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f f or Rule 4695 or Rule 4695 or Rule 4695 

## APPENDIX D

SOCIOECONOMIC IMPACT ANALYSIS REPORT

FOR RULE 4695

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f f or Rule 4695 or Rule 4695 or Rule 4695 

# DRAFT RULE 4695 (WINE & BRANDY):
SOCIOECONOMIC IMPACT ANALYSIS

JULY 29, 2009

Prepared for San Joaquin Valley Air Pollution Control District

Prepared by Applied Development Economics
100 Pringle Avenue, Suite 560  Walnut Creek, California 94596  (925) 934-8712 2151 River Plaza Drive, Suite 150  Sacramento, CA 95833  (916) 923-1562
www.adeusa.comSAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

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f f or Rule 4695 or Rule 4695 or Rule 4695 

## CONTENTS

Executive Summary ..................................

................................................... ..........................................5

Introduction .......................................

................................................... ..................................................7
Section 1. Overview of Draft Wine & Brandy Rule....

................................................... ...................9

Existing Conditions................................

................................................... ......................................9
Proposed Draft New Rule 4695.......................

................................................... ..........................10

Section 2. Methodology.............................

................................................... .........................................11
Section 3. Impacted Industries Subject To Draft Rul e 4695............................................. ..............13

3.1 Regional Demographic Rules.....................

................................................... ..........................13
3.2 Regional Economic Trends.......................

................................................... ...........................14

3.3 Description of Affected Industries.............

................................................... .........................17

Section 4. Socioeconomic Impacts Analysis ..........

................................................... .........................18

4.1 Annual Compliance Cost Estimates...............

................................................... .....................18

4.2 Business Responses .............................

................................................... ..................................18

4.3 Socioeconomic Impact Analysis ..................

................................................... ........................19

4.4 Small Business Disproportionate Impact Analysis

................................................... ...........20

Definition Of A Small Business.....................

................................................... ............................20SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

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f f or Rule 4695 or Rule 4695 or Rule 4695 

## EXECUTIVE SUMMARY

Proposed Draft New Rule 4695 codifies the requireme nt for VOC emission controls which have been installed by wine fermentation operators under Rule 4694’s alternative emission reduction option. This rule would specify RACT for major sources as the means to achieve the maximum amount of VOC emission reductions by us ing control technologies that are reasonably available. Any VOC emissions reduction f rom the control of brandy aging have already been accounted for by Rule 4694 and are not considered to be additive for SIP purposes. This rule applies to all brandy aging and wine aging facilities but does not require

emission controls for those facilities which have a Stationary Source Potential to Emit of less than 10 tons per year.

The proposed new rule will affect two entities oper ating in the region. The report finds that these entities are not significantly impacted by th e proposed draft new rule.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

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f f or Rule 4695 or Rule 4695 or Rule 4695

## INTRODUCTION

The San Joaquin Valley Unified Air Pollution Contro l District (“District”) seeks to adopt proposed Draft New Rule 4695 to implement emission control requirements listed in the 2007 Ozone Plan as well as the 2008 PM 2.5 The repo rt is prepared pursuant to the provisions of AB2051 (Section 40728.5 of the Califo rnia Health and Safety Code), which requires an assessment of socioeconomic impacts of proposed air quality rules. The findings in this report can assist District staff in underst anding the socioeconomic impacts of the proposed Draft New Rule 4695, and can assist staff in preparing a refined version of the rule. Figure 1 is a map of the eight-county region that comprises the San Joaquin Valley Air Basin. As indicated in the map, Kern County is not completely in the District.

