TTB Adopts New, Softer Rules for AVAs
The Alcohol and Tobacco Tax and Trade Bureau (TTB) has, in a final rule/treasury decision (available here), issued new and revised regulations with respect to three formerly confusing areas pertaining to American Viticultural Areas (AVAs): brand names that conflict with AVA designations, the AVA application process, and the existence of smaller AVAs inside currently existing or proposed AVAs, aka "nested" AVAs.
The new rules are considered less stringent than were originally proposed by the agency. The originally proposed rules were widely rejected by members of the wine industry and were subject to a resolution of opposition by the California legislature, authored by two lawmakers from the Napa Valley.
Brand Names
The TTB had originally proposed adding a "grandfather" clause for brand names that had received the proper Certification of Label Approval (COLA) but contained the name of a potential or recently established AVA. After receiving comments, the TTB reversed its proposed rules and did not adopt a standard grandfather clause, believing that its current "case-by-case" analysis and flexibility of remedies was preferable.
Establishment of AVAs
The new/revised rule codifies long-standing agency practice and clarifies the process and evidence required in petitioning for a new AVA. The new section 9.12 (27 Code of Federal Regulations, Part 9) sets forth exact requirements, which include very distinct name and boundary evidence, distinguishing features, and detailed maps. The new section 9.13 also spells out in greater detail the actual rule-making process of applying for an AVA. In addition, the TTB stated that while "sufficient viticulture" must exist in order to establish an AVA, it would not establish a rule identifying a minimum acreage site or vineyard density.
"Nested" AVAs
The new Part 9 also directly deals with the issue of smaller AVAs surrounded by larger AVAs or "nested" AVAs. There had been a proposal to prospectively prohibit the creation of "nested" AVAs but the TTB rejected an outright ban and instead set forth regulations regarding evidentiary proof for their establishment. Section 9.12(b) states that when a petitioner is requesting the creation of a smaller AVA within an already existing larger AVA or the creation of a larger AVA that would envelop the smaller AVA, the petitioner must state, in the petition itself, why the proposed AVA is "sufficiently distinct" from the existing one and must explain why the "establishment of the [new] AVA is acceptable."
The TTB also declined to implement standing regulations regarding which AVA a winery in a "nested" AVA could use on its labels, concluding that its current "case-by-case" basis was better than a standing rule.
This post was written in collaboration with Lee Smith, a partner in Stoel’s Sacramento office.
Renewable Electricity and Wine - A Perfect Pairing
While wineries and vineyards have long been moving toward being “green,” several have taken the next step by installing renewable energy generation onsite. One of the most recent is August Cellars, just outside Newberg, Oregon. The winery recently installed a 150-foot-tall, 50-kilowatt wind turbine. August Cellars maneuvered around the somewhat prohibitive cost of the project (between $70,000 and $100,000) by not actually owning the turbine, but instead leases the turbine from a third party with an option to buy.
August Cellars is following in the footsteps of such giants as Constellation Wines, which, in September 2010, announced it would increase its solar photovoltaic (PV) usage to nearly 4MW with new installations at its Estancia, Ravenswood, and Clos du Bois wineries in California. These systems would expand on the company’s already existing use of solar PV at its Gonzales winery. Constellation will own the systems and take advantage of the tax credits. Once completed, the installations will cover nearly 100% of the energy needs of Estancia and Ravenswood, 75% of Clos du Bois, and 60% of Gonzales and is projected to save the wine giant nearly $1 million annually from reduced energy costs.
The move by wineries toward renewables is not merely a “West Coast thing” either. Red Caboose Winery, a 10,000-case rural winery located in Meridian, Texas, recently released a statement that it would be using a USDA Rural Energy for America Program (REAP) grant of $15,617 to help install a solar PV system. According to the owners, the new system will allow the winery to have a net annual energy consumption of zero.
Benefits
If structured properly, installation of renewables can make economic sense for a winery/vineyard, creating significant financial savings from reduced energy costs. In addition, for a wine business, there is substantial public relations value to going “green.” When combined with other energy efficiencies, installing renewables can substantially reduce a winery/vineyard’s carbon footprint. This can, in turn, generate substantial brand goodwill from a public that is becoming increasingly aware of environmental consequences. This is especially true among the wine-drinking demographic.
Issues
Wineries and vineyards looking to install renewable energy often encounter a host of obstacles. Two of the largest are variability and cost.
Variability
Simply put, the wind doesn’t always blow and the sun doesn’t always shine. Nor does power always cost the same or do governmental entities offer the same incentives. A winery or vineyard contemplating installation of a wind turbine or solar array should look closely at the available resource. This may mean paying for ancillary costs, such as scientific studies. It will assuredly mean a closer look at long-term planning to establish acceptable rates of return given the attendant risk and variability.
Cost
In 2009 and the first part of 2010, installation of a commercial solar PV system in the United States with a capacity of 250-500kWDC averaged around $7.10 per installed watt before incentives and tax credits (click here for a more in-depth look). That price can drop to $4.00 per watt or lower after incentives and tax credits, with some larger projects (>2MW) seeing prices as little as $2.50 per watt. While this cost is projected to decline further, it still creates a significant initial capital outlay that may require many years to recoup. It therefore becomes important to view renewable installation in the long term.
With this in mind, wineries and vineyards have several ways of making the use of renewables cost-effective and attractive. These include using tax credits and grants, third-party ownership as in the August Cellars example, and taking advantage of such programs as Net Metering or Feed In Tariffs, where such programs are available.
- Net Metering – This uses a special metering system that credits you for the excess power you generate. Net Metering allows a winery to avoid the full retail cost of electricity and pay only for its “net” use in each billing or truing up period.
