On March 8 and 9, Stoel Rives cosponsored, with Kennedy/Jenks Consultants, the 6th Annual Best Practices for Owning and Operating a Winery, held in Napa, CA. The well attended event covered such topics as valuation, water, energy, and branding. Stoel attorney’s Chris Hermann, John McKinsey, and Jake Storms were all panel speakers with John McKinsey acting as emcee for the second day of the conference.
The State Water Resources Control Board (“Board”) held a workshop last week on a proposed regulation designed to assess and mitigate water use from the Russian River by growers in Mendocino and Sonoma Counties during frost season. Though no formal action took place, the Board received numerous comments on the proposed regulation.
The regulation would add Section 862 to the California Code of Regulations establishing that any water diversion from the subject area from March 15 to May 15 not in accordance with a Board-approved Water Demand Management Program (“WDMP”) would be deemed unreasonable. This includes the pumping of hydraulically connected groundwater, but excludes diversions upstream of the Warm Springs and Coyote Dams.
In addition, the new regulation would require the WDMP to include:
· An inventory of the frost diversion systems within the area subject to the WDMP
· A stream stage monitoring program
· Annual assessment of potential risks to salmonids from frost diversions
· Identification and implementation of any corrective actions deemed necessary to protect salmonids
· Annual reporting of the WDMP
The workshop was heavily attended by stakeholders from both government and industry and included a presentation of the projected cost of the proposed regulation. The draft economic report, available here, states that the average cost for those diverters in Mendocino County not requiring corrective actions would be $105.86 per acre in initial capital outlay and $28.50 per acre in annual costs; for Sonoma County, those numbers would be $59.98 and $18.74, respectively. For a 40-acre vineyard in Mendocino, this puts the total cost at $4,234 for initial capital outlay and $1,140 in annual costs; for Sonoma County, these numbers would be $2,399 and $749, respectively.
A common theme from the Board and the audience was that several important terms in the proposed regulation had yet to be satisfactorily defined. Chairman Hoppin, himself a farmer, repeatedly stated his hope that both sides would strive for a balance between protecting species and the water needs of farmers.
Several commentators expressed a need for the Board to address the permitting of offstream storage (i.e., storage ponds) as a tool to help address Russian River overdraft. Chairman Hoppin assured the audience that steps needed to be taken in this arena and that it was on the Board’s radar.
Formal rulemaking and the program’s environmental report are expected in mid-May, with final regulations in place by March 2012.
On March 9th, the Napa County Farm Bureau held its first water forum in five or six years in St. Helena, California. Kicked off by Bureau President Jim Lincoln, the event was well attended, with over 100 concerned stakeholders listening to the most recent updates in California water issues.
Phillip Miller, the Deputy Director of Napa County Public Works, discussed a recent study by Napa County designed to compile countywide data, establish a framework for reporting, and provide recommendations related to any future groundwater permitting and monitoring program.
Of most interest was the presentation by Paula Whealen, a principal at the engineering firm of Wagner & Bonsignore. Ms. Whealen gave a general overview of new requirements for surface water users from the California State Water Resources Control Board (“SWRCB”), including:
· All reports of licensees and progress reports by permittees and pre-1914 water right diverters are now due annually by July 1;
· Reports must provide the monthly amount taken from the source;
· They must state the monthly amount beneficially used; and
· They must be filed electronically as of this year.
o Filings will require high-speed internet access
Because all new reports must be filed electronically, the prior “fudge factor” regarding timelines for reporting will no longer exist. The SWRCB will be able to tell on July 2 who hasn’t filed the necessary reports. Failure to file all necessary reports constitutes non-compliance with the underlying water license/permit and can lead to fines and/or other administrative actions. It was also stated that, given the increase in the number of enforcement officers (25) and the establishment of a water rights enforcement office in Santa Rosa, California, there will be a significant increase in site inspections in the North Coast region.
A bit of sage advice given at the Forum is for all vineyard and winery owners operating under a license/permit to take it out, read it, and understand it. If you don’t understand your water rights permit, find someone who does, and most importantly, make sure you are in compliance. In addition, even for those sources that are not required to be reported (i.e., reclaimed water), it behooves vineyards and wineries to keep records of all water that is used on the property.
The Sonoma County Board of Supervisors has adopted the final measures for moving ahead with the County’s Frost Protection Program (the “Program”). This final act was merely a carry-over from the February 8 meeting where the Board adopted the fee structure for the Program and extended the time frame for implementation of the Program until 2012.
Under the new Section 11B of the County Code, the Program will be used to gather information on vineyard and orchard water usage in the Russian River Watershed. As previously blogged, creation of the program started after complaints were made by the U.S. Fish and Wildlife Service that frost protection measures that use water from the Russian River Watershed were causing the death of certain protected salmonid species. The federal agency threatened to take action under the Endangered Species Act if the County did nothing. The County moved to create the Program ahead of State action, which is expected to occur in the next 12-18 months.
