BILL ANALYSIS                                                                                                                                                                                                              1





                SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
                                 ALEX PADILLA, CHAIR
          

          AB 612 -  Nazarian                                Hearing Date:   
          June 17, 2014              A
          As Amended:         June 10, 2014            FISCAL       B
                                                                        
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                                      DESCRIPTION
           
           Current law  authorizes the California Public Utilities  
          Commission (CPUC) to regulate various transportation services,  
          including charter-party carriers of passengers, defined to mean  
          persons engaged in the transportation of persons by motor  
          vehicle for compensation on a prearranged basis over any public  
          highway in California, but not including taxicabs licensed or  
          regulated by local agencies. (Public Utilities Code  5360 and  
          5360.5)

           Current CPUC decision  establishes transportation network company  
          (TNC) as a new category of charter-party carriers subject to its  
          jurisdiction and defines a TNC as an organization operating in  
          California that provides prearranged transportation services for  
          compensation using an online-enabled application (app) or  
          platform to connect passengers with drivers using their personal  
          vehicles (D. 13-09-045).

           Current law  and CPUC decisions require charter-party carriers  
          with seating capacity for up to seven passengers (limousines) to  
          carry $750,000 commercial liability insurance effective  
          full-time. (Public Utilities Code  1040, General Order 115-F)

           Current CPUC decision  requires each TNC to maintain commercial  
          liability insurance policies providing not less than $1 million  
          coverage per incident involving a vehicle and driver while  
          "providing TNC services."

           This bill  would require all charter-party carriers, including  
          TNCs, to have $750,000 primary commercial automobile insurance  
          effective full-time.












           Current law  requires personal automobile insurance with minimum  
          liability coverage of at least $15,000 for death and personal  
          injury, $30,000 for death or injury of two or more persons, and  
          $5,000 for property damage (15/30/5), and excludes coverage for  
          any commercial use of a vehicle under a personal automobile  
          insurance policy. (Insurance Codes  660 and 11580.1)
           
          This bill  requires TNCs to disclose to its drivers, in a  
          standard written disclosure agreement signed by each driver,  
          information about insurance coverage and an advisory that  
          personal automobile insurance may not provide coverage when  
          operating as a charter-party carrier.  

          Current law  requires charter-party carriers to enroll in the  
          California Department of Motor Vehicle (DMV) Employer Pull  
          Notice program to receive automatic notice of adverse entries or  
          actions on a driver's driving record (Public Utilities Code   
          5384 and Vehicle Code  1808.1)

           Current CPUC decision  requires TNCs to participate in the DMV  
          Employer Pull Notice program once non-employees are allowed, but  
          in the meantime requires TNCs to check driving records prior to  
          approving a TNC driver and quarterly thereafter. 

           This bill  requires charter-party carriers, including TNCs, to  
          participate in the DMV program to regularly check the driving  
          record of any driver employed by, or under contract to, the  
          carrier to operate a vehicle in transportation for compensation.

           Current law  requires a charter-party carrier to provide for a  
          mandatory controlled substance and alcohol testing certification  
          program as adopted by the CPUC, which includes pre-employment,  
          post-accident, reasonable suspicion, follow-up, and  
          return-to-duty testing.  

           Current CPUC decision  requires TNCs to implement a  
          zero-tolerance policy for its drivers, disclose to riders how to  
          report a driver suspected of being under the influence of  
          intoxicating substances, and suspend a driver promptly after a  
          zero-tolerance complaint is filed.

           This bill  requires a charter-party carrier, including a TNC, to  
          provide for a mandatory controlled substance and alcohol testing  










          certification program as adopted by the commission. 

           Current CPUC decision  requires TNCs to conduct criminal  
          background checks for each applicant before becoming a TNC  
          driver, which must utilize a national check and sex offender  
          database, with specified offenses making an applicant  
          ineligible. 

           This bill  requires a charter-party carrier, including a TNC, to  
          utilize a Department of Justice (DOJ) background check with  
          electronic fingerprints for driver applicants, with specified  
          offenses making an applicant ineligible.

