TITLE 16. ECONOMIC REGULATION

PART 2. PUBLIC UTILITY COMMISSION OF TEXAS

CHAPTER 25. SUBSTANTIVE RULES APPLICABLE TO ELECTRIC SERVICE PROVIDERS

SUBCHAPTER S. WHOLESALE MARKETS

16 TAC §25.503

The Public Utility Commission of Texas (commission) proposes amendments to §25.503, relating to oversight of wholesale market participants. The proposed amendments will update the process used by the commission to select the entity to monitor wholesale market reliability-related requirements for Electric Reliability Council of Texas (ERCOT). Specifically, the proposed amendments will broaden the pool of candidates eligible to serve as the reliability monitor for the ERCOT wholesale market. The proposed amendments will also make other minor changes.

Growth Impact Statement

The agency provides the following governmental growth impact statement for the proposed rule, as required by Texas Government Code §2001.0221. The agency has determined that for each year of the first five years that the proposed rule is in effect, the following statements will apply:

(1) the proposed rule will not create a government program and will not eliminate a government program;

(2) implementation of the proposed rule will not require the creation of new employee positions and will not require the elimination of existing employee positions;

(3) implementation of the proposed rule will not require an increase and will not require a decrease in future legislative appropriations to the agency;

(4) the proposed rule will not require an increase and will not require a decrease in fees paid to the agency;

(5) the proposed rule will not create a new regulation;

(6) the proposed rule will not expand, limit, or repeal an existing regulation;

(7) the proposed rule will not change the number of individuals subject to the rule's applicability; and

(8) the proposed rule will not affect this state's economy.

Fiscal Impact on Small and Micro-Businesses and Rural Communities

There is no adverse economic effect anticipated for small businesses, micro-businesses, or rural communities as a result of implementing the proposed rule. Accordingly, no economic impact statement or regulatory flexibility analysis is required under Texas Government Code §2006.002(c).

Takings Impact Analysis

The commission has determined that the proposed rule will not be a taking of private property as defined in chapter 2007 of the Texas Government Code.

Fiscal Impact on State and Local Government

David Smeltzer, Agency Counsel, Rules Division, has determined that for the first five-year period the proposed amendments are in effect, there will be no fiscal implications for the state or for units of local government under Texas Government Code §2001.024(a)(4) as a result of enforcing or administering the sections.

Public Benefits

Mr. Smeltzer has also determined that for each year of the first five years the proposed section is in effect, the anticipated public benefits expected as a result of the adoption of the proposed rule will be a broadening of the pool of candidates eligible to serve as reliability monitor. This increased competition will result in a more efficient process used by the commission to monitor market participants' compliance with wholesale market reliability requirements. There will be no probable economic cost to persons required to comply with the rule under Texas Government Code §2001.024(a)(5).

Local Employment Impact Statement

For each year of the first five years the proposed section is in effect there should be no effect on a local economy; therefore, no local employment impact statement is required under Texas Government Code §2001.022.

Costs to Regulated Persons

Texas Government Code §2001.0045(b) does not apply to this rulemaking because the Public Utility Commission is expressly excluded under subsection §2001.0045(c)(7).

Public Hearing

The commission staff will conduct a public hearing on this rulemaking on September 4, 2020, if requested in accordance with Texas Government Code §2001.029. In light of the pending public emergency related to the coronavirus disease (COVID-19), this public hearing will be conducted remotely. The request for a public hearing must be received by August 27, 2020. If no request for public hearing is received and the commission staff cancels the hearing, it will file in this project a notification of the cancellation of the hearing prior to the scheduled date for the hearing. If a request for public hearing is received, commission staff will file in this project instructions on how a member of the public can participate in the hearing remotely.

Public Comments

Comments on the proposed amendment may be filed through the interchange on the commission's website as long as the commission's order filed in Docket No. 50664, Issues Related to the State of Disaster for Coronavirus Disease 2019, is in effect. Should the commission's order entered into in Docket No. 50664 no longer be in effect, then parties may file written comments by submitting sixteen copies to the commission's filing clerk at 1701 North Congress Avenue, Austin, Texas or mailed to P.O. Box 13326, Austin, TX 78711-3326, by August 27, 2020. Comments should be organized in a manner consistent with the organization of the proposed rule. The commission invites specific comments regarding the costs associated with, and benefits that will be gained by, implementation of the proposed rule. The commission will consider the costs and benefits in deciding whether to modify the proposed rule on adoption. All comments should refer to project number 50602.

Statutory Authority

This amendment is proposed under §14.002 of the Public Utility Regulatory Act, Tex. Util. Code (PURA), which provides the commission with the authority to make and enforce rules reasonably required in the exercise of its powers and jurisdiction, and specifically, §39.151, which grants the commission authority to adopt and enforce rules concerning reliability of the regional electrical network. Section 39.151 further provides that the commission may delegate to an independent organization responsibilities for establishing or enforcing such rules, which are subject to commission oversight and review.

Cross reference to statutes: Public Utility Regulatory Act §§ 14.002 and 39.151.

§25.503.Oversight of Wholesale Market Participants.

(a) Purpose. The purpose of this section is to establish the standards that the commission will apply in monitoring the activities of entities participating in the wholesale electricity markets, including markets administered by the Electric Reliability Council of Texas (ERCOT), and enforcing the Public Utility Regulatory Act (PURA) and ERCOT procedures relating to wholesale markets. The standards contained in this rule are necessary to:

(1) - (8) (No change.)

(9) prescribe ERCOT's role in enforcing ERCOT procedures relating to the reliability of the regional electric network and accounting for the production and delivery among generators and all other market participants[,] and monitoring and obtaining compliance with operating standards within the ERCOT regional network.

(b) (No change.)

(c) Definitions. The following words and terms when used in this section [shall] have the following meaning, unless the context indicates otherwise:

(1) - (2) (No change.)

(3) ERCOT procedures--Documents that contain the scheduling, operating, planning, reliability, and settlement procedures, standards, and criteria that are public and in effect in the ERCOT power region, including the ERCOT Protocols, [and] ERCOT Operating Guides, and Other Binding Documents as amended from time to time but excluding ERCOT's internal administrative procedures. The Protocols generally govern when there are inconsistencies between the Protocols and the Operating Guides, except when ERCOT staff, consistent with subsection (i) of this section, determines that a provision contained in the Operating Guides is technically superior for the efficient and reliable operation of the electric network.

(4) - (8) (No change.)

(d) - (e) (No change.)

(f) Duties of market entities.

(1) Each market participant must [shall] be knowledgeable about ERCOT procedures.

(2) A market participant must [shall] comply with ERCOT procedures and any official interpretation of the Protocols issued by ERCOT or the commission.

(A) (No change.)

(B) A market participant appealing an official interpretation of the Protocols or seeking an amendment to the Protocols must [shall] comply with the Protocols unless and until the interpretation is officially changed or the amendment is officially adopted.

(C) (No change.)

(3) Whenever the Protocols require that a market participant make its "best effort" or a "good faith effort" to meet a requirement, or similar language, the market participant must [shall] act in accordance with the requirement unless:

(A) - (D) (No change.)

(4) (No change.)

(5) The commission staff may request information from a market participant concerning a notification of failure to comply with a Protocol requirement or official interpretation of a requirement, or honor a formal commitment to ERCOT. The market participant must [shall] provide a response that is detailed and reasonably complete, explaining the circumstances surrounding the alleged failure, and must [shall] provide documents and other materials relating to such alleged failure to comply. The response must [shall ] be submitted to the commission staff within five business days of a written request for information, unless commission staff agrees to an extension.

(6) A market participant's bids of energy and ancillary services must [shall] be from resources that are available and capable of performing, and must [shall] be feasible within the limits of the operating characteristics indicated in the resource plan, as defined in the Protocols, and consistent with the applicable ramp rate, as specified in the Protocols.

(7) All statements, data and information provided by a market participant to market publications and publishers of surveys and market indices for the computation of an industry price index must [shall] be true, accurate, reasonably complete, and must [shall] be consistent with the market participant's activities, subject to generally accepted standards of confidentiality and industry standards. Market participants must [shall] exercise due diligence to prevent the release of materially inaccurate or misleading information.

(8) A market entity has an obligation to provide accurate and factual information and must [shall] not submit false or misleading information, or omit material information, in any communication with ERCOT or with the commission. Market entities must [shall] exercise due diligence to ensure adherence to this provision throughout the entity.

(9) A market participant must [shall] comply with all reporting requirements governing the availability and maintenance of a generating unit or transmission facility, including outage scheduling reporting requirements. A market participant must [shall] immediately notify ERCOT when capacity changes or resource limitations occur that materially affect the availability of a unit or facility, the anticipated operation of its resources, or the ability to comply with ERCOT dispatch instructions.

(10) A market participant must [shall] comply with requests for information or data by ERCOT as specified by the Protocols or ERCOT instructions within the time specified by ERCOT instructions, or such other time agreed to by ERCOT and the market participant.

(11) When a Protocol provision or its applicability is unclear, or when a situation arises that is not contemplated under the Protocols, a market entity seeking clarification of the Protocols must [shall] use the Nodal Protocol Revision Request (NPRR) [(PRR)] process provided in the Protocols. If the NPRR [PRR] process is impractical or inappropriate under the circumstances, the market entity may use the process for requesting formal Protocol clarifications or interpretations described in subsection (i) of this section. This provision is not intended to discourage day to day informal communication between market participants and ERCOT staff.

(12) A market participant operating in the ERCOT markets or a member of the ERCOT staff who identifies a provision in the ERCOT procedures that produces an outcome inconsistent with the efficient and reliable operation of the ERCOT-administered markets must [shall] call the provision to the attention of ERCOT staff and the appropriate ERCOT subcommittee. All market participants must [shall] cooperate with the ERCOT subcommittees, ERCOT staff, and the commission staff to develop Protocols that are clear and consistent.

(13) A market participant must [shall] establish and document internal procedures that instruct its affected personnel on how to implement ERCOT procedures according to the standards delineated in this section. Each market participant must [shall] establish clear lines of accountability for its market practices.

(g) Prohibited activities. Any act or practice of a market participant that materially and adversely affects the reliability of the regional electric network or the proper accounting for the production and delivery of electricity among market participants is considered a "prohibited activity." The term "prohibited activity" in this subsection excludes acts or practices expressly allowed by the Protocols or by official interpretations of the Protocols and acts or practices conducted in compliance with express directions from ERCOT or commission rule or order or other legal authority. The term "prohibited activity" includes, but is not limited to, the following acts and practices that have been found to cause prices that are not reflective of competitive market forces or to adversely affect the reliability of the electric network:

(1) A market participant must [shall] not schedule, operate, or dispatch its generating units in a way that creates artificial congestion.

(2) A market participant must [shall] not execute pre-arranged offsetting trades of the same product among the same parties, or through third party arrangements, which involve no economic risk and no material net change in beneficial ownership.

(3) A market participant must [shall] not offer reliability products to the market that cannot or will not be provided if selected.

(4) A market participant must [shall] not conduct trades that result in a misrepresentation of the financial condition of the organization.

(5) A market participant must [shall] not engage in fraudulent behavior related to its participation in the wholesale market.

(6) A market participant must [shall] not collude with other market participants to manipulate the price or supply of power, allocate territories, customers or products, or otherwise unlawfully restrain competition. This provision should be interpreted in accordance with federal and state antitrust statutes and judicially-developed standards under such statutes regarding collusion.

(7) A market participant must [shall] not engage in market power abuse. Withholding of production, whether economic withholding or physical withholding, by a market participant who has market power, constitutes an abuse of market power.

(h) (No change.)

(i) Official interpretations and clarifications regarding the Protocols. A market entity seeking an interpretation or clarification of the Protocols must [shall] use the NPRR [PRR] process contained in the Protocols whenever possible. If an interpretation or clarification is needed to address an unforeseen situation and there is not sufficient time to submit the issue to the NPRR [PRR] process, a market entity may seek an official Protocol interpretation or clarification from ERCOT in accordance with this subsection.

