SAN FRANCISCO -- California on Thursday became the first state in the nation to regulate the young and fast-growing ride-sharing industry, giving legitimacy to a business that has operated without oversight while soaring in popularity among increasingly tech-savvy consumers.

Thursday's decision from state regulators is expected to be the blueprint for other cities and states to adopt, easing the regulatory hurdles these companies have faced as they move into other markets.

It also offers an example for how regulators could approach other businesses in the sharing economy, such as Airbnb -- a San Francisco-based website that allows people to rent out their homes or a room in their home -- another popular service that like ride-sharing has confounded regulators and been criticized for possible public safety issues.

"We are thrilled," said Sunil Paul, co-founder and chief executive of San Francisco-based Sidecar. "It makes it more friendly and easier for us to expand."

In a unanimous vote met with cheers from hundreds of Bay Area residents, the California Public Utilities Commission approved new regulations to license on-demand, Web-based ride services and require them to meet certain safety standards while allowing the budding industry to continue to grow.

Our "responsibility to public welfare and safety does not change because of the sharing economy," said Commissioner Michael Peevey, who put forward the regulations in July.


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Ride-sharing services will be required to apply within 60 days for a license under a newly created transportation category and comply with several safety requirements, including a $1 million per-incident insurance policy, driver training programs, driver background checks, vehicle inspections and a zero-tolerance policy for drug and alcohol use by drivers. Regulators will require annual reports from companies detailing which rides they accept and decline, accidents and whether they are equipped to serve disabled passengers. A customer complaint line will also be set up through the commission.

Some from the taxi industry said the decision rewarded companies that hijacked the term ride-sharing to flout regulations cab fleets and other commercial transportation companies have complied with, often at a hefty cost. For example, cabdrivers say they pay more for insurance and city licenses.

"We have two very different kinds of systems here and they operate two very different rules and they serve the same people," said Mark Gruberg, a 30-year cabdriver who works for San Francisco Green Cab. "How is that fair?"

Ride-share drivers, however, welcomed the new rules, saying the regulations offer them more job security.

"It makes it more legitimate," said Eric Kauschen, a Sidecar driver in San Francisco. "I like that we're not called rogue cabdrivers, and we're not called gypsy cabs anymore."

Sidecar, a smartphone app that dispatches nonprofessional drivers, also announced Thursday it will expand throughout the state by the end of the year. In the past two weeks, the company launched its donation-based service in Oakland, Long Beach and San Diego.

And San Francisco-based Lyft, an app that also uses community drivers for donation-based rides, announced Thursday it had expanded to Denver.

"It's a demonstration that you don't need to compromise on safety and you don't need to compromise on consumer choice and you don't need to compromise on innovation," Lyft co-founder John Zimmer said of the PUC's decision.

San Francisco resident Kepa Askenasy said Lyft and Uber helped her get around while she was recovering from back surgery. She didn't have to walk to the street to hail a cab and she could sit in the front seat of the car, which was more comfortable on her aching back.

"I felt safe," she said. "It sort of felt like a friend. It was someone who thought of me as more than just a fare."

State regulators will hold a workshop in one year to review the rules and, in the coming months, will consider revising regulations for limousine services and including Uber's black car service in this category. The rules approved Thursday will apply to UberX, the company's fleet of small and hybrid cars, but not to Uber's more elite services.

Commissioners said the new rules were just the first step in what they expect to be a long and evolving process as they, along with other state and city governing bodies, try to figure out how to regulate an industry that has outpaced both the transportation and insurance industries.

"There remain many concerns that will come to light as the industry evolves," said Commissioner Carla Peterman, adding that the rules were certain to change.

Contact Heather Somerville at 510-208-6413. Follow her at Twitter.com/heathersomervil.