Senate Select Committee on California's Wine Industry

Good afternoon. The Senate Select Committee on the California's Wine Industry will come to order. The Legislature continues to welcome back the public and provided access to both in person and teleconference participation for public comment. For individuals wishing to provide public comment via the teleconference line, the service participant toll free number is 877-226-8163 and the access code is 736-2832. For today's hearing, we'll have the members of each panel give their presentation, followed by questions from the Committee. At the conclusion of the second panel, we will take public comment on either of the agenda's items. I really want to thank my co chair, Senator McGuire and his staff for their efforts for organizing today's hearing. I always appreciate the opportunity to work together on behalf of our neighboring districts, especially on an issue that plays such a critical role in our economy. And I'd also like to thank other members, Senator Alvarado-Gil, thank you very much for attending today. As many of you know, the agriculture is number one industry in California, contributing $55 billion to our economy. Now, white grapes are the number two crop grown in the state at an estimated value of 5.5 billion, generating nearly 90 billion in economic activity in the State of California. I have had the privilege of representing the district where wine grapes are number one industry in three of my six counties Napa, Sonoma and Sacramento. In the remaining three, wine grapes are the top crop. The wine industry employs over 420,000 people in California. And obviously, the wine industry is critical to the California economy. And it's up to all of us to work together to help this major industry prosper and grow during these challenging times. I'm very interested to hear from the Department of Insurance and Calorie Cycle about their plans to ensure the long term health of the wine industry in State of California. The first panel today will address insurance challenges in the wine industry and will be moderated by Senator McGuire. With that, I will hand the mic to Senator Mcguire for welcoming remarks and he will moderate panel number one.

Thank you so much, Mr. Chair. And first and foremost, I just want to say thank you, Senator Dodd, for your incredible work. You have been tireless in your work, focused on tackling the tough issues that many counties in wine country and the wine industry face each and every day, and we would not be here today without your leadership. And I just want to acknowledge that. Also want to say good afternoon. It's so good to see each and every one of you. Thank you for taking the time out of your busy schedules to be able to be here with each of us. Want to say thank you to Senator Dodd's incredible team, along with the team from our office for putting in the heavy lifting as well coming into today's hearing. As Senator Dodd had just eloquently stated, California is a global leader when it comes to wine, it is a main economic driver for the Golden State. Our wine industry supports communities by generating literally tens of billions of dollars in economic impact. It employs hundreds of thousands of hard working Californians each and every year, and the industry pays billions of dollars in state and local taxes. And here's what we know, the bottom line is this, when the wine industry thrives, California is successful. In previous hearings, this Committee has focused on important topics such as farm worker housing, water supply sustainability, and fish friendly farming. And we devoted two hearings to the impacts recent massive firestorms have had on the industry and how the state can help in recovery. And as the good Senator from Napa just said, we're going to focus on two new critical challenges facing California's wine industry; winery insurance and Bottle Bill implementation. Going to do a little bit of a deep dive into our first panel. Our first panel is going to focus on the challenging issue of wildfire insurance coverage for wineries. Like other business sectors here in California, Golden Staten wine growers and producers are facing an unprecedented insurance crisis. As insurance carriers stop renewing policies in wine regions throughout the state, wineries and production facilities are faced with a diminishing choice of policy providers. And to make matters worse, as we have all heard, premiums, they're skyrocketing, which leaves businesses vulnerable to become underinsured or wholly uninsured, that we're seeing more and more from. This crisis is a serious threat to the future of one of our state's most robust agricultural industries. Our second panel is going to focus on that bottle Bill implementation and would be remiss if it didn't say thank you to Senator Dodd and to our fantastic pro team, Tony Atkins for their work on SB 1013 in 2022, bringing both wine and spirits into California's number one recycling program. The last piece would like to be able to mention is this, the Wine Institute. We need to say thank you to the Wine Institute for their help in getting this hearing organized and together, and their invaluable partnership year after year after year, and we're truly grateful. Thank you again for joining us. And it is now my pleasure through the chair to turn to the individual to my right. We are grateful for her leadership on all issues of AG, and in particular, on wine. Grateful that Senator Alvarado-Gil is here. Senator will turn the floor over for any welcoming remarks.

Great, thank you so much. Well, I'm bringing the healthy competition to California and the wine industry representing my home County of Amador County, as well as the Sierra Foothills region of wine country here in California. So I feel very privileged and honored to sit here with two of our veterans in the wine industry as I am giving some mentoring on how to best represent the region. So thank you so much. I do pride myself as being a rural member and part of being a representative of the rural counties is representing agriculture. And as mentioned, the wine industry has been one of the most prosperous in our area, and I feel very happy to represent them. It is a large contributor to our agricultural strength and economy as a whole, as you mentioned, and in my district, covering the central foothills as well as the Central Valley, the wine industry increases and expands, providing top tier tourism, which is a big economic factor for us. I do want to highlight as coming in as the newbie here with our healthy competition, that we have over 70 wineries in El Dorado, over 50 wineries in Amador County, 20 in Calaveras and over a dozen in Stanislaus, including the famed family owned and run E&J Gallo, which, as today, we're going to be learning about bottling recycling. And E&J Gallo has been a leader in that. So I feel very prideful to be able to represent that region. So I think it's important for us to talk about the obstacles facing our industry. And thank you again for the opportunity to be part of this discussion. Thank you.

Really great.

We'd be remiss noticing that Rombauer is now owned by E&J, which is.

In Amador county as well.

It's all in the family now.

It's all in the family. Yeah.

You were going to be in trouble from Delgado if you didn't mention it. I love it. Good stuff. Yeah, absolutely. So, without further ado, ladies and gentlemen, we'd like to be able to kick off this esteemed Committee by welcoming several individuals up to the table. If we could please bring up Michael Martinez. Michael is the Chief Deputy Commissioner for the California Department of Insurance. We're going to welcome Mr. Martinez to the table here to the front. We are grateful that Shotzi Throckmorton is here. We're going to have Mr. Throckmorton to please come forward to the table as well. General manager and proprietor for Relic Wine Cellars. Thank you so much for being here. And then David Capone, a managing partner of Malloy, Emory and Vasconi Insurance Services that specialize in insurance for the wine industry. So, ladies and gentlemen, some housekeeping in regards to this panel. We're going to have about 20 minutes to 30 minutes total. We're going to ask each panelist to be able to keep their remarks to approximately five minutes. We'll give you a 30 second warning as you approach that five minutes. We cannot say thank you enough for your willingness to be able to participate here today and to be able to bring your perspective on this critical issue of insurance and the crisis that so many ventners face. So let's kick off. We welcome Mr. Martinez on behalf of Commissioner Ricardo Lara. Mr. Martinez, if you could please pass on our sincere thanks to the Commissioner for all of his hard work. This has been an incredibly challenging time for the Department. You're working through some really difficult issues and we're grateful for your hard work and thanks for your partnership today.