(1) ERCOT must [shall] develop a process for formally addressing requests for clarification of the Protocols submitted by market participants or issuing official interpretations regarding the application of Protocol provisions and requirements. ERCOT must [shall] respond to the requestor within ten business days of ERCOT's receipt of the request for interpretation or clarification with either an official Protocol interpretation or a recommendation that the requestor take the request through the NPRR [PRR] process.

(2) ERCOT must [shall] designate one or more ERCOT officials who will be authorized to receive requests for clarification from, and issue responses to market participants, and to issue official interpretations on behalf of ERCOT regarding the application of Protocol provisions and requirements.

(3) The designated ERCOT official must [shall ] provide a copy of the clarification request to commission staff upon receipt. The ERCOT official must [shall] consult with ERCOT operational or legal staff as appropriate and with commission staff before issuing an official Protocol clarification or interpretation.

(4) The designated ERCOT official may decide, in consultation with the commission staff, that the language for which a clarification is requested is ambiguous or for other reason beyond ERCOT's ability to clarify, in which case the ERCOT official shall inform the requestor, who may take the request through the NPRR [PRR] process provided for in the Protocols.

(5) All official Protocol clarifications or interpretations that ERCOT issues in response to a market participant's formal request or upon ERCOT's own initiative must [shall] be sent out in a market bulletin with the appropriate effective date specified to inform all market participants, and a copy of the clarification or interpretation must [shall] be maintained in a manner that is accessible to market participants. Such response must [shall] not contain information that would identify the requesting market participant.

(6) (No change.)

(j) Role of ERCOT in enforcing operating standards. ERCOT must [shall] monitor material occurrences of non-compliance with ERCOT procedures, which means [shall mean] occurrences that have the potential to impede ERCOT operations[,] or represent a risk to system reliability. Non-compliance indicators monitored by ERCOT must [shall] include, but are [shall] not [be] limited to, material occurrences of failing resource performance measures as established by ERCOT, failure to follow dispatch instructions within the required time, failure to meet ancillary services obligations, failure to submit mandatory bids or offers, and other instances of non-compliance of a similar magnitude.

(1) ERCOT must [shall] keep a record of all such material occurrences of non-compliance with ERCOT procedures and must [shall] develop a system for tracking recurrence of such material occurrences of non-compliance.

(2) ERCOT must [shall] promptly provide information to and respond to questions from market participants to allow the market participant to understand and respond to alleged material occurrences of non-compliance with ERCOT procedures. However, this requirement does not relieve the market participant's operator from responding to the ERCOT operator's instruction in a timely manner and shall not be interpreted as allowing the market participant's operator to argue with the ERCOT operator as to the need for compliance.

(3) ERCOT must [shall] keep a record of the resolution of such material occurrences of non-compliance and of remedial actions taken by the market participant in each instance.

(4) ERCOT must [shall] promptly provide information to and respond to questions posed by the Reliability Monitor and the commission.[;]

(5) ERCOT must [shall] provide to the Reliability Monitor and the commission the support and cooperation the commission determines is necessary for the Reliability Monitor and the commission to perform their functions.

(k) Responsibilities of the Reliability Monitor. The Reliability Monitor must [shall] gather and analyze information and data as needed for its reliability monitoring activities. The Reliability Monitor works under the direction and supervision of the commission. The Reliability Monitor must [shall] protect confidential information and data in accordance with the confidentiality standards established in PURA, the ERCOT protocols, commission rules, and other applicable laws. The requirements related to the level of protection to be afforded information protected by these laws and rules are incorporated into this section. The duties and responsibilities of the Reliability Monitor may include, but are not limited to:

(1) Monitoring, investigating, auditing, and reporting to the commission regarding compliance with reliability-related ERCOT procedures, including Protocols, [and] Operating Guides, and Other Binding Documents, the reliability-related provisions of the commission's rules, and reliability-related provisions of PURA by market entities [Market Entities];

(2) - (3) (No change.)

(l) Selection of the Reliability Monitor. The commission may select [and ERCOT shall contract with] an entity [selected by the commission] to act as the commission's Reliability Monitor. [The Reliability Monitor shall be independent from ERCOT and is not subject to the supervision of ERCOT with respect to its monitoring and investigative activities.] In selecting the Reliability Monitor, the commission must consider whether the Reliability Monitor satisfies the following criteria:

(1) Independence, objectivity, and the absence of potential conflicts of interest [Independent, objective, and without conflicts of interest];

(2) (No change.)

(3) Familiarity with the ERCOT Region and [demonstrated ] understanding of [in] reliability-related ERCOT protocols, procedures, and other operating standards;

(4) Ability [Demonstrated ability] to manage confidential information appropriately; and

(5) Cost effectiveness.

(m) Funding of the Reliability Monitor. ERCOT must [shall] fund the operations of Reliability Monitor from the fee authorized by PURA §39.151.

(n) Standards for record keeping.

(1) A market participant who schedules through a qualified scheduling entity (QSE) that submits schedules to ERCOT on behalf of more than one market participants must [shall] maintain records to show scheduling, offer, and bidding information for all schedules, offers, and bids that its QSE has submitted to ERCOT on its behalf, by interval.

(2) All market participants and ERCOT must [shall] maintain records relative to market participants' activities in the ERCOT-administered markets to show:

(A) - (D) (No change.)

(3) After the effective date of this section, all records referred to in this subsection except verbally dispatch instructions (VDIs) must [shall] be kept for a minimum of three years from the date of the event. ERCOT must [shall ] keep VDI records for a minimum of two years. All records must [shall] be made available to the commission for inspection upon request.

(4) A market participant must [shall], upon request from the commission, provide the information referred to in this subsection to the commission, and may, if applicable, provide it under a confidentiality agreement or protective order pursuant to §22.71(d) of this title (relating to Filing of Pleadings, Documents, and Other Material).

(o) Investigation. The commission staff may initiate an informal fact-finding review based on a complaint or upon its own initiative to obtain information regarding facts, conditions, practices, or matters that it may find necessary or proper to ascertain in order to evaluate whether any market entity has violated any provision of this section.

(1) (No change.)

(2) If the market entity asserts that the information requested by commission staff is confidential, the information must [shall] be provided to commission staff as confidential information related to settlement negotiations or other asserted bases for confidentiality pursuant to §22.71(d)(4) of this title.

(3) (No change.)

(4) If, as a result of its investigation, commission staff determines that there is evidence of a violation of this section by a market entity, the commission staff may request that the commission initiate appropriate enforcement action against the market entity. A notice of violation requesting administrative penalties or disgorgement of excess revenues must [shall] comply with the requirements of §22.246 of this title (relating to Administrative Penalties). Adjudication of a notice of violation requesting both an administrative penalty and disgorgement of excess revenues may be conducted within a single contested case proceeding. Additionally, for alleged violations that have been reviewed in the informal procedure established by this subsection, the commission staff must [shall] include as part of its prima facie case:

(A) - (C) (No change.)

(D) a statement that the staff has concluded that the market entity failed to demonstrate, in the course of the investigation, the applicability of an exclusion or affirmative defense under subsection (h) of this section.

(5) - (7) (No change.)

(p) Remedies. If the commission finds that a market entity is in violation of this section, the commission may seek or impose any legal remedy it determines appropriate for the violation involved, provided that the remedy of disgorgement of excess revenues will [shall] be imposed for violations and continuing violations of PURA §39.157 and may be imposed for other violations of this section.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on July 31, 2020.

TRD-202003126

Andrea Gonzalez

Rules Coordinator

Public Utility Commission of Texas

Earliest possible date of adoption: September 13, 2020

For further information, please call: (512) 936-7244


PART 3. TEXAS ALCOHOLIC BEVERAGE COMMISSION

CHAPTER 33. LICENSING

SUBCHAPTER E. APPLICATION REVIEW AND PROTESTS

16 TAC §§33.50 - 33.63

The Texas Alcoholic Beverage Commission (TABC, agency, or commission) proposes new §§33.50 - 33.63, relating to application review and protests.

Background and Summary of Basis for the Proposed Rules

In 2019, the Texas Legislature adopted amendments to Alcoholic Beverage Code §11.43 and added new §11.431 and §11.432 (Acts, 86th Tex. Leg. R.S. (2019)). New §11.43(j) requires the agency to adopt rules to implement the application review and protest process including establishing reasonable timelines, identifying the roles and responsibilities of all parties involved in the process, and identifying potential avenues for mediation or informal dispute resolution. Additionally, the legislation made the following changes to the agency's process for protesting an application for a license or permit: (1) Protests will only come from external parties, not from TABC staff; (2) the agency is required to either deny or approve an application (rather than the current process of pursuing an agency-initiated protest; (3) an agency denial of an application triggers due process, outlined in §11.43 of the Alcoholic Beverage Code, with appeals to be heard by the State Office of Administrative Hearings (SOAH) first with a final opportunity for appeal at district court; and (4) all protests that move forward through the contested case process will be heard by SOAH; county judges will no longer have a role in the protest process.

The legislature required TABC to adopt rules implementing these statutory provisions by December 31, 2020.

Section by Section Discussion

The commission proposes to create a new Subchapter E, Application Review and Protests, within Chapter 33 to contain the proposed new rules.

§33.50 Purpose and Authority

The commission proposes new §33.50 to explain that the purpose of the rules in the new subchapter is to implement provisions of the Alcoholic Beverage Code related to application review and protests and that the adoption of the rules is authorized by those statutes.

§33.51 Definitions

The commission proposes new §33.51 to provide definitions of terms used in the subchapter.

§33.52 Computation of Time

Several rules in the proposed new subchapter contain deadlines for filing documents with the commission and for commission action. The commission proposes new §33.52 to clarify how days will be counted to determine deadlines. The proposed rule tracks the analogous rule in the Texas Rules of Civil Procedure.

§33.53 Applicable Rules

If adopted, the proposed new rules will become effective on December 31, 2020. The commission proposes new §33.53 to clarify that the new rules will apply only to an application received on or after the effective date of the rules. When an application is "received" is defined in proposed new §35.51.

§33.54 Delegation of Application Approvals

The commission proposes new §33.54 to specify that the commission delegates to the executive director or their designee the authority to approve an application that is uncontested. An application is uncontested if no valid protests have been filed or if all valid protests have been withdrawn. Pursuant to this delegation, no commission vote or other action will be required for uncontested applications.

§33.55 Conditional Approval

New commission rules proposed pursuant to statutory changes would require that a period of 15 days pass after an application is received before the permit is issued in order to allow time for interested parties to review the application and file protests. The commission proposes new §33.55 to provide that the executive director may, for a compelling reason, grant conditional approval of an application allowing the applicant to operate prior to the expiration of the 15-day period for protests filings. If a valid protest is timely filed, the proposed rule provides that the conditional approval will be revoked. Finally, the proposed rule provides that the applicant operates at its own risk of loss during that 15-day period, and that the commission will refund application fees to an applicant who fails to obtain the license or permit after conditional approval.

§33.56 Alternative Dispute Resolution

The commission proposes new §33.56 to provide for alternative dispute resolution in contested disciplinary matters. The proposed rule provides that parties may agree to use a mediator employed by SOAH or a private mediator. It specifies procedures for selection of a private mediator; requires that a private mediator agree to be subject to time limits imposed by the executive director, administrative law judge, or applicable law or rule; and provides for equal division of the costs of a private mediator among parties that are not governmental entities. Finally, the proposed rule requires all mediators to follow the ethical guidelines of the Alternative Dispute Resolution Section of the State Bar of Texas.

§33.57 Application Withdrawn

The commission proposes new §33.57 to provide that an applicant for a license or permit may withdraw its application at any time before the license or permit is issued or renewed or the application is denied. The rule provides that if an applicant fails to respond to agency requests for additional application information or application fees within ten days, the agency may consider the application withdrawn by the applicant. The proposed rule provides that an application that has been withdrawn may be refiled at any time and that withdrawal of an application does not trigger additional due process rights.

