BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON TRANSPORTATION AND HOUSING
                              Senator Jim Beall, Chair
                                2015 - 2016  Regular 

          Bill No:          SB 1035           Hearing Date:     April 19,  
          2016
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          |Author:   |Hueso                                                 |
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          |Version:  |3/29/2016                                             |
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          |Urgency:  |No                     |Fiscal:      |Yes             |
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          |Consultant|Randy Chinn                                           |
          |:         |                                                      |
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          SUBJECT:  Transportation network companies


            DIGEST:  This bill reiterates the California Public Utilities  
          Commission's (CPUC) general authority over Transportation  
          Network Companies (TNCs), requires the CPUC to study insurance  
          and accessibility issues, requires the CPUC to study background  
          check protocols and adopt regulations, allows peace officers to  
          impound TNC vehicles under specified circumstances, and  
          facilitates enforcement of CPUC rules on TNCs.

          ANALYSIS:
          
          Charter-party carriers are companies which transport people for  
          compensation.  These include limousines, charter buses and TNCs,  
          such as Lyft and Uber.  Taxis and municipal buses are excluded.   
          Charter-party carriers are included in the definition of public  
          utilities.

          The California Constitution provides that the CPUC may "fix  
          rates and establish rules for the transportation of passengers  
          and property by transportation companies, prohibit  
          discrimination, and award reparation for the exaction of  
          unreasonable, excessive, or discriminatory charges."

          The California Constitution also provides that the CPUC "may fix  
          rates, establish rules, examine records, issue subpoenas, (and)  
          administer oaths" for all public utilities.









          SB 1035 (Hueso)                                       PageB of?
          
          Existing law authorizes peace officers to impound a bus or  
          limousine of a charter-party carrier under specified conditions,  
          such as operating without a permit or valid driver's license.




          This bill:

          1)Authorizes the CPUC to fix rates, establish rules, prohibit  
            discrimination, and award reparation for unreasonable,  
            excessive, or discriminatory charges by TNCs, such as Lyft and  
            Uber.

          2)Requires, as part of an already required study, the  
            consideration of insurance products available, level of  
            subscription, and the number of claims.

          3)Requires the CPUC to study accessibility issues for the  
            disabled with regard to TNCs, and to report its findings to  
            the Legislature no later than December 31, 2017.

          4)Requires the CPUC to study several driver background check  
            protocols, including the United States Department of Justice  
            background check, and to adopt any that would enhance public  
            safety by capturing records of any criminal offense.

          5)Removes the limitation on impoundment of only busses and  
            limousines of charter party carriers to include all vehicles,  
            including vehicles commonly used by TNCs such as Lyft and  
            Uber.

          6)Authorizes the CPUC to collect any necessary data from a TNC.

          7)Requires the CPUC to adopt a General Order containing its TNC  
            rules to facilitate enforcement, and allows peace offers to  
            enforce the CPUC's rules on TNCs.

          COMMENTS:

            1)  Purpose.  The recent growth and popularity of  
              technology-enabled transportation ride-hailing services from  
              companies like Lyft and Uber have disrupted the existing  
              transportation-for-hire market and raised questions about  
              whether these services are adequately regulated.  While the  









          SB 1035 (Hueso)                                       PageC of?
          
              growth of these new technology-enabled services is proving  
              wildly popular among consumers, there are a number of areas  
              that merit further regulatory review to ensure adequate  
              safety and consumer protections.  Additionally, the current  
              limited regulations of ride-hailing services raises  
              questions about whether the companies that provide these  
              services are unfairly advantaged over others that provide  
              similar services, including taxis, livery, and airport  
              shuttles.

            2)  An unlevel playing field.  The different types of  
              transportation companies (e.g., TNCs, limousines, Super  
              Shuttles, taxis) are all regulated differently.  Rates,  
              routes, service areas, insurance requirements, vehicle  
              inspections, and driver requirements vary.  State law has  
              begun to address the biggest differences between TNCs and  
              other transportation companies, but there's little dispute  
              that big differences remain.  In an ideal world, companies  
              would compete based on the differences in their business  
              models and competence, not on the differences in how they  
              are regulated.