Thank you, Senator Mcguire, thank you very much for those kind words. I will absolutely convey that to him and, of course, his long standing friendship with all three of you Senators, thank you very much. Michael Martinez, Chief Deputy Commissioner at the California Department of Insurance under the leadership of Insurance Commissioner Ricardo Lara. Thank you for inviting me here today. I do have some prepared remarks and I do appreciate the Committee for reaching out to me to talk about the continued yet we do have a pathway, we strongly believe, on the insurance challenges facing our state. Under the leadership of Commissioner Lara, we at the Department have taken and continue to take significant steps to increase the availability of insurance for consumers and to maintain a competitive insurance market under the authority granted to the Insurance Commissioner by California voters in the passage of Prop 103 back in 1988. Our Department experts are entirely focused, there's about 1400 of them at the Department, they're entirely focused on improving the lives of Californians. The Department's investigation of complaints and oversight of the conduct of insurance companies following wildfires has resulted in more than $469,000,000 returned to consumers since 2018, benefits that we believe would not have been recovered without the Department's actions. Again, I was asked by Committee staff to provide a brief, high level overview of the Department's role in ensuring a robust and competitive commercial insurance marketplace. I would also add a stable and predictable commercial insurance marketplace given today's hearing's title, and especially as it pertains to the state's wine industry, including our steps taken to modernize the California Fair Plan Association to be more responsive to the needs of California's businesses and consumers. Commissioner Lara believes having a robust and competitive insurance market is critical to protecting Californians from these increased risks, including climate intensified wildfires. Furthermore, he has been very clear that benefits to and protection of consumers are of utmost importance as we strive to meet his interlocking goals namely one, making insurance more available to Californians, secondly, creating a resilient insurance market, and thirdly, protecting communities from climate change. That is why he partnered with the Governor's Administration, including several of his emergency preparedness governmental entities, engaged with stakeholders thoroughly over three years time, and used our collective expertise to create the first in the nation insurance pricing regulation that requires all insurance companies to recognize and reward wildfire mitigation efforts made by businesses, homeowners and communities. Under his regulation, commercial and homeowner insurance companies, including those in the winery industry, are those that are in the wine industry, that are consumers of insurance by insurance companies that those insurance companies are required to reward those actions like upgraded roofs and windows, defensible space and living in firewise communities. As we've heard, every dollar of pre disaster mitigation saves 5 to $7 and avoided future insurance losses, thus helping make insurance more available and ultimately affordable. Transparency is another important benefit of is the regulation requiring insurance companies to provide consumers and property owners with their property's risk score and a right to appeal that score. So the big news recently has been under, recently, on September 21, Commissioner Lada announced his Sustainable Insurance Strategy aimed at improving insurance choices and protecting Californians from increased climate change threats while addressing the long term sustainability of the nation's largest insurance market. His strategy was announced immediately after the Governor issued an Executive order prompting immediate action, regulatory action in support of the Commissioner's actions for communities affected by climate change. Key regulatory elements of the Commissioner's strategy include one, Executive action to transition businesses and homeowners from the Fair Plan back into the admitted insurance marketplace with commitments from insurance companies, including commercial, to cover all parts of California by writing no less than 85% of their statewide market share in high wildfire risk communities. For example, if a company writes 20 out of 100 homes or businesses statewide, it must write 17 out of 100 homes in a distressed area. Secondly, giving Fair Plan policyholders who comply with Commissioner Laras safer from wildfires regulation first priority for transition to the admitted market, thus enhancing the state's overall wildfire safety efforts. Thirdly, expediting the department's introduction of new rules for the review of climate catastrophe models that recognize the benefits of wildfire safety and mitigation actions at the state, local and parcel levels. Fourthly, directing the Fair Plan to further expand commercial coverage to 20 million per building to close insurance gaps for wineries, homeowners associations and condominium developments, among others, to help meet the state's housing goals and to provide required coverage to large businesses in the state. Fifthly, holding public meetings, exploring incorporating California only net reinsurance costs into rate filings, and 6th, improving insurance company rate filing procedures and timelines by enforcing the requirement for insurance companies to submit a complete rate filing as well as hiring additional Department staff to review rate applications and inform regulatory changes, among other transparency, accountability and public participation reforms. I would say that a lot of the inspiration for Commissioner Lara's sustainable Insurance strategy comes from the countless meetings and town halls that he has had. Some in partnership with you and your colleagues here in the state Legislature and they've been up and down the state. He's planned them, he's attended them across the state since 2019, including with many vintners wine, grape growers winemakers and farm bureaus, many of whom he has held several discussions and listening tours with that particular population and constituency since 2019 to inform his thinking and strategies. In fact, additional actions that he has taken to modernize the Fair Plan were based on constructive meetings that he has held with the state's wine industry, including ordering the Fair Plan to increase its commercial coverage limits for businesses for the first time in more than two decades to keep pace with increased costs.

We have about a minute, Mr. Martin.

Okay, thank you. Secondly, supporting and overseeing the implementation of a new state law from a few years ago. Senate Bill 11 allowing the Fair Plan to cover AG businesses and co sponsoring a sponsored measure earlier this year with the California Farm Bureau Federation to create the Fair Plan commercial clearinghouse to help get commercial policyholders back into the midded insurance market. Again, I do want to acknowledge the continued support and partnership that he has had with you all here in the state Legislature. It does mean a lot to him, especially his former colleagues here in the State Senate. It has been tough. I do appreciate the co chair's remarks, but it's important to him. It is a priority one, two, and three to get this right in the remaining time that he has here in his second term. He again wants to really thank you for your continued support. It will continue to be tough. It will take time, but we are committed. And as the opening remarks is that we're all in this together, constructively together, to help make the insurance marketplace work for all of us and be accessible for all of us, especially to our most vulnerable. And so with that said, I want to thank you very much for inviting me here today. And at the end of the day, please know that he's committed to protecting consumers as we work to ensure competitive, voluntary insurance marketplace in our state and hold the insurance industry accountable. Thank you.

Thank you so much. We are so grateful, the Chief Deputy Commissioner Martinez, for being here today. That is our agency perspective. Now that we've heard from the Department of Insurance, we'd like to be able to take a deeper dive and hear from Vintner themselves. And we are so grateful that we have Ms. Throckmorton, who is here to be able to provide testimony today. We're grateful. You have approximately five minutes. We'll give you a 30 second. Heads up. The floor is yours. Thank you so much for attending.

Thank you so much for having me.

We're having you scoot that a little closer, if you don't mind.

Better? Thank you for having me. And so much of that really sounds wonderful. But my name is Schatzi Throckmorton, and I'm here taking a full day off from Harvest. I hope that illustrates how critical insurance availability and affordability is for wineries in Northern California. So I'm the General manager of two Napa Valley wineries, my own Relic Wine Cellars, and then also Behren's family winery. Whereas of last Wednesday, I have worked for 23 years.

Wow.

So I feel like I have a lot to say about this, but in these roles, I've had the unfortunate experience of being directly affected by both the '17 and 2020 fires. The 17 fire, the Atlas Fire burned through Soda Canyon, where my winery is, and sadly, most of our neighbors burned to the ground, but Relics survived. Our winery was very thoughtfully and intentionally constructed out of stainless steel, concrete and a cave. Our resulting insurance claim was small. It was $50,000. It was less than if we'd had a tank liability issue. My husband and I started Relic with just three barrels of Pinot Noir at a friend's winery in 2001. I cannot overstate how much we love wine. We are wine geeks to the core. We are extremely passionate about what we do. We make just 2500 cases of wine Sonoma Coast, Chardonnay and Pinot, as well as Heritage and Bordeaux Varietals from Napa. We do 120 year old dry farm carignon and all these Charbone and things that are just pieces of Napa Valley history. We're really trying to support old farmers as well as the new economy. It took us eight years to scrimp and save to purchase our property, and so did Canyon. And even then, that was only possible because our economy was at the height of the 2009 recession and we purchased the cheapest 10 acres we could find. After six years of permitting and financing and construction, we moved into our winery in 2015. We have no investors. It's just me, my husband and our bank. We love our valley, our home, our friends, our industry, and equally importantly, the guests who visit us from all over the world who become friends. The Napa Valley is a truly exceptional community. But to the topic at hand, in 2016 and 2017, which I'll refer to as the Before Times, we paid $9,000 for full coverage of property and winestock from 2018 to 2021, after the 17 fire, our rates doubled to 19,000, yet we still had full coverage and an admitted carrier. Then came 2022, no admitted carriers would touch us, despite being a proven low risk. In order to insure the property, we coupled together a number of different carriers. The total cost jumped to $52,000. So five times our Before Times rates, taking it from what was like a necessary budgetable item on our P&L to our fourth largest expense. So, grapes, mortgage, payroll, insurance. It's huge. And I can't stress this enough, insurance is not an option. It is essential. It is a covenant of our bank loan. We cannot be uninsured. And these new policies, they don't even provide coverage for what were considered basics like mobile equipment, property and transit, wine leakage, equipment breakdown, all of these kinds of things. So this year, in order to keep our rates from going even higher, we asked our broker to cut all of our property values in half, just to get by with our bank. So, like many small business owners, we are all in this position. And yet, because of the loss of carriers in California, and because my business is in a high risk area, we and other business owners are on the brink. The situation is truly dire for us and other small wineries. If something doesn't change, you're going to see people going out of business. This is just not sustainable. At Barron's Family Winery, in addition to running my own winery, I am their business manager. That property sustained significant damage in the 2020 fire. Our rates in the before times were around $22,000. However, as can be expected, we lost all of our coverage from our carrier as soon as it was legally possible for them to drop us. And our rates there jumped up to $87,000 a year. So almost four times the previous cost. So again, $22,000 to $87,000 a year. Three years later, we're still negotiating a final settlement with that insurance company, but we were able to pay off our bank loan with proceeds from the insurance claim. And so now we are self insured, which let me be clear, self insured is just industry speak for saying that we do not have insurance other than basic liability. So the Fair Plan is an option that many wineries have resorted to, but at three times the cost from their earlier insurance as well. And the coverage being far below replacement values, it's just really not a solution. Not to mention as many of us know, with so many homeowners and businesses now going into that plan, one major catastrophe will make that plant insolvent. So as the Vintner lead for the Napa Valley Vintners of our Wildfire Insurance Task Force, I've heard dozens of stories like this. Some increases have been to seven to eight times previous rates, and large wineries are not immune. The wine industry is the economic engine of our region, producing 46,000 direct and indirect jobs. The threat posed by the insurance availability crisis not only affects me and other wineries, but affects our entire community. So in response, as a board member of the Napa Valley Vintners and chair of our CIIC Committee, I firsthand dedicated a lot of seen what our wine Committee has dedicated to this. After the 2020 fires, we started a Wildfire Prevention Committee with more than 70 Vintner Members, which was focused on providing industry community resources to Harden structures, create defensible space, bolster local fireness readiness, and to advocate for and direct resources to fuel reduction, maintenance and fire detection monitoring. Our work has been collaborative and tireless and has resulted in meaningful wins through substantial federal grants and most recently with addition of a new fire administrator role at Napa County. In addition to all of that, the Napa vendors has raised $2.1 million last fall, which we donated to Napa Firewise and the Napa Conservation Resource District to create and maintain fire breaks in our hills.

About 30 seconds.