          Current CPUC decision  require charter-party carriers to have  
          permanent markings, registration number, and a CPUC-issued decal  
          on vehicles.  (General Order 157-D) 

           Current CPUC decision  requires TNCs to have "trade dress" on  
          each vehicle providing TNC services that is visible to a  
          passenger or law enforcement official, although it may be  
          removable.

           This bill  requires charter-party carriers, including TNCs, to  
          permanently display a CPUC-issued decal on the vehicle and  
          requires TNCs to register any vehicle used for TNC services with  
          the CPUC.

                                      BACKGROUND
           
          Smartphones Transform How to Get a Ride - The Internet and  
          proliferation of smartphones have transformed many aspects of  
          life and commerce, including how to get a ride. Instead of  
          hailing a cab, or calling a reservation car service, a growing  
          number of consumers are using new app-based services that  
          connect drivers with passengers. With GPS and geolocation  
          technology as the foundation of the business model, companies  
          such as Uber, Lyft, and RideShare enable customers to download  
          an app that alerts participating drivers in the area of the need  
          for a ride.  Drivers with their TNC app turned on get a signal  
          on their smartphones and can accept or reject the ride request.   
          The customer can see photos of responding drivers and their  
          vehicles, as well as customer ratings of each driver and accept  
          or reject the driver.  When a passenger and driver make a match,  
          the ride is provided, and payment is made electronically on the  










          smartphone, with drivers getting a portion.

          App-based ride services were born in California and began  
          operation in the Bay Area in 2012.  Uber, the largest ride  
          service company, is now available in more than 100 cities in 35  
          countries and was recently valued at about $17 billion.

          Drivers with these new services use their own vehicles and most  
          have other jobs.  Lyft reports that 54 percent of its drivers  
          have a full-time job, 30 percent work part-time, with more than  
          a third driving less than 5 hours a week, and only 10 percent  
          driving more than 30 hours per week. Some drivers turn on their  
          app and accept riders in their spare time or focus on weekends  
          and evenings in busy entertainment districts when "surge" fares  
          are in effect. Uber has two models - Uber drivers who are  
          licensed limousine drivers, and UberX drivers using their own  
          vehicles.  Many taxi drivers also are signing up with the new  
          services to supplement taxi income or switching fulltime to the  
          new model.
            
          Varied Public Safety Regulations for Different Transportation  
          Modes - The CPUC regulates many types of transportation,  
          including "passenger stage corporations" and "charter party  
          carriers" that transport persons by motor vehicle for  
          compensation on a prearranged basis.  The "Passenger  
          Charter-Party Carriers Act," first enacted in 1961, contains  
          numerous special provisions, exclusions, classifications, and  
          permits for a wide range of transportation modes including a  
          limousine with seating capacity up to eight passengers, a bus  
          with capacity up to 15 passengers, a large bus with 16 or more  
          passengers, as well as vehicles used for nonprofit ridesharing,  
          round-trip sightseeing, youth camps, farmworkers, motel guests,  
          hot air balloon ride passengers, school children, and more.   
          Different insurance and other requirements apply depending on  
          the size and use of vehicles and other factors.  
           
          Taxicabs are excluded from the definition of charter-party  
          carrier, with the key distinction being that charter-party  
          carrier transport must be prearranged through written contract  
          or telephone and not be through street hails.  Thus, taxis are  
          exempt from CPUC regulation and instead are regulated by cities  
          and counties.  Airports also have regulations and permit  
          requirements for all types of vehicles.  











          The last major revision of the "Passenger Charter-Party Carriers  
          Act" was in 1990 in response to what news reports called a "Gold  
          Rush-like boom in the limousine industry" after the 1984  
          Olympics in Los Angeles when chauffer service proved profitable.  
           Taxis and licensed limousine operators called for more  
          regulation and enforcement against "bandit" limousines that were  
          operating without a license and commercial insurance, and,  
          according to the Los Angeles Checker Cab Company, "represent a  
          threat to healthy competition in the transportation industry and  
          to public safety and welfare."  Airports especially responded  
          with increased enforcement, claiming the CPUC had abdicated its  
          enforcement.  AB 1506 (Moore) clarified CPUC and airport  
          enforcement and revised requirements applicable to limousines,  
          among other changes.  