FIGURE 1 MAP OF SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CON TROL DISTRICT

Source: ADE, Inc.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

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## SECTION 1. OVERVIEW OF DRAFT WINE &
BRANDY RULE

Proposed Draft New Rule 4695 codifies the requireme nt for VOC emission controls which have been installed by wine fermentation operators under Rule 4694’s alternative emission reduction option. This rule would specify RACT for major sources as the means to achieve the maximum amount of VOC emission reductions by us ing control technologies that are reasonably available. Any VOC emissions reduction f rom the control of brandy aging have already been accounted for by Rule 4694 and are not considered to be additive for SIP purposes. This rule applies to all brandy aging and wine aging facilities but does not require

emission controls for those facilities which have a Stationary Source Potential to Emit of less than 10 tons per year.



### EXISTING CONDITIONS

There are no existing rules in the nation that requ ire controlling VOC emissions from brandy aging and wine aging operations. Rule 4623 ( Storage of Organic Liquids) limits VOC emissions from the storage of organic liquids. The EPA originally proposed a limited approval/limited disapproval of Rule 4623, citing d eficiencies in Rule 4623 that conflict with Section 110 of the federal Clean Air Act (CAA). Alt hough not identified as a rule deficiency, EPA expressed concern that the rule provides an exe mption for tanks used in wine fermentation and storage of resulting products, by- products, and spirits. EPA considers VOC emissions from this source category to be signi ficant and recommended further study and analysis. The District Governing Board subseque ntly adopted amendments to Rule 4623

in order to correct the rule deficiencies identifie d by EPA.

Rule 4694 (Wine Fermentation and Storage Tanks) req uires installation and operation of VOC emission control system to reduce emissions fro m wine fermentation and storage operations. As an alternative to controlling the em issions from wine fermentation and storage tanks, Rule 4694 allows operators to mitiga te fermentation emissions by controlling alternative emission sources (i.e., reductions in s urplus emissions from mobile sources, area sources, or stationary sources) with the expectatio n that reductions would be permanent. In lieu of installing VOC control devices to wine ferm entation tanks to fulfill the Rule 4694 requirements, operators voluntarily offered to cont rol surplus emissions from brandy aging operations to obtain equivalent reductions which co uld then be creditable as Certified Emissions Reduction Credits (CER) to the wine ferme ntation Rule 4694.

To attain the CER, operators of brandy aging facili ties modified existing brandy aging warehouses to meet the requirements for a Permanent Total Enclosure as specified in EPA

Test Method 204. This enabled ethanol emissions to be captured and destroyed using regenerative thermal oxidizer technology. Until the successful demonstration that theSAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

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f f or Rule 4695 or Rule 4695 or Rule 4695 operation of the capture and control system will no t result in unacceptable impacts on brandy quality, consistency, or volume loss; the co nditions of the operating permits are provisional, and subject to revisions.



### PROPOSED DRAFT NEW RULE 4695

The District staff prepared a report that discusses in detail elements to proposed Draft New Rule 4695 (“Draft Staff Report for New Draft Rule 4 695”, April 2009). Below is a list of changes associated with the proposed new draft rule

.

Section 3.0 – Definitions Section 4.0 – Exemptions Section 4.1 Operation Exemption Section 5.0 – Requirements

Section 5.1 Thresholds Section 5.1.1 Meeting PTE Requirements Section 5.1 Demonstrating PTE Section 5.1.2 Continuous Negative Pressure Maintena nce Section 5.1.5 Continuous, Automatic, Monitoring Sys tem Section 5.2 Routine Maintenance Down Time And Captu re Efficiency Section 5.3.1 CEMS/Alternate Monitoring Scheme Section 5.3.2 Operation, Demonstration of Continuou s, Automatic, Monitoring System Section 6.0 – Administrative Requirements Section 6.1 Recordkeeping Section 6.2.1 – 6.2.4 Compliance Testing

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## SECTION 2. METHODOLOGY

The socioeconomic analysis involves the use of info rmation provided directly by affected sources, as well as secondary data used to describe the industries affected by the proposed new Draft Rule 4695. The approach is briefly descri bed below.

