In an April 19, 2016 Opinion, the Pennsylvania Commonwealth Court[1] affirmed the Public Utility Commission’s (PUC) grant of a certificate of public convenience (CPC) for experimental authority to operate as a common carrier to Raiser-PA, LLC (Raiser) in Pennsylvania, excluding Philadelphia.[2] Raiser is a subsidiary of Uber Technologies, Inc. (Uber), which licenses the technology to Raiser that allows users to request a ride via smartphone app.
Raiser requested PUC approval of its services in June 2014, although Uber and some of its subsidiaries had been illegally operating in Pennsylvania since February 2014, for which the PUC fined Uber approximately $11 million on April 21, 2016 in a 3-2 vote, as discussed below.
Raiser’s services do not fit squarely into traditional common carrier service and thus it applied for experimental service because, among other things, it does not own the cars used for service or employ the drivers and it utilizes smartphone app technology to allow customers to request service. The PUC approved Raiser’s application for experimental services on December 5, 2014, imposing numerous conditions on its grant of a CPC and denied reconsideration of its order.[3]
Commonwealth Court Opinion
Various competing “traditional” taxi companies petitioned for review of the PUC’s grant of Raiser’s CPC, arguing the PUC failed to follow its own regulations when it found jurisdiction over Raiser, abused its discretion in granting Raiser’s CPC, lacked substantial evidence in granting Raiser’s CPC, erred in applying its own regulations concerning the requisite rate specificity, erred in reversing the administrative law judge’s initial decision without substantial evidence, and abused its discretion in denying reconsideration. The court rejected all challenges and affirmed the PUC.
First, the court ruled that the PUC has great discretion in applying its experimental service regulation at 52 Pa. Code § 29.352 to find jurisdiction, because Raiser is proposing to provide transportation services to the public for compensation. Rejecting the cab companies’ argument that Raiser is not a common carrier because it does not have custody of any vehicles, the court reasoned that Section 102 of the Public Utility Code does not require a carrier to own or operate its motor vehicles.
Second, the court ruled that the PUC’s decision was supported by substantial evidence because there is demand for Raiser’s services, Raiser will not bring unrestrained or destructive competition to the marketplace, and it is technically and financially fit. The court pointed out that the policy statement is just that, and not a binding norm, and dismissed the taxi companies’ arguments regarding competitive harm out of hand, finding that they had not carried the heavy burden required. The finding of demand for Raiser’s services is unsurprising – Raiser-type services are, at least for the tech savvy, undeniably easier and more convenient to utilize, and rates can be lower than traditional taxi rates depending on location and demand.[4] Moreover, as the court and PUC reasoned, there was evidence of other TNC service competitors’ success and multiple witness testimony of the need for service (the evidence usually relied upon to show demand for service in taxi certificate proceedings). The finding of technical and financial fitness concerning propensity to comply with PUC regulations and orders was a more interesting question given Uber’s noncompliance with PUC regulations and orders in the past. However, the court reasoned that since Raiser is now compliant with its PUC authorization “the mere fact of prior violation does preclude a carrier form obtaining lawful authority.”[5] The court upheld the PUC’s finding of adequate capital and resources and technical expertise and experience based on Raiser’s access to Uber’s resources and successful operation in other US cities. For the final prong of technical fitness, insurance coverage and driver and vehicle safety, the court concluded that the PUC could rely on the conditions imposed in the order granting Raiser’s CPC that require Raiser to comply with applicable PUC regulations and establish an ongoing reporting obligation to ensure Raiser is doing so.
Third, the court rejected the argument that the PUC owed deference to the ALJ’s decision because the PUC may supersede ALJ decisions where, as here, the PUC’s order is based on substantial evidence.
Fourth, the court held the argument concerning specificity of tariff rates was waived because it was not properly raised and preserved before the PUC, and that even were the court to address the issue the claim was meritless because “Raiser’s tariff reflects the circumstances of Pennsylvania’s TNC market, i.e., the economic climate in which Raiser will operate.”[6]
Fifth, the court dismissed the argument that the PUC abused its discretion in denying reconsideration because the PUC had already addressed each argument raised in the request for reconsideration in its original order granting Raiser’s CPC, and because the petitioner who raised the argument only appealed the order on reconsideration, not the PUC’s original order granting Raiser’s CPC, thereby depriving the court of jurisdiction to consider challenges to the original order.