            3)  Creating a level playing field slowly.  The laws and  
              regulations governing the provision of transportation  
              services are many decades old.  These laws and regulations  
              have evolved slowly, as evidenced by the arcane and  
              complicated carrier classifications.  Over the last several  
              decades, the few new laws have focused on safety issues.   
              The rapid growth of TNCs has disrupted this relatively quiet  
              corner of our economy, changing the economics of  
              transportation and challenging the economic models of the  
              traditional transportation providers.  This has upended the  
              lives of many people in the transportation industry, while  
              at the same time providing many benefits to transportation  
              consumers.

              Regulators are struggling to keep up with the rapidly  
              evolving transportation industry, a bit hamstrung by laws  
              which never anticipated the different ways that TNCs  
              operate.  In September 2013, the CPUC, which has regulatory  
              authority over much, though not all, of the passenger  
              transportation industry, issued its first set of rules,<1>  
              intended to foster the growth of TNCs without compromising  
              public safety.  These rules started the process of  



              -------------------------
          <1> D.13-09-045; issued September 23, 2013.








          SB 1035 (Hueso)                                       PageD of?
          
              establishing a level playing field so that all  
              transportation companies would have similar regulatory  
              obligations, allowing them to compete based on their  
              business models.  Among the rules were requirements for  
              obtaining an operating permit from the CPUC, requiring  
              criminal background checks for drivers, establishing driver  
              training programs, implementing zero-tolerance policies on  
              drugs and alcohol, and establishing minimum insurance  
              requirements.  

              The CPUC has initiated a second phase of its investigation  
              to look more closely at the regulation of TNCs and the  
              traditional transportation companies, known as charter-party  
              carriers<2>.  As the state's regulatory agency overseeing  
              for-hire transportation companies, the CPUC is in the best  
              position to consider whether its current regulations provide  
              for a fair and competitive market.  It can recommend  
              specific changes to law and, in some cases, can implement  
              changes to its own regulations to achieve the goal of a  
              level playing field.  However, the CPUC generally does not  
              have authority over taxis, which are regulated at the local  
              level.  This accounts for much of the regulatory  
              differences.
              
              For the last several years, state and local laws and  
              regulations have struggled to deal with the changes in the  
              for-hire transportation market brought about by TNCs such as  
              Lyft and Uber.  While TNCs have brought great benefits to  
              consumers and drivers, there have been many concerns about  
              fair competition which the legislature and regulators have  
              tried to address.  

              In the February 2016 joint informational hearing of the  
              Senate Energy, Utilities and Communications Committee and  
              this committee (joint informational hearing), a committee of  
              the Transportation Research Board of the National Academies  
              of Science, Engineering and Medicine presented their current  
              research on competition between taxis and TNCs.  Their  
              research noted large growth in revenues for the taxi and  
              limousine industry in the aggregate, but large declines in  
              trips and revenues for taxis.  This was at least partially  
              attributed to unequal regulation.  Among the recommendations  

              -------------------------
          <2> Assigned Commissioner and Administrative Law Judge's Ruling  
          Amending the Scoping Memo and Ruling for Phase II of Proceeding;  
          Rulemaking 12-12-011; April 28, 2015.