Applied Development Economics (ADE) began the analy sis by preparing a statistical description of the industry groups of which the aff ected sources are a part, analyzing data on the number of jobs, sales levels, the typical profi t ratios and other economic indicators for each industry.

This report relies heavily on the most current data available from a variety of sources, such as the Dun and Bradstreet, 2002 Economic Census and the State of California’s Employment Development Department (EDD) Labor Marke t Information Division. In addition, ADE utilized data from California Departm ent of Conservation and the California Energy Commission. For purposes of estimating profi ts, ADE reviewed a number of sources, including Dun and Bradstreet, the CCH, Inc ., the US Internal Revenue Services, and corporate annual reports of companies subject t o Rule 4695.

With the above information, ADE was able to estimat e net after tax profit ratios for sources affected by the proposed amendments. ADE calculated ratios of profit per dollar of revenue

for affected industries. The result of the socioeco nomic analysis shows what proportion of profits the compliance costs represent. Based on as sumed thresholds of significance, ADE discusses in the report whether the affected source s are likely to reduce jobs as a means of recouping the cost of rule compliance or as a resul t of reducing business operations. To the extent that such job losses appear likely, the indi rect multiplier effects of the jobs losses are estimated using a regional IMPLAN input-output mode l.

When analyzing the socioeconomic impacts of propose d new rules and amendments, ADE works closely within the parameters of accepted met hodologies discussed in a 1995 California Air Resources Board report called “Devel opment of a Methodology to Assess the Economic Impact Required by SB513/AB969” (by Peter Berck, PhD, UC Berkeley Department of Agricultural and Resources Economics, Contract No. 93-314, August, 1995). The author of this report reviewed a methodology to assess the impact that California Environmental Protection Agency proposed regulation s would have on the ability of California businesses to compete. The California Ai r Resources Board (ARB) has incorporated the methodologies described in this re port in its own assessment of socioeconomic impacts of rules generated by ARB. On e methodology relates to determining

a level above or below which a rule and its associa ted costs is deemed to have significant impacts. When analyzing the degree to which its rul es are significant or insignificant, ARB employs a threshold of significance that ADE follow s. Berck reviewed the threshold in his analysis and wrote, “The Air Resources Board’s (ARB ) use of a 10 percent change inSAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

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f f or Rule 4695 or Rule 4695 or Rule 4695 [Return on Equity] ROE (i.e. a change in ROE from 10 percent to a ROE of 9 percent) as a threshold for a finding of no significant, adverse impact on either competitiveness or jobs

seems reasonable or even conservative.”SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

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## SECTION 3. IMPACTED INDUSTRIES SUBJECT TO
DRAFT RULE 4695

This section of the socioeconomic analysis describe s demographic and economic trends in the San Joaquin Valley region. The first part of th is section compares the San Joaquin Valley region against California as a whole, and provides a context for understanding demographic and economic changes that occurred within the San J oaquin Valley region between 1998 and 2008. Starting with sub-section 3.3, the second par t of this section narrows the focus of the socioeconomic analysis to industries affected by th e proposed amendments to proposed

New Draft Rule 4695.



### 3.1 REGIONAL DEMOGRAPHIC RULES

The San Joaquin Valley region experienced tremendou s population growth during the 1990s. Many came to this area because of affordable housin g. As a result, population increased significantly. The eight-county region’s population increased by 24 percent (or approximately 2.2 percent annually), from 3.2 million in 1998 to 3.9 million in 2008. In the last five years, population growth rate slightly declined, as region al population grew by 2.2 percent annually

between 2003 and 2008. While the State of Californi a’s population increased by 14 percent (or approximately 1.4 percent annually) between 199 8 and 2008, all the counties in the region experienced faster rates of growth than California over the period, as Table 1 shows. While, by many standards, a small county of 150,887 reside nts, Madera County experienced an annual growth rate of 2.8 percent between 1998 and 2008. Between 2003 and 2008, this county continued to grow annually but at a slightly lesser rate of 2.7 percent. In the same five-year period, Kern, Merced, and San Joaquin Cou nties experienced rapid growth, growing annually by 2.9 percent, 2.4 percent, and 2 .2 percent respectively, as Table 1 below shows. As demonstrated in the following section on regional economic trends, the demographic changes that occurred in the San Joaqui n Valley region during the 1990s and into the new century significantly influenced the e conomy of this eight-county region.

