California authorities are now at least willing to consider possible rule changes that could provide clearer guidelines for transportation startups like Lyft, SideCar, and Uber.

On Tuesday, the California Public Utilities Commission, which regulates transportation in the Golden State, issued a 15-page proposal examining the legality of these quasi-taxi firms. Last month, the agency hit each of those three firms with $20,000 in fines for being in violation of state law after the CPUC asked the companies to cease-and-desist, which they have not obeyed.

But it looks like those wrist-slapping days may be numbered. “If approved by the CPUC’s Commissioners at its December 20, 2012 Voting Meeting, [the proposal] would open a proceeding to protect public safety and encourage innovation in the transportation of passengers over public highways for compensation,” the CPUC said in a statement. The CPUC added the new companies have created “a situation not encountered before.”

If opened, that proceeding would give the commissioners six months to come to a final decision.

"The tone is positive," John Zimmer, the CEO of Zimride, Lyft's parent company, told Ars. "It's a sign that is different than the cease-and-desist and different than the fine."

Hey buddy, can I get a ride?

We’ve reported on SideCar and Lyft since the two companies launched this summer, and the firms have consistently argued they are not traditional “charter-party carriers” like limousines are. Rather, they maintain they fall under the Public Utility Code that provides for a ridesharing exception.

Uber is different from the other two, as it works with CPUC-licensed limo drivers who already have met the regulatory requirements.

“The big question is not whether the rules change but whether the PUC enforces its existing rules. Uber feels totally comfortable that its partner transportation providers comply with existing PUC regulations and are in good standing with the PUC,” Travis Kalanick, Uber’s CEO, told Ars.

“Lyft and Sidecar, however, have a different challenge as none of their drivers have complied with PUC regulations including commercial insurance, equipment inspection, and drug/alcohol testing," Kalanick said. "As such, the PUC has a tough decision ahead of it to determine whether the rules should be relaxed for Lyft and Sidecar.”

Questions abound

The new proposal (PDF) outlines specific areas of inquiry that regulators must consider, including public safety, ridesharing, and insurance.

“The effects of this new business model and level of activity on public safety are unknown,” the proposal states. “The Commission has an obligation to determine whether and how public safety might be affected by this new business model.”

The CPUC wonders specifically if the ratings element (where drivers on SideCar and Lyft can rate each other) increase or decrease public safety. The agency also noted the ridesharing exception does not apply if the “primary purpose for the transportation of those persons is to make a profit.” In other words, it casts doubt on whether the new companies should be considered as ridesharing providers.

“Does legitimate ridesharing include the transportation of a passenger on a trip the driver was not otherwise planning to take?” the CPUC asks. “Should the Commission set a minimum level of compensation before regulating these new transportation business models as passenger carriers whether for the drivers or the carriers? If so, how should the Commission determine the appropriate level of compensation?”

Finally, the CPUC wants to talk money—or rather, specifically, insurance. Lyft and SideCar maintain the driver’s individual insurance is sufficient and the company has no liability in the event of an accident. The CPUC's order has some questions about this business model:

If a vehicle is insured as a private vehicle, but involved in an accident while transporting passengers for compensation, what type of coverage would the insurance offer for injuries/damage to the driver, the paying passenger, and any other people involved in the accident and/or the vehicles involved? Has the insurance industry expressed an opinion on covering private vehicles used to transport passengers for compensation? Are these vehicles covered when providing transportation of passengers for hire? Have there been accidents involving drivers from these new businesses, and what was the final disposition of any insurance claims filed?

How the CPUC rules on these questions in the new year could provide a much clearer guidepost for these startups.