The California Public Utilities Commission voted 5-0 at a San Francisco hearing to pass proposed rules that create a new class of “transportation network companies” (TNCs). (Technically these services are not considered “ridesharing” under the CPUC’s definition, which defines ridesharing as practices such as casual carpool.)
Today’s ruling makes California the first U.S. state to legalize these peer-to-peer services, which connect individual private drivers with people who are looking for a ride. The new rules could provide a guiding framework for other states nationwide that are grappling with how to regulate these new services, which aren’t taxis but also aren’t the same as traditional casual carpooling. By providing legitimacy to the sharing economy, the ruling also could tangentially provide a boost to other sharing economy companies such as Airbnb which are engaged in their own regulatory challenges as they try to get official legislation or other approvals to operate from various government bodies.
The CPUC has been engaged in legal battles, negotiations and debates with the startups and other interested parties. Last October, the CPUC issued cease and desist letters to Lyft, SideCar, Uber and Tickengo, arguing that these companies needed to be licensed, but later reached interim agreements that allowed the startups to operate.
Before the vote today, CPUC president Michael Peevey called the new services a “new pathbreaking approach” and “thoughtful and innovative.”
Under terms of the ruling, first proposed officially in July, TNC services will be required to obtain a license from the CPUC, have a minimum of $1 million in insurance, vehicle inspections, driver training programs, a “zero tolerance” policy on drugs and alcohol, and criminal background checks. The CPUC also said it will review the rules in one year to evaluate how the system is working. The startups including Lyft, Sidecar and Uber have said that they already comply with most of the requirements under the new rules.
Startup companies involved praised the new rules. “Only a year ago, the PUC was sending cease and desist letters and fining us,” said Sunil Paul, CEO of Sidecar. “We’ve come a long way in a short amount of time. It sets a good precedent.”
The ruling could have a major impact on transportation systems in the future, said John Zimmer, CEO of Lyft. “California as a leader will be the first to have this regulatory structure,” Zimmer said. “This sets the stage and creates a responsible process and common sense regulations.”
Peers, a new organization that supports the sharing economy, organized a group of more than 100 supporters and drivers to attend the hearing. The supporters packed the CPUC hearing room and erupted into applause when the proposal passed. “As the future is being determined the people building this new economy are now part of the conversation,” said Natalie Foster, executive director of Peers.
Some representatives of the taxi industry were not happy with the decision. Hansu Kim, owner of Desoto Cab Co. in San Francisco called the decision “astonishing.” Kim said the startups were essentially the same as taxis but not being regulated the same around issues such as workers compensation and insurance. “It makes a mockery of the rules. It’s unfair business practices,” Kim said.