In the continuing saga of governmental regulators and ridesharing apps, California’s strict Public Utilities Commission has ruled any form of carpooling facilitated via an app illegal. Essentially, individuals cannot each pay a fare for a ride shared with other fare-paying passengers.
This directly affects ride-sharing apps Lyft and Uber, both of which recently released in-app carpooling options. The options, called LyftLine and UberPool respectively, allow rides to be shared among more than one passenger across more than one transaction.
Travis Kalanick, CEO of Uber, was recently on-stage at TechCrunch Disrupt SF and described the financial and structural reasoning for the specific carpooling product:
The idea is that you push a button, a car comes and picks you up and while you’re on the way to your destination, someone else is going in the same direction. The difference is that with a bus you go to a corner that’s half a mile away from you.
Kalanick goes on to point out that scale is critical for these sorts of services to work – if there aren’t a constantly circulating flow of available vehicles for passengers, the ride-shares will not be as appealing.
This sort of liquidity is clearly not going to come without a fight, as the Public Utilities Commission has told Uber that this specific subset of its service is not legal (full letter here):
The Commission lacks the flexibility to allow a transportation service that is contrary to the statute… If Uber believes that § 5401 is outdated, it may petition the Legislature for a modification. Unless and until the Legislature modifies §5401, the Commission must enforce state law.
Here’s the statute that the state claims Uber is violating:
Charges for the transportation to be offered or afforded by a charter-party carrier of passengers shall be computed and assessed on a vehicle mileage or time of use basis, or on a combination thereof. These charges may vary in accordance with the passenger capacity of the vehicle, or the size of the group to be transported.
However, no charter-party carrier of passengers shall, directly or through an agent or otherwise, nor shall any broker, contract, agree, or arrange to charge, or demand or receive compensation, for the transportation offered or afforded that shall be computed, charged, or assessed on an individual-fare basis, except schoolbus contractors who are compensated by parents of children attending public, private, or parochial schools and except operators of round-trip sightseeing tour services conducted under a certificate subject to Section 5371.1, or a permit issued pursuant to subdivision (c) of Section 5384.
The reality of the situation is that neither Uber nor Lyft are designated under the various terminology the commission uses to describe passenger vehicle services. Basically, there’s no category for this particular service – therefore it isn’t legal.
In California, if a company operates a “Passenger Stage Corporation,” then it can charge individuals for a shared vehicle – this would be a SuperShuttle, for example, where each passenger shares the fare with others to a common destination.
The other option is a “Charter Party Carrier,” which can only use time or distance as a means to determine fares – like a limo charter, for example. This is the specific designation that the Public Utilities Commission states that Uber is not in accordance with.
However, Lyft and Uber are not considered either of those. They are regulated under a third designation in California created for these services: a Transportation Network Company, which (unlike the first example) requires criminal background checks on drivers.
So this means that the state is holding Uber in violation of a requirement for a transportation designation that it doesn’t even currently have – a very strange situation indeed!
The full comparison of limo charter companies and transportation networks can be perused here, showing the basic breakdowns between the two designations. For limos and the like (the Charter Party Carriers), they can only be hired on a full-fare basis – meaning they can’t take on individual passengers each paying a separate fare. It has to be a full charter.
Also, the Transportation Network Companies cannot legally operate on airport property – a very clear use case for ridesharing, where the higher cost of an airport run can be shared across passengers.
Proponents of these services are shocked that the regulators are choosing to decrease the options available to commuters and travelers, thus diminishing hope that these services could reduce congestion and pollution in a state that continues to grapple with immense population growth.
Regardless of the veracity of the state’s claim that the company is operating illegally, Uber has yet another fight on its hands – and another expensive case to justify the recent enormous $1.2 billion influx to the warchest.
UPDATE: The following statement was sent to us by Uber. “We welcome the opportunity to share with the CPUC the significant benefits of uberPOOL and how it really works so that we can continue to bring its unmatched convenience and affordability to communities and traffic jams across the Golden State.”