TABLE 1
POPULATION TRENDS

1998 2003 2008 98-03 03-08 98-08 State 33,225,655 35,652,700 38,049,462 1.4% 1.3% 1. 4% Region 3,192,439 3,540,392 3,956,003 2.1% 2.2% 2.2% Fresno 781,936 846,485 931,098 1.6% 1.9% 1.8% Kern 637,227 708,753 817,517 2.2% 2.9% 2.5% Kings 120,957 137,411 154,434 2.6% 2.4% 2.5% Madera 114,137 131,821 150,887 2.9% 2.7% 2.8% Merced 203,181 227,132 255,250 2.3% 2.4% 2.3% San Joaquin 546,852 616,477 685,660 2.4% 2.2% 2.3% Stanislaus 428,272 483,705 525,903 2.5% 1.7% 2.1% Tulare 359,877 388,608 435,254 1.5% 2.3% 1.9% Source: ADE, Inc., based on California Department o f FinanceSAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

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### 3.2 REGIONAL ECONOMIC TRENDS

Economic development practitioners and planners hav e traditionally divided economies into two broad industrial categories—the economic base a nd local support industries. Economic base industries are the drivers of local and region al economies in that these industries draw income into a local economy by selling products out side of the local economy, much like the export industries of a national economy. Accrued ea rnings then circulate throughout the local area in the form of wages and salaries; inves tments; purchases of fixed assets, goods, and services; and generation of more jobs and wealt h.

The economic base is typically comprised of industr ies within the manufacturing, mineralsresource extraction, and agricultural sectors. Ther e are also the “local support industries” such as retail or service sectors, the progress of which is a function of the economic base and demographic changes, and more so the latter tha n the former. As population increases in a given area, demand for services–such as realto rs, teachers, and healthcare–increases, as does demand for basic retail items like groceries, gas for commuting, or clothing at the local apparel shops.

Agriculture is the economic base of the San Joaquin Valley region by virtue of the amount of goods this sector produces and exports throughout t he nation and the globe. Slightly less than 14 percent of all workers in the region are em ployed by industries within agriculture, as Table 2 shows. In 1998, approximately 13.1 percent of all workers worked in agriculture. By 2003, this ratio stood at 14 percent. In fact, over the five-year period between 2003 and 2008, employment in agriculture increased at a mode st pace of one percent per year.

Between 2003 and 2008, local support industries gai ned in prominence within the San Joaquin Valley region. Service-rendering industries employed the most workers as a proportion of total employment in the region. Servi ce-rendering industries comprise 71 percent of all jobs, including public sector positi ons. In other words, 932,713 jobs out of a total of 1,317,365 jobs are in service-rendering in dustries. Excluding the public sector, service-rendering jobs account for 52 percent of al l jobs in 2008. In 2003, service-rendering industries (excluding the public sector) represente d 51 percent of all jobs, indicating that the transition toward a services economy was in place a s early as the mid to late 1990s with the significant increase in the number of people during that time.

Employment increases in service-rendering industrie s are consistent with regional population growth. In the region, local support industries of local and private education, and health, and financial activities increased annually by 3.9 perc ent, 3.0 percent, and 2.7 percent respectively

between 2003 and 2008.

