BILL ANALYSIS                                                                                                                                                                                                    




                                                                  AB 2068
                                                                  Page A
          Date of Hearing:   April 21, 2014

                    ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
                               Steven Bradford, Chair
                   AB 2068 (Nazarian) - As Amended:  April 21, 2014
           
          SUBJECT  :   Transportation Network Companies

           SUMMARY  :   Declares Transportation Network Companies (TNCs) are  
          charter-party carriers of passengers and specifies commercial  
          insurance requirements.

           EXISTING LAW  :

          1)Article XII of the California Constitution: 

             a)   Establishes private corporations and persons that own,  
               operate, control, or manage a line, plant, or system for  
               the transportation of people or property, and common  
               carriers, as public utilities subject to control by the  
               Legislature.

             b)   Allows the California Public Utilities Commission (PUC)  
               to fix rates and establish rules for the transportation of  
               passengers and property by transportation companies.

          1)Establishes, in PUC Decision 13-09-045, rules and regulations  
            relating to public safety risks in the operation of  
            transportation services utilizing TNCs 

          FISCAL EFFECT:   Unknown.

          COMMENTS:   According to the author, "in order to prevent any  
          potential coverage disputes, cover gaps in insurance coverage  
          and ensure that the driving public is safe and properly covered,  
          AB 2068 will close the safety gap and the undue risk that  
          currently exist when transporting people for hire by defining  
          TNCs as charter-party carriers and requiring all charter-party  
          carriers to carry primary commercial insurance continuously  
          (24-7-365).

           1)Hire a driver via online-enabled application  : California law  
            currently recognizes
          and regulates three modes of passenger transportation for  
          compensation: taxi services - regulated by cities and/or  









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          counties; charter party carrier services (limousines) and  
          passenger stage companies - regulated by the PUC.  

          A niche model of transportation services has sprung up in cities  
          across the United States, including California.  Patrons can  
          simply prearrange transportation services utilizing an  
          online-enabled application on their smart phone device. Small  
          start-up companies such as Lyft, SideCar, Uber, among others,  
          have broadened the playing field by competing with traditional  
          charter-party carriers and taxi cab services in select cities in  
          California.

          Uber sends drivers in either luxury vehicles or personal  
          vehicles to pick up passengers whose credit cards are  
          automatically charged flat fees or fares calculated by GPS.   
          Lyft and SideCar connect people needing rides with drivers who  
          pick them up in personal vehicles. Fares for Lyft and SideCar  
          are calculated based on distance or by the amount you wish to  
          pay.

          2)   How does the state regulate this new business model  :  As the  
          first of its kind, this new model
          of transportation services operated for a number of years  
          without regulatory oversight in California. 

          On November 14, 2012 the PUC issued $20,000 citations to  
          charter-party carriers Lyft, SideCar, and Uber for illegally  
          operating. In December 2012, the PUC initiated a rulemaking to  
          determine whether and how services arranged through  
          online-enabled applications might affect public safety.  The PUC  
          sought comment on issues including: how the PUC's existing  
          jurisdiction should be applied to businesses such as Uber,  
          SideCar, and Lyft; the consumer protection and safety  
          implications of these new methods for arranging transportation  
          services; whether and how the new transportation business models  
          differ from longstanding forms of ridesharing; and the new  
          transportation business models' potential effect on insurance  
          and transportation access.

          In a September 2013 decision, the PUC defined a new  
          transportation business model called Transportation Network  
          Companies (TNCs) as an "organization whether a corporation,  
          partnership, sole proprietor, or other form, operating in  
          California that provides prearranged transportation services for  
          compensation using an online-enabled application (app) or  









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          platform to connect passengers with drivers using their personal  
          vehicles."