          CPUC Begins Regulation of Transportation Network Companies - In  
          a September 2013 decision, the CPUC began regulation of the new  
          app-based ride services. The CPUC exercised its jurisdiction  
          over charter-party carriers, but created a distinct new category  
          called Transportation Network Companies (TNCs).  In order to  
          balance innovation, consumer choice, and public safety, the CPUC  
          tailored specific new rules in response to the introduction of  
          new technology into an existing industry. The decision requires  
          TNCs to obtain a permit from the CPUC, conduct criminal  
          background checks of drivers, establish a driver training  
          program, implement a zero-tolerance policy on drugs and alcohol,  
          conduct vehicle inspections, and obtain authorization from  
          airports before conducting any operations on or into airport  
          property. The decision also requires each TNC to maintain  
          commercial liability insurance policies providing not less than  
          $1 million per-incident coverage for incidents involving  
          vehicles and drivers "while they are providing TNC services."

          The Insurance Gap - Several incidents in recent months,  
          including a death on New Year's Eve in San Francisco, brought to  
          light a serious gap in insurance coverage in connection with TNC  
          service.  While the CPUC decision required coverage while  
          "providing TNC services," the debate has centered on how to  
          define "providing TNC services," generally described as  
          involving three distinct periods:
               Period 1 - driver turns app on waiting for a passenger  
               match;
               Period 2 - match accepted but passenger not yet picked up;  
               and










               Period 3 - passenger in the vehicle until passenger exits  
               the vehicle.
           
          On April 7th, after an investigative hearing, the California  
          Department of Insurance notified the CPUC of its conclusion that  
          "as long as TNCs are encouraging non-professional drivers to use  
          their personal vehicles to drive passengers for a profit, a risk  
          for which personal automobile insurance is not available, TNCs  
          should bear the insurance burden."  CDI stated that drivers'  
          existing personal automobile insurance does not cover  
          TNC-related driving and that adding TNC exposure to the personal  
          automobile insurance pool may increase personal automobile  
          insurance rates.  "CDI concludes that personal auto insurers  
          should not be mandated to cover a risk which is associated with  
          the business model of the TNCs."  The CDI recommended that the  
          $1 million primary commercial liability insurance should apply  
          to all three periods.
           
          New CPUC Proposed Decision Requires App-on to App-off Insurance  
          - The CPUC issued a proposed decision on June 11th to clarify  
          "providing TNC services" as whenever the TNC driver has the app  
          open and/or is available to accept rides from a subscribing TNC  
          passenger, thereby applying the $1 million commercial liability  
          insurance requirement as primary during all three periods.  The  
          proposed decision also requires medical payment coverage in the  
          amount of $5,000, comprehensive and collision coverage in the  
          amount of $50,000, and uninsured/underinsured motorist coverage  
          in the amount of $1 million per incident. The CPUC's proposed  
          decision states that a TNC may satisfy the insurance  
          requirements with its own policy or in combination with a TNC  
          driver's policy specifically written for that purpose, further  
          stating "we encourage the insurance industry to create new  
          products specific to TNC drivers." 

          The proposed decision is open to public comment and eligible for  
          a vote at the CPUC's July 10 public meeting. The CPUC plans to  
          convene a workshop by September 2014 to get an update on TNC's  
          commercial insurance policies and how these policies have  
          performed.  

          Colorado Enacts First TNC Law - On June 5, 2014, Colorado became  
          the first state to enact a law recognizing TNCs with regulations  
          substantially similar to the CPUC's decision, except for  
          insurance requirements.  For Period 1 (app-on before match), the  










          law requires a driver or TNC to maintain a primary auto policy  
          with 50/100/30 coverage that is either a commercial policy or a  
          rider to a personal automobile insurance policy.  Recognizing  
          the nascent nature of the TNC business and lack of actuarial  
          data to establish insurance rates, the law also requires the  
          state insurance agency to conduct a study to determine whether  
          the levels of coverage required under the bill are appropriate  
          for the risk posed by TNC services.