We've just started our fundraising campaign for this fall, so please wish us luck. And better yet, feel free to go and donate at Collective Napa Valley. You can even win a pizza party at my winery if you would like. And we've created a number of public private partnerships with the county, local residents and firewise. We feel like we've done everything that we can, but we really need more partners, so please help us. We cannot sustain any more carriers leaving the market. We need to create an environment incentivizing them to stay. Allowing admitted carriers to charge higher rates is far better than unadmitted carriers with a fair plan. Senator Dodd was kind enough to come to our community Wildfire Summit last week and provide historical context and educate us on Prop 103. I'm not an actuary, an insurance juster broker or Legislator. I do not have answers. I just know that my family, my friends, my employees and my industry needs help, and I'm here to ask for it on all their behalf. So the fact that you have me here today gives me hope, and I'm really grateful and I really hope we can work forward to find some solutions to this. Thank you so much.

Really nice job, Mrs. Throckmorton. Thank you so much. And the statistic that you gave of the totem pole and now being the fourth largest expense, it is an eye opener and incredibly scary. Long term, it is not sustainable. Very grateful. We're going to have you hang with us here. Before we go to questions from the Committee, we're going to welcome Mr. Caponni. Thank you so much. Managing Partner Malloy, Emory and Vasconi Insurance Services, they do commercial insurance, farm and ranch insurance, and they're going to be giving us the perspective of a firm, one of the leading in the North Bay, who's providing and working with Vintners and providing that type of insurance for coverage and the challenges that you're seeing. You have five minutes. We'll give you 30 second heads up. And we're really grateful that you're here today. Good afternoon.

Perfect. Good afternoon. Thanks for having me. I'd like to say Schatzi, thanks very much for your story. Everything she said is absolutely accurate. The one part that she didn't really expound upon is even though the cost has increased astronomically, the coverage has also gone down comparatively as well. The coverage that wineries can get, regardless of price, is a shell of what it was just a couple of years ago. And it leaves most of the winery's most critical causes of loss, critical risks uninsured, regardless of premium. So that's something to also be noted. I'd like to start my remarks with an email that I received from a friend of mine that runs one of the largest winery insurance programs in the State of California, certainly in the Napa Valley and Sonoma surrounding areas. This is a conversation we started with on the phone, but he was expressing that essentially see if I can get this right. We both know there's tremendous opportunity to help insured solve real problems. Unfortunately, progress with the DOI is almost impossible. We've paid over $100 million in wildfire losses and still retain $6 billion in property values. However, somehow we're still the bad guy. Such a shame. Insurance companies getting any sort of progress approved through the regulatory environment of the Department is a real challenge for the industry. It's something that is just currently impossible for wineries to ensure their exposures. The fair plan is not, it's insurance. It does provide coverage. It helps with our loans that we have, but it does not provide coverage for the risk for wine. It does not cover your transportation, it does not cover leakage, it does not cover spoilage, change in temperature, all the things that are the most important thing to the business operation of the winery. Most of our clients are well protected and defended against wildfire. Most of our clients are not concerned about the building burning. They're concerned about all the other operational exposures that they have in their business. I am the managing partner of Malloy, Emory and Vasconi. I'm also a winery owner myself. We have a winery on the Silverado Trail. I'm not at all concerned about the Wildfire exposure, but I have no insurance for any of the inventory in my winery facility. I've got a couple of $1.0 million to the Fair Plan, that's great. However, I've got $8 million worth of wine, probably $10 million worth of wine today, given that we've just gone through harvest completely uninsured. If there's something that happens to that wine, a leak, a failure of our cooling system that damages a tank of wine, it could bankrupt us, not because of a wildfire exposure, but because of the other operational exposures that we have that just a couple of years ago were almost a give me in the insurance industry. The insurance industry is very comfortable underwriting those exposures and pricing appropriately for them. Dealing with the wildfire exposure is something that they just can't mitigate. The catastrophic nature of wildfire is something that pricing is just not available to spread that risk amongst all the wineries all insured in California, it's something that, without treating wildfire separately, I don't see as being sustainable for the insurance industry going forward. Schatzi is absolutely right. We've seen increases in premiums hundreds of times. Clients that were insuring things for, larger winery clients that were insuring their property exposures in wildfire risk areas for $50,000 a few years ago are now looking at half $1.0 million premiums for barely enough coverage to cover their bank loans. Not to continue their operation, not to replace what they have exposed and what they could essentially lose, but just in order to keep their loans and keep that covenant with their bank. It is unbelievably substantial. The Fair Plan increasing their limits scares me. The Fair Plan has publicly stated they are disastrously under reserved and probably wouldn't survive a widescale catastrophe in multiple areas throughout California. If the Fair Plan was a standard admitted carrier, they would be seized by the Department of Insurance this afternoon. I don't see that increasing the coverage provided by the Fair Plan solves the problem. The Fair Plan also, in order to operate, has a method to which they would levy admitted insurance carriers in California in the event of an underfunded loss. So any insurance carrier that writes insurance in California is subject to excess losses over the Fair Plans reserves in that event. That's something that is driving carriers out of the state, and regardless of the other changes in risks and rating that we implement, that liability is something that is not sustainable for them. Looking at the Fair Plan, nationwide Insurance, which is a huge national insurance carrier, has a very significant presence here in California, exceptionally significant. They're the number one farm underwriter for farming throughout the state, as well as wineries and Vineyards. Nationwide has made a statement that they want to reduce their exposure in California from 10% of their book of business to 5%. That means cutting their presence in California in half across all segments of business that they write, that is very substantial and something that's going to impact the insurance industry yet again with another round of cancellations for all sorts of insured, not just wineries and vineyards, but a very substantial impact. And something that points to the fact that currently, with the way that fire is currently insured in the insurance code is not sustainable. I would suggest that we need to look at Wildfire Insurance specifically for the catastrophic exposure that it is. The insurance industry and the federal government, the state governments, et cetera, have solved these problems in the past. Earthquake insurance is a catastrophic risk exposure. Flood insurance, terrorism insurance, the national crop program. There are methods out there by which these other catastrophic exposures have been dealt with. And I think that if we don't look and focus on wildfire being a similar catastrophic exposure, the industry is going to continue to shrink and continue to go to that nonstandard market with many insureds going uninsured.

We have about 1 minute, sir.

Just I'd like to close by saying in 2018, MIV wrote nine insurance policies with the Fair Plan. In 2023, just between January and May, we've added another 253 policies to the Fair Plan. The move from the admitted market to the Fair Plan is alarming in our space and for our client base. The next Wildfire event that we have is going to be disastrous. I would expect to see many of our wineries in the valley as well as around the state. This issue is consistent everywhere in Napa Valley, Sonoma County, Mendocino County, Pasarovo, San Luis Obispo, the foothills. You name the area, the impact and the exposure, the problem is exactly the same. So that's all I have. Thanks for having me.

No, thank you so much. Really grateful to the three of you for being here. What we'd like to be able to do is open it up to the panel of Senators who are with us today. Questions, comments, please? Who would like to be able to kick us off? And why don't we start with Mr. Co Chair.

Yes, Mr. Martinez? First of all, appreciate you being here today. I know the Department of Insurance has a number of rate increase requests pending. I want to know what the Department is doing to prepare for the increased workload to be expected from the regulations being promulgated as a result of Governor's Executive Order and also the insurance commissioners work there and also.

Do you think you're going to be able to turn those around in a timely manner?

Yes, thank you for that question, Senator Dodd. And obviously, like running a large organization, there's certainly a lot of the external, right, the public policies, the rulemakings, all of those are so incredibly important on top of the existing work that we have at the department. And so your question is one that actually also keeps me up at night of ensuring that we have a prepared workforce at the department. Look, during the pandemic, we all employers, we all saw a tremendous right of individuals who had been in their positions, had been in jobs for years, retire. We saw a lot of individuals and we saw it and many employers, public and private, including also at the Department of Insurance. So we did have a fair amount of turnover. That being said, I have been in working with predominantly the Rate Regulation Branch, which is the branch that receives all of these insurer filings. We have a multipronged approach. Firstly, we do want to thank the Legislature and the Governor for signing, passing, signing budget Bill Junior, which we did have budget bill language in there that allowed us to, that gives us the ability to, contract out with firms to assist in the review and approval of PNC property and casualty filings. So that was one. Secondly, is that the vacancies within the Rate Regulation Branch, I've been like, fill those vacancies, fill them up. I don't want to have any vacancies. Fill those up. Thirdly, we have gone out to seek an assessment because as we know, Proposition 103 has been around for quite some time, several decades. Any organization should change and mold with the times. And so I wanted to be able to have a look to see how can we further restructure the Rate Regulation Branch. So it is ready for the filings of tomorrow. And so that is currently underway. We're paying for overtime, which is very new at the department, but I've said, hey, we have money, we have funds to pay for overtime for those individuals that can, and we do entice and want individuals who can work more, work longer, to pay them overtime. We hired a retired annuitant for what it's worth to actually help with a lot of the HR processes because we do, as you all are public employers, we do have a lot of the processes that we need to stick with. But that's another element that we are ensuring that we're able to staff. And then also as part of the assessment, we are also expanding the rate regulation. So we're actually having I'm literally lifting and shifting other vacancies in other parts of the department to put them into the Rate Regulation Branch, more actuaries, more rate analysts, in order to again be able to staff up even more than what we have had for the last couple of decades, which it has been very static in a sense of the workforce number. So having all of these, again I know a lot more inward facing. But it is important because as we are doing all of these public policies and pushing these important reforms forward, we do need to be ready, like yesterday, in order to make sure that we have the staff both in house and contract to be able to make all these additional filings coming in and these more complex filings coming in as well. So hopefully that helps answer your question, Senator Dodd.