Construction and financial services are two other l ocal support industries that grew in accordance with the region’s population surge; howe ver, with the downturn in theSAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

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f f or Rule 4695 or Rule 4695 or Rule 4695 national economy, these industries’ rates of growth have lowered dramatically. Employment in construction grew by a 6.7 percent per year in t he five-year period stretching from 1998 to 2003. Between 2003 and 2008, construction continued to grow but by a slower rate of 0.9 percent per year. Likewise for financial services, which grew annually by 3.9 percent between 1998 and 2003, and has since grown by a slight 0.9 percent per year.

Close examination of Table 2 shows that the region experienced modest growth in manufacturing, as employment in this sector grew an nually by 0.9 percent between 2003 and

2008. This modest increase reversed substantial dec lines experienced between 1998 and 2003, when manufacturing employment dropped annuall y by 0.6 percent. What was a regional bright spot between 1998 and 2003 (2.7 per cent per year), transportation and warehousing declined annually by 1.1 percent betwee n 2003 and 2008, as compared to the 2.7 percent annual growth in the previous five-year period.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DISTRICTAppendix D: Socioeconomic Analysis September 17, 2009FinalStaff RStaff RStaff Report with Appendiceseport with Appendiceseport with Appendicesffor Rule 4695or Rule 4695TABLE 2ECONOMIC TRENDS: SAN JOAQUIN VALLEY, 1998-2008EmploymentDistributionEmployment:Annual PercentChange----------------1998--------------- ----------------2003-------------- ----------------2008--------------- 2008 98-03 03-08NAICS Estab. EmploymentAveragePay Estab. EmploymentAveragePay Estab. EmploymentAveragePay Region CaliforniaALL80,398 1,060,454 $33,566 92,231 1,209,849 $40,577 100,414 1,317,365 $39,543 100.0%100.0%2.7%1.7%Ag, Natural Resources 11 7,580 139,953 $18,285 8,646 169,556 $23,354 7,371 178,522 $21,714 13.6% 2.5%3.9% 1.0%Utilities 21 251 9,533 $66,831 213 8,340 $81,309 185 10,512 $82,627 0.8% 0.0% -2.6% 4.7%Mining 22 165 4,231 $72,458 179 5,071 $86,065 169 5,618 $81,296 0.4% 0.4% 3.7% 2.1%Construction 23 6,124 49,851 $38,969 6,074 69,065 $46,870 6,705 72,312 $44,716 5.5% 5.7% 6.7% 0.9%Manufacturing 31-33 2,998 113,344 $40,989 2,779 110,002 $48,735 2,662 115,153 $43,352 8.7% 9.3% -0.6%0.9%Wholesale 42 2,749 33,365 $47,726 2,722 37,124 $53,053 3,027 45,299 $46,510 3.4% 4.6% 2.2% 4.1%Retail 44-45 9,586 121,132 $26,446 8,941 132,956 $31,349 8,882 143,910 $25,892 10.9% 10.8% 1.9% 1.6%Transport Warehousing 48-49 2,306 33,821 $38,946 2,237 38,554 $44,962 1,957 36,514 $40,166 2.8% 2.7% 2.7% -1.1%Information 51 653 14,885 $43,401 692 14,257 $53,695 625 15,328 $47,417 1.2% 3.0% -0.9% 1.5%Finance and Insurance 52 2,637 27,792 $46,709 3,04630,690 $59,530 3,373 32,027 $50,112 2.4% 4.0% 2.0%0.9%Real Estate 53 2,575 13,180 $26,755 2,607 15,932 $34,144 2,784 15,897 $32,633 1.2% 1.8% 3.9% 0.0%Prof Technical Services 54 4,064 25,130 $44,216 4,501 31,812 $52,467 4,839 36,411 $46,773 2.8% 6.8% 4.8% 2.7%Management of Companies 55 321 17,997 $52,338 316 13,988 $60,045 288 10,551 $55,323 0.8% 1.3% -4.9% -5.5%Admin and Waste Services 56 2,910 44,283 $22,362 2,768 48,182 $28,986 2,947 58,761 $27,165 4.5% 6.4% 1.7% 4.0%Private Educational Services 61 459 7,107 $25,456 480 9,298 $29,532 497 10,781 $27,407 0.8% 1.7% 5.5%3.0%Health Services 62 6,082 90,304 $38,243 6,526 110,647 $47,867 6,983 126,598 $44,058 9.6% 8.8% 4.1% 2.7%Arts, Entertainment, Rec. 71 617 10,386 $16,985 62110,244 $20,192 641 11,172 $17,305 0.8% 1.6% -0.3%1.7%Food and Accommodations 72 5,050 70,335 $12,860 4,942 78,805 $15,831 5,312 90,404 $14,020 6.9% 8.3% 2.3% 2.8%Other Services 81 20,157 41,069 $21,165 30,390 47,370 $25,731 35,629 52,505 $21,606 4.0% 4.6% 2.9% 2.1%Unclassified 99 85 199 $38,033 1,769 2,534 $26,836 0.2% 0.3%Local Govt., excl Education 409 51,325 $45,674 43760,768 $56,307 477 68,469 $51,051 5.2% 5.2% 3.4% 2.4%Local Govt., Education 881 90,200 $39,664 1,487 109,087 $48,304 1,792 118,716 $78,718 9.0% 5.9% 3.9%1.7%State, ALL 1,464 23,639 $46,051 1,166 28,463 $56,515 1,078 31,639 $51,222 2.4% 2.9% 3.8% 2.1%Federal, ALL 360 27,592 $52,749 376 29,439 $66,395424 27,732 $58,945 2.1% 1.6% 1.3% -1.2%Source: ADE, Inc., based on California Employment Development Department, LMIDSAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