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              of the committee were:

               a)     A reassessment of regulations for all for-hire  
                 vehicles is probably necessary
               b)     Public safety requirements should be consistent for  
                 all for-hire services and should be gauged to risks
               c)     A systematic evaluation of safety requirements is  
                 needed
               d)     Accessibility to all travelers should be prioritized
               e)     Basic service information for planning and  
                 regulation should be required
               f)     Employment classifications should be carefully  
                 assessed

            1)  Some provisions of the bill reflect the CPUC's current  
              authority.  The California Constitution and the Public  
              Utilities Code give the CPUC broad authority over public  
              utilities, such as TNCs, generally, and over the  
              transportation of passengers more specifically.  The  
              authority to set rates, establish rules, prohibit  
              discrimination, and award reparation is echoed, but not  
              supplemented, in Section 3 of the bill.  The CPUC has  
              considered the rate-setting issue with TNCs and determined  
              that rate regulation is unnecessary.  The CPUC does not  
              regulate rates for other charter-party carriers either.

              Some have raised concerns about "surge" pricing, where  
              prices increase when demand is highest.  Surge pricing is  
              fundamental to the TNC business model, as it serves both as  
              a mechanism to shift users to less expensive times and to  
              increase the supply of drivers.  Taxis are not permitted to  
              surge price, though some cities have begun allowing taxis to  
              discount their fares.

              Regarding the collection of data, the CPUC has  
              constitutional authority to examine records.  Moreover,  
              existing statutes give the CPUC and its employees the  
              authority to inspect the accounts, books, papers, and  
              documents of TNCs and all charter-party carriers.  Companies  
              may request that the provided information be kept  
              confidential, pursuant to existing statute.  This bill does  
              not address the sharing of trip information with local  
              transportation agencies, which was suggested during the  
              informational hearing as necessary for local transportation  
              planning purposes.









          SB 1035 (Hueso)                                       PageF of?
          

            2)  Improving enforcement.  Much of the bill focusses on  
              improving enforcement, a weakness raised in the recent joint  
              informational hearing and in a 2014 report by the State  
              Auditor.  This bill strengthens enforcement by requiring the  
              CPUC to translate its decisions into General Orders and by  
              specifically authorizing law enforcement officers to enforce  
              the CPUC's rules.

            3)  Accessibility a concern.  Concerns about equal  
              accessibility to TNCs have at least two parts.  The first is  
              that TNCs can only be accessed by those having a smartphone  
              and a credit card.  This leaves out a substantial part of  
              society:  36% of Americans do not have smart phones.<3>   
              This bill addresses the second accessibility issue, which is  
              the availability of TNCs to the disabled, who may have guide  
              dogs or wheelchairs.  TNCs serve the disabled through  
              voluntary programs.  For example, UberASSIST is available in  
              certain cities and gives customers the option of selecting  
              drivers with appropriate vehicles who have been trained to  
              assist customers with equipment such as walkers, scooters,  
              and wheelchairs.  Uber has been sued for violating the  
              Americans with Disabilities Act over access to rides.  This  
              bill requires the CPUC to study accessibility issues for  
              disabled populations and to report its findings to the  
              Legislature by December 31, 2017.  However, the CPUC has  
              broad authority to establish reasonable rules and remedy  
              discrimination.  Instead of reporting back to the  
              Legislature, the author instead may wish to consider  
              directing the CPUC to establish rules to ensure access for  
              the disabled.  The author may also wish to have the CPUC  
              consider how those without smartphones and credit cards can  
              become TNC customers.

            4)  Background checks.  An example of unequal rules for  
              similar competitors is the requirement for background  
              checks.  Some local governments, including the City of Los  
              Angeles, require extensive background checks using  
              fingerprints and the United States Department of Justice  


            --------------------------
          <3> Susan Shaheen; February 17, 2016  presentation to the joint  
          informational hearing of the Senate Energy, Utilities and  
          Communications Committee and the Senate Transportation and  
          Housing Committee.










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              (DOJ) database for taxis.<4>  The CPUC requires TNCs to  
              perform criminal background checks on their drivers, but  
              does not require fingerprints or the use of the DOJ  
              database.  (The CPUC is currently considering whether to  
              require fingerprints.)  And those rules do not require any  
              background checks on other charter-party carriers, such as  
              limousines.  This bill requires the CPUC to study whether  
              public safety would be enhanced if it required the use of  
              the DOJ database, biometric data, or searching drivers'  
              names through commercially available databases.  If the CPUC  
              finds that any of those measures enhanced public safety, it  
              shall require those measures to participate as a driver of a  
              TNC.  The author may wish to consider extending this  
              provision to all drivers of charter-party carriers to help  
              equalize the rules for similar competitors.  Fairness would  
              also suggest that these rules apply to taxis.