          Enforcement of Ongoing Public Safety Concerns - On June 10,  
          2014, the CPUC President sent letters to each TNC with a CPUC  
          permit admonishing them for violating rules regarding services  
          provided at airports.  The letter describes concerns raised by  
          five major airports that TNC drivers have been operating at  
          airports without permits and are not complying with rules in the  
          TNC decision.  According to the letter, many TNC drivers lacked  
          proof of insurance and at least two lacked valid driver's  
          licenses.  On some occasions, airport officers have observed a  
          TNC driver using the account of another registered driver.   San  
          Francisco International Airport (SFO) alone reports that out of  
          about 300 contacts with drivers for TNCs, 70 percent failed to  
          display the proper "trade dress."  Drivers will typically  
          respond to inquiries from airport officers that they did not  
          know what they were doing was illegal or that a permit from the  
          airport was needed.  

          SFO reports the following data from its enforcement officials  
          regarding TNC drivers at SFO from April 16 to June 2, 2014:
                 298 contacts resulting in verbal admonishments for  
               violating CPUC decision;
                 10 drivers with 2 admonishments, no citations yet;
                 55% able to present complete waybill (with photo of  
               driver, license plate of vehicle and proof of TNC trip in  
               progress);
                 15% of drivers had complete, properly displayed trade  
               dress;
                 8% of drivers had some trade dress displayed, but not  
               correctly;
                 77% of drivers did not have any trade dress displayed;
                 21 drivers cited for 28 Vehicle Code violations; 9 for  
               no proof of insurance, 5 for improper display of license  
               plate, 8 for no registration certificate, 2 for unlicensed  
               driver, 2 for no possession of driver's license, 1 for  
               expired registration and 1 for no CPUC license number; and










                 25 vehicles were being operated by persons other than  
               the registered owner.

                                       COMMENTS
          
             1.   Author's Purpose  .  According to the author, this bill  
               applies basic consumer safety requirements that currently  
               apply to other entities that transport people for hire to  
               online-enabled transportation companies, including  
               commercial liability insurance that covers the driver,  
               passengers, and the public in all situations; drug testing  
               and LiveScan criminal background checks of drivers; DMV  
               pull notices that send alerts of driver DUIs and moving  
               violations; and permanent vehicle markings to aid  
               enforcement against violations.


              2.   Creating a Level Playing Field  .  This bill imposes  
               requirements equally on charter-party carriers, including  
               carriers that utilize an online-enabled application or  
               platform to connect passengers with drivers.  The bill does  
               not refer to these carriers as TNCs.  The effect is to undo  
               the CPUC's conclusion that TNCs are a special category of  
               charter-party carriers subject to different regulations  
               because of the technology used to prearrange a ride. 

              3.   A Lower Amount of Insurance Coverage But Effective  
               Fulltime  .  This bill makes TNCs subject to the same  
               $750,000 insurance requirement that currently applies to  
               charter-party carriers with seating capacity for up to  
               seven passengers. That amount is less than the $1 million  
               coverage the CPUC decision requires for TNCs, but it must  
               be primary insurance effective fulltime, while the CPUC's  
               $1 million coverage is required only while "providing TNC  
               services."  As stated by the sponsor, requiring primary  
               commercial coverage is appropriate "because it covers all  
               situations - whether driving commercially or for personal  
               use.  It works because it is underwritten for the higher  
               risks associated while driving commercially.'  Airports  
               support this requirement because it ensures that a TNC  
               driver will have coverage whenever on airport property,  
               regardless of whether the TNC app is on or not.  
                