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### 3.3 DESCRIPTION OF AFFECTED INDUSTRIES

Whereas the previous section described the larger e conomic context within which the District is contemplating proposed new Draft Rule 4 695, this section analyzes industries directly affected by the proposed rule. This rule a ffects wineries and brandy aging facilities operating in the eight county region. As the table below shows, there are 78 wineries/brandy aging facilities in the San Joaquin Valley region. These establishments employ an estimated 5,161 workers. Between 2004 and 2008, the number of wineries/brandy aging facilities increased by 11, with the number of workers also in creasing by 359, for an annual employment growth rate of 1.8 percent per year. In the state as a whole, employment growth more than doubled that of the San Joaquin Valley re gion, as winery employment grew by 3.8 percent per year in California between 2004 and 200 8. While employment grew faster across the state, wineries in the Central Valley tend to b e larger than those in the state as a whole, at 66 workers per winery versus the state average of 2 5 workers per winery.

TABLE 3
ECONOMIC TRENDS: INDUSTRIES POTENTIAL SUBJECT TO PR OPOSED DRAFT
NEW RULE 4695: 1994-2008: WINERIES AND BRANDY AGING FACILITIES

04-08 REGION 2004 2005 2006 2007 2008 Change CAGR
Establishments 67 66 67 68 78 11 3.87% Employment 4,802 4,998 5,037 4,951 5,161 359 1.82%
STATE Establishments 850 892 976 1042 1102 252 6.71% Employment 24,047 25,218 26,317 26,716 27,900 3,853 3.79% Source: Applied Development Economics, Inc., based on California EDD LMID

The 78 wineries/brandy aging facilities in the regi on generate an estimated $2.6 billion in revenues. This figure is based on data f rom the US Economic Census of 2002, which was then adjusted for inflation and con verted into a revenue per worker ratio, which was further adjusted to account for changes in the number of workers between 2002 and 2008.

TABLE 4
ECONOMIC PROFILE OF WINERIES IN SAN JOAQUIN VALLEY REGION, 2008
Establishments 78 Employment 5,161 Revenues Est. $2,596,538,232 Source: ADE, Inc., based on EDD LMID
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## SECTION 4. SOCIOECONOMIC IMPACTS
ANALYSIS

This section of the report compares the economic ch aracteristics of affected industries against annual compliance costs associated with the proposed draft rule. We begin with a review of compliance cost estimates generated by th e San Joaquin Valley Unified Pollution

Control District.



