rights claims and support legislation necessary and appropriate to implement a settlement. Salinity Control Funding - Support federal funding of salinity control activities. EPA Rulemaking, Greenhouse Gas Emissions - Monitor proposals to regulate greenhouse gas emissions from large facilities under the Clean Air Act. EPA Rule, Hazardous Air Pollutants (HAP), Maximum Achievable Control Technology (MACT) - Monitor development of draft rule (due March 2011) and final rule (due November 2011) for potential impact on NGS. EPA Final Rule, Drinking Water Contaminant Candidate List (CCL3) - Monitor the implementation of the final rule on the Drinking Water Contaminant Candidate List 3. Talks continue between parties on the Navajo-Hopi Water Settlement legislation. The House has passed a number of bills to block EPA from GHG regulations and will continue this effort in However, these bills have not gained support in the Senate. EPA issued its final Utility MACT rule on December 21. Opponents in Congress immediately responded that they will continue to support legislative efforts to prevent the EPA from moving forward with implementing the rule. It is not yet clear what impact the final Utility MACT rule may have on NGS. CAP staff will be working with SRP staff to determine the implications of this rule for CAP operations and for sale of NGS surplus power. No update to report at this time

3 OTHER BILLS/LEGISLATIVE ISSUES OF INTEREST Public Employee Pension Transparency Act (H.R. 567 and S. 347) Hydropower Improvement Act (S.629) H.R. 795, The Small Scale Hydropower Improvement Act of 2011 H.R. 2842, the Bureau of Reclamation Small Conduit Hydropower Development and Rural Jobs Act of 2011 H.R. 2915, the American Taxpayer and Western Area Power Administration Customer Protection Act of 2011 If you have any questions or would like more information regarding any of the issues contained in this report, please contact CAP Business Planning,

4 Federal Legislative Issues Update CAP Public Policy Committee February 2, 2012 Marie Pearthree, Assistant General Manager Bridget Schwartz-Manock, Manager, Legislative Affairs

5 Priority Issues Post-2017 Hoover Power Allocation The Hoover Power Allocation Act was signed by the President on December 20, The Western Area Power Administration has announced it is withdrawing its proposed rulemaking process for allocating Hoover power.

6 Priority Issues Navajo Generating Station The National Renewable Energy Laboratory report on NGS was released on January 18. The Department of the Interior is accepting written comments on the report through February 6. CAP staff is currently reviewing the report and preparing comments. A more thorough report on staff s review will be presented during today s regular Board session.

7 EPA Rulemaking Utility Maximum Achievable Control Technology (MACT) EPA issued the final Utility MACT rule on December 21. It is not yet certain what impact the rule will have on NGS and on CAP operations. The final rule allows utilities up to four years to comply, with a potential extension for an additional year.

8 Other Issues Clean Energy Standard: The Energy and Natural Resources Chairman Bingaman (D-NM) announced that he will move to introduce a Clean Energy Standard, requiring utilities to generate a portion of their electricity from low-carbon sources (possibly 80% by 2035). The Standard would employ a credit-trading scheme.

9 Questions?

10 Public Policy Agenda Number 5. Attachment 3. TO: FR: David Modeer and CAWCD Board Terry Bracy, Tracy Tucker, and Brandon Avila DA: January 17, 2012 RE: Federal Legislative Report for Board Meeting Navajo Generating Station We are days away from the official release of the first phase of the National Renewable Energy Laboratory (NREL) report on Navajo Generating Station. The highly anticipated report seeks to highlight the complexities of the issues faced at NGS, including the implications of the BART rulemaking for CAP water users and Tribes. NREL is accepting comments to the report that are limited to two-pages per organization/respondent within 18-days of its release on their website. Our firm will work in collaboration with CAP staff to coordinate comments. In addition, we will meet with Members and staff of the Arizona delegation upon the release of the study to discuss the findings. In a separate but related issue, in mid-december EPA released the Utility Maximum Achievable Control Technology (Utility MACT) rule regulating mercury and air toxics. The rule sets additional emissions standards for toxics such as mercury, selenium, arsenic and cyanide from coal-fired power plants, such as NGS. At issue with NGS is whether the rule will require the installation of costly control technologies such as baghouses or if other less-costly options will allow the plant to meet the emissions requirements. EPA directly addressed the requests made by CAP and Tribes to take into consideration the impact the utility MACT rule would have on the cost of water, coal mining operations and employment of tribal members at NGS and the mine. The timeline for action is outlined in the rule and corresponding Presidential Memorandum. The Administration provides utilities four years to comply, with the option for states and regions to seek a fifth year for implementation of the rule. As soon as the utility MACT rule was released, Senator Jim Inhofe of Oklahoma indicated his intention to introduce a disapproval resolution under the Congressional Review Act aimed at stopping the utility MACT rule. The resolution requires 30 signatures to be placed on the Senate calendar and cannot be filibustered. We anticipate additional bills and efforts to be pursued in Congress to halt the implementation of the rule.