§33.58 Management Review

The commission proposes new §33.58 to provide by rule for management review related to a license or permit, premises address, or person. This is a method by which the agency notates in its records an issue of concern related to a license or permit, premises address, or person and when a license or permit application is filed related to that license or permit, premises address, or person, the agency addresses the issue of concern prior to issuing the license, permit, or renewal of the license or permit. The rule provides that the issue leading to the management review notation must be resolved and the notation removed before issuance of the license, permit, or renewal. It further provides that an applicant for a renewal of a license or permit may continue to operate under its existing license or permit until the management review issue is resolved. Finally, the rule prohibits a license or permit holder from surrendering its license or permit while management review is pending so that surrender is not used to remove the license or permit, premises address, or person from the agency's jurisdiction during an active investigation.

§33.59 Denial of Application after Referral of Protest for Hearing

The commission proposes new §33.59 to lay out procedures when a valid protest is referred to SOAH for a hearing while commission review and investigation related to the application is ongoing, and the executive director subsequently identifies a reason or reasons to recommend denial of the application. The proposed rule provides that in this circumstance, the application will be remanded from SOAH and set for commission consideration of the executive director's recommendation to deny the application, as required by Alcoholic Beverage Code §11.43(g).

The proposed rule requires the executive director to provide notice to protestants that the executive director is recommending denial of the application; that the case is being remanded to the agency for further processing; that unless the applicant requests a hearing on the recommendation for denial, the application will be set for commission consideration of the executive director's request for denial; and that if the applicant does request a hearing on the recommendation for denial or the commission declines to deny the application, the application will be referred back to SOAH for a hearing in which the protestants remain parties.

The proposed rule limits potential commission action on the executive director's recommendation for denial of an application when a valid protest has resulted in referral to SOAH to either denying the application or referring the matter back to SOAH. The commission may not grant a license or permit under these specific circumstances so as to preserve the protestant(s) right to a hearing.

§33.60 Request for Hearing on Recommendation of Application Denial

The commission proposes new §33.60 to lay out procedures for an applicant to request a hearing on the executive director's recommendation for denial of its application. The proposed rule requires the executive director to provide notice to an applicant of a recommendation for denial of its application. The applicant may then file with the commission a written request for an administrative hearing within 30 days of the date on the notice. The proposed rule provides a U.S. Mail address and electronic mail address for filing the hearing request. The proposed rule reiterates the statutory requirement that the executive director refer the matter to SOAH for a hearing if the applicant files a timely hearing request. If the applicant does not file a timely hearing request, the proposed rule states that the recommendation for denial of the application will be set for commission consideration at the next available regular commission meeting.

§33.61 Commission Action on Contested Applications

The commission proposes new §33.61 to lay out procedures following the issuance of a SOAH decision on a contested application. The proposed rule requires the executive director to place all proposals for decision on the commission's consent agenda, as a default action. If the commission approves by consent a proposal for decision recommending approval of an application and issuance of the license or permit, the proposed rule directs the executive director to issue the license or permit. The proposed rule requires the executive director to remove a proposal for decision from the consent agenda and set it for individual consideration at the request of the presiding officer of the commission or at least two other commission members. This option is available to the commissioners in the event that the presiding officer of the commission or at least two other commission members wish to modify or reject the proposal for decision or discuss the matter in an open meeting.

§33.62 Filing a Protest of a License or Permit Application

The commission proposes new §33.62 to lay out requirements for filing a valid protest of an application for a license or permit or a renewal of a license or permit. The proposed rule specifies that a protest must be filed by a person with legal standing to protest the application under the Alcoholic Beverage Code, in writing, before the deadline for filing (timely), by mailing or emailing to specific designated addresses, and that it must include all information required.

The proposed rule requires that in order to be timely, a protest of an application for a new license or permit must be filed between 60 days prior to the date the commission declares the application complete, as shown in the public database, and 15 days after. For a renewal application, a protest is timely filed if it is filed within the 60 days prior to expiration of the license or permit.

The proposed rule requires that a protest filed by a member of the public include the following information: the first and last name and physical address of the property of the person filing the protest; the approximate distance of the person's home from the premises that are the subject of the application; contact information for the protestant, and all reasonable grounds the protestant wishes to raise in protest of the application. A protest by a government official must include the name of the official, office, and contact information; a description of the geographic limits of the official's jurisdiction; and the basis or bases for the protest.

The proposed rule provides that a protest that fails to meet any of the above rule requirements may be rejected.

§33.63 Withdrawal of Protest

The commission proposes new §33.63 to provide that a person may withdraw his or her protest at any time, and that the withdrawal must not include any conditions upon which withdrawal is based. The proposed rule provides a U.S. mail and electronic mail addresses to which withdrawals must be sent, and requests that protestants also send a copy of their withdrawal to the applicant. Finally, the proposed rule authorizes the executive director to issue a license or permit for which all valid protests have been withdrawn.

Shana Horton, Rules Attorney, has determined that for each year of the first five years that the proposed rules will be in effect, there are no foreseeable economic implications anticipated for the agency or for other units of state or local government as a result of the administration or enforcement of the proposed rules. This rulemaking may decrease agency expenditures due to the executive director's recommendation for denial of problematic applications rather than the current extended and work-intensive process of pursuing internal protests by the agency.

The proposed rules will not have any material adverse fiscal or regulatory impacts on rural communities. The rules will apply statewide and have the same effect in rural communities as in urban communities. Likewise, the proposed rules will not adversely affect a local economy in a material way, and no adverse fiscal implications are anticipated for small or micro-businesses due to the implementation or administration of the new rules. A small business regulatory flexibility analysis is not required because the proposed rules will not adversely affect a small or micro-business in a material way.

Ms. Horton has determined that for each year of the first five years that the proposed rules will be in effect, the public will benefit because the rules will establish reasonable timelines, identify the roles and responsibilities of all parties involved in the process, and provide for alternative dispute resolution in disputes with the agency. The public will also benefit from clear provisions for due process in legal proceedings involving the agency.

This paragraph constitutes the commission's government growth impact statement for the proposed rules. The analysis addresses the first five years the proposed amendments would be in effect. The proposed rules neither create nor eliminate a government program. The proposed rules do not require the creation of new employee positions or the elimination of existing employee positions. The agency anticipates that the provisions of this rule will be absorbed using existing agency resources. Implementation of the proposed rules requires neither an increase nor a decrease in future legislative appropriations to the commission. The proposed rules do not increase or decrease fees paid to the agency. The proposed rules create new regulations because they constitute new state agency statements of general applicability that implement, interpret, or prescribe law or policy and describe procedures and practice requirements of a state agency. The proposed rules do not expand, limit, or repeal an existing regulation because they are all new rules. The proposed rules neither increase nor decrease the number of individuals subject to any existing rule's applicability. The proposed rules are not anticipated to have any impact on the state's economy.

Comments on the proposed rules may be submitted in writing to Shana Horton, Rules Attorney, Texas Alcoholic Beverage Commission, at P.O. Box 13127, Austin, Texas 78711-3127, by facsimile transmission to (512) 206-3498, or by email to rules@tabc.texas.gov. Written comments will be accepted for 30 days following publication in the Texas Register.

The staff of the commission will hold a public hearing to receive oral comments on the proposed new rules on August 25, 2020, at 10:00 a.m. in the commission meeting room at commission headquarters, located at 5806 Mesa Drive in Austin, Texas. The commission has designated this hearing as the appropriate forum to make oral comments under Government Code §2001.029. DUE TO PUBLIC HEALTH CONCERNS RELATED TO COVID-19, THIS HEARING WILL BE HELD BY VIDEOCONFERENCE ONLY. Interested persons should visit the TABC's public website prior to the meeting date to receive further instructions or call Shana Horton, Rules Attorney, at (512) 206-3451.

The proposed new rules are authorized by Alcoholic Beverage Code §11.43, which requires the Texas Alcoholic Beverage Commission to adopt rules implementing the application review and protest process including reasonable timelines, identifying the roles and responsibilities of all parties involved in the process, and identifying potential avenues for mediation or informal dispute resolution.

No other rules or statutes are affected by the proposed rules.

§33.50.Purpose and Authority.

This subchapter implements and is authorized by Alcoholic Beverage Code §§11.43 through 11.432.

§33.51.Definitions.

The following terms have the following meanings when used in this subchapter:

(1) "Commission" - the Texas Alcoholic Beverage Commission as an agency of the State of Texas, and not to the Commissioners, either individually or as a body.

(2) "Complaint" - a written expression of concern regarding a person or business that holds or has applied for a TABC license or permit, or a person or business that the complainant believes is violating the Alcoholic Beverage Code or laws related to alcoholic beverages. Complaints are handled according to §31.11 (relating to Resolution and Information on Complaints). A complaint is not a request for a contested case hearing, does not itself initiate a legal proceeding, and does not afford any legal rights or party status to the complainant. Any person can file a complaint at any time.

(3) "Protest" - a written request for an administrative contested case hearing in which the protestant will participate as a party and present evidence to a trier of fact to prove that a license or permit should not be issued or renewed as proposed. A protest will only be granted if filed by a person with legal standing and supported by reasonable grounds.

(4) "Reasonable grounds" - allegations or concerns regarding a matter within the commission's jurisdiction that are supported by credible evidence or information, and includes the circumstances described in Alcoholic Beverage Code §§11.46 through 11.481, 61.42 through 61.46, and 61.50.

(5) "Received" - An application for a new license or permit or a renewal is considered received on the date the commission updates its public database to show the application as pending. An application is designated as pending only when the application is complete, meaning that the commission has received all required information and fees.

(6) "SOAH" - the State Office of Administrative Hearings.

(7) "Uncontested" - An application is uncontested if no valid protests have been timely filed or if all valid protests have been withdrawn.

§33.52.Computation of Time.

(a) When used in this subchapter, the word "days" refers to calendar days, unless otherwise specified.

(b) When computing periods of time prescribed or allowed in this chapter:

(1) the day of the act, event, or default from which the designated time period begins to run is not counted; and

(2) the last day of the time period is counted, unless it is a day on which the TABC's headquarters in Austin is closed, in which case the time period will end on the next day the TABC's headquarters is open.

§33.53.Applicable Rules.

Unless otherwise indicated, an application for a license or permit is subject to the rules in effect as of the date the application is received.

§33.54.Delegation of Application Approvals.

The commission delegates to the executive director or their designee the authority to approve an uncontested license or permit application pursuant to Alcoholic Beverage Code §11.43(d).

§33.55.Conditional Approval.

(a) Unless the exception in subsection (b) of this section applies, the commission shall not issue a new license or permit until 15 days have elapsed since the commission updated its public database to show the application as pending.

(b) If the executive director determines that there is a compelling reason to issue a license or permit before 15 days have elapsed since the commission updated its public database to show the application as pending, the executive director may grant conditional approval of the license or permit. If no valid protests are filed at the end of the 15-day period, the license or permit becomes approved by operation of law. If one or more valid protests are filed before the time period for filing protests has expired, the conditional approval is revoked and the executive director shall provide notice of the revocation to the applicant.

(c) An applicant who chooses to proceed with operations while subject to a conditional approval does so at its own risk of loss in the event that the conditional approval is revoked and it fails to obtain the necessary license or permit. An applicant who fails to obtain the necessary permit following conditional approval will have its applications fees refunded in full.

§33.56.Alternative Dispute Resolution.

(a) At any time prior to or during a contested case hearing, any party in a disciplinary matter may request referral to alternative dispute resolution (ADR).

(b) Parties may agree to mediate a dispute through a mediator employed by the State Office of Administrative Hearings or through a private mediator. Mediation through SOAH is subject to SOAH's rules for mediation (Title 1 Texas Administrative Code); the Administrative Procedure Act (Tex. Gov't Code Ch. 2001); laws relating to SOAH administrative procedure in Tex. Gov't Code Ch. 2003; and Tex. Gov't Code Ch. 2009, relating to ADR for use by governmental bodies.