### 4.1 ANNUAL COMPLIANCE COST ESTIMATES

District staff analyzed seven control measures that affected sources might employ when seeking to comply by proposed Draft New Rule 4695. For a detailed discussion on these control measures, see District staff report called “Appendix C: Cost Effectiveness Analysis for Draft New Rule 4695” (April, 2009). The measure s are listed below in the table below,

which includes total annual costs of each measure. It is important to note that only one wine-aging and one brandy-aging are right now out o f compliance with proposed Draft New Rule 4695, in the event this rule is adopted.

TABLE 5
ANNUAL COMPLIANCE COST SCENARIOS PER VARIOUS CONTRO L MEASURES:
DISTRICT COST SCENARIO Brandy Aging Facility Cost Scenarios Wine Aging

Facility Cost Scenarios Thermal oxidation with 50% heat recovery (low capit al/high fuel cost) $82,000 $232,300 Catalytic oxidation with 50% heat recovery (mid ran ge capital/mid range fuel cost) $83,234 $197,100 Regenerative thermal oxidation with 95% heat recove ry (high capital/low fuel cost) $172,600
Water scrubber $276,800 $579,100 Biofilter $83,700 $188,300 Carbon adsorption $156,100 $251,000 Refrigerated Condenser $83,400 $172,800 Source: San Joaquin Valley Unified Air Pollution Co ntrol District

In June, 2009, stakeholders directly affected by th e proposed draft new rule shared what they

believe to be total costs of the new rule. Combine d, these entities will bear $3,466,245 in total costs, or $843,207 when total costs are annua lized using a factor of 0.162745.



### 4.2 BUSINESS RESPONSES

Industries impacted by the draft rule may respond i n a variety of ways when faced with new regulatory costs. These responses may range from si mply absorbing the costs and accepting a lower rate of return, to shutting down the affect ed business operation altogether and, where practical, shift from lower-value to higher-v alue product. Affected sources may also seek to renew efforts to increase productivity and reduce costs elsewhere in their operation in order to recoup the regulatory costs and maintai n profit levels.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

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f f or Rule 4695 or Rule 4695 It is important to note that wineries in the San Jo aquin Valley region tend to market to lower to middle segments of the wine and brandy markets, where price is a significant factor when it comes to purchasing. Thus, sources impacted by p roposed Draft New Rule 4695 may experience some difficulty in passing to consumers costs stemming from the proposed rule. Consumers might decide to purchase less expensive w ines from other parts of the state, nation, and world.



### 4.3 SOCIOECONOMIC IMPACT ANALYSIS

This section of the report analyzes estimated after tax net profits of affected industries against anticipated costs associated with implement ation of proposed Draft New Rule 4695. While there are 78 wineries and brandy aging facili ties operating in the San Joaquin Valley region per the California EDD, only two facilities operated will be impacted by the proposed new rule. These facilities are owned by two major, global corporations. As indicated in the table below, these entities annually generate an es timated $1.6 billion in revenues, off of which is generated an estimated $109.9 million in n et profits. 1

TABLE 6
REVENUE AND NET PROFITS OF ENTITIES AFFECTED BY PRO POSED NEW
DRAFT RULE 4695
Revenues Est. Net Profits Entities (2) Impacted By Proposed Draft New Rule $1 ,570,735,484 $109,982,972 Source: ADE, Inc., based on CA EDD (establishments and employment and aggregate payroll), Forbes, Mondavi SEC 10-K corporate annual report 20 04, Wine Business Monthly, US Census (employment, wages, shipment value), Dun and Bradst reet, US IRS, Almanac of Business and Financial Ratios/CCH, and Gale Group

Table 7 below analyzes socioeconomic impacts with r egard to cost data generated by the District, whereas Table 8 analyzes cost data produc ed by two impacted stakeholders. As the tables below show, entities are not significantly i mpacted by the proposed draft new rule, as costs-to-net profit ratios are less than significan t for the most part, with one exception in Table 7. Table 8 shows that, per annual costs prod uced by affected industry stakeholders, costs are less than significant.