Implementation of the Program was originally planned for the 2011 frost season. However, County staff informed the Board at the February 8 meeting that two hurdles had sprung up that would delay actual implementation until the frost season of 2012. The first was a seemingly 11th-hour move by certain vineyard stakeholders to not back the program due to concerns of the public nature of the information gathered. The second was the negotiations over the issue of indemnification between the County and the non-profit organization created to assist in the implementation and that would oversee the gages in the long-term.
While a delay in implementation to the 2012 frost season was acceptable to the U.S. Fish and Wildlife Service, it was stated that any further delay would require action on the part of the agency. One Board member suggested that, due to the delay, the Board consider scrapping the Program and creating a fully voluntary concept. This idea was not acceptable to the U.S. Fish and Wildlife Service and was quickly discarded.
Vineyards and orchards within the Program’s umbrella must register with the County Agricultural Commission annually between January 1 and March 1. This year’s registration must occur by June 1. The fee set for the Program is $64.00 per site. This fee will be assessed annually with the required registration. The County estimates there are some 360 sites within the Program’s boundaries.
The Program will have to conform to any future State action regarding the Russian River Watershed. However, the Board was confident that the Program would meet with acceptance at the State level.
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.
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.
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.
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.
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.
Wineries and vineyards looking to install renewable energy often encounter a host of obstacles. Two of the largest are variability and cost.
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.
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.
On Tuesday, the Sonoma County Board of Supervisors unanimously passed an ordinance creating a plan designed to protect both vineyard frost protection measures and endangered species in the Russian River. After nearly a year of negotiations, the Board added Section 11B to the County Code, creating a registration program for grapegrowers and plan to assess water use practices for frost protection by utilizing over 100 gauges placed throughout the watershed. Information on usage will be presented to the Board on a yearly basis and will be used to potentially mitigate effects of diversions on a real-time basis.
The move to create a program started when Federal officials informed the California State Water Resources Control Board (State Board) that overuse of water from the Russian River and its tributary, Felta Creek, for frost protection was negatively impacting endangered Coho and Chinook salmon and steelhead smelt. Officials from the National Oceanic and Atmospheric Administration stated that continued overuse and endangerment could result in a ‘take’ under Section 9(a)(1) of the Federal Endangered Species Act, subjecting those responsible to fines and penalties.
The adopted program will be supervised by Sonoma County and includes a scientific review panel. The ordinance provides that the gauges will be overseen by an entity comprised of members of the grapegrowing community. The State Board had rejected an earlier proposal by grapegrowers to voluntarily adopt preventative measures, demanding there be some method to “…kick out bad actors.” On October 27, 2010, the State Board published a Notice of Preparation of an Environmental Impact Report (EIR) and Public Scoping Meeting for their own proposed regulations applicable to the grapegrowers diverting from the Russian River watershed. The State’s plan would cover water diverted for frost protection from the Russian River in Sonoma and Mendocino Counties and hydraulically connected groundwater.
Section 11B creates a mandatory registration program for all Sonoma county grapegrowers. Growers will be required to register with the County Agricultural Commissioner starting in mid-January, 2011 and running through March 1, 2011. Failure to comply could subject violators to fines ranging from $500-$1,000. The Board of Supervisors will vote on a fee schedule for the program in January.
At least fourteen wineries Oregon have instituted improvements to reduce Greenhouse Gas (“GHG”) emissions, including the installation of solar panels, lighting retrofits, tank insulation and in some cases, have gone so far as to use goats, sheep, and raptors instead of lawn-mowers and pesticides. For instance a winery in Eugene, reportedly has trained owls and red-tailed hawks to protect the vineyards from the small birds that like to feed on their grapes.
In 2009 the fourteen wineries in Oregon banded together to create the first industry carbon-reduction program. The “Carbon Neutral Challenge,” a joint project of the Oregon Environmental Council and the Oregon Wine Board included twenty percent of Oregon’s wines annual production in 2009. In other words, one in five bottles of wine produced in 2009 was produced in a facility that completed the Carbon Neutral Challenge. Each contributing winery accounts for their greenhouse gas emissions and incorporates this information into a carbon inventory tool. The participants must also become part of the Climate Registry.
Over the last year these projects have repeatedly prevented 211 metric tons of methane from being released; the CO2 is equivalent of 9,370 barrels of oil consumed; the annual emissions of 770 cars or the electricity used by 489 homes in one year. For any emissions that remain after all their reduction efforts, the wineries have located verifiable offset projects in the agricultural sector including methane digesters in Oregon, Washington and Idaho through the Bonneville Environmental Foundation.