(c) If the parties elect to use a private mediator:

(1) the participants must unanimously agree to use a private mediator;

(2) the participants must unanimously agree to the selection of the person to serve as the mediator; and

(3) the mediator must agree to be subject to all time limits imposed by the executive director, the administrative law judge, statute, or regulation.

(d) If a private mediator is used, the costs for the services of the mediator shall be apportioned equally among the participants, unless otherwise agreed upon in writing by the participants, and shall be paid directly to the mediator. In no event, however, shall any such costs be apportioned to a governmental subdivision or entity.

(e) All mediators in commission mediation proceedings shall subscribe to the ethical guidelines for mediators adopted by the ADR Section of the State Bar of Texas.

§33.57.Application Withdrawn.

(a) An applicant may withdraw its application at any time prior to issuance or renewal of the license or permit that is the subject of the application or the denial of the application.

(b) If an applicant fails to respond to requests from the TABC for additional information or for remittance of a license or permit fee within ten (10) business days of the request, the TABC may consider the application withdrawn by the applicant.

(c) An application that is withdrawn is not considered denied and may be refiled at any time. Withdrawal of an application, whether affirmatively by the applicant or due to the applicant's failure to respond to requests for information or fees, does not trigger the right to appeal or any other due process rights.

§33.58.Management Review.

(a) At any time, the executive director or person to whom he or she delegates authority may place a management review on a license or permit, address, or person so that upon receipt of an application, an issue of concern within the agency's jurisdiction is addressed.

(b) An application remains pending until the management review is resolved and removed.

(c) A license or permit holder may continue to operate under its current license or permit while a management review related to its renewal application is pending.

(d) A license or permit holder may not surrender its existing license or permit while it is subject to a management review but may withdraw its renewal application.

§33.59.Denial of Application after Referral of Protest for Hearing.

(a) In the event that a valid protest results in referral for hearing under Alcoholic Beverage Code §11.43(f) and that the executive director subsequently identifies at least one legal ground to deny the application, the executive director shall request that the application be remanded to the commission from the State Office of Administrative Hearings and upon remand, shall recommend to the commission that the application be denied, as required by Alcoholic Beverage Code §11.43(g).

(b) Concurrent with the request for remand from SOAH, the executive director shall provide notice to each protestant that:

(1) the executive director will be recommending denial of the application to the commission;

(2) the case will be remanded to TABC for processing under §11.43(g), et seq.;

(3) if the applicant does not request a hearing on the denial recommendation, the application will be sent to the commission for a vote on denial; and

(4) if the applicant requests a hearing on the denial recommendation or the commission declines to deny the permit, the application shall be referred to SOAH for a hearing in which the protestant(s) are parties.

(c) If the executive director recommends to the commission that an application be denied and a valid protest has been referred for hearing and not withdrawn, the commission may only deny the application or refer it back to SOAH for a hearing on the previously referred protest(s).

§33.60.Request for Hearing on Recommendation of Application Denial.

(a) If the executive director recommends denial of an application for a license or permit, notice of the recommendation shall be transmitted to the applicant by the commission.

(b) An applicant may request an administrative hearing on the executive director's denial recommendation by filing a written request for hearing with the commission within thirty (30) days of the date on the notice of the denial recommendation.

(c) A request for hearing under this section must be filed by mail to Texas Alcoholic Beverage Commission, ATTN: Clerk, P.O. Box 13127, Austin, Texas, 78711 or by electronic mail to clerk@tabc.texas.gov.

(d) If the applicant files a timely request for hearing, the executive director will refer the application to SOAH for a hearing pursuant to Alcoholic Beverage Code §11.43(h).

(e) If the applicant does not file a timely request for hearing, the recommendation for denial of the application will be set for consideration by the commission at the next available regular commission meeting.

§33.61.Commission Action on Contested Applications.

(a) This section applies to the application review process in Alcoholic Beverage Code §11.43(h) and §61.31(b).

(b) Except as provided by subsection (c) of this section, the executive director shall place all proposals for decision issued by an administrative law judge under Alcoholic Beverage Code §11.43(h) on a consent agenda for commission vote. If the commission votes to approve a contested application by consent, the executive director shall issue the license or permit.

(c) The executive director shall set a proposal for decision issued by an administrative law judge under Alcoholic Beverage Code §11.43(h) for individual consideration on the commission's regular agenda at the request of:

(1) the presiding officer of the commission; or

(2) at least two commission members.

§33.62.Filing a Protest of a License or Permit Application.

(a) A protest of a license or permit application mustbe:

(1) filed by a person or persons with legal standing to contest the issuance or renewal of the license or permit under Alcoholic Beverage Code §§11.431, 11.432, 61.313, or 61.314;

(2) timely filed according to subsection (b) of thissection;

(3) in writing;

(4) submitted in at least one of the following manners:

(A) through the TABC's online protest tool, if available;

(B) by mailing either a completed TABC protest form, available on the TABC website, or a letter that meets the requirements of subsection (c) of this section to the Texas Alcoholic Beverage Commission, ATTN: Licensing Protest Coordinator, P.O. Box 13127, Austin, Texas, 78711; or

(C) by e-mailing either a completed TABC protest form, available on the TABC website, or a letter that meets the requirements of subsection (c) of this section to the protest email address for the TABC Region in which the applicant premises is located, as follows:

(i) Protests_Reg1@tabc.texas.gov

(ii) Protests_Reg2@tabc.texas.gov

(iii) Protests_Reg3@tabc.texas.gov

(iv) Protests_Reg4@tabc.texas.gov; or

(v) Protests_Reg5@tabc.texas.gov; and

(5) complete, including all information required by this rule.

(b) A protest must be filed within the following time limits:

(1) For an application for an original license or permit or a change of location under Alcoholic Beverage Code §11.08, a protest is timely if it is filed between 60 days prior to and 15 days after the date the commission deems the application complete. When an application is deemed complete, the commission will update its public database to show the application as pending.

(2) For an application for renewal of a license or permit, a protest is timely filed if it is filed within 60 days prior to the expiration date of the license or permit, up to the expiration date.

(c) A protest filed by a member of the public must include the following elements:

(1) the first and last name and physical address of the property of the person or persons filing the protest;

(2) the approximate distance of the person's home from the premises or proposed premises;

(3) contact information for the person filing; and

(4) all reasonable grounds that are the basis for the protest.

(d) A protest filed by a government official must include the following elements:

(1) the name of the official, the office held, and contact information;

(2) a description of the geographic limits of the official's jurisdiction; and

(3) the basis or bases for the protest.

(e) A protest that fails to meet any of the requirements of this rule may be rejected. A person whose protest is rejected may refile the protest with corrections to meet the rule requirements within the time period prescribed by subsection (b) of this section and/or refile the concerns as a complaint at any time, according to §31.10 (relating to Filing a Complaint). The determination of the validity of a protest is not a contested case subject to the Texas Administrative Procedure Act (Tex. Gov't Code Ch. 2001).

§33.63.Withdrawal of Protest.

(a) A protestant may withdraw their protest at any time prior to the commission's final decision. Withdrawal of a protest may not be subject to any conditions.

(b) A withdrawal of a protest must be submitted in writing to the Texas Alcoholic Beverage Commission, ATTN: Licensing Protest Coordinator, P.O. Box 13127, Austin, Texas, 78711, or to the protest email address for the TABC Region in which the applicant premises is located, as follows:

(1) Protests_Reg1@tabc.texas.gov

(2) Protests_Reg2@tabc.texas.gov

(3) Protests_Reg3@tabc.texas.gov

(4) Protests_Reg4@tabc.texas.gov; or

(5) Protests_Reg5@tabc.texas.gov.

(c) The protestant should also transmit a copy of the withdrawal to the applicant.

(d) If all protests have been withdrawn, the executive director may grant the application and issue the license or permit, subject to other applicable statutes or rules.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on July 30, 2020.

TRD-202003094

Shana Horton

Rules Attorney

Texas Alcoholic Beverage Commission

Earliest possible date of adoption: September 13, 2020

For further information, please call: (512) 206-3451


CHAPTER 45. MARKETING PRACTICES

The Texas Alcoholic Beverage Commission (TABC, agency, or commission) proposes the repeal of Chapter 45, Marketing Practices, §§45.1 - 45.19, 45.41 - 45.51, 45.71 - 45.91, 45.94, and 45.96 (subchapters A - C), effective Dec. 31, 2020. New §§45.1 - 45.50 (subchapters A - E), relating to registration of alcoholic beverage products, are proposed concurrently with the proposal of these repeals.

Background and Summary of Basis for the Proposed Rules

In 2019, the Texas Legislature adopted House Bill 1545, which amended Alcoholic Beverage Code (Code) §§101.67 and 101.671 and added §101.6701. These statutes bring Texas alcoholic beverage label requirements more in line with the requirements for Certificates of Label Approval (COLAs) issued by the United States Alcohol and Tobacco Tax and Trade Bureau (TTB). The TABC must adopt rules implementing these statutory provisions by their effective date, December 31, 2020.

Commission staff determined that the most efficient way to execute the required rule overhaul is to repeal the existing applicable subchapters and replace them with a new set of rules organized in a more intuitive and streamlined manner. The commission proposes that these repeals become effective on Dec. 31, 2020, concurrent with the effective date of the proposed replacement rules.

Fiscal Note: Costs to State and Local Government

Shana Horton, Rules Attorney, has determined that for each year of the first five years that the proposed repeals will be in effect, they are not expected to have a significant fiscal impact upon the agency. There are no foreseeable economic implications anticipated for other units of state or local government due to the proposed repeals.

Rural Communities Impact Assessment

The proposed repeals will not have any material adverse fiscal or regulatory impacts on rural communities. The repeals will apply statewide and have the same effect in rural communities as in urban communities. Likewise, the proposed repeals will not adversely affect a local economy in a material way.

Small Business and Micro-Business Assessment/Flexibility Analysis

No material fiscal implications are anticipated for small or micro-businesses due to the proposed repeals. Some small and micro-businesses will see their net fees paid decrease because the requirement to pay separately for different containers has been eliminated. For example, a producer who used to pay $25 each for label approvals for a 12-ounce can, 12-ounce bottle, and 16-ounce can of a malt beverage, for a total of $75, would pay only one $25 fee for all three container types and sizes under the proposed rule.

Takings Impact Assessment

The proposed repeals do not affect a taking of private real property, as described by the Attorney General Paxton's Private Real Property Rights Preservation Act Guidelines. The rulemaking would impose no burdens on private real property because it neither relates to, nor has any impact on, the use or enjoyment of private real property and there is no reduction in value of property as a result of this rulemaking.

Public Benefits and Costs

Ms. Horton has determined that for each year of the first five years that the proposed repeals would be in effect, the public would benefit due to faster processing times for product registration, allowing a greater variety of products to reach the consumer market in an expeditious manner. Additionally, regulated entities will benefit from a much more streamlined agency procedure for registration of new products by spending less time and energy in application processes and getting new products to market quickly. There is no increase in costs to the public.

Government Growth Impact Statement

This paragraph constitutes the commission's government growth impact statement for the proposed repeals. The analysis addresses the first five years the proposed amendments would be in effect. The proposed repeals neither create nor eliminate a government program. The proposed repeals do not require the creation of new employee positions or the elimination of existing employee positions. Implementation of the proposed repeals requires neither an increase nor a decrease in future legislative appropriations to the commission. The proposed rules are not expected to result in a significant change in fees paid to the agency. The proposed repeals do not create new regulations; rather, they decrease the number of regulations related to product registration by more than half. The proposed repeals do not expand the applicability of any rules or increase the number of individuals subject to existing rules' applicability beyond current rule requirements.

The proposed repeals are not anticipated to have any material impact on the state's overall economy. The repeals are part of an effort that will streamline the production registration process, adding to the state's advantages of a business-friendly environment and large customer base for alcoholic beverage manufacturers.

Comments on the proposed repeals may be submitted in writing to Shana Horton, Rules Attorney, Texas Alcoholic Beverage Commission, at P.O. Box 13127, Austin, Texas 78711-3127, by facsimile transmission to (512) 206-3498, or by email to rules@tabc.texas.gov. Written comments will be accepted for 30 days following publication in the Texas Register.