          In addition, the PUC specified safety and regulatory  
          requirements for TNC:

              The TNC must register with the PUC
              The TNC and their drivers must meet safety requirements  
               (including insurance, background checks, and vehicle  
               inspections)
              The Transportation service companies must meet PUC  
          regulatory requirements 
              Prohibits TNCs from operating at airports unless permission  
               is granted by the airport
              The TNCs are required to submit a report within 90 days of  
               the decision on how they will address the potential divide  
               for services to the disabled community
              Annual reporting requirement

          TNC's currently permitted by the PUC are Lyft, Uber-X (aka  
          Rasier), Wingz (formerly Tickengo), and Summon (formerly  
          InstantCab).  The decision makes clear the PUC's safety and  
          enforcement authority against TNCs that violate PUC regulatory  
          or safety requirements.

          In its decision, the PUC committed to revisit the issue in  
          September 2014 to review regulations, data and reports from TNCs  
          and hold an all-day stakeholder workshop. Additionally, the PUC  
          plans to review outdated safety regulations pertaining to the  
          charter-party carriers (i.e. limousines).  

          Subsequent to issuing the Decision, the Taxicab Paratransit  
          Association of California (TPAC) and Uber Technologies, Inc.  
          filed an application for rehearing in October 2013 citing, among  
          other things believes that the PUC's decision unfairly creates a  
          new class of de facto taxicab transportation that is designed to  
          be exempt from the local regulatory structure applicable taxicab  
          services pursuant to Government Code  53075.5.  Uber's  
          application for rehearing stated that Uber does not provide  
          transportation services, and as such the PUC has no jurisdiction  
          over it. According to Uber, it is just a "technology company  
          that develops software that allows a user to simply procure  
          transportation service from a licensed TCP holder. The CPUC  
          granted limited rehearing of insurance requirements, mandatory  
          drug testing, license plate requirements, and whether or not  









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          subsidiaries of Uber are TNCs. The final outcome of the  
          rehearing proceeding has yet to be determined.

           3)PUC takes a closer look at TNC regulations ahead of schedule  :  
            Last year, a TNC driver 
          fatally struck a child and injured two family members as they  
          crossed the street in downtown San Francisco. This sparked major  
          concern about who is responsible for the loss of life and  
          injuries sustained by the pedestrians of this unfortunate  
          accident.  

          In March 2013, the PUC issued an Assigned Commissioner's Ruling  
          (ACR) requesting comment on proposed modification to the  
          Decision which adopted rules and regulations for TNCs.   
          According the ACR, "the proposed modifications are in response  
          to: 1) our review of the insurance requirements we adopted and  
          their potential impact on public safety, 2) our review of the  
          policies TNCs submitted with their applications, 3) the absence  
          of a definition of "providing Transportation Network Company  
          services, and 4) what insurance coverage must be in force and  
          effect while a driver is providing TNC services."<1>

           The public comment period concluded April 7, 2014. A final  
          decision is still pending.

          4)   TNCs are charter party carriers of passengers  : This bill  
          appropriately clarifies that TNCs are charter-party carriers  
          which is consistent with the PUC's Decision which states " it is  
          reasonable to conclude that TNCs are charter-party passenger  
          carriers, and therefore we will exercise our existing  
          jurisdiction over these services pursuant to Article XII of the  
          California Constitution and the Passenger Charter-party  
          Carriers' Act, PU Code 5351 et seq".   

           5)Drawing a bright line between personal vehicle and commercial  
            insurance  : The PUC
          Decision requires TNCs to maintain commercial liability  
          insurance policies providing no less than $1 million per  
          incident coverage for incidents involving vehicles and drivers  
          while they are providing TNC services.  However, this  
          unintentionally caused confusion as to the meaning of "providing  
          TNC services" and under what circumstances does TNC insurance  
          apply.  


          ---------------------------
          <1> CPUC Assigned Commissioner's Ruling, Rulemaking 12-12-011,  
          Page 2








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          In January 2014, the California Department of Insurance (CDI)  
          advised the PUC of gaps in TNC requirements. CDI's website warns  
          drivers that their personal insurance policy does not cover  
          accidents when their cars have been used for commercial  
          purposes. In addition, the Insurance Commissioner authored a  
          letter to the PUC asking it to consider clarifying these issues  
          by requiring TNCs and their drivers to carry a more clear and  
          comprehensive insurance policy.