1 Net profit is based on an after-tax net profit rate for wineries generating more than $250 million in revenues per year. The after-tax net profit rate is a ten-y ear average (1994-2004), which was calculated so as to balance years of high profitability and years of low/no pro fitability (Source: Troy, Leo, Almanac of Business and
Industrial Financial Ratios [CCH, Inc., Chicago, IL])SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

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f f or Rule 4695 or Rule 4695 TABLE 7
SOCIOECONOMIC IMPACT ANALYSIS OF PROPOSED DRAFT
NEW RULE 4695: DISTRICT COST SCENARIO
Wine Aging Facilities Total Annual
Cost Adjusted Wine

Aging Facilities Total Annual
Cost: (Adjustment Factor: 13/9) Cost as

Percent of Net Profits Significant Brandy Aging Facilities Total Annual
Cost Adjusted

Brandy Aging Facilities Total Annual Cost: (Adjustment Factor: 47/5) Cost as

Percent of Net Profits Significant
Thermal Ox $232,300 $335,544 1.65% no $82,000 $770,800 0.9% no
Cat OX $197,100 $284,700 1.40% no $83,234 $782,400 0.9% no
RTO $172,600 $249,311 1.22% no Scrubber $579,100 $836,478 4.11% no $276,800 $2,601,920 2.9% no Biofilter $188,300 $271,989 1.34% no $83,700 $786,780 0.9% no Carbon $251,000 $362,556 1.78% no $156,100 $1,467,340 1.6% no Refrigeration $172,800 $249,600 1.23% no $83,400 $783,960 0.9% no Source: ADE, Inc.

TABLE 8
SOCIOECONOMIC IMPACT ANALYSIS OF PROPOSED DRAFT
NEW RULE 4695: IMPACTED STAKEHOLDER COST SCENARIO

Impacted Wine/Brandy Aging Facilities Total Annual Cost Cost as Percent of Net Profits Significant
RTO $843,207 0.8% No Source: ADE, Inc.



### 4.4 SMALL BUSINESS DISPROPORTIONATE IMPACT ANALYSIS

In addition to analyzing the employment impacts of proposed New Draft Rule 4695, state legislation requires that the socioeconomic analysi s assess whether small businesses are disproportionately affected by air quality rules. T his section begins by briefly summarizing how the state government defines small businesses f or the purposes of qualifying certain businesses for various programs. This section concl udes with a discussion as to whether the

affected industries include small businesses and as sesses whether those small businesses are disproportionately impacted by the new rules.



### D EFINITION 

### O F 

### A S MALL 

### B USINESS
For purposes of qualifying small businesses for bid preferences on state contracts and other benefits, the State of California defines small bus inesses in the following manner 2 . To be eligible for small business certification, a busine ss:

Must be independently owned and operated;

Cannot be dominant in its field of operation;

2 State of California. Department of General Service s. “California Small Business Certification” (http: www.pd.dgs.ca.gov/smbus/sbcert.htm)SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

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f f or Rule 4695 or Rule 4695Must have its principal office located in Californi a

Must have its owners (or officers in the case of a corporation) domiciled in California; and

Together with its affiliates, be either:

• A business with 100 or fewer employees, and an aver age gross receipts of $10 million or less over the previous tax years, or

• A manufacturer with 100 or fewer employees

The proposed draft rule affects two large, global c orporations, which for the most part do

not fall within the definition of a small business. Thus, proposed Draft Rule 4695 does not disproportionately impact small businesses.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

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