The staff of the commission will hold a public hearing to receive oral comments on the proposed repeals on August 25, 2020, at 10:00 a.m. in the commission meeting room at commission headquarters, located at 5806 Mesa Drive in Austin, Texas. The commission has designated this hearing as the appropriate forum to make oral comments under Government Code §2001.029. DUE TO PUBLIC HEALTH CONCERNS RELATED TO COVID-19, THIS HEARING WILL BE HELD BY VIDEOCONFERENCE ONLY. Interested persons should visit the TABC's public website prior to the meeting date to receive further instructions or call Shana Horton, Rules Attorney, at (512) 206-3451.

SUBCHAPTER A. REGISTRATION AND ADVERTISING OF DISTILLED SPIRITS

16 TAC §§45.1 - 45.19

Statutory Authority

The proposed repeals are authorized by Alcoholic Beverage Code §5.31, which authorizes the TABC to prescribe and publish rules necessary to carry out the provisions of the code, and §§101.67(f) and 101.671(d), which require the agency to adopt rules establishing procedures for accepting federal COLAs for product registration, registering alcoholic beverage products that are not eligible to receive a COLA issued by the TTB, registering alcoholic beverage products during periods when the TTB has ceased processing applications for COLAs (e.g., a federal government shutdown), and accepting proof that a permittee is the primary American source of supply of a product or brand.

The proposed repeals implement §§101.67(f) and 101.671(d), Alcoholic Beverage Code.

The proposed repeals do not impact any other statutes or rules.

§45.1.Authority and Scope.

§45.2.Definition.

§45.3.Alteration of Labels.

§45.4.Bottle Cartons, Booklets, and Leaflets.

§45.5.Labels: Prohibited Practices.

§45.6.Container and Fill Standards Required.

§45.7.Standard Liquor Bottles.

§45.8.Standards of Fill.

§45.9.Design and Fill Exceptions.

§45.10.Withdrawal from Customs Custody.

§45.11.Advertising: Standards Required.

§45.12.Advertisement Defined.

§45.13.Advertising: Mandatory Statements.

§45.14.Advertising: Lettering.

§45.15.Advertising: Prohibited Statements.

§45.16.Damaged Stock.

§45.17.Intrastate Bottling.

§45.18.Exhibiting Authority.

§45.19.Certificate of Registration.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on July 30, 2020.

TRD-202003100

Shana Horton

Rules Attorney

Texas Alcoholic Beverage Commission

Earliest possible date of adoption: September 13, 2020

For further information, please call: (512) 206-3451


SUBCHAPTER B. REGISTRATION AND ADVERTISING OF WINE

16 TAC §§45.41 - 45.51

Statutory Authority

The proposed repeals are authorized by Alcoholic Beverage Code §§101.67(f) and 101.671(d), which require the commission by rule to establish procedures for: (1) accepting federal certificates of label approval for registration of alcoholic beverage products; (2) registering alcoholic beverage products that are not eligible to receive a certificate of label approval issued by the United States Alcohol and Tobacco Tax and Trade Bureau; (3) registering alcoholic beverage products during periods when the United States Alcohol and Tobacco Tax and Trade Bureau has ceased processing applications for a certificate of label approval; and (4) accepting proof that a permittee is the primary American source of supply of a product or brand.

The repeals implement Alcoholic Beverage Code §§101.67(f) and 101.671(d).

The proposed repeals do not impact any other statutes or rules.

§45.41.Authority and Scope.

§45.42.Definitions.

§45.43.Coined Names.

§45.44.Containers.

§45.45.Certificate of Registration.

§45.46.Label: Prohibited Statements.

§45.47.Customs Custody.

§45.48.Advertising.

§45.49.Advertising: Prohibited Statements.

§45.50.Examination.

§45.51.Illicit Beverage.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on July 30, 2020.

TRD-202003102

Shana Horton

Rules Attorney

Texas Alcoholic Beverage Commission

Earliest possible date of adoption: September 13, 2020

For further information, please call: (512) 206-3451


SUBCHAPTER C. STANDARDS OF IDENTITY FOR MALT BEVERAGES

16 TAC §§45.71 - 45.91, 45.94, 45.96

Statutory Authority

The proposed repeals are authorized by Alcoholic Beverage Code §§101.67(f) and 101.671(d), which require the commission by rule to establish procedures for: (1) accepting federal certificates of label approval for registration of alcoholic beverage products; (2) registering alcoholic beverage products that are not eligible to receive a certificate of label approval issued by the United States Alcohol and Tobacco Tax and Trade Bureau; (3) registering alcoholic beverage products during periods when the United States Alcohol and Tobacco Tax and Trade Bureau has ceased processing applications for a certificate of label approval; and (4) accepting proof that a permittee is the primary American source of supply of a product or brand.

The repeals implement Alcoholic Beverage Code §§101.67(f) and 101.671(d).

The proposed repeals do not impact any other statutes or rules.

§45.71.Definitions.

§45.72.Authority and Scope.

§45.73.Label: General.

§45.74.Misbranding.

§45.75.Mandatory Label Information for Malt Beverages.

§45.76.Brand Names.

§45.77.Class and Type.

§45.78.Name and Address.

§45.79.Alcoholic Content.

§45.80.Net Contents.

§45.81.General Requirements for Malt Beverages.

§45.82.Prohibited Practices.

§45.83.Label Approval and Release.

§45.84.Relabeling.

§45.85.Approval of Labels.

§45.86.Exhibiting Certificates to Representatives of the Commission.

§45.87.Advertisement Defined.

§45.88.Advertisement: Mandatory Statement.

§45.89.Advertisement: Legibility of Requirements.

§45.90.Advertisement: Prohibited Statements.

§45.91.Exports.

§45.94.Verification Regarding Use of Facilities.

§45.96.Brewpubs.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on July 30, 2020.

TRD-202003101

Shana Horton

Rules Attorney

Texas Alcoholic Beverage Commission

Earliest possible date of adoption: September 13, 2020

For further information, please call: (512) 206-3451


CHAPTER 45. MARKETING PRACTICES

The Texas Alcoholic Beverage Commission (TABC, agency, or commission) proposes new Chapter 45, Marketing Practices, §§45.1 - 45.12, 45.20 - 45.27, 45.30, 45.40 - 45.43, and 45.50 (subchapters A - E), relating to registration of alcoholic beverage products. The repeal of existing §§45.1 - 45.19, 45.41 - 45.51, 45.71 - 45.91, 45.94, and 45.96 (subchapters A - C) is proposed concurrently with this rulemaking package.

Background and Summary of Basis for the Proposed Rules

In 2019, the Texas Legislature adopted House Bill 1545, which amended Alcoholic Beverage Code (Code) §§101.67 and 101.671 and added §101.6701. These statutes bring Texas alcoholic beverage label requirements more in line with the requirements for Certificates of Label Approval (COLAs) issued by the United States Alcohol and Tobacco Tax and Trade Bureau (TTB).

Code §§101.67(f) and 101.671(d) require the agency to adopt rules establishing procedures for:

1. accepting federal COLAs for product registration;

2. registering alcoholic beverage products that are not eligible to receive a COLA issued by the TTB;

3. registering alcoholic beverage products during periods when the TTB has ceased processing applications for COLAs (e.g., a federal government shutdown); and

4. accepting proof, such as a letter of authorization, that a permittee is the primary American source of supply of the product or brand.

The TABC must adopt rules implementing these statutory provisions by their effective date, December 31, 2020.

Commission staff determined that the most efficient way to execute the required rule overhaul is to repeal the existing applicable subchapters and replace them with a new set of rules organized in a more intuitive and streamlined manner. Some rules did not require changes and have been migrated into the most logical place in the new rule subchapters. Current Chapter 45, subchapters D and E were not affected by the legislation, have not been altered, and will be re-designated as subchapters F and G. Where current rules referenced the commission "administrator," that term has been updated to "executive director," consistent with the Code and other commission rules.

The commission proposes that these rules become effective on December 31, 2020, concurrent with the repeal of the current rules.

Section by Section Discussion

Subchapter A: General Provisions

§45.1. Statutory Authority and Applicability.

The commission proposes new §45.1 to provide the statutory basis for new subchapters A - E (§§45.1 - 45.12, 45.20 - 45.27, 45.30, 45.40 - 45.43, 45.50) and specify those types of alcohol products to which the chapter does not apply.

§45.2. Definitions.

The commission proposes new §45.2 to provide definitions of terms used in Chapter 45.

§45.3. General Prohibition.

The commission proposes new §45.3 to provide a clear and concise rule prohibiting persons from importing into the state, manufacturing and offering for sale, or distributing or selling an alcoholic beverage product in Texas in a manner that does not comply with all applicable requirements in Chapter 45.

§45.4. Product Registration Required.

The commission proposes new §45.4 to provide a clear and concise general product registration requirement for alcoholic beverage products in Texas with the exception of products sold: (1) in compliance with Code §101.6701 by holders of brewer's permits and manufacturer's licenses authorized to sell directly to consumers under Code §§12.052 or 62.122; (2) by holders of brewpub licenses except for malt beverages sold under the authority of Code §§74.08 or a distributor under 74.09; and (3) pursuant to out-of-state winery direct shipper's permits under Chapter 54 of the Code. This requirement and the exceptions currently exist across other statutes and/or rules.

§45.5. Denial of Product Registration.

The commission proposes new §45.5 to provide a list of the reasons the commission can deny an application for product registration for any alcoholic beverage type (additional reasons for denial of a malt beverage product registration are listed in a later rule). These reasons are: (1) the product label does not meet applicable federal requirements; (2) registration of the product would create a cross-tier violation; (3) the label includes a statement, design, device, or representation that is obscene or indecent; (4) the commission determines the product would create a public safety concern; or (5) the commission determines the product violates any other section of the Code. The proposed rule further specifies that if a registration application is denied, the applicant may not import, manufacture, or sell the product using the denied label.

§45.6. Revocation of Registration.

The commission proposes new §45.6 to provide that the commission may revoke product registration if the registration was granted due to an error; if new information arises that would cause the agency to deny the application; or if the label was issued on contingency that the applicant fulfill certain conditions, and the conditions were not fulfilled.

§45.7. Time Limitation for Processing Product Registration Application.

The commission proposes new §45.7 to add to the commission's rules the new requirement of Code §101.67(e) that the commission either approve or deny a product registration application within 30 days of receipt. The proposed rule further clarifies that an application is only "received" when all required information and fees have been received by the commission.

§45.8. Protest.

The commission proposes new §45.8 to add to the commission's rules the provision of Code §101.67 that an applicant whose product registration application with a valid COLA is either not acted upon within the 30-day time limit or is denied has the right to a hearing before the State Office of Administrative Hearings. The rule would further provide procedures for requesting such a hearing, including a 10-day deadline to file the request from either the notification of application denial or the expiration of the 30-day period for the commission to act.

§45.9. Withdrawal of Application.

The commission proposes new §45.9 to provide that an applicant may withdraw its application at any time before the application is either granted or denied.

§45.10. Application Fee.

The commission proposes new §45.10 contain the application fee of $25 (the current fee) and require that the fee be paid at the time the application is filed. The various rule provisions that previously contained the $25 fee and requirement for payment at the time of application separately for different alcoholic beverage types will be contemporaneously repealed.

§45.11. When Reapplication is Required.

The commission proposes new §45.11 to outline the circumstances in which a product registration is no longer valid and an applicant must submit a new registration application to the commission. The proposed rule would require a new application for registration for a product with a COLA any time a change is made to the label that would require reapplication with the TTB for the COLA. Changes on the TTB's list of allowable changes that do not require reregistration are listed in the rule. Finally, the proposed rule requires currently-registered products eligible for a COLA to obtain a COLA and reapply for registration, but allows a two and one-half year grace period from the effective date of this proposed rule to reapply for those particular products. The grace period allows time for producers to sell current inventory, design a new label, obtain a COLA, and print new labels. For those producers for whom that time period is not adequate to use up already printed containers, the rule provides that the executive director may issue a temporary Certificate of Registration to allow the necessary additional time.