          AB 2068 modifies the Public Utilities Code to make TNC  
          commercial insurance the primary insurance consistent with  
          existing charter-party carriers.  However, since the current TNC  
          model requires drivers to use their personal vehicles to  
          transport passengers at their choosing, there will be many  
          instances when the TNC driver will be using the vehicle for  
          personal use and thereby covered by their personal auto policy.   
          Due to the complex nature of this provision concerning  
          commercial insurance policies, it will be addressed in Assembly  
          Insurance Committee.

           6)Keeping the TNC driver informed:   Irrespective of what  
            insurance requirements are
          determined, the committee is concerned with ensuring drivers are  
          properly noticed and educated about the applicable TNC insurance  
          coverage.   Therefore, this author and this committee may wish to  
          require the add following provision to PU Code 5391: "The  
          commission shall develop a standard disclosure agreement that  
          provides information about 1) insurance  coverage, 2) limits of  
          liability,  and 3) advises that the driver's personal automobile  
          insurance policy may not provide coverage while the driver makes  
          himself or herself available for services as part of a written  
          agreement made between drivers who offer services and a  
          charter-party carriers of passengers that utilizes an  
          online-enabled application or platform to connect passengers  
          with drivers. Each standard disclosure agreement must be in  
          writing and signed by the driver. Disclosure agreement records  
          are subject to review and audit by the commission at the  
          commission's discretion."
           
           7)Support  :  TPAC, the bill sponsors, opine that AB 2068 "updates  
            state law to include online
          enabled transportation companies in the codes governing Charter  
          Party Carriers." In terms of the provision which requires  
          commercial auto liability insurance to be the primary policy,  









                                                                  AB 2068
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          TPAC argues that "commercial auto liability insurance is the  
          only insurance product on the market today that will cover  
          vehicles, drivers and passengers in any situation - whether  
          driving for work, personal or picking up street hails."   
          Moreover TPAC argues that "CPUC did not require the commercial  
          insurance to be primary."  According to TPAC, "there is no other  
          insurance product on the market today that provides coverage at  
          all times that these vehicles are on the road."  

           8)Opposition  :  Uber opposes AB 2068 countering that "Uber's TNC  
            subsidiary Rasier already
          holds a policy that provides coverage for every aspect of a trip  
          that is more than triple the coverage required by drivers in  
          California. Our ridesharing insurance policy offers $1,000,000  
          of commercial insurance from the moment the App connects a  
          driver with a rider, until the driver drops the rider off. There  
          is also $1,000,000 of uninsured/underinsured motorist coverage  
          and $50,000 of contingent comprehensive and collision coverage.  
          Uber provides a contingent liability policy during this time at  
          $50,000/$100,000/$25,000, when California only requires  
          $15,000/$30,000/$5,000. Rather, drivers and riders using Uber's  
          rideshare request platform are covered by insurance in excess of  
          the amounts required by other California drivers."

          Lyft also opposes the bill stating "AB 2068 would only serve to  
          undo the many benefits that the peer-to-peer transportation  
          model has already provided to Californians by imposing  
          significant and unnecessary restrictions that ignore the  
          fundamental nature of peer-to-peer transportation without any  
          corresponding public safety benefits.  The PUC recognized that  
          instead of requiring each individual driver to obtain commercial  
          registration, requiring the TNC itself is the most appropriate  
          and efficient means of scale peer-to-peer transportation in  
          California. The only way that the full vision of real-time  
          ridesharing will be realized is if Lyft takes on certain burdens  
          and removes them from individual drivers."

           9)Related legislation  :  AB 2293 (Bonilla, 2014) also addresses  
            the issue of TNCs by specifying
          insurance requirements, proper disclosure agreements, among  
          other things.  This bill will be heard in U&C Committee on  
          Monday, April 28th.

           REGISTERED SUPPORT / OPPOSITION  :   










                                                                  AB 2068
                                                                  Page G
           Support 
           
          None on file

           Opposition 
           
          Lyft
          The Internet Association
          Uber Technologies, Inc. (Uber)
           
          Analysis Prepared by  :    DaVina Flemings / U. & C. / (916)  
          319-2083