That answers it. I hope you're right and hopefully it all works because as we just heard from Mr. Capponi, That's job number one that we've got to have, so thank you for that. The second question I have for you is maybe not fair for today because it's maybe a little too premature, but I'm wondering if you or your team has looked into, well, the regulatory process that you're doing right now and you're working towards as advertised about 30 days ago, which I support wholeheartedly. Would a legislative codification, if that's a word, if we codified those regulations into legislation, does that help the department either in time or anything to prevent lawsuits? I'm trying to get an understanding if that's beneficial or it's premature at this time, one of the two. Because if it's beneficial, we've got to get to work.

Thank you, Senator Dodd and I do appreciate this past year of having conversations. Certainly both houses had working groups on insurance that we engaged with. And I would say at this point, maybe premature in a sense of the stage that we're in right now because we did move forward certainly on that day in September where the Commissioner had publicly announced his sustainable insurance strategy that was being able to look at all of the existing authority that the Commissioner has in partnership with the governor's executive order and the governor's administration of impressing upon the emergency element to it that we were able to promulgate emergency regulations. To go through again, this is more with the office, administrative law, et cetera, et cetera. And so we do believe that we have a very robust existing statutory authority to be able to move forward with all that we need to and as part of the regulatory process, absolutely, there are going to be several rulemakings that we will engage in, several of them being in emergency format in order to get the ball rolling and we are having those conversations internal to get ready so that we can release them to start that process. One in particular, the cat modeling. The Commissioner has held two public workshops and they've been very- the first one, over 1000 individuals were present virtually and several had testified. We want to make sure that we do it right. We want to be sure that individuals that want to be part of the rulemaking regulatory process are and that will take some time and that's where I've said that overall it will take some of that time but that being said it is full thrusters. All of these levers are being pulled in order to get the commercial insurance and homeowners insurance marketplace back on track.

Thank you.

Thank you.

Thank you so much Mr. CoChair. We're going to turn it over to Senator Alvarado-Gil.

Thank you. Just quickly here, I want to thank all of you for being here as well and my question is for Ms. Throckmorton. I really appreciated you bringing forward your story and helping paint the picture of just how drastic these increases have impacted our family owned businesses in California and particularly those who, like you, brought your dream of owning a winery not for any selfish reasons but to continue to give us high quality wine in California. I have seen the gamut of wildfires devastate Northern California and our Sierra foothills and I know my colleagues have as well. And so being here today is of utmost importance to not only talk about the crisis but what next and to push with urgency. So one question I have for you is as the leader of the Napa Valley Vintners are there opportunities for other leaders, other vintners associations to come together around this issue so that there is a collective action?

That's a really interesting question. We already have a couple of groups working between the Napa Valley grape growers, the Nap Valley Vintners, the Farm Bureau and the wine growers. We've been meeting over the last few months trying to figure out ways that we can better partner together and work on a number of different issues. I'm not sure that any of us alone, the Vintners have already, like I said, raised $2.1 million and we're doing another fundraising campaign this year. We went to DC last year and did a lot banking efforts and we're able to get promises for $1.5 million for a fire break in Anguin as well as $5 million for smoke research. I feel like we're hitting a wall. We're doing everything we possibly can. We have put money and efforts towards getting everyone's property hardened and none of that is making an iota of difference in our insurance. I'm truly not sure what else we can do even pulling together all the resources. That's why I'm here.

Yeah, it's like you're doing everything right and you're still climbing an uphill battle. So I can definitely sense that. Because we have so many vintners associations in California and Northern California, specifically Central Valley where we have the ability to bring the collective voice, I will look into other ways that we can help support those connections. Yeah the broader base solutions. And then the other thing I just wanted to quantify is the impact not only on our wine region but those who depend on the economy of the wine region, our hotels, our restaurants, our small businesses that bring in millions of visitors into California. So all of that is impacted when our wineries are not able to function and meet that bottom line. So this is a greater economic crisis for California and I just want to thank you all for bringing forward that voice.

Thank you so much. Thank you so much, Senator, for your leadership. Just a few items. Again, Mr. Martinez, we are so grateful you're here and I know a lot of the comments are directed at you here today, not because of being confrontational, but truly these are issues that you're working through with the Commissioner on the issue of hardening. So as we heard from Ms. Throckmorton about, you have vintners who are spending hundreds of thousands of dollars on hardening the property, plus looking at enhanced vegetation management of our fuel brakes and then not seeing carriers either giving a credit towards that off of cost of policy or a mandatory right, writing a policy. And I know in previous years, Legislature has attempted to be able to do a mandatory write of policy if community hardening plans were adopted. Just being super candid about it, insurance industry fought it tooth and nail and those efforts were defeated. Your thought on that, because I think Mrs. Throckmorton, where you have eloquently stated, you're literally doing everything that you can to be able to make your property more wildfire, safe, safer for visitors as well and you're not seeing a dime back. So Mr. Martinez, your thought on that and again I know that it's been attempted. I know that's something that Commissioner Lara is focused on and if you were to look in your crystal ball on that and then other states I know have been focusing on home hardening as well and community hardening please.

Thank you, Senator Mcguire, for that. And I would say, first of all, on the hardening and the mitigation and being located in a firewise community, those are all incredibly important. That mitigation is key and one major lever as part of the overall bringing the insurance industry to be more robust and competitive here in the state. And one reason why the Commissioner had promulgated his rulemaking, it took three years because there was pushback, it took three years to get the nation's first mitigation recognition rulemaking through and it was finalized last fall. And to some degree this might be some part of the implementation execution element of this rulemaking since it was just finalized late last fall. We gave about six months in order for insurance companies to file their mitigation filing in order to achieve compliance. So we actually do have many mitigation filings pending at the Department under review and approval. And so those are actively, and as they're coming in or as we're not me per se, but the rate regulation staff are working incredibly hard to turn those around because that does mean where there is the recognition and incentivization of property owners, both homeowners and commercial, that would be able to partake of those benefits. So I would say that there is some of the implementation element here that we are again having. We've had insurance companies have filed and they are currently in real time being reviewed towards approval. And there are some that are well, I don't want to get too into the technicals, but just I've been brought in on some because they are quite complex and they get way beyond the rulemaking. But that being said is we want to keep them very clean very quick in order to review and get them out because yes, that does mean then that insurance policyholders are going to be recognized, it is going to be law of the land, and they will be provided discounts on top of their premiums. And again that was for both homeowners and commercial owners and at first there was tremendous pushback from the commercial insurance industry to not allow that element. But we pushed back and we believed that it was going to be for homeowners and for property owners. For the second part of your question then, Senator, about the mandatory write and renew, that has certainly been a long standing policy debate. Back in granted it was a bit of a blur, but at least three or four years ago the Commissioner had sponsored his own measure along those regards. So it is something that is not even new to him and it did not move forward in the process. And he felt he's had some chance long time to think about it, and he felt that there was an element here of at least looking back when we had compelled the insurance industry to write earthquakes, and we had that issue of homeowners insurance companies leaving the state or threatening to leave the state, and we had an incredibly challenging time back then when we had the Northridge earthquake. And so from there, henceforth the California Earthquake Authority sprung forth.

I was just going to say, I think on that issue and I know Mr. Capponi, you brought this up as well as breaking out wildfire and I'm going to turn it right back over to you Mr. Martinez, I don't mean to interrupt, but I think the challenge on earthquake is the vast. It is a small minority of homeowners that actually purchase earthquake insurance in this state just because of the significant costs. I think if we take a look at Rio Dell for example, of a small snapshot where we had that 6.0 on Christmas Eve, it's just I think 3% of homes, I mean is so minor in regards to who's purchasing. I think that would be my concern if we were to break out wildfire, right like what we do with earthquake, the costs are going to be prohibitive to actual purchase and take up. If we use that as an example and would be concerned about that. I guess my item is that and again want to say thank you to Commissioner Lara because he did advance that Bill. I don't think it even got a hearing in insurance over on the Assembly side, and this was many years ago and this is an issue that he was very focused on and very grateful for. You know, what a lot of folks are asking is are we ever going to get back to where we were? And even though I think we've gone from about 1.4% to 4% total policy in the Fair Plan, somewhere right in there, right. The type of industries that have impacted our wine, where it's much greater than what those percentages show statewide. And I think looking at that holistic approach, whether it's additional credit for hardening right, or looking at mandatory right. If we look at community hardening plans, et cetera, to try to be able to get us back to some type of semblance of what it once was, your thoughts on that? And then Mr. Capponi we'll look to you to jump in on this as well.