§45.12. Application Procedures During Interruption of Federal Agency Operations.

The commission proposes new §45.12 to lay out procedures for the agency to continue registering products that would normally require a COLA from the TTB at times when the TTB is not issuing COLAs, such as during a federal government shutdown. This rule is required by new §101.67(f)(3) of the Code. During such times, the proposed rule provides that the commission will apply TTB COLA and COLA exemption standards to applications received and will register (or exempt), on a provisional basis, products that meet those standards.

The proposed rule would require a product with a provisional registration to apply for and receive a COLA within 30 days of the TTB resuming processing COLA applications, then re-apply for registration with the commission within 30 days of receiving the federal COLA. A provisional registration would expire on the 31st day after the TTB resumes processing COLA applications, unless the applicant has filed an application with the TTB, in which case the provisional registration remains in effect until 30 days after the federal COLA is issued to allow time for the applicant to re-apply with the commission and register the product. If the TTB denies an applicant's COLA or exemption application, the proposed rule would require the applicant to notify the commission of that denial within five days of receipt of the denial. The TTB's denial of an application for a COLA may result in the revocation of the provisional product registration.

Subchapter B: Enforcement

§45.20. Exhibiting Certificates to Representatives of the Commission.

The commission proposes to move the content of existing §45.86 (related to malt beverages) to new §45.20. New §45.20 would apply to all types of alcoholic beverages and therefore provides the analogous requirement for distilled spirits in current §45.18. Both §45.18 and §45.86 would be repealed concurrent with the effectiveness of this rule. The rule states that it is unlawful for a person to fail or refuse to exhibit a TTB COLA or other commission product registration upon request by an authorized commission representative. The current rules cited contain this requirement for distilled spirits and malt beverages, but the requirement appears to have been inadvertently omitted in the current subchapter regarding wine. In its new position within the enforcement rules subchapter, the rule would apply to all three categories of alcoholic beverages. This does not represent a practical difference for regulated entities, however, as analogous federal rules require the same (27 C.F.R. §4.51).

§45.21. Examination and Testing of Product.

The commission proposes to move the content of current §45.50(a) to new §45.21. Section 45.50 would be repealed concurrent with the effectiveness of this rule. The rule authorizes the agency to take samples of alcoholic beverages for examination whenever deemed necessary by the executive director and provides that examinations may include any chemical or physical determinations for the measurement of contents, the detection of alteration, and lack of conformity to standards of identity, quality, and purity, as set forth in the code and the rules of the commission. The current rule cited contains this requirement for wine, but the requirement appears to have been inadvertently omitted in the current subchapters regarding distilled spirits and malt beverages. In its new position within the enforcement rules subchapter, the rule would apply to all three categories of alcoholic beverages.

§45.22. Additional Provisions for the Examination of Wine.

The commission proposes to move current §45.50(b), (c), and (d) to new §45.22. These subsections are unchanged and continue to apply only to wine. Section 45.50 would be repealed concurrent with the effectiveness of this rule.

§45.23. Alteration of Labels.

The commission proposes to move the content of current §45.3 and §45.73(c)(1), prohibiting the alteration of labels, to new §45.23. Sections 45.3 and 45.73 would be repealed concurrent with the effectiveness of this rule. The current rules cited contain this requirement for distilled spirits and malt beverages, but the requirement appears to have been inadvertently omitted in the current subchapter regarding wine. In its new position within the enforcement rules subchapter, the rule would apply to all three categories of alcoholic beverages. This does not represent a practical difference for regulated entities, however, as analogous federal rules require the same for wine (27 C.F.R. §4.30(b)).

§45.24. Records Retention.

The commission proposes new §45.24 to require producers of alcoholic beverages to retain records of lab analyses of contents of each registered product, including alcohol content, until the product is no longer in the stream of commerce in Texas. The records would have to be maintained in a way that they can be provided to the agency upon request. This new rule is necessary for the agency to protect public health and safety and to ensure products are accurately represented to the public, ensuring the quality and purity of alcoholic beverages.

§45.25. Damaged Stock.

The commission proposes to move the content of current §45.16 to new §45.25. The content of the rule is unchanged. Section 45.16 would be repealed concurrent with the effectiveness of this rule.

§45.26. Intrastate Bottling.

The commission proposes to move the content of current §45.17 to new §45.26. The content of the rule is unchanged. Section 45.17 would be repealed concurrent with the effectiveness of this rule.

§45.27. Illicit Beverage.

The commission proposes to move the content of current §45.51 to new §45.27 clarifying that the applies not only to wine but to all types of alcoholic beverages under the statutory definition of "illicit beverage" in Code §1.04(4). The rule would categorize any alcoholic beverage or container that does not meet the Chapter 45 rule requirements as an illicit beverage subject to seizure without a warrant. The rule would further authorize the executive director to dispose of alcoholic beverages seized as a result of accidental shipment or other reasonable mistake and require that all alcoholic beverages that cannot meet the required standards of purity be destroyed.

Subchapter C: Specific Requirements for Distilled Spirits

§45.30. Certificate of Registration for a Distilled Spirit Product.

The commission proposes new §45.30 to provide product registration requirements specifically required for distilled spirits only, as these requirements differ slightly between the three basic classes of alcoholic beverages.

The proposed rule would prohibit shipping into the state or selling a distilled spirit product without first obtaining a Certificate of Registration issued by the commission, as provided by Code §101.671(a). It would also require that an applicant for a Certificate of Registration for a distilled spirit hold either a commission-issued distiller's and rectifier's permit or a nonresident seller's permit. The proposed rule would require that an application include the COLA issued by the TTB, a complete application form, and the application fee per Code §101.671(c).

The proposed rule would move existing §45.19(d) related to providing a legible copy of the COLA, actual label, or exact color copy of the label, without change, to §45.30(d). Section 45.19(d) would be repealed concurrent with the effective date of proposed rule §45.30(d).

Subchapter D: Specific Requirements for Malt Beverages

§45.40. Certificate of Registration for a Malt Beverage Product.

The commission proposes new §45.40 to provide product registration requirements specifically required for malt beverages only, as these requirements differ slightly between the three basic classes of alcoholic beverages. The rule would prohibit shipping into or selling in Texas any malt beverage product without first obtaining a Certificate of Registration from the commission. It would require that an applicant for a Certificate of Registration for a malt beverage hold a brewer's permit, non-resident brewer's permit, manufacturer's license, non-resident manufacturer's license, or brewpub license issued by the commission, and allow holders of a non-resident manufacturer's agent's permit or non-resident brewer's agent's permit to file applications on behalf of any of the other listed license or permit holders.

The proposed rule provides application requirements for malt beverages for which a COLA has been issued and those not eligible for a COLA. For malt beverages with a COLA, the application must include a legible copy of the COLA, as required by Code §101.67(a), an actual label or exact color copy of the beverage label, and all other information required by the commission's application form. For a product not eligible for the COLA, the applicant must provide the actual label or an exact color copy, a copy of the TTB formulation, and all other information required by the commission's application form. Additionally, the proposed rule would require those malt beverages ineligible for a COLA to comply with all applicable federal laws and regulations, which are enumerated in the rule.

§45.41. Additional Reasons for Denial of Registration of a Malt Beverage Product.

The commission proposes new §45.41 to include reasons beyond those listed in §45.5 that the commission may deny an application for registration of a malt beverage product. Subsections 45.41(a)(1) and (2) would be migrated without substantive changes from current §45.73(e) and (f). Subsections 45.41(a)(3) and (b) would be migrated without substantive changes from current §45.96(b)(5) and (6). Current §45.73(e) and (f) and §45.96(b)(5) and (6) would be repealed concurrent with the effective date of these proposed rules.

§45.42. Misbranding.

The commission proposes to move current §45.74(3) to new §45.42 without changes. The requirements of current §45.74(1) and (2) are proposed to be incorporated into new §45.5 because they are generally applicable to all three categories of alcoholic beverages. Current §45.74 would be repealed concurrent with the effective date of these proposed rules.

§45.43. Verification Regarding Use of Facilities.

The commission proposes to move current §45.94 to new §45.43 without changes. Current §45.94 would be repealed concurrent with the effective date of these proposed rules.

Subchapter E: Specific Requirements for Wine

§45.50. Certificate of Registration for Wine.

The commission proposes new §45.50 to provide product registration requirements specifically required for wine only, as these requirements differ slightly between the three basic classes of alcoholic beverages.

The proposed rule would prohibit shipping into the state or selling a wine without first obtaining a Certificate of Registration issued by the commission, as provided by Code §101.671(a). It would also require that an applicant for a Certificate of Registration for a wine hold either a commission-issued winery permit or a nonresident seller's permit. The proposed rule would require that an application include the COLA issued by the TTB, a complete application form, and the application fee per Code §101.671(c).

The proposed rule provides application requirements for wines for which a COLA has been issued and those not eligible for a COLA. For wines with a COLA, the application must include a legible copy of the COLA, as required by Code §101.671, an actual label or exact color copy of the beverage label, and all other information required by the commission's application form. For a wine not eligible for a COLA, the applicant must provide the actual label or an exact color copy, a copy of the TTB formulation, and all other information required by the commission's application form. Additionally, the proposed rule would require those wines ineligible for a COLA to comply with all applicable federal laws and regulations, which are enumerated in the rule.

Fiscal Note: Costs to State and Local Government

Shana Horton, Rules Attorney, has determined that for each year of the first five years that the proposed rules will be in effect, the proposed rules are not expected to have a significant fiscal impact upon the agency. While the agency expects for the number of registration applications to decrease, the impact is difficult to project under the current unprecedented economic conditions. It may become necessary to reevaluate the registration fee when more data is available to maintain revenue neutrality. There are no foreseeable economic implications anticipated for other units of state or local government due to the administration or enforcement of the proposed rules.

Rural Communities Impact Assessment

The proposed rules will not have any material adverse fiscal or regulatory impacts on rural communities. The rules will apply statewide and have the same effect in rural communities as in urban communities. Likewise, the proposed rules will not adversely affect a local economy in a material way.

Small Business and Micro-Business Assessment/Flexibility Analysis

No material fiscal implications are anticipated for small or micro-businesses due to the implementation or administration of the new rules. Some small and micro-businesses will see their net fees paid decrease because the requirement to pay separately for different containers has been eliminated. For example, a producer who used to pay $25 each for label approvals for a 12-ounce can, 12-ounce bottle, and 16-ounce can of a malt beverage, for a total of $75, would pay only one $25 fee for all three container types and sizes under the proposed rule. Because the proposed rules will not impact small and micro-businesses in a material way, a Small Business and Micro-Business Assessment/Flexibility Analysis is not required.

Takings Impact Assessment

The proposed rules do not affect a taking of private real property, as described by the Attorney General Paxton's Private Real Property Rights Preservation Act Guidelines. The rulemaking would impose no burdens on private real property because it neither relates to, nor has any impact on, the use or enjoyment of private real property and there is no reduction in value of property as a result of this rulemaking.

Public Benefits and Costs

Ms. Horton has determined that for each year of the first five years that the proposed rules would be in effect, the public would benefit due to faster processing times for product registration, allowing a greater variety of products to reach the consumer market in an expeditious manner. Additionally, regulated entities will benefit from a much more streamlined agency procedure for registration of new products by spending less time and energy in application processes and getting new products to market quickly. There is no increase in costs to the public.