- Feed In Tariff (FIT) – A Feed In Tariff allows smaller renewable generators to sell their generation at set rates back to the utility. FIT contracts can be very restrictive and often run from five to 20 years. They also have modest, yet very predictable, rates of return. However, installations being used under a FIT program are generally not eligible for other programs, such as Net Metering.
While the obstacles can be daunting, installing renewable energy at your winery or vineyard can have substantial economic and marketing benefits. An owner contemplating installing a renewable energy system would best be served by having a good understanding of the local resources and looking into all avenues of funding. With proper planning, renewable energy can make your “reds” and “whites” feel green.
Conjunctive Labeling Comes to Sonoma County
With the turn of the calendar and after nearly a year of political wrangling, conjunctive labeling will be the norm for Sonoma County wineries beginning in 2014. Passed by unanimous vote in both the state assembly and senate in August and signed by Governor Schwartzenegger at the end of September, AB 1798 will require wineries using the name of any of the 13 recognized American Viticulture Areas (AVA) within Sonoma County on their labels to include “Sonoma County” as well. The bill is not retroactive as it applies only to wines bottled after January 1, 2014. Failure to comply is considered a misdemeanor and subjects the violator to possible revocation of their ABC license. To achieve compliance, it will be necessary to file for and receive a new Certificate of Label Approval (COLA) from the TTB for those labels already approved.
Response to the new requirements has been mixed. Pushed heavily by the Sonoma County Winegrape Commission and the Sonoma County Vintners, Nick Frey, the Commission’s president, stated, “In this increasingly competitive wine market, building awareness for Sonoma County and the wine regions within the county is critical to Sonoma County grape growers and the wineries they supply. AB 1798 will ensure that consumers recognize every bottle of wine produced from Sonoma County grapes.” However, several large, well-known wine producers in the region see the legislation as diluting their already well-established brands, in addition to the added cost and confusion of including “Sonoma County” on an often already crowded label.
Some of the better known of Sonoma’s AVAs are the Russian River Valley, Sonoma Coast and Dry Creek Valley. California requires conjunctive labeling for three other viticulture areas: Napa Valley, Lodi, and Paso Robles.
New California Law Streamlines Instructional Tasting Licenses
On the list of California laws affecting the wine industry in the New Year is AB 605 – the Instructional Tasting Events License. Introduced in 2009 and signed into law September 23, 2010, AB 605 adds to the Business and Professions Code sections 23396.6 and 25503.56. The additions allow the ABC to issue a single “instructional tasting license” to any holder of an off-sale retail license, thus doing away with the need for retailers/suppliers to get a permit for every “instructional tasting” event. Retailers granted an instructional tasting license would be allowed to hold an “event for consumers on the subject of wine, beer, or distilled spirits, including, but not limited to, the history, nature, values, and characteristics of wine, beer, or distilled spirits, and the methods of presenting and serving wine, beer, or distilled spirits.” These events may include the consumption of alcohol.
The retailers may not conduct the events themselves. However, they may invite “authorized licensees” (i.e., holders of manufacturing or supply licenses) to conduct them. The retailer may hold the event if, among other things, the authorized license holder is unable to attend and the event has been advertised and scheduled. In addition, the retailer can’t supply the alcohol for the event; it must be supplied by the authorized licensees or purchased from the retailer by the authorized licensees at the going rate.
The events must be located at a cordoned-off section of the retailer’s premises. The law also sets stringent restrictions on servers and attendees (no one under 21), types of alcohol (wine, spirits, or beer but no combinations), charge (can’t have one), serving amount (one ounce for wine), and event times (between 10 am and 9 pm).
The new licenses are not permitted to be issued to any off-sale licensee at a location where gasoline is sold, unless the licensee operates a “fully-enclosed” off-sale retail space of at least 10,000 square feet (i.e., Costco, Walmart, Safeway, etc.). Nor can they be issued to licensees at locations “with a total of less than 5,000 square feet of interior retail space” unless yearly gross sales of alcohol at that location are at least 75% of total gross sales (i.e., liquor stores).
The fee for the new license is $300. Violations of the age limit are a misdemeanor and carry a penalty of $200 (for both the retailer and the minor). A violation of any section carries a penalty of suspension of the instructional license for the retailer and suspension of the privilege of conducting instructional tasting events for the authorized licensee for a period of six months to a year.
TTB Updates and Changes
In anticipation of the retirement on 12/30/2010 of Ms. Nancy Sutton, TTB’s current American Viticultural Area (AVA) Program Manager, TTB is announcing that effective December 27, 2010, Ms. Elisabeth Kann of the Regulations and Rulings Division has been designated the coordinator of the AVA Program. Ms. Kann may be contacted directly on all AVA questions and concerns, including inquiries regarding the proposed establishment of a new AVA, or a name or boundary line change to an existing AVA. She can be reached by telephone at 202-453-2002, by email at Elisabeth.Kann@ttb.gov, or by letter addressed to: TTB, 1310 G Street, NW., Suite 200-E, Washington, DC 20220, Attn: Elisabeth Kann, Regulations and Rulings Division.
Wine Industry Analyst Perky Ramroth also retired effective 12/30/10. She has been an invaluable source of knowledge and insight into TTB policies relating to the wine industry. Most important she was located on the West Coast and was always very responsive. All indications are that TTB does not intend to fill her position.
In response to a request made on behalf of a wine industry association, TTB is extending for an additional 60 days the comment period prescribed in Notice No. 109, Use of Various Winemaking Terms on Wine Labels and in Advertisements; Request for Public Comment, an advance notice of proposed rulemaking published in the Federal Register on November 3, 2010. Written comments on Notice #109 are now due on or before March 4, 2011.