Yeah, I would say that given when the Commissioner had sponsored that measure several years ago, he put a lot of thought to it, continued to with a lot of the town halls and up and down conversations he's had with stakeholders that ultimately, he's gone down the path of now of releasing or creating his sustainable insurance strategy of feeling that is going to be the best way for him to be able to provide the change in the important way to get the insurance industry and marketplace back, to be more viable and competitive. And so he has moved less towards the mandatory element, but more towards okay, because there's actually in the sustainable insurance, I know we didn't get too far into the details of it, yet there is a mandatory element to it is that we looked at. Okay, the insurance market has been saying we want to be able to use, for example, Cap modeling and incorporate net cost of reinsurance. And if there is some element of providing those tools in their rate filing, if an insurance company, whether homeowners and/or commercial, wants to be able to utilize one or both of those tools, then by opting into that, then they would be compelled to write at least 85% of their market share in the distrust areas of the state. And so that was the balance that he struck in feeling okay, he still feels the benefit of having some element, some element of a mandatory, yet it needs to be something where he felt that well, mandatory element in that regard of the opting in from an insurance company, say, yes, we want to be able to utilize Cap Model reinsurance. And several members or many of you and some of your colleagues here in the Legislature, we have talked about those tools. There's been several hearings, informational hearings, on those two elements for the past several years. And so it's something where the Commissioner Lara is absolutely, again very open. Those are two elements as part of the multipronged strategy that he announced not too long ago that again, in allowing an insurance company, if they so choose to, then they would be compelled to. And we would have the at the negotiating table under Prop 103, under the Commissioner's existing authority to compel that insurance company so that we would make sure that, again, if they use one or both of those tools, that we'd be able to bring them back. If they do not, if they fall short of that 85% plus commitment to right.

Yeah. No, absolutely. And I think the issue that Senator Dodd just said, it makes sense and I think the one item is just being honest where that 15% lies. I think the concern is [district one]. Hey see, there we go. Exactly. Especially in those hard hit industries right where we've seen fire after fire after fire. Again, this is not easy. And I just want to say thank you to the deputy Commissioner, Chief Deputy Commissioner and the Commissioner for their work on this of working with all sides to be able to get to show progress for California consumers. And that's something you've been working on. Mr. Capponi, I want to turn over to you because I know that you brought this up to better have some skin in this.

Thanks. I mean I see two problems. One, with compelling insurance companies, a mandatory must write scenario or ultimatum on those carriers I think is further going to force those carriers out of the state. It puts them in a position that I just don't think is sustainable when you're forcing them to insure these wildfire risks going forward with the current way that the policies are written and the insurance code defines fire, what Schatzi said about ensuring her values for half of their insurable value. One thing that we've seen, insurance aside is tremendous inflation, primarily in the property and construction industries, maybe outpacing what we've seen nationally. In 2017, after the fires in 2017, I would tell people that contractors in our area didn't get out of bed on Monday morning for the same money that they gladly went to work for Friday afternoon. That problem has continued. There's been changes to building codes which have driven the repair replacement costs significantly for good reason. But it's a factor driving the valuations that these insurance carriers face when dealing with a wildfire loss. If you had $1.0 billion wildfire loss two years ago, count that as a $2 billion wildfire loss this year. So there's other factors that are driving at this that I just don't think lead to a sustainable market. My comments on the earthquake exposure, I think to take that a little bit further, not as many people buy earthquake insurance, that's known, but it allows carriers to issue different terms for that particular coverage. Thinking more about wildfire, a different deductible for wildfire. So if we're allowed to keep it within the standard policy but have a different deductible. Have a different deductible for smoke contamination, for loss of use, for business income. That's what's really harming insurance carriers. The wildfire losses are significant, but the death by 1000 cuts losses are also impacting the industry and affecting the way that they look at this. That's why they don't want to insure anything that's within a mile of any high hazard wildfire area is because even if they're not worried about the wildfire itself impacting the property they're worried about the loss of use, the business income, the smoke contamination and all those other things that we all know how to deal with and we would deal with them appropriately. But when you turn them over to the insurance carrier you're talking six figure losses for a property that was not touched by the fire. It's something that I think that we need to look at doing a little bit differently. Giving insurance carriers a little bit of breathing room on how that's handled so that then they can come back strongly to the market and provide rates more comparable to where we were. Do I see it going back to the way it was? No chance.

Yeah. And I think the only other counterpoint is that there are some states in the Southeast. Florida, for example, has given insurance companies huge increases right. And aggressive reinsurance going from a public to a private catastrophic modeling system. And they still pulled out, 17 out of Florida. Much higher rates. This is on the residential side, much higher rates than what California has. So I guess, look again, this is one of the most complicated subjects that are facing our economy, facing homeowners business owners. Right. There has to be something in the middle where we simply don't give away the store to insurance corporations like what some states have done. Because even with some of the highest rates in the nation, insurance companies are leaving town and leaving the entire state. So I think that's of trying to be able to figure out where there is that landing spot and I hear you in regards to decoupling right. And then trying to figure out how to fund that. Right. Mr. Capponi, I don't want to put words into your mouth but looking at what that potential financial model could look like.

Yeah, that's exactly what I'm suggesting. If there's some way to decouple that from the standard fire policy and how the term fire is used and create a parallel term of wildfire specifically, I think that gives us the breathing room to then look at it differently. Whether there's a California wildfire Fund or authority or a standalone market that's developed for that something that's backstopped by the state somehow. The Federal Terrorism Insurance Program backstopped by the federal government. It allows insurance carriers to continue to provide that coverage, and most people in at risk areas, most people that are not exposed to terrorism or don't believe that they are, don't purchase the coverage, which allows the market to do what it needs to do. But I think until we think about it differently, we're still going to be going in the same direction and not impacting our policyholders throughout the state in a positive way.

Appreciate that. Thank you so much, Mr. Capponi. We're going to go to Mr. Throckmorton for any closing comments. Please, ma'am, the floor is yours for just a couple of minutes.

I just wanted to ask, so as you said, terrorism and earthquake is extremely expensive.

If you want to direct a question to the Committee and then we'll so.

If we were to pull Wildfire Insurance out, would they then take mitigation measures into account? Like, would Relic have a catastrophic cost when we survived an earthquake and a fire with almost no claim? Would we have the same exponential cost for that coverage as, say, somebody who has done no hardening?

Yeah, and I think the other piece is on risk modeling, right. Mr. Capponi, I don't want to put words in your mouth again, but I think if you take a look at Silverado Trail, for example, a lot of these wineries are in the middle of a flipping vineyard with acres upon acres of green space between them and where that wildland interface may be. And the reason why I bring that up is if you're looking at hardening of a property, plus, you're able to prove that you have that buffer in addition to mitigation that's potentially on the side of the Vineyards on the hill, there should be some ability. The Department of Insurance has been working on those regs right now and those regulations to be able to provide you credit to be able to provide credit for that. But it would be an actual breakout of a separate policy is what you're talking about. Mr. Capponi.

Yeah, again, whether it's a separate policy or just defining a separate peril within the policy, it gives carriers the ability to rate against that separately, different deductibles, different coverage limits. And so I think that it also separate underwriting. Right now, the carriers can only underwrite the account as a whole and fire as one particular risk. So whether it's a kitchen fire or a wildfire, it's the same underwriting risk. Separating those two would allow them to rate and underwrite that differently and then provide benefits and credits based on the mitigation that's been done and the hardening or the lack thereof. So I just don't think continuing to keep it as one peril benefits the industry, the know everything that we're trying to do.

No. Thank you for very, very grateful. Final word, Mr. Martinez, anything that you would like to to able be clean up on in regards to any comments, please, Mr. Martinez. Then we're going to transition to our next panel. Mr. Martinez.

Thank you, sir. Thank you. Just again, wanting to thank you all and really just for having this hearing, for reaching out and I know our Community Relations and Outreach Branch in particular and our Consumer Services, we partner a lot with your district offices for town halls to share information. But in total, just know that we continue to want to be partners with you all, help answer your questions constituents wise as well as on policy. I would say just a couple of lines on the Floridian example, we do agree that the policymakers in the State of Florida did give a lot out and we certainly looked at that as something as an example of what not to do in total, and that's why we felt that one element of having the mandatory element of the 85% of that lease, 85% in the sustainable insurance strategy, because there was no compelling the insurance industry to write in Florida, when they did that, they had nothing. They said, here, here are all the give me's. But we would argue that there was not much for consumers to point to. But here in California, we took that certainly as an example to be okay as we are at the negotiating table, as we're creating a sustainable insurance strategy that there actually is again, having that mandatory element if when an insurance company wanted to utilize some of the more climate change tools that are important to look at. So I would say that is one thing I wanted to add. But with that said, thank you for inviting me and look forward to chatting with you further.

Thank you so much. Chief Deputy Commissioner. Thank you so much. Mrs. Throckmorton, wonderful to see you. Thank you for taking time out of your incredibly busy schedule. Sincerely to be able to be here with us, it means so much. Mr. Capponi, thank you so much for your perspective. We're going to be following up on this, obviously, this year as this is going to be a priority for the Senate, priority, I believe, for the Assembly. And we look forward to our continued dialogue and partnership here in the weeks and months to come. With that, I'm going to turn it over to Mr. Co chair to talk about the Bottle Bill and our next panel. Thank you so much.

Aren't you also a fireman too?

Yes, sir.