Government Growth Impact Statement

This paragraph constitutes the commission's government growth impact statement for the proposed rules. The analysis addresses the first five years the proposed amendments would be in effect. The proposed rules neither create nor eliminate a government program. The proposed rules do not require the creation of new employee positions or the elimination of existing employee positions. The agency anticipates that the provisions of this rule will be absorbed using existing agency resources. Implementation of the proposed rules requires neither an increase nor a decrease in future legislative appropriations to the commission. The proposed rules are not expected to result in a significant change in fees paid to the agency. Several of the proposed rules create new regulations because they constitute new state agency statements of general applicability that implement, interpret, or prescribe law or policy and describe procedures and practice requirements of a state agency. Other proposed rules re-adopt current rules in a new place or combine current rules in order to streamline the rule chapter. The proposed rules do not expand the applicability of any rules or increase the number of individuals subject to the existing rules' applicability beyond the current rule requirements or analogous federal requirements, as noted in the Section by Section analysis, above.

The new rules are proposed concurrently with the repeal of current rules §§45.1 - 45.19, 45.41 - 45.51, 45.71 - 45.91, 45.94, and 45.96. However, many of the rules proposed to be repealed are re-adopted or combined with other rules in order to streamline and optimize the new chapter. Rules that are proposed to be repealed and not re-adopted or otherwise incorporated into the proposed new rules are proposed for repeal as required to implement House Bill 1545 (86th Tex. Leg. R.S., 2019).

The proposed rules are not anticipated to have any material impact on the state's overall economy. Adopting standards that are equivalent to the federal government's and streamlining the application process add to the advantages of the state's business-friendly environment and large customer base as reasons for alcoholic beverage manufacturers to locate or expand within Texas.

Comments on the proposed rules may be submitted in writing to Shana Horton, Rules Attorney, Texas Alcoholic Beverage Commission, at P.O. Box 13127, Austin, Texas 78711-3127, by facsimile transmission to (512) 206-3498, or by email to rules@tabc.texas.gov. Written comments will be accepted for 30 days following publication in the Texas Register.

The staff of the commission will hold a public hearing to receive oral comments on the proposed new rules on August 25, 2020, at 10:00 a.m. in the commission meeting room at commission headquarters, located at 5806 Mesa Drive in Austin, Texas. The commission has designated this hearing as the appropriate forum to make oral comments under Government Code §2001.029. DUE TO PUBLIC HEALTH CONCERNS RELATED TO COVID-19, THIS HEARING WILL BE HELD BY VIDEOCONFERENCE ONLY. Interested persons should visit the TABC's public website prior to the meeting date to receive further instructions or call Shana Horton, Rules Attorney, at (512) 206-3451.

SUBCHAPTER A. GENERAL PROVISIONS

16 TAC §§45.1 - 45.12

The proposed new rules are authorized by Alcoholic Beverage Code §§101.67(f) and 101.671(d), which require the agency to adopt rules establishing procedures for accepting federal COLAs for product registration, registering alcoholic beverage products that are not eligible to receive a COLA issued by the TTB, registering alcoholic beverage products during periods when the TTB has ceased processing applications for COLAs (e.g., a federal government shutdown), and accepting proof that a permittee is the primary American source of supply of a product or brand.

The proposed rules do not impact any other statutes or rules.

§45.1.Statutory Authority and Applicability.

(a) This chapter implements Alcoholic Beverage Code §§101.67 and 101.671, which provide for the registration of alcoholic beverage products with the state.

(b) This chapter does not apply to:

(1) distilled spirits for export or for industrialuse;

(2) wine produced pursuant to §109.21, Alcoholic Beverage Code;

(3) wine that is to be exported in bond;

(4) malt beverages in bond; or

(5) malt beverages manufactured for sale exclusively outside this state.

§45.2.Definitions.

When used in this chapter, the terms listed below shall have the following meanings:

(1) Alcoholic beverage--Alcohol, or any beverage containing more than one-half of one percent of alcohol by volume, which is capable of use for beverage purposes, either alone or when diluted, including distilled spirits, malt beverages, and wine, as defined herein.

(2) Ale--Any malt beverage containing more than 4.0% of alcohol by weight. In this chapter, "malt liquor" and "ale" have the same meaning.

(3) Applicant--A person who submits an application with the commission to register an alcoholic beverage product.

(4) Bottler--Any person who places alcoholic beverages in containers.

(5) Brand label--The label carrying, in the usual distinctive design, the brand name of the alcoholic beverage.

(6) Brewpub--A holder of a brewpub license under Chapter 74 of the Alcoholic Beverage Code.

(7) Code--The Texas Alcoholic Beverage Code.

(8) COLA--A certificate of label approval issued by the United States Alcohol and Tobacco Tax and Trade Bureau pursuant to 27 CFR Ch. I, Subch. A, Part 13.

(9) Commission--The state agency, the Texas Alcoholic Beverage Commission; this term is not intended to refer to the agency's commissioners sitting as a deliberative body.

(10) Container--Any can, bottle, barrel, keg, cask, tank car, or other closed receptacle, irrespective of size or of the material from which made, for use for the sale of malt alcoholic beverages. This provision does not in any way relax or modify §1.04(18) of the Alcoholic Beverage Code.

(11) Distilled spirits--Alcohol, ethyl alcohol, hydrated oxide of ethyl, spirits of wine, whiskey, rum, brandy, gin, other distilled spirits, and any liquor produced in whole or in part by the process of distillation, including all mixtures and dilutions thereof.

(12) Malt beverage--A beverage made by the alcoholic fermentation of an infusion or decoction, or combination of both, in potable brewing water, of malted barley with hops, or their parts, or their products, and with or without other malted cereals, and with or without the addition of unmalted or prepared cereals, other carbohydrates or products prepared therefrom, and with or without the addition of carbon dioxide, and with or without other wholesome products suitable for human consumption.

(13) Malt liquor--Any malt beverage containing more than 4.0% of alcohol by weight. In this chapter, "malt liquor" and "ale" have the same meaning.

(14) Person--A natural person or association of natural persons, trustee, receiver, partnership, corporation, organization, or the manager, agent, servant, or employee of any of them.

(15) Producer--A manufacturer of all classes of alcoholic beverages or a nonresident seller that is the primary American source of supply for purposes of §37.10 of the Code.

(16) TTB--The United States Alcohol and Tobacco Tax and Trade Bureau or its successor agency.

(17) Wine--A product obtained from the alcoholic fermentation of juice of sound ripe grapes, fruits, berries, or honey, and includes wine coolers and other alcoholic beverages made in the manner of wine, including sparkling and carbonated wine, vermouth, cider, sake, and perry.

§45.3.General Prohibition.

No person may ship or import into the state, manufacture and offer for sale, or distribute or sell an alcoholic beverage product in this state in a manner that does not comply with all applicable requirements of this chapter.

§45.4.Product Registration Required.

(a) Except as provided by subsection (b) of this section, no alcoholic beverage product may be shipped or imported into the state, manufactured and offered for sale, or distributed or sold in the state until the product is registered with the commission.

(b) Product registration is not required for products sold:

(1) in compliance with Code §101.6701 by holders of brewer's permits and manufacturer's licenses authorized to sell directly to consumers under Code §§12.052 or 62.122;

(2) by holders of brewpub licenses except for malt beverages sold under the authority of Code §§74.08 or a distributor under 74.09; and

(3) pursuant to out-of-state winery direct shipper's permits under Chapter 54 of the Code.

§45.5.Denial of Product Registration.

(a) The commission may deny an application for product registration for one or more of the following reasons:

(1) the product label does not meet applicable federal requirements;

(2) registration of the product would create a cross-tier violation;

(3) the label includes a statement, design, device, or representation that is obscene or indecent;

(4) the commission determines the product would create a public safety concern; or

(5) the commission determines the product violates any other section of the Code.

(b) If the commission denies an application to register a product, the applicant is prohibited from shipping or importing into or within the state, manufacturing or offering for sale, or distributing or selling the product in the state using the denied label.

§45.6.Revocation of Registration.

The commission may revoke product registration at any time if the registration was granted in error; if the commission receives new information supporting a denial under §45.5 of this title; or if the registration was issued subject to conditions and the conditions were not satisfied by the deadline.

§45.7.Time Limitation for Processing Product Registration Application.

(a) Not later than the 30th day after the date the commission receives an application for registration of a product under this section, the commission shall either approve or deny the registration application.

(b) For purposes of this chapter, an application is received only when all required information has been received by the commission. An incomplete application is not considered received.

§45.8.Protest.

(a) If the commission denies the application for a product with a valid COLA or fails to act on the application within the time required by §45.7 of this title, the applicant is entitled to an administrative hearing before the State Office of Administrative Hearings.

(b) To request a hearing under this chapter, the applicant must file a written request for hearing with the commission within ten (10) business days of:

(1) receiving notification from the commission that product registration has been denied; or

(2) the expiration of the time limit for commission action, if the commission has not either approved or denied the application.

§45.9.Withdrawal of Application.

An applicant may unconditionally withdraw their application for product registration at any time prior to product registration or issuance of a notification of denial.

§45.10.Application Fee.

(a) The fee for an application for registration under this chapter is $25 and shall be paid at the time the application is filed.

(b) An applicant for product registration under this chapter is not entitled to a refund of the application fee for any reason.

§45.11.When Reapplication is Required.

(a) For products registered with the commission using a federal COLA, any change to the label or product that requires issuance of a new COLA requires reapplication for product registration with the commission.

(b) For products registered with the commission that are not eligible for a federal COLA, any change to the label or product requires reapplication for product registration with the commission, except for the following permissible label revisions:

(1) Deleting any non-mandatory label information, including text, illustrations, graphics, and ingredients;

(2) Repositioning any label information, including text, illustrations, and graphics;

(3) Changing the color of the background or text, the shape, or the proportionate size of labels;

(4) Changing the type size or font or make appropriate changes to the spelling (including punctuation marks and abbreviations) of words;

(5) Changing the type of container or net contents statement;

(6) Adding, deleting, or changing optional information referencing awards, medals or a rating or recognition provided by an organization as long as the rating or recognition reflects simply the opinion of the organization and does not make a specific substantive claim about the product or its competitors;

(7) Adding, deleting, or changing holiday or seasonal-themed graphics, artwork, or salutations;

(8) Adding, deleting, or changing promotional sponsorship-themed graphics, logos, artwork, dates, event locations or other sponsorship-related information; and

(9) Adding, deleting or changing references to a year or date.

(c) Not later than September 1, 2023, producers of products registered with the commission prior to December 31, 2020, must reapply for commission registration of any such product that will be shipped or imported into the state, manufactured and offered for sale, or distributed or sold on or after September 1, 2023, unless granted an exception under subsection (d) of this section.

(d) The executive director may issue a temporary Certificate of Registration containing an expiration date at the request of a producer demonstrating that the producer requires additional time beyond September 1, 2023, to use up products bearing labels approved by the commission and printed before December 31, 2020.

§45.12.Application Procedures During Interruption of Federal Agency Operations.

(a) In the event of a federal government shutdown or other interruption in service that prevents the TTB from issuing COLAs, the commission shall evaluate applications using the federal standards required for the applicant to receive a COLA or the federal exemption from the COLA requirements, if applicable.

(b) If the applicant meets the applicable federal standards, the commission shall register the product on a provisional basis.

(c) An applicant whose product has been registered with the state on a provisional basis shall apply for a COLA or any applicable federal exemption from COLA requirements within 30 days of the resumption of services of the TTB.

(d) The provisional registration with the state shall expire automatically on the 31st day after the resumption of services of the TTB, unless the applicant has timely filed an application with the TTB. If the applicant timely filed an application with the TTB, the applicant's provisional registration shall continue in effect either:

(1) if the TTB denies the applicant's COLA or exemption application, until the notice of that denial is issued by the TTB; or

(2) if the TTB issues the COLA or grants the exemption, until 30 days after the COLA or exemption is issued.

(e) If the TTB grants the COLA or exemption application, the applicant must re-apply with the commission for product registration within 30 calendar days of receipt of the federal COLA or exemption.

(f) If the TTB denies the COLA or exemption application, the applicant shall notify the commission within five calendar days of receipt of the denial. The commission may revoke the provisional product registration in the event of COLA or exemption denial by the TTB.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on July 30, 2020.

