On Thursday, the California Public Utilities Commission (CPUC) voted 5-0 to become the first state agency in the nation to give the go-ahead for online-enabled companies to operate legally with a state permit as a Transportation Network Company (TNC), a new category of charter party passenger carriers.

Once licensed, TNC drivers using their own personal vehicles may pick up passengers who summon them via a mobile app on their smartphones and provide pre-arranged rides to common destinations. The driver and riders rate each other after the ride, much like buyers and sellers rate each other on Ebay or Amazon.com.

This ridesharing practice is part of the “sharing economy,“ which refers to economic or social systems that leverage information technology to enable distributions, sharing and reuse of excess capacity in goods and services.

Previously, the CPUC had taken a dim view of these upstart companies, deemed “gypsy cabs” by the entrenched taxicab and limousine industries. In 2011-2012, the CPUC Safety and Enforcement Division had issued cease-and-desist orders and fines to three of them, Uber, Lyft and Sidecar.  The San Francisco Airport authority forbid them to come onto its property. But in a dramatic turnaround reflecting the technological times, the CPUC rethought its approach and began a two year rulemaking which concluded in today’s decision allowing TNCs to be licensed under new safety-oriented rules. It is expected that other states may move forward with similar rules for ridesharing companies in their states.

Under 28 new rules and regulations, the TNCs must obtain a license from the CPUC, require each driver to undergo a criminal background check, establish a driver training program, implement a zero tolerance policy on drug and alcohol use by drivers, require $1 million in commercial liability insurance, and conduct a 19-point vehicle car inspection annually.

As the assigned commissioner, President Michael Peevey said the CPUC was going to lead the nation by allowing new safety-based regulations for this rapidly emerging industry. He said this industry is enabled by advances in mobile communications and location technology, and made the point that it is part of a rapid and growing “sharing economy.”  He said he wanted TNCs to have a fair chance to compete for riders, along with public transportation, taxis, and charter party carriers.

Co-founders John Zimmer and Logan Green of Lyft hailed the CPUC’s decision as “groundbreaking” in a company blog and thanked 300 supporters who turned out to urge the Commission to take action.

“Transportation is too important not to innovate,” wrote Sidecar in its blog after the CPUC vote. “Our vision at Sidecar is clear: we are driven to make transportation smarter, cleaner and more connected.” Co-founder and CEO Sunil Paul promptly announced Sidecar was expanding operations immediately to San Diego, Long Beach and Oakland, with the goal of serving the entire state by year’s end.

This article originally appeared on Techwire.net.

Amy Stewart  |  Staff Writer, Techwire.net

Amy Stewart is a staff writer with Techwire.net, a publication dedicated to the public-sector technology industry in California.