Yeah, you've got it all going and up there. Yeah. So listen, I really appreciate Mr. Martinez, Mrs. Throckmorton, and Mr. Capponi, thank you very much for taking the time to be here. Senator McGuire, thank you for leading that panel. We appreciate it very much. Thank you. Okay, today's second panel is about the bottle Bill and its impact on the California wine industry. I'm fortunate to represent an area of our state that produces some of the most sought after wines in the world and keenly aware of the many challenges that are facing the industry. In the past two years, I've had the pleasure of working on two bills that will be the benefit to the wine industry. SB 1013, Senator Atkins from 2022, which I managed for the Pro TEM, and my Bill, SB 353. SB 1013 was supported by the wine industry. Appreciate that very much. And I wanted to really point out to the Wine Institute that the work that they've done to try to find a sweet spot in this area over the years has been significant and well noticed, at least by many of us, or hopefully many of us. And added also wine and spirits bottles to the CRV program, SB 353, which was recently signed by the Governor, included changes to existing law to help winers meet recycling mandates as well as support rural recyclers, among other provisions. With that said, we know that we need to do more. So let's hear from our second panel pertaining to the Bottle Bill in the wine industry. I'm really pleased to welcome a real partner in this area. Rachel Wagoner, Director of the California Department of Resource Recycling and Recovery, aka CalRecycle, Tim Schmelzer, the Vice President of the California Wine Institute and Maribel Delgado, Vice President Deputy General Counsel of E&J Gallo Winery. Welcome and come on up.

Well, thank you. Thank you so much for having us and appreciate you having this hearing and appreciate the fact that hopefully we're going to tell a story together today That's a little less naughty than the one that you are embarking on with the previous panel. So, as all of you know, or all of us know, the beverage container recycling program was initiated in the mid 1980s and 1986.

It was originally intended as a litter reduction measure to reduce the amount of aluminum cans and glass bottles we found on the roadside. And it has, I think, been widely successful and then not quite 40 years in doing that. But now it is our premier recycling program here in California. In 2022, we recycled 444,000,000 beverage containers in the State of California. That represents roughly 70% of the beverage containers sold in the state, collected, and then brought back into the recycling system.

But that being said, it was time in the last couple of years, the Legislature acknowledged, along with many of our industry partners, that it was time for this program to evolve. And so we worked together to make that evolution happen. So a very special thank you to Senator Dodd for his leadership, the Pro Tem for her leadership in initiating that, as well as our partners in the wine industry who came to my former office in the Governor's office.

And said, what we'd really like to do is have our own program or join the beverage container recycling program because we want to be a part of the recycling solution for the State of California. As the Senator Dodd noted, SB 1013 made a number of different changes to the beverage container recycling program that helped with this evolution. Among those, the wine beverage containers as well as distilled beverage containers have joined the program that represents about 1.2 billion bottles in the State of California annually.

As we all know, we are the premier wine region of the country, if not arguably the world. So we have a big task in front of us to bring these new beverage containers into our program. And we are working with our partners in the wine industry and the distilled spirit industry to figure out how, in a pre-established program, how do we create the appropriate collection systems, the recycling systems and transportation systems to effectively do that.

And again, in Senator Dodd's Bill this year, SB 353, as well as 1013, and the beverage excuse me, the budget bill, the previously SB 179, a number of different funding programs were created, or funding opportunities. I should say that we are building out into a comprehensive funding package that we will be rolling out in December so that we can find alignments in the beverage container recycling program and really optimize collection.

So what we're really out to do over the next few years and what our true goal for this program is to be capable of collecting and redeeming every single beverage container sold in the State of California. And that really means creating convenient access for every Californian to participate in this program. It means optimizing our recycling system and really innovating and building on California's innovation spirit by deploying all of the different types of technology that have been developed over the last decade or so.

And we're working with our partners to do all of those things. And so with that, I'm going to turn it back over to the chair.

Thank you very much, Ms. Wagner. Appreciate that presentation. Our next panelist is Tim Spelter with the Wine Institute.

Hello, Tim, how are you doing? Really glad I could be here today. Feel silly introducing myself to you, but I know we're streaming, so Tim Schmelzer, Vice President of California State Relations with Wine Institute. We have about a thousand Members of all shapes and sizes throughout the state, certainly in every wine region. We are the preeminent organization representing California wine, not just in California, but throughout the country and the world.

I know you spoke a little bit about the industry and its size and stuff, but I wanted to focus on that because I think everything Rachel said is true. And thank you and we appreciate it. And the legislation has been great. Getting the word out to the wineries is the thing that keeps me up at night right now. It really does. In California, we have over 6000 bonded wineries. It supports over 422,000 jobs in California.

And while we are definitely America's number one, we're only fourth in the world. Sadly, we're working on that. But we sell almost 240 million cases of wine nationwide. Another 41 million are sold. But that real number to remember. There is a number of wineries the bottle bill has. I didn't research this, but I know this. There's no way you've had this many new entrants at once. And it is no That's individual manufacturers.

Since the beginning of the program.

Yeah, and it's a real challenge. It's a challenge we take seriously at Wine Institute. I'm sure it's a huge challenge for Cal Recycle and it's not like there's 6200 enj galas out there who are lucky to have Mary Bell with them and are very sophisticated. Most of these are very small family owned businesses. And every time we host a lot of webinars at Wine Institute, I'm basically going on the road this month to talk to different regional wine associations.

They appreciate the face to face and being able to ask questions and such, especially from somebody who represents them as well. The first thing I get most of the time is, oh my god, this is starting January 1. And I mean, we have been pushing out information all year, but just making folks aware of it is huge.

It's a real big issue and they need to register they need to get registered prior to January, they're going to need to start reporting paying fees on a monthly basis. And there's a lot coming up for these folks. And despite best efforts, I have concerns about especially our smaller wineries here at the state, as whether they're aware and know what to do as hard as we're trying.

So I just want you to be aware I have concerns that way, and we're doing what we can to help with that. Wine Institute for its part, besides sending me out on a bottle Bill roadshow, we also have developed our own public facing page, not just for Wine and Soup Members to try to consolidate a lot of the information available on Cal Recycles page to be in one easy to follow spot. And we've heard a lot of good feedback from that.

That's helped, but it's something we're really focused on That's a lot of new folks out there, small businesses that are going to have to comply with rules they just haven't had to consider before, even though I think a lot of them, all that being said, are excited to be part of this recycling program. I think the industry has really had as a goal for a long time to do better there. You've heard us talk a lot about our credentials with regard to sustainability.

I've always felt that was a little bit of our Achilles heel, frankly, and we're proudly going into this program, so we're grateful but nervous. All that being said, we are very grateful for the provisions in both SB 1013 that you helped shepherd with, along with Protem Atkins, and I want to especially shout out for SB 353.

SB 353 contained a couple of provisions, Senator, I'm not even sure if you even half know how grateful the industry is for some of the provisions in this legislation, but we had a couple real scary things that we discovered upon SB 1013's passage. You're all probably pretty aware of the fact that containers need to contain a CRV indicia on them.

And while the industry was granted some extra time to get there, in the wine industry, most wine ages for a long time before even coming to market. And it was a huge issue for wineries that have product in stores that might not even go for sale until July 2025, that this has been filled and labeled and sitting down for a few years to age to be ready for market.

And of course, they didn't even have as a clue that this was coming along at the time your Bill recognized that issue. And we're very grateful that the products that were filled and labeled prior to January 1, 2024 are going to be grandfathered. And I cannot tell you what a huge sigh of relief. And it's also really fun to be able to give good news when I get calls on bottle fills that was absolutely huge. Give you all the credit and well, you got it through.

And another thing that seems obscure, but also something unique to the wine industry, it is extremely common to use a third party bottler in our industry. And the way that the beverage manufacturers define, and this affects greatly what your responsibilities are for compliance. Said that anybody who filled a container is a manufacturer, essentially. Well, I didn't get numbers on this, but I mean, we're talking like 80% of wineries use a third party even though the bottler pulls up.

Basically bottles the wine, gets the wine back, they're gone the next day. You'll see you next year. And suddenly, under the definition prior to the passage of SB 353, they would have been responsible for paying the processing fees even though they had no knowledge of the sales of the wine or anything. And we are able to work with you. And really, this is great partnership with Cal Recycle here. And Aaron. Thank you.

In particular, we were able to work out a definition that recognized that just because somebody bottles it, if they're not the one selling it, it makes no sense to put that compliance burden on them. That erased a huge cloud of confusion in the industry. So we're just extremely grateful for both of those things. Thank you. That being said, there are some challenges that remain.

One of the significant things that we did with SB 1013, and this was at our request, is that we're bringing new container types into the program that we haven't previously seen in the bottle Bill. We've had glass and aluminum and Pet and probably a couple of others, but we're bringing bag in the box in. We're going to bring some significant tetra in. And I have members that are concerned with these new container types.

It's not clear yet how they should be telling their consumers how to recycle them. We're grateful that CalRecycle is going to be making some time available to talk through these issues, but they're complicated. Like, for example, in Bagging Box, I think a lot of folks believe the standard should be take the pouch out of the box. Should we be selling that to our consumers? It's not clear how to do that. We have recycling systems that need to be developed to address these programs.