TRD-202003095

Shana Horton

Rules Attorney

Texas Alcoholic Beverage Commission

Earliest possible date of adoption: September 13, 2020

For further information, please call: (512) 206-3451


SUBCHAPTER B. ENFORCEMENT

16 TAC §§45.20 - 45.27

The proposed new rules are authorized by Alcoholic Beverage Code §§101.67(f) and 101.671(d), which require the agency to adopt rules establishing procedures for accepting federal COLAs for product registration, registering alcoholic beverage products that are not eligible to receive a COLA issued by the TTB, registering alcoholic beverage products during periods when the TTB has ceased processing applications for COLAs (e.g., a federal government shutdown), and accepting proof that a permittee is the primary American source of supply of a product or brand.

The proposed rules do not impact any other statutes or rules.

§45.20.Exhibiting Certificates to Representatives of the Commission.

It shall be unlawful for any person to fail or refuse to exhibit, upon demand or request by any authorized representative of the commission, the certificate of approval as issued by the United States Department of the Treasury or the executive director.

§45.21.Examination and Testing of Product.

Samples of alcoholic beverages shall be taken for examination by representatives of the commission whenever deemed necessary by the executive director. Examinations may include any chemical or physical determinations for the measurement of contents, the detection of alteration, and lack of conformity to standards of identity, quality, and purity, as set forth in the Code and the rules of the commission.

§45.22.Additional Provisions for Examination of Wine.

(a) It shall be unlawful for any producer or bottler of wine to accept as a return or to purchase or to use any container permanently branded or imprinted with the name of another producer or bottler of any alcoholic beverage.

(b) The alcoholic content requirements set forth in this section shall not apply to sacramental or altar wines where ecclesiastical regulations limit the alcoholic content to not more than 18% by volume--provided, however, that such wines shall be labeled as "Sacramental" or "Altar" wines.

(c) It shall be unlawful for any permittee to bring into this state, store, sell, or possess for the purpose of sale, any bottles of wine which are not protected from tampering or contamination by being sealed with seals of a type which must be irreparably mutilated or destroyed before the bottle can be opened. Such seals shall not be made of paper.

§45.23.Alteration of Labels.

No person may alter, mutilate, destroy, obliterate, or remove any mark, brand, or label on an alcoholic beverage product held for sale in this state except:

(1) as authorized by Texas law; and

(2) the executive director may, on written application, permit additional labeling or relabeling of bottled alcoholic beverages with labels covered by certificates of label approval that comply with the requirements of this subchapter and with state law.

§45.24.Records Retention.

(a) Producers of alcoholic beverage products registered in this state shall retain records of laboratory analyses of the contents of each registered product, including tests of alcohol content.

(b) Producers shall maintain records under this section in a manner that they can be made available upon request of the commission.

(c) Producers shall maintain records under this section until the product is no longer in the stream of commerce in the state of Texas.

§45.25.Damaged Stock.

No distilled spirits may be sold or possessed for the purpose of sale in this state which have had fire, smoke, or water damage to the label, container, or contents, unless so authorized by the executive director.

§45.26.Intrastate Bottling.

It shall be unlawful for any distiller, rectifier, or other bottler of distilled spirits in this state to bottle or remove such distilled spirits from his premises unless he has first procured a certificate of label approval, or clearance of export procedure, from the executive director.

§45.27.Illicit Beverage.

(a) Any alcoholic beverage or container of which does not meet all the requirements of this chapter shall be an illicit beverage and subject to seizure without a warrant.

(b) The executive director may authorize such disposition as facts and circumstances may warrant of any alcoholic beverage that has been seized as the result of an accidental shipment or other reasonable mistake.

(c) All alcoholic beverages which cannot be restored to meet the standards of purity shall be destroyed.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on July 30, 2020.

TRD-202003096

Shana Horton

Rules Attorney

Texas Alcoholic Beverage Commission

Earliest possible date of adoption: September 13, 2020

For further information, please call: (512) 206-3451


SUBCHAPTER C. SPECIFIC REQUIREMENTS FOR DISTILLED SPIRITS

16 TAC §45.30

The proposed new rule is authorized by Alcoholic Beverage Code §§101.67(f) and 101.671(d), which require the agency to adopt rules establishing procedures for accepting federal COLAs for product registration, registering alcoholic beverage products that are not eligible to receive a COLA issued by the TTB, registering alcoholic beverage products during periods when the TTB has ceased processing applications for COLAs (e.g., a federal government shutdown), and accepting proof that a permittee is the primary American source of supply of a product or brand.

The proposed rule does not impact any other statutes or rules.

§45.30.Certificate of Registration for a Distilled Spirit Product.

(a) No distilled spirit may be shipped into the state or sold within the state without a Certificate of Registration issued by the commission.

(b) An applicant for a Certificate under this section must hold a distiller's and rectifier's permit or a Nonresident Seller's Permit issued by the commission.

(c) An applicant must submit an application to register a distilled spirit on the prescribed commission form. The application must contain the following:

(1) the product COLA issued by the TTB;

(2) all information required to complete the application form; and

(3) the application fee.

(d) A legible copy of the COLA must be included with the application. If the COLA is not legible, an actual label that is affixed to the distilled spirit as shipped or sold, or an exact color copy of a label must be included with the application.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on July 30, 2020.

TRD-202003097

Shana Horton

Rules Attorney

Texas Alcoholic Beverage Commission

Earliest possible date of adoption: September 13, 2020

For further information, please call: (512) 206-3451


SUBCHAPTER D. SPECIFIC REQUIREMENTS FOR MALT BEVERAGES

16 TAC §§45.40 - 45.43

The proposed new rules are authorized by Alcoholic Beverage Code §§101.67(f) and 101.671(d), which require the agency to adopt rules establishing procedures for accepting federal COLAs for product registration, registering alcoholic beverage products that are not eligible to receive a COLA issued by the TTB, registering alcoholic beverage products during periods when the TTB has ceased processing applications for COLAs (e.g., a federal government shutdown), and accepting proof that a permittee is the primary American source of supply of a product or brand.

The proposed rules do not impact any other statutes or rules.

§45.40.Certificate of Registration for a Malt Beverage Product.

(a) No malt beverage may be shipped into the state or sold within the state without a Certificate of Registration issued by the commission.

(b) An applicant for a Certificate under this section must hold a brewer's permit, non-resident brewer's permit, manufacturer's license, non-resident manufacturer's license, or brewpub license issued by the commission.

(c) Persons holding a non-resident manufacturer's agent's permit or non-resident brewer's agent's permit may file an application for a Certificate of Registration on behalf of a holder of a permit or license listed in subsection (b) of this section.

(d) An applicant must submit an Application to Register a Malt Beverage on the form prescribed by the commission along with the application fee to the commission. The application must contain the following:

(1) If the product is eligible for a COLA:

(A) legible copy of the COLA;

(B) an actual label that is affixed to the malt beverage as shipped or sold, or a legible exact color copy of a label; and

(C) all information required to complete the application form.

(2) If the product is not eligible for a COLA:

(A) an actual label that is affixed to the malt beverage as shipped or sold, or a legible exact color copy of the label;

(B) TTB formulation; and

(C) all information required to complete the application form.

(e) Labels for beverages that meet the definition of malt beverage but are ineligible for a COLA must also comply with 21 C.F.R. Part 101; 27 C.F.R. Parts 16 and 25; 21 U.S.C. §§341-350; 26 U.S.C. Ch. 51; and 27 U.S.C. §215.

§45.41.Additional Reasons for Denial of Registration of a Malt Beverage Product.

(a) In addition to the provisions of §45.5 of this title, the commission may deny registration for a malt beverage for the following reasons:

(1) the label filed with the application by a brewer's or non-resident brewer's permittee or a manufacturer's or non-resident manufacturer's licensee:

(A) indicates by any statement, design, device, or representation that the malt beverage is brewed or bottled for any retailer permittee or licensee or any private club registration permittee; or

(B) includes the name, tradename, or trademark of any retailer permittee or licensee or any private club registration permittee;

(2) the brand of malt beverages by a brewer's or non-resident brewer's permittee or a manufacturer's or non-resident manufacturer's licensee is exclusive to the holder of a license or permit authorizing the retail sale or service of malt beverages, or exclusive to retail licensees or permittees under common ownership, control, or management, to the exclusion of other retail licensees or permittees; or

(3) with the exception of the brewpub licensee's name, tradename or trademark, the label filed by a brewpub licensee:

(A) indicates by any statement, design, device, or representation that the malt beverage is brewed or bottled for any retailer permittee or licensee or for any private club registration permittee (other than the brewpub licensee label applicant itself, an entity under common ownership with it, or an entity with the same name or tradename as it); or

(B) includes the name, tradename, or trademark of any retailer permittee or licensee or for of any private club registration permittee (other than the brewpub licensee label applicant itself, an entity under common ownership with it, or an entity with the same name or tradename as it).

(b) Nothing in this subchapter or in Alcoholic Beverage Code Chapter 74 authorizes a brewpub licensee to engage in contract brewing or alternating brewery proprietorship arrangements, and its facilities may not be used to provide such arrangements or engage in such activities, which are authorized only for holders of permits under Alcoholic Beverage Code Chapters 12 or 13 and holders of licenses under Alcoholic Beverage Code Chapters 62 or 63.

§45.42.Misbranding.

Malt beverages in containers shall be deemed to be misbranded if the container has blown, branded, or burned therein the name or other distinguishing mark of any person engaged in business as a manufacturer, brewer, wholesaler, distributor, bottler, or importer, of malt beverages, or of any other person, except the person whose name is required to appear on the brand label.

§45.43.Verification Regarding Use of Facilities.

On or before September 1 of each year, each holder of a permit issued under Alcoholic Beverage Code Chapter 12 or 13 or a license issued under Alcoholic Beverage Code Chapter 62 or 63 shall verify to the commission, on a form promulgated by the commission, that no brewing or manufacturing facility owned or controlled by the permit or license holder is used to produce malt beverages primarily for a specific Texas retailer or the retailer's Texas affiliates.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on July 30, 2020.

TRD-202003098

Shana Horton

Rules Attorney

Texas Alcoholic Beverage Commission

Earliest possible date of adoption: September 13, 2020

For further information, please call: (512) 206-3451


SUBCHAPTER E. SPECIFIC REQUIREMENTS FOR WINE

16 TAC §45.50

The proposed new rule is authorized by Alcoholic Beverage Code §§101.67(f) and 101.671(d), which requires the agency to adopt rules establishing procedures for accepting federal COLAs for product registration, registering alcoholic beverage products that are not eligible to receive a COLA issued by the TTB, registering alcoholic beverage products during periods when the TTB has ceased processing applications for COLAs (e.g., a federal government shutdown), and accepting proof that a permittee is the primary American source of supply of a product or brand.

The proposed rule does not impact any other statutes or rules.

§45.50.Certificate of Registration for Wine.

(a) No wine may be shipped into the state or sold within the state without a Certificate of Registration issued by the commission.

(b) An applicant for a Certificate under this section must hold a Winery or a Nonresident Seller's Permit issued by the commission.

(c) An applicant must submit an Application to Register a Wine on the form prescribed by the commission along with the application fee to the commission. The application must contain the following:

(1) If the product is eligible for a COLA:

(A) legible copy of the COLA;

(B) an actual label that is affixed to the wine as shipped or sold, or a legible exact color copy of a label; and

(C) all information required to complete the application form.

(2) If the product is not eligible for a COLA:

(A) an actual label that is affixed to the wine as shipped or sold, or a legible exact color copy of the label;

(B) TTB formulation; and

(C) all information required to complete the application form.

(d) Wines with an alcohol content of at least 0.5% but less than 7% are ineligible for a COLA and must adhere to the labeling requirements contained in 21 C.F.R. Part 101; 27 C.F.R. Parts 16, 24, and 27; 21 U.S.C. §§341-350; 26 U.S.C. Ch. 51; and 27 U.S.C. §215.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on July 30, 2020.

TRD-202003099

Shana Horton

Rules Attorney

Texas Alcoholic Beverage Commission

Earliest possible date of adoption: September 13, 2020

For further information, please call: (512) 206-3451