BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 1524
                                                                  Page  1

          Date of Hearing:   March 19, 2012

                        ASSEMBLY COMMITTEE ON TRANSPORTATION
                               Bonnie Lowenthal, Chair
                  AB 1524 (Allen) - As Introduced:  January 19, 2012
           
          SUBJECT  :  Commercial carriers: hot air balloons

           SUMMARY  :  Eliminates the sunset date for the exemption for 
          commercial balloon operators from regulation by the California 
          Public Utilities Commission (CPUC) and extends, indefinitely, 
          the requirements for insurance coverage and local notifications 
          that are set to expire on January
          1, 2013.  

           EXISTING LAW  :  

          1)Exempts, until January 1, 2013, commercial balloon operators 
            from regulation by the CPUC and requires commercial balloon 
            operators to maintain a minimum of $1 million of liability 
            insurance for a balloon carrying up to 10 passengers, with 
            additional liability coverage of $100,000 for every additional 
            passenger.  

          2)Requires, until January 1, 2013, a commercial balloon operator 
            to display their business license only within the city or 
            county that is the person's primary place of business 
            frequented by customers and potential customers.  

          3)Imposes, until January 1, 2013, a state-mandated local program 
            by requiring local governments to give reasonable notice of 
            the evidence of insurance coverage requirement with any 
            business license renewal notification and to maintain as a 
            public record every business license issued by the local 
            government to a person providing transportation by hot air 
            balloon for hire.  A local government is authorized to charge 
            a reasonable fee for purposes of carrying out these 
            provisions.  

          4)Excludes from the definition of "commercial air operator" a 
            person furnishing or providing transportation by hot air 
            balloon for hire and excludes from the definition of 
            "aircraft" a hot air balloon.  

          5)Requires the CPUC to require every commercial air operator, as 








                                                                  AB 1524
                                                                  Page  2

            defined, to procure, and continue in effect, adequate 
            protection against liability for personal bodily injuries and 
            property damage as a result of an accident, that may be 
            imposed by law upon the operator and upon any person using, 
            operating, or renting an aircraft, as defined, with the 
            permission of the operator.  

          6)Makes it a misdemeanor to fail to obtain and maintain a 
            current valid local business license as required or to fail to 
            maintain insurance as required.  

           FISCAL EFFECT  :  Unknown

           COMMENTS :  Before 2005, commercial operators of hot air 
          balloons, who primarily provide sightseeing rides for tourists, 
          were regulated by the CPUC as commercial air operators.  Because 
          they were lumped in with other commercial air operators such as 
          small aircraft engaged in cargo, charter, and sightseeing 
          services, these hot air balloon operators were subject to 
          increasingly expensive and limited liability insurance 
          requirements.  As a result of the standards established by the 
          CPUC, insurers withdrew from the hot air balloon liability 
          insurance market, offered coverage that did not meet the 
          criteria set under the rules, or offered insurance coverage that 
          was cost prohibitive for the business.  

          According to the author, "From 2000-2004, the number of 
          insurance companies providing hot air balloon insurance dwindled 
          from several to two, primarily due to the events of September 
          11, 2001, and poor performance of insurance companies' 
          portfolios.  In 2004, balloon operators expressed concerns about 
          the ballooning cost of liability insurance, the lack of 
          availability of such insurance, and frustration with the 
          regulatory mechanisms of the CPUC.  They contended that 
          California was the only state to establish minimum liability 
          requirements for commercial ballooning and that California had 
          the lowest accident rate among the major ballooning states."  
          Also, Susan Kennedy, CPUC commissioner, expressed in a letter 
          dated April, 2004, to the CPUC that the CPUC has absolutely no 
          business regulating hot air balloons as they are not true 
          transportation and that some other state agency, not the CPUC, 
          should ensure that hot air balloon operators maintain an 
          appropriate level of insurance.  

          Responding to the concern of the CPUC-regulated hot air balloon 








                                                                  AB 1524
                                                                  Page  3

          industry, AB 2430 (Wiggins), Chapter 881, Statutes of 2004, with 
          the support of the CPUC, was enacted that removed commercial 
          balloon operators from CPUC's jurisdiction, as well as 
          established minimum insurance requirements, required 
          notification to passengers of the operator's liability coverage, 
          and required proof of coverage to the local government entity 
          granting the ballooning company a business license.  These 
          changes were made effective for four years to allow experience 
          with the new rules.  

          Subsequently, as the provisions of AB 2430 were set to expire on 
          January 1, 2009, legislation was enacted, SB 911 (Wiggins), 
          Chapter 706, Statutes of 2008, that extended from January 1, 
          2009, to January 1, 2013, the sunset dates on provisions 
          regulating commercial balloon operators and the minimum 
          liability insurance and noticing requirements.  

          To contend with the impending sunset date, this bill removes the 
          January 1, 2013, sunset date and extends, indefinitely, the 
          exemption for commercial balloon operators from the jurisdiction 
          of the CPUC as well as other insurance and local notification 
          requirements.  The author contends that "the Legislature removed 
          hot air balloon operators from the CPUC's jurisdiction on a 
          temporary basis in 2004 and again in 2008.  To date, the CPUC 
          has reported no negative consequences caused by the shift from 
          state to local regulation.  AB 1524 will permanently remove the 
          hot air balloon industry from the CPUC's jurisdiction and 
          protect small businesses owners from any future unnecessary and 
          cost prohibitive regulations."   

           Affected Industry  :  According to the author's office, there are 
          approximately 30-50 companies in California offering hot air 
          balloon rides, almost all for compensation.  These companies are 
          located throughout California operating in the Napa and Sonoma 
          Valleys, the Palm Springs/Palm Desert area, Los Angeles/Ventura, 
          and the San Diego areas.  Additionally, since 2005, as several 
          new insurance companies started offering liability insurance for 
          commercial operators of hot air balloons, the price of this 
          insurance has declined, and the industry's overall safety record 
          has not significantly changed.  Further, the author's office 
          indicates that, since 2008, there have only been a few accidents 
          with none resulting in fatalities.  

           Arguments in Support of the bill  :  Writing in support of this 
          bill, the CPUC contends that "The Legislature removed hot air 








                                                                  AB 1524
                                                                  Page  4

          balloonists from the CPUC's oversight in 2004 after the industry 
          made a convincing argument that the CPUC's insurance 
          requirements for "aircraft" were not appropriate to hot air 
          balloons.  Since that time, cities and counties have had the 
          authority to require balloonists operating in their jurisdiction 
          to obtain a business license and to provide evidence of not less 
          than $1,000,000 in liability insurance coverage.  The CPUC's 
          Consumer Protection and Safety Division (CPSD) is not aware of 
          any negative consequences to the public caused by the shift from 
          state to local regulation.  Moreover, CPSD believes that local 
          authorities are in a better position to enforce the insurance 
          requirements."  

           Previous legislation  :  AB 2430 (Wiggins), Chapter 881, Statutes 
          of 2004, removed commercial balloon operators from CPUC's 
          jurisdiction and established minimum insurance and local 
          notification requirements.  

          SB 911 (Wiggins), Chapter 706, Statutes of 2008, extended the 
          provisions of AB 2430 that were to sunset on January 1, 2009, to 
          January 1, 2013.  

           REGISTERED SUPPORT / OPPOSITION  :   

           Support 
           
          California Public Utilities Commission
          Napa Valley Aloft, Inc.  
          Napa Valley Balloons, Inc.

           Opposition 
           
          None on file
           

          Analysis Prepared by  :   Ed Imai / TRANS. / (916) 319-2093