And then finally we have an issue where the CRV that we attach to all of those containers is rather high. So $0.25 versus the 10 and 5 That's for the existing program. This is something that we hope to work with the Legislature on this coming year to address. Particularly, one of the things I think I wish we'd been thinking of more of, we didn't make a distinction between volume at all with these new containers.

And so the same container that may hold four bottles of wine in a bag in the box situation versus something That's a single serve, both of them pay $0.25 for a CRV, which all the other existing containers, there's a recognition that a smaller container should pay a smaller amount. So I just want to kind of flag that as an issue that we'd like to address moving forward. But otherwise, I think we should probably stop changing the law quite so much.

That being said, I would appreciate that. Hey, it makes us all crazy. But anyway, it's been really wonderful to have such a great working relationship, both with Cal Recycle and particularly Senator Dodd on these issues. I don't know how we would have gotten here without that kind of partnership. And thank you for having me. Thank you.

Mr. Schmeltzer. Ms. Delgado.

Welcome.

Thank you for being here.

Thank you for inviting me. Maribel Delgado I am with the Gallo Winery, and everyone at least seems like everyone knows Gala Winery. But I'm here today to talk about really one but related other entities that are part of the winery and how we will do our part, hopefully, to bring Director all of those containers back into the recycling system. We are completely aligned in that view. So, as you may or may not know, gallo also makes all of its own glass.

So we do have the Gallo Glass plant. It was built in 1958, and about 60% of the production is for the Gallo Winery, but 40% is for the rest of the California wine industry. So we do have a number of outside sales. In addition, the newest part of the entity is Halo Glass. So Halo Glass is a recycling glass processing plant. So what that plant does is it converts post consumer and clean container glass into usable cullet. Cullet is recycled is recycled glass.

It crushes it color, sorts, and sizes the material for remelting to manufacture into new bottles. And then all that processed material is sent directly to Gallo Glass. Currently, we just started operations. It became fully operational in May of 2023. But really, we've been stable in terms of operations for the last three months. Lots of learnings. This is a completely different business model that we've not been involved in. The majority of the issues at the plant have only been around fine tuning for quality.

It's really important that the quality of the material that is going into the furnaces be glass and not be contaminated with ceramic or porcelain or batteries. That's another contaminant that really we see coming through. And really we're receiving and processing from curbside material recovery facilities. So murphs is what those are called. A lot of times that is single stream material. So when we receive that, it really does look like garbage. And so that needs to be cleaned and processed through also from the CRV Redemption centers.

And that, of course, is the cleaner. Really kind of the cleanest material that we get other than we do, on occasion, get clean bottles from wineries that, for example, maybe ordered too much in terms of stock, and then their marketers come with the brilliant new idea with new packaging and a new Snazzy bottle. And so then, so we may get clean material that way. So scrap glass from CPG companies and other wineries is also another source. Many people have asked, why did you build Halo Glass?

How is Gallo Winery now a processor, a glass processor? We really did build it to ensure a stable Cullet supply for glass manufacturing. We do have requirements in the state for post recycled content in our bottles, which we're happy to have, and we want to have more. But it really was all of the challenges with the recycling centers that closed, people are using less glass. So just getting glass back and having it processed has gotten difficult.

So Gallo did what it often does, which is, well, we can do it better. We'll do it ourselves. And the family has had that attitude and that spirit throughout its time here in California. One fun fact I did not know this until Halo, Gallo can take recycled glass, convert it into a bottle, and fill it with wine and have that on the shelf in four weeks. So it is what we were striving for, which is the epitome of the closed loop.

We make the glass, we fill the glass, we recycle the glass and put it back into the furnace. And that was when we came and talked to Director Wagner in her other role. It was with the vision of getting as much recycled material out of the system as possible and what would be the ideal way to do that. We hired consultants to help us work on that, and they were brilliant.

It was a little too much too soon for California, and so we were not able to go in that direction. So we were happy to be able to join the program and form really a great partnership with Director Wagner and the Department. Several environmental benefits to using Cullet over raw materials to make glass. It's just great. Greenhouse gas reduction is the main environmental benefit. For every six tons of Cullet that is used, one ton of carbon dioxide is saved, meaning it's not emitted into the air.

There's also energy savings related to the use of Cullet. A 10% increase in Cullet reduces energy use by two to 3%, which in turn also saves the emission of CO2 and just substituting the raw materials. A ton of Cullet reduces raw material use by 1.2 tons. And the emitters of CO2 are primarily soda ash and limestone. So if we're not using that and we're using Cullet, then we're reducing the greenhouse gas emissions. Currently, Gallow Glass has an annual production of 500,000 melted tons from the furnaces.

We would like to get to a 70% recycled content in the aggregate in our bottles. Currently, unfortunately, we're probably between 35 and 40%. That's gone down from what we from about four or five years ago, before the closure of many of the recycling centers. We were able to have more glass coming through right now, and going forward, 100% of the glass that is going through Halo is being recycled. We have the ability to take what is known as find.

So it's the pieces of glass that are less than one 8th of an inch. We further process those and we have two streams. One stream is what we are still able to get in terms of glass that can go into the furnace. And the rest is material that is sold to a company that is based out of Pennsylvania. Their name is Arrow and they make foam glass aggregate for construction, for the construction industry. And they are right near our plant.

So any of the fines that cannot be used for container glass go to Arrow. So that allows us to have a facility where 100% of the material that comes in is recycled. I think to Director Wagner's point, the challenge that we have and what we're hoping to see develop is just a re stimulation of the recycling infrastructure. The consumers really just need more access points, convenient access points.

We're hoping that with some of the pilot projects and the retailers cooperative language that was in there and the ability for the retailers to have those cooperatives, that that will also stimulate additional material. And we should think about how can we support the murphs, the material recovery facilities in potentially putting in glass cleanup systems? There's many things that can be done at the murph level that will just help with the quality of the material. There's a grassroots effort. It's called the Glass Recycling Coalition.

It's a nationwide coalition and it's got cities and municipalities, waste haulers, brand owners, et cetera. And they have a certification program that many murphs have taken advantage of. They go, they look at the material, they provide advice on how to clean up the material and they can get the certification. I'm aware that there is a murph in Austin, Texas who recently got the contract for the City of Austin based on the certification. Just the fact that they had this.

So there's lots of things that can be done. And we hope to work with the Department and any other stakeholders who are interested in increasing the amount of recyclable material that we can get out of the system and put in a closed loop if at all possible.

Thank you.

Terrific.

Thank you.

So thank you to the panelists. Senator Mcguire, do you have any questions?

Thank you so much, Mr. Chair.

Be brief.

But Madam Director and thank you so much for being here. It's good to see you, as always. Talk about next steps working with the industry right as January is on the horizon, what that looks like in your belief? Most important accepts with industry.

I want to echo Tim's concern about bringing in especially small manufacturers and from CalRecycle's perspective and my perspective and having many, many years as a legislative staffer. Our biggest interest here and across all of our programs, but really, as we're embarking on this, is to get all of our participants into compliance. I don't sit around waiting to levy penalties and write tickets to people. The idea is to get full compliance and to ensure that Californians are given the greatest level of access.

But That's not just as individual consumers, but the manufacturers, the retailers, the recyclers, that everyone is able to effectively access this program in a way that works for them as a large manufacturer like Gallo and Recycler Now, as well as our friends at Relic who are going to have to participate in this program as well. So we have conducted six webinars already this year on the various facets of the changing program. We have three more this year.

We recognize that our partnership with the Wine Institute is so crucially important because of that connection directly to their Members. And we really offer and continue to offer to Tim, how can we be a better partner? How can we provide more information? Additionally, we've made changes to our website so that registration should be really easy, straightforward. You can do it right online. And then we have on our website phone numbers you can call to ask direct questions, emails you can send.

So we're really hoping that that helps cultivate the relationship for the manufacturers, with the Department as they come into this program, and that we can just be a partner in the coming year to help facilitate coming into this program. We want this to be positive for everyone. We also need to ensure that we are, as the fiduciary of California's, CRV, that nickel and dime brings in well over $1.0 billion every year.

And as the fiduciary of that money, we take very seriously the protection of those funds and utilizing them in the most effective way possible. And so building utilizing the appropriations that we've been given over the last couple of years to help Rural Recyclers in 353 get that glass back to the processing centers because we recognize that glass is so much heavier than other materials, we really want to help facilitate the first several years of that collection system.

How do we build out our new dealer cooperatives that will be coming online in 2025? How do we build that system to be as consumer friendly, but also manufacturer friendly and recycler friendly, so that we're really building a whole suite of solutions that can be tailored by region of the state? I think one of the things, as Tim pointed out, with the change in the definition of manufacturer and beverage container, I oftentimes point to the book that sits on my desk.

That is the statute, that is the bottle Bill. It is very verbose. And while I have the utmost appreciation for good legislation and statute, having worked on it in my entire career, there are a lot of words in this legislation that have formed over nearly 40 years. So it can sometimes be too prescriptive.

But I think the changes of SB 1013 and then SB 353 have provided us some new, flexible solutions that we can really illustrate that convenience and that partnership with the various people in our supply chain in building that closed loop. So that was my long winded way of saying that I think in the coming year, what we will see is rolling out some of these new solutions, but primarily a lot more conversations about how do we partner and help each other.