            5)  Impounding cars.  Current law authorizes the impoundment  
              of buses and limousines of charter party carriers under  
              specified circumstances, but not passenger cars.  This bill  
              expands the impoundment authority to include passenger cars.

            6)  Taxi regulation.  In recognition of the competitive threat  
              from TNCs, the taxi industry is considering sponsoring  
              legislation to reform its regulatory structure.  This would  
              seem to be an overdue response.

            7)  Opposition.  This bill is opposed by a coalition of  
              technology trade associations and TNCs.  They are concerned  
              that the bill imposes new, burdensome, and unnecessary  
              regulations on TNCs.  This concern seems mostly misplaced as  
              the most significant provisions of the bill are restatements  
              of existing law.  A fairer criticism is that the bill  
              singles out TNCs.  Opponents are also specifically concerned  
              that the background check provisions are too rigid, tying  
              the CPUC's hands in rendering a judgement over what  
              background check protocols are in the public interest.

            8)  Prior Vote.  This bill was previously heard in the Senate  
              Energy, Utilities and Communications committee and passed  
              6-2.
            --------------------------
          <4> The City of Los Angeles has urged the CPUC to conduct a  
          pilot program using fingerprints to cross-check potential  
          drivers against law enforcement databases.  The CPUC has  
          declined pending the opening of a new proceeding.








          SB 1035 (Hueso)                                       PageH of?
          

            9)  Technical amendments.  The Senate Engrossing and Enrolling  
              unit has suggested the following technical amendments:

            Page 6, line 39 - after "5414.5," insert "and"

            Page 7, line 34 - after "number" insert "of"

          Related Legislation:
          
          AB 2293 (Bonilla, Chapter 389, Statutes of 2014) - requires  
          specified levels of insurance coverage for TNCs and their  
          drivers.

          SB 541 (Hill, Chapter 718, Statutes of 2015) - strengthens the  
          CPUC's enforcement program and expands the enforcement authority  
          of the CHP and other peace officers.

          AB 1289 (Cooper, 2015) - requires TNCs to perform criminal  
          background checks on drivers that include local, state and  
          federal law enforcement records.  This bill is pending in the  
          Senate Energy, Utilities and Communications Committee.

          AB 1422 (Cooper, Chapter 791, Statutes of 2015) - requires TNCs  
          to participate in the DMV pull-notice program to vet driving  
          records.

          AB 2603 (Nazarian) - requires the CPUC to accept customer  
          complaints regarding TNCs and other charter-party carriers.   
          This bill is pending in the Assembly Utilities and Commerce  
          Committee.

          AB 2777 (Nazarian) - requires the California DOJ to provide TNCs  
          with criminal background information on their driving partners  
          upon request.  This bill is pending in the Assembly Public  
          Safety Committee.

          AB 2790 (Nazarian) - establishes a taxi commission within the  
          Department of Consumer Affairs to license and regulate taxis.   
          This bill is pending in the Assembly Transportation Committee.

          FISCAL EFFECT:  Appropriation:  No    Fiscal Com.:  Yes     
          Local:  Yes











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            POSITIONS:  (Communicated to the committee before noon on  
          Wednesday,
                          April 13, 2016.)
          
            SUPPORT:  

          California Bus Association
          California Labor Federation
          Disability Rights California
          Great California Livery Association

          
          OPPOSITION:

          Application Developers Alliance
          California Chamber of Commerce
          Internet Association
          Lyft
          NetChoice
          TechNet
          Uber

          
          

                                      -- END --