PUC Civil Penalty
On April 21, 2016 the PUC voted 3-2[7] to decrease penalties recommended in the November 17, 2015 ALJ Initial Decision[8] regarding Uber and its subsidiaries’ (Gegen, LLC, Raiser, LLC, and Raiser-PA, LLC[9]) operations in Pennsylvania prior to obtaining PUC authorization via a CPC. The Initial Decision recommended fining Uber approximately $49 million based on the PUC’s statutory power to penalize up to $1,000 per violation[10] (each trip provided by Uber was one violation) and the PUC’s regulations at 52 Pa. Code § 69.1201(a), which describes nine factors the PUC will consider when imposing penalties. The ALJs held Uber clearly violated the Public Utility Code and were especially concerned with Uber’s flagrant disregard of the PUC’s July 24, 2015 Order requiring Uber to cease and desist operations in Pennsylvania.
The PUC chose to decrease the penalty to approximately $11 million, voting 3-2 to adopt Chairman Brown and Commissioner Coleman’s Joint Motion, which reasoned Uber and its subsidiary’s ongoing compliance with PUC regulations and conditions pursuant to the CPC for experimental service is a mitigating factor favoring a significant reduction in the penalty. The majority defended the appropriateness of this still record-breaking penalty, stating that Uber “deliberately engaged in the most unprecedented series of willful violation of Commission orders and regulations in the history of this agency.”[11]
Commissioners Witmer and Powelson both issued statements arguing for an even lower penalty, focusing on Uber’s continued compliance, lack of customer complaints, and the fact that the largest penalties imposed by the PUC in the past have involved actual harm to customers, including a $500,000 penalty for a gas explosion resulting in 5 deaths[12] and a $1.4 million penalty for deceptive practices in failing to honor savings guarantees made to customers for electricity supply resulting in actual financial harm to customers.
All of the Commissioners agreed that the service Uber provided was common carrier public utility service, and thus jurisdictional, echoing the result the Commonwealth Court reached in its April 19, 2016 Opinion concerning Raiser’s similar service.
[1] Case Nos. 238 C.D. 2015, 240 C.D. 2015, 253 C.D. 2015. Judge Cohn Jubelirer authored the opinion in which Judges Leadbetter, Simpson, Leavitt, Brobson, and McCullough joined. Judge Pellegrini concurred in the result only.
[2] Taxi service in Philadelphia is regulated by the Philadelphia Parking Authority.
[3] Application of Rasier-PA LLC, Docket No. A-2014-2416127 (Dec. 5, 2014), reconsideration denied, Docket No. A-2014-2416127 (Jan 29, 2015).
[4] http://www.cnbc.com/2015/08/31/whats-cheaper-in-your-city-cabs-or-ride-shares.html
[5] April 19, 2016 Opinion, slip op. at 16-17 (citing Brinks, Inc. v. Pa. Pub. Util. Comm’n, 456 A.2d 1342, 1344 (Pa. 1983)).
[6] April 19, 2016 Opinion, slip op. at 21.
[7] The PUC’s final order is not available at this time.
[8] Pa Pub. Util. Comm’n v. Uber Technologies, Inc., et al., Initial Decision, Docket No. C-2014-2422723 (Nov. 2015) (“ID”).
[9] Raiser-PA, LLC did not provide any transportation services during the timeframe in question. Uber was precluded from asserting any claim that subsidiaries or affiliates were the provider of service in order to avoid liability as a discovery sanction. ID at 9-10.
[10] ID at 20-22 (citing e.g., Newcomer Trucking, Inc. v. Pa. Pub. Util. Comm’n, 531 A.2d 85 (Pa. Cmwlth. 1987) (interpreting 66 Pa. C.S. § 3301)).
[11] Joint Motion at 2.
[12] At the time, $500,000 was the maximum penalty the PUC was enabled to impose under 66 Pa. C.S. § 3301(c).