               Taxicab groups state that TNCs are de facto taxis and  










               should be required to have full-time commercial livery  
               insurance.  The San Francisco Cab Drivers Association claim  
               to have identified 3,500 to 6,500 TNC vehicles operating in  
               San Francisco in recent months compared to 1,900 licensed  
               taxis, which "have caused extreme congestion, adding  
               obstacles, danger and higher risk to the roadways."  They  
               point to dangers when TNC drivers shut off their apps while  
               driving from less lucrative areas to "surge pricing zones"  
               where they can make up to several times the normal fare,  
               such as entertainment districts or the ballpark when a game  
               ends. Requiring commercial insurance only when a TNC  
               driver's app is on also could result in insurance fraud if  
               TNC drivers leave their apps on just to get coverage  
               through the TNC policy.

               TNCs oppose this requirement stating that it fails to  
               recognize that TNC drivers use their personal vehicles for  
               TNC services, many only occasionally or part-time. AB 2293  
               (Bonilla), also before this committee, requires primary  
               commercial coverage from app-on to app-off.  TNCs have  
               proposed amendments to AB 2293 to require a lower level of  
               coverage in Period 1.  
                
             4.   Informing Drivers of Insurance Coverage Limitations.  
               This bill requires TNCs to disclose to its drivers, in a  
               standard written disclosure agreement signed by each  
               driver, information about insurance coverage and an  
               advisory that personal automobile insurance may not provide  
               coverage when operating as a charter-party carrier.  This  
               will help ensure that all drivers are fully aware of the  
               coverage they have while working with a TNC and also  
               prevent the false impression that personal auto insurance  
               will cover such activity.  Many drivers may be unaware of  
               the standard livery exclusion in personal auto policies  
               and, without notice, may not review their personal policy  
               to see if coverage for commercial use of a vehicle is  
               exclusion. The bill also makes a TNC's written disclosure  
               agreements subject to review and audit by the CPUC in order  
               to ensure compliance.

              5.   More Rigorous Drug and Alcohol Testing for all Carriers  .  
                Current law requires charter-party carrier drivers  
               operating vehicles with seating capacity of up to 15 to  
               comply with the CPUC's drug and alcohol testing program,  










               which includes pre-employment testing, post-accident  
               testing, reasonable suspicion testing, follow-up testing,  
               and return-to-duty testing. The CPUC decision requires TNCs  
               to implement a zero-tolerance policy for its drivers,  
               disclose to TNC passengers how to report a driver suspected  
               of being under the influence of intoxicating substances,  
               and suspend a driver promptly after a zero-tolerance  
               complaint is filed.  This bill requires a charter-party  
               carrier, including a TNC, to provide for a mandatory  
               controlled substance and alcohol testing certification  
               program as required by Public Utilities Code Section  
               1032.1, which is applicable to employees of a passenger  
               stage corporation, a large bus that seats more than 16  
               passengers.  This would impose a higher standard than  
               currently applies to either limousine drivers or TNC  
               drivers, but it may be difficult for TNCs to comply with  
               because their drivers are not employees.

              6.   More Thorough Background Checks for all Carriers  .   
               Charter-party carriers currently are not required to  
               conduct any criminal background checks on their drivers.   
               The CPUC decision requires TNCS to conduct criminal  
               background checks for each applicant before becoming a TNC  
               driver, which must utilize a national check and sex  
               offender database, with an applicant being ineligible if  
               convicted in the past seven years of driving under the  
               influence of drugs or alcohol, fraud, sexual offenses, use  
               of a motor vehicle to commit a felony, a crime involving  
               property damage, and theft, acts of violence, or acts of  
               terror.  This bill requires a DOJ background check based on  
               electronic fingerprints that is widely viewed as being more  
               comprehensive to screen out bad actors.  According to the  
                     sponsor and supporters of the bill, this DOJ check is an  
               inexpensive and fast way to obtain reliable criminal  
               background information from the Federal Bureau of  
               Investigation and DOJ and provides information that is not  
               publicly available. Also, LiveScan results are sent  
               directly to the public agency that regulates the driver.   
               It is a standard recognized way of obtaining criminal  
               background information for occupations such as private  
               security guards and other regulated professions. Thus, this  
               provision, by establishing a higher standard for background  
               checks for both TNCs and charter-party carriers, could  
               improve public safety for passengers of both types of  










               transportation.

