Cut butter in pieces and let sit at room temperature

Cook shallots, dry white wine, tarragon, white wine vinegar and black pepper in a small saucepan over medium heat, stirring occasionally, until liquid has evaporated.

Pour water to 1 1/2 inches in a 3 1/2 quart saucepan.  Bring to a boil, reduce heat and simmer.

Wisk egg yolks, salt, red pepper in a 3 quart heat resistant bowl.  Slowly add lemon juice, whisking continually.

Place bowl over simmering water and cook until mixture thickens.  Whisking continually.  This should take about 3 minutes.

Whisk butter pieces in three batches into egg mixture.  Whisk continually until butter is melted and mixture is smooth and thickened. 

Remove from heat and add shallot mixture.