Look, we've worked a lot on several issues, and especially on fire. And I just cannot say thank you enough, Director. On whole other side of your agency is on debris removal, and I won't swear, but what a show that is at times, right? And how you've really streamlined the process. And grateful for that. Would it be accurate to say this is a transition year, right.

Of working with industry to make this as smooth as possible, but understanding that there are going to be bumps along the way as we implement this? Would that be a fair assessment?

I think That's absolutely right. I think 2024 will be a transition year. We don't want to make 2025 a transition year as well. We want to do this as quickly as possible, find the hurdles and overcome them together. So we don't want to be the big bag regulator. We want to be the partner in helping to identify the hurdles, as Tim did last year, and say, zero, how do we fix that? Can we work together to get either legislative fixes or regulatory fixes?

Gallo if I can share this Maribel with the QR codes brought to us a concern around labeling, which we're really excited brings. As I oftentimes say, challenges bring opportunity. One of the things that our partners in the wine industry are challenged with is the CRV labeling requirements that exist in statute and code. We will be embarking in 2024 on new regulations to allow QR codes to replace the standard labeling requirements that have existed for many decades.

So as each new challenge is identified, we're really hopeful that we can work together to find, if not consensus, agreement, and how do we solve this? The QR code also presents lots of opportunity for gathering additional data, which we've never had before in the industry, as well as the regulators. So each challenge comes with opportunity. And I think you're exactly right. This is a transition year. And as we work together through this transition, I am very, very optimistic.

It's been a really positive partnership with the Legislature, with the regulated community. I am very optimistic. It's going to be a great year.

No, thank you, Madam Director. And to Ms. Delgado, if you don't mind, two part question number one. As you look at the rise in cocktails and going into aluminum for Gallo, what does that look like over the next decade? Do you see that trend continuing? And then can you also talk to us about the stock That's flowing in to Halo?

Would you say vast majority of it, quote clean or are you having to be able to work with that third party vendor for another home for that? If you can answer those two, sure.

So the first question in terms of the container type being going to aluminum, I do think that the canned cocktail, the RTD phase will continue. I mean today's consumer seems to really relish creativity. There's more that they can do with a spirit. There's the mixers and what have you. And COVID really did change the thinking in terms of if you want a cocktail, you go to the bar and you have a bartender make it.

The thought of no, you're at home and you make your cocktail and zero, even better, it's already made for you. I think That's here to stay. I do think that aluminum for those types of products is the preferred packaging. There's some impediments at the federal level for glass to be used for spirits products and so That's another reason that you see the cans and changing anything at the federal level is glacial. With no offense, with all due respect to my federal regulators, yes.

So I do think we'll continue to see that trend and we are hopeful that there'll be changes in regulations that do allow for more flexibility. But That's just something That's built in long standing laws. With respect to the material that is coming into the facility, that is one of our biggest challenges that we do face. The consistency in terms of the quality of the curbside material, That's the variable that is always difficult.

We have a small material recovery facility that 80% of what we get from them is glass and That's really high and That's outstanding quality. And then we've got some where it's as Low as 40%. So I would say probably on average we are getting about 50% glass in the loads that we are getting from single stream. And the majority of the material is coming from single stream just because California many years ago sort of shifted to that away from a dual stream or a separated stream.

And that would be the ideal if there was even just one that was a bin that is just for beverage containers. Because even having the cardboard and the paper going in with the aluminum and the pet and the glass, even though just the paper itself is a contaminant and frankly also reduces the value of that material as a recycled material, if it's also contaminated by, say, glass, you're going to have breakage. And so glass gets into that paper and it's not as clean.

Batteries, as I mentioned, are concern. We just have seen a lot of I mean that ferrous material if it gets into a furnace would be catastrophic. So we do. Have optical sorters and they can be programmed to look for specific, something specific. So it can be programmed to look for that material and that gets kicked out. But that makes everything more costly.

Of course, at your peak you'll be able to process how much ballpark I don't have that figure.

We can follow up.

Yeah, I can let you know later.

Long story short though, a lot of capacity, right?

Yes.

Forward.

Yes, we do have large capacity and we are ramping up and the hope, like I said, is to be able to get to 70% recycled content in our bottles. I mean, in reality we could use 100%. We wouldn't ever just because that starts the risk is color. You just start to lose control over the color of whatever the bottle may be. But yeah, we'll have large capacity and we hope to be bringing in glass from all places that we can.

Thank you so much.

Goodies. Sure. Thank you.

Thank you, Mr.

Chair.

So to Mr. Smelter's question and Senator Mcguire kind of hit on it in his question. We have 6000 wineries we heard bonded wineries in the State of California that we heard about today. Was that the number?

Yeah, 6200 is the latest number I have.

Yes. Close enough for government work anyway. Do you have the names and addresses of 6200 bonded wineries? The next question do you have an agreement with ABC to perhaps get those to be able to reach out and let them know about these programs, this program?

So we do not have a list of all of the wineries. We go through the various industry publications to get those lists. So we are really reliant on our partners in the wine industry and the Wine Institute to provide information to their Members about the new regulatory requirements. Et I don't I will have to go back and see about the ABC. I hadn't thought about the ABC share.

Information here and there.

I will have to check.

Probably have a lot in common as you how big the Public Resources Code is.

I think ABC code I was thinking the same thing. Where are those alignments a sharing information have we are attempting to really get to through industry associations and direct advertisement and That's typically how we've done it in this program in the past. But to Mr. Spencer's, .6 thousand 200 new Members is a lot and so we are very hopeful that that partnership there will help us get information out. Our webinars have been so our hearings or webinars are in person, but also we've provided them online.

The lemonade or silver lining of COVID has given us the ability and flexibility to be both in person and over the World Wide Web. So we've had our webinars well attended. So we're very hopeful that that means that our manufacturers are participating.

Okay.

And then Mr. Delgado, just following up on Senator Mcguire's from the stuff That's coming from the murphs. It sounds like it's pretty hard to come up with a percentage because some murphs are just on the natural do a good job because they're so high in recycling. And you said the single stream. Do you have to reject glass from time to time because it's too dirty? Or is the person that there's another place where it goes and they clean it?

No, we don't reject any of the loads. I mean they come in and our job, what we're doing there is processing is cleaning it, really cleaning it up and getting as much as we can from that stream. And the yield, the average of 50% is just really kind of the average of what we're getting because the quality is just different depending on the different murphs. But as I said, we don't lose any of the material. So even we get the smallest pieces.

That the stuff That's the contaminants which is porcelain, ceramics, those are really the two big ones. There is no issue for this other company for them to use that. So what the finding process does is it takes the glass, the little tiny pieces of glass that still can go into the furnace and separates them into one pile.

And then the contaminants, the ceramic and the porcelain, et cetera, that is going into the pile that arrow then gets and that they then use so we don't end up rejecting any of it. It's just more time intensive and costly the dirtier that the stream is.

Well, I think we could probably do it from the Select Committee on wine but it's kind of a twofer because recycling, recycling, all this stuff is important to the Legislature. I would like to suggest a field trip. I know we tried but with COVID it would be very difficult. But I'd like to see our committees perhaps go down there.

Absolutely. Yes.

Really check that out. Congratulations.

I think that's love to have you.

Well, thanks to the three of you for taking time out of your busy schedules to be here today. It's really important that we hear from you. And I feel really good going into this year that based on what we heard today. Thank you very much. We're going to move on to anyone wanting to provide public comment. Anyone wishing to testify must limit their comments to two minutes each. Now let's begin with any witnesses in person here in room 1200. Hello.

Afternoon, Senators. Peter Ansel from the California Farm Bureau. I just wanted to thank you for taking time to focus in on these issues. As you heard, the insurance issue is really hitting agriculture in a hard way. Farm Bureau Members from across the state have shared with me many of the stories that sounded exactly like what you heard today. Farm Bureau this past year worked with Senator Rubio and CDI on a Bill that was focused in on how to depopulate the Fair plan.

We'll be back at it again this year and look forward to being able to work with the Senate on helping to make sure that insurance is available and accessible and affordable to Californians and to California's farmers.

Thank you. Thank you.

Very well aware of the Farm Bureau's efforts. We really appreciate them. Anybody else in room 1200? Seeing none. Now let's go to the teleconference service. Moderator, if you please prompt individuals waiting to provide public comment, we will begin.

Thank you. For public comment, you may press one, then zero. Mr. Chair, we have no public comment in queue.

Okay, thank you very much, moderator. Appreciate that. Having heard all the public testimony today, Members, are there Mr. Vice Chair or Mr.

Co chair. Excuse me, is there any additional comment you'd like to make?

Chair.

No? Thank you. Thank you so much.

So if there's no questions, we're going to have some closing remarks or no.

Cobra did you're good.

Let's all be good. And this has really been, I think, an eye opening public hearing for our Wine Industry Committee, Select Committee on Wine. And I want to thank all the individuals who were here today that took time out of their busy schedules, both all the people that testified and those that sat through and listened and took in a lot of this fantastic information. I want to thank everybody for your patience and cooperation. We've concluded the agenda.

The Senate Select Committee on California's Wine Industry is adjourned.