11 Finally, last week, EPA released a publicly searchable inventory of 2010 greenhouse gas emissions data from more than 6,700 facilities ranging from coal-fired power plants and university campuses. The tool does not measure greenhouse gas sources from transportation, agriculture or land-use change. As anticipated, NGS ranks high in the database, given that it is one of the largest coal-fired power plants in the U.S. What is not captured in the analysis are the modernizing updates that have been made at NGS that makes it one of the cleanest and most efficient of the coal-fired power plants of its age. Hoover Power Allocation Act The Hoover Power Allocation Act was signed by the President on December 20, After the bill became law, the Western Area Power Administration (WAPA) formally announced it would withdraw its proposed rule. The signing of this bill was a great legislative victory for the CAP and the Arizona, California, and Nevada coalition of Hoover Power stakeholders who have spent the last two years on a reauthorization of the Hoover Power Act in Congress. Utility MACT Rule On December 21, the EPA issued its Utility MACT rule setting more stringent mercury and air toxics standards for power plants. Despite pressure on the administration to back down on the rule, which will cost power companies an estimated $9.6 billion per year and raise electric rates by an average of 3.1 percent across the country, EPA said strict emission limits are justified by the harm that emissions do to public health. According to the Administration, coal-burning power plants, which produce about 45 percent of Americans' electricity and are the largest U.S. source of mercury with 26.8 tons released in 2010, will reduce their mercury emissions by 90 percent, acid gases by 88 percent and soot-forming sulfur dioxide by 42 percent under the rule. EPA made some tweaks to the final rule, such as allowing plants to use "work practice" standards rather than face strict emissions limits while starting up, shutting down or malfunctioning. Faced with concerns that upgrading power plants would take more than the three or four years allowed by the Clean Air Act, the agency also said it will offer a fifth year to plants that cannot comply on time and are also key to the reliability of the electric grid. American Energy and Infrastructure Jobs Act On January 9, House Speaker John Boehner indicated that early this year the House will take action on the American Energy and Infrastructure Jobs Act (H.R.7), which links expanded American energy production to high-priority infrastructure projects. The measure provides infrastructure funding for the next five years and links new energy revenue from production of American energy to the Highway Trust Fund. 2

12 Specifically, the American Energy Infrastructure Jobs Act includes: The Energy Security and Transportation Jobs Act, introduced by Rep. Steve Stivers (R-OH), which would lift President Obama s drilling ban on new offshore areas by requiring the administration to lease offshore areas estimated to contain the most oil and natural gas resources. The Protecting Investment in Oil Shale the Next Generation of Environmental, Energy, and Resource Security Act ( PIONEERS Act), introduced by Rep. Doug Lamborn (R-CA), which would set clear rules for the development of U.S. oil shale resources and promote shale technology research and development. The Alaskan Energy for American Jobs Act, introduced by Chairman Doc Hastings (R-WA) and Rep. Don Young (R-AK), which would open for oil and natural gas development less than three percent of the Arctic National Wildlife Refuge on the North Slope, an area that was specifically set aside by Congress and President Jimmy Carter. Clean Energy Standard The Energy and Natural Resources Chairman Bingaman (D-NM) recently announced that he will move to introduce a clean energy standard (CES). The bill would require utilities to generate a portion of their electricity from low-carbon sources. It is expected that the measure would require utilities to generate 80 percent of their electricity from low-carbon sources -- such as renewables, nuclear power, and coal with carbon capture and sequestration -- by The standard would employ a credit-trading scheme where utilities could either generate electricity using cleaner-burning fuels or buy the credits from another utility. The base standard would grant full credits for renewable generation and new hydropower and nuclear generation and partial credits for natural gas-fired and coal-fired generation. The Energy Information Administration recently released an analysis of eight different CES policy options. The 33-page report that Senator Bingaman requested back in August details the results of models the independent Energy Department statistical arm conducted on a base CES design and seven variations. Uranium Mining Near Grand Canyon On January 9, Interior Secretary Ken Salazar announced that the Administration will move to withdraw 1 million acres in the Grand Canyon from new mining claims for 20 years. Senators from Arizona, Utah and Wyoming introduced legislation (S 1690) in October designed to block the Interior Department action. Arizona and Utah Members introduced a companion bill (HR 3155) in the House. 3

13 Salazar said his action does not prohibit previously approved uranium mining and that new projects could be approved on claims and sites with valid existing rights. He said more than 350,000 comments were submitted during the rule-making process. President Shelly Comments on EPA Regulations related to NGS On December 1, the Senate Committee on Indian Affairs held an oversight hearing titled "Deficit Reduction and Job Creation: Regulatory Reform in Indian Country". The Committee invited President Shelly of the Navajo Nation to provide testimony on tribal energy development. In his testimony, President Shelly expressed his concern with EPA regulations on electrical generating plants in both New Mexico and Arizona, including NGS: The Navajo Nation is blessed with abundant natural resources and cursed with unemployment levels reaching 52 percent. Our natural resources can help to alleviate unemployment on the Navajo Nation while we preserve our air, water and land. Unfortunately, the recent actions of the US Environmental Protection Agency to impose costly and unnecessary regulation on power plants would effectively kill tribal energy development, and deprive the Navajo Nation of economic stability and much needed jobs and revenue The US EPA again intends to impose harsh new standards on both plants (NGS and New Mexico), which together, utilizing Navajo coal, provide most of the revenue of the Navajo Nation s general funds, and further jeopardize economic development and sustainability on the Navajo Nation. The hearing was not directed to a specific legislative proposal but rather an oversight hearing to listen to tribal concerns regarding the impact of regulations on tribal energy development. EPA Deadline for Smog Standard The EPA has agreed to designate by May 31, 2012, areas of the country that have attained or not attained the 2008 ozone air quality standards. The proposed consent decree was filed December 12. EPA will take public comments on the proposal after a notice runs in the federal register. EPA has yet to draw the nonattainment maps for the standards, which were finalized in Starting several years after those decisions are made, areas not passing the standards will be required to clean up the air, whether or not the agency sets still-tougher standards that are to be completed in