CPUC Creates New Category of Transportation Company
On September 19 the California Public Utilities Commission (CPUC) published its decision from a rulemaking session about new transportation companies such as Uber, Lyft, and Sidecar. The decision is a strong victory for new transportation companies, but also leaves open a number of questions. My main takeaways are below.
1) The new category of company is titled a “Transportation Network Company” or TNC. According to the CPUC a TNC is: “A Company or organization, operating in California that provides transportation services using an online-enabled platform to connect passengers with drivers using their personal, non-commercial, vehicles.” (CPUC 65).
A) First, this is a strong victory for Lyft, UberX, and Sidecar. The definition essentially describes exactly the type of services those companies provide. The decision legalizes their business model and later tacks on requirements such as criminal background checks, and minimum insurance levels.
B) However, Uber’s core service that involves the use of licensed livery-car drivers and “black car” sedans, which are owned by livery car companies, is not included under this definition. The TNC definition requires the drivers use their “personal, non-commerical, vehicles.” It will be interesting to see how this develops. I imagine some black car drivers already own their own vehicles, but if they use them for their job at an established livery company, it may be hard to classify them as “non-commercial” vehicles. (CPUC 26).
This may explain Uber’s surprisingly hard line argument throughout the rulemaking process, in contrast to Lyft and Sidecar’s relatively cooperative arguments. Uber essentially argued that the CPUC absolutely does not, and should not have jurisdiction over them. Uber stuck to the argument that they are not a transportation company at all and are only a software platform that connects drivers and passengers. Uber also argued extending Commission regulations would conflict with Federal and State policies involving information service providers. This may merit its own post for further discussion.
2) Picking up Street Hails will remain the exclusive domain of Taxis. The CPUC states that TNC drivers may only transport passengers on a prearranged basis. (CPUC 20). For the purpose of TNC services, a ride is prearranged “if the ride is solicited and accepted via a TNC digital platform before the ride commences.” TNCs are “strictly” prohibited from picking up people impromptu on the street like a taxi.
A) This is somewhat of a victory for Taxis, but may prove not that important of a distinction. With modern smartphones and apps, a ride may be “prearranged” even if a car can be called within seconds. The CPUC asserts two rather subtle guidelines for how rides are “prearranged” by TNCs.
First, before a passenger can even request a ride, the passenger has to download the TNCs “app” and agree to a TNC’s service agreement. There is no such “agreement” when you enter a taxi. Thus, the CPUC states, using a given TNC is at the sole discretion of the user because they chose which TNC service to use.
Second, the CPUC requires that for any particular trip with a TNC the passenger must input both current location and trip destination. In this way, a trip is prearranged because both parties know the pickup location and trip destination. The TNCs must keep a copy of this information, which is considered an “electronic waybill.”
This is interesting because it’s different than the way Uber and Sidecar currently operate. There are ways for users to enter the end location, but it’s not required. It also often changes while the passenger is in the vehicle. It will be interesting to see if the CPUC will allow the proposed waybill before a ride is ordered to be different than the eventual provided ride – or if that violates the notion of “prearranged.”
In an abstract sense, these requirements seem to fit the definition of prearranged. However, as a practical business matter, and the currency that drives all transportation companies – time – this is a minor differentiation. Users want convenient transportation from point A to point B as quickly as possible. If it takes the exact amount of time (or less) to enter a “to and from” destination and hail a TNC as it does to “street hail” a Taxi, this creates no real difference between the services. I would argue this is another victory for TNCs.
3) The CPUC outright rejects Lyft and Sidecar’s contention that the services operate for a “donation” and not a fee. (CPUC 19). Lyft and Sidecar argued that their business model only supports “voluntary” payments and are thus donations that should not be regulated.
The CPUC refers to previous rulings that transportation offered by business enterprises without monetary charge still fits under the definition of “compensation” if the organization sponsoring the trip receives a “business benefit.” Even if the payment is voluntary, Sidecar and Lyft still take a percentage fee of the donation and receive a business benefit. At a minimum, the CPUC reasons that the increased patronage and usage of the smartphone application for each service contributes to the growth of the business. This falls under the definition of business benefit.
4) The CPUC is staying out of the jurisdiction of airports to allow them to create their own regulations. The transportation of individuals to and from the airport is a major source of revenue for these companies. Uber charges a flat rate to travel to SFO for instance, and all the companies have encountered crackdowns on their services within the confines of airports.
The CPUC decision puts it quite bluntly, “TNCs shall not conduct any operations on the property of or into any airport unless such operations are authorized by the airport authority involved.” (CPUC 33). This may provide airports with additional leverage, because repeated infractions may allow the CPUC to revoke TNC status, which would be devastating to a young company.
5) Interestingly, TNC status will only be granted to companies “utilizing smart phone technology” to coordinate transportation of passengers. (CPUC 25). This seems overly absolute by the CPUC. Why can’t services use 3G enabled iPads or tablets that use chat, or VOIP, as the main means of communication? Where do you draw the line between today’s large touchscreen “smartphones” and small tablets? Is this a necessary distinction? This may not prove significant down the line, but it reflects some of the disconnect between regulation and evolving technology – the lines between smartphone and other devices are still in flux.
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