              7.   Permanent Vehicle Markings Assist Enforcement  .   
               Charter-party carriers currently are required to have a  
               permanent marking on vehicles with a license number and  
               decal issued by the CPUC. The CPUC decision requires TNCs  
               to "display consistent trade dress (i.e., distinctive  
               signage or display on the vehicle) when providing TNC  
               services." It requires trade dress to be sufficiently large  
               and color contrasted as to be readable during daylight  
               hours at a distance of at least 50 feet and sufficient to  
               allow a passenger or government official to associate the  
               vehicle with a TNC provider.  Magnetic or removable trade  
               dress is acceptable. Vehicle markings are a valuable tool  
               for law enforcement, airports and the public to readily  
               identify and report unsafe or prohibited driving or picking  
               up street hails, and to identify a carrier involved in an  
               accident.  They enable airport officials to enforce  
               requirements to have a permit to operate on airport  
               property.  Supporters of this bill object to the CPUC's  
               requirement that TNC trade dress be removable. 

              8.   DMV Employer Pull Notice Applicable to TNCs  .  This bill  
               would apply to TNCs the same requirement applicable to  
               charter-party carriers to participate in the DMV Employer  
               Pull Notice. This program provides employers and regulatory  
               agencies with a means of promoting driver safety through  
               the ongoing review of driver records.  The program  
               automatically generates a driver record and sends a copy to  
               the employer on enrollment of the driver; annually from the  
               date of enrollment; or when a driver has a conviction or an  
               accident, suspension, revocation of the license or any  
               other action taken against the driving privilege; and other  
               occasions.  TNCs have been unable to enroll in the program  
               because their drivers are not considered "employees" as  
               usually required.  Like this bill, the CPUC decision also  
               required TNCs to participate, and encouraged DMV to amend  
               the requirements of the program to allow TNCs to  
               participate.  Until that happens, the CPUC requires TNCs to  
               check driving records prior to approving a TNC driver and  
               quarterly thereafter.  To be effective in applying to TNCs,  
               this bill should also amend Vehicle Code Section 1808.1 to  
               require participation for non-employees.











              9.   Related Legislation  . 

               AB 2068 (Nazarian) defines TNCs as charter-party carriers  
               and requires insurance coverage and disclosures.  Status:  
               Failed passage in the Assembly Committee on Insurance. 

               SB 1408 (Hill) prohibits unregulated transportation  
               operators from taking passengers to public airports.  
               Status: Held in the Senate Committee on Rules.

               AB 2293 (Bonilla) requires TNCs to have primary commercial  
               liability insurance from app-on to app-off. Status: Set for  
               hearing in the Senate Committee on Energy, Utilities and  
               Communications June 17th.

              10.  Ratepayer Impact  .  TNCs pay the CPUC permit fees but do  
               not have regulated rates.

              11.  Double Referral  .  Should this bill be approved by the  
               committee, it will be re-referred to the Senate Committee  
               on Insurance for its consideration.  

                                    ASSEMBLY VOTES  *  
           
          Assembly Floor                     (72-1)
          Assembly Transportation Committee  (15-0)
          *Prior votes not relevant.

                                       POSITIONS
           
           Sponsor:
           
          Taxicab Paratransit Association of California

           


          Support:
           
          Association for Los Angeles Deputy Sheriffs
          California Airports Council
          California Fraternal Order of Police
          Consumer Attorneys of California
          Long Beach Police Officers Association










          Los Angeles County Professional Peace Officers Association
          Los Angeles Police Protective League
          Riverside Sheriffs' Association
          Sacramento County Deputy Sheriffs Association
          San Francisco International Airport
          Santa Ana Police Officers Association
          National Taxi Workers Alliance
          New York Taxi Workers Alliance
          United Taxicab Workers

           Oppose:
           
          Lyft
          The Internet Association

          





















          Jacqueline Kinney 
          AB 612 Analysis
          Hearing Date:  June 17, 2014