Buying Power: How PG&E and Mercury Insurance are spending millions to try to trick Californians into voting for corporate interests
By Rebecca Bowe + Steven Jones, SAN FRANCISCO BAY GUARDIAN
GUARDIAN ILLUSTRATION BY DEVON DOSS
California voters are about to be bombarded by more than $50 million
in political advertising designed to convince them to approve a pair of
measures desperately sought by two powerful corporations with a long
history of lies and political corruption.
Will this brazen and transparently self-serving effort work? And what
does it say about the state of modern politics — particularly
California's money-driven initiative system — that these deceptive
campaigns just might convince voters to cast ballots against their own
The corporations have every incentive to try to buy the election —
and if they win, it could encourage others to follow. By spending tens
of millions of dollars on a campaign today, they will potentially save
and earn many times that over the long run. It's a business decision,
plain and simple.
If Pacific Gas & Electric Co. can pass Proposition 16, which
requires a two-thirds vote for any municipalities to do renewable energy
projects and deliver that power directly to consumers, that will kill
the chances of government-backed rivals popping up to compete. It will
save the company the tens of millions of dollars it regularly spends to
defeat public power campaigns across the state.
If Mercury Insurance is successful with Proposition 17, which
overturns part of the landmark insurance reform measure Prop. 103 and
would allow companies to increase the car insurance premiums for new
drivers and those whose coverage has lapsed, a company notorious for
mistreating customers and defying regulators will be able to greatly
increase its market share and profits.
Both measures are strongly opposed by legitimate consumer rights
groups, public interest advocates, and almost all of San Francisco's
elected officials. But both corporations have proven to be unusually
effective over the years at using lavish spending — with money extracted
from consumers — to convince private groups and public officials from
both major parties to do their bidding.
And plenty of public officials who ought to be opposing the measures
are either on the wrong side or silent.
Will Mercury-backed Californians for Fair Auto Insurance Rates (which
calls itself Cal-FAIR) be able to convince voters that Prop. 17 is
really about saving drivers money? And will PG&E-financed
Californians to Protect our Right to Vote succeed in making the case
that supermajority thresholds are a needed safeguard against the
electricity schemes of elected officials?
That all depends on how informed voters are when they cast their
Mercury Insurance founder and chairman George Joseph became a
billionaire by offering car insurance policies to California drivers who
were at a higher risk for accidents than most other companies would
accept, charging them expensive rates and then challenging their claims.
When Forbes magazine named Joseph the 283rd richest American in 2005,
with an estimated worth of $1.2 billion, it wrote laudably about the
practice in describing him: "Numbers guru earned Harvard math and
physics degree in three years. Began as actuarial trainee at Occidental
Life for $225 a month, quit after realizing salesmen made more. Created
own property and casualty insurance company. The Mercury General 1962:
targeted customers having trouble getting auto insurance; aggressively
investigated suspicious claims. Took public 1985."
Mercury currently has about $2.3 billion in market capital and a
stock price that has roughly doubled in the year since the company began
funding a $3.5 million signature-gathering effort to place Prop. 17 on
the June ballot. That may be a coincidence, but it's certainly true that
Mercury's fortunes are tied up with California motorists.
The company's most recent annual report, filed with the U.S.
Securities and Exchange Commission last month, shows California car
insurance policies are the lion's share of the company's business.
Almost 80 percent of its premiums are in California (followed by
Florida, Texas, and New Jersey), and 83.2 percent of its $2.6 billion in
total premiums cover private passenger cars (as opposed to commercial
auto, homeowners, and other insurance products). In California, 81
percent of Mercury customers earned "good driver" discounts, while 19
percent are in higher-risk categories, paying much higher monthly
California's car insurance regulation system was created almost
entirely by the 1988 pro-consumer ballot measure Prop. 103. That
initiative established a system of regulatory oversight and financial
transparency, cutting premiums by about 20 percent and limiting what
companies could consider when assigning rates.
The main rating factors, in descending order of importance, are
customers' driving safety records, number of miles they drive each year,
and the number of years they have been driving — which all have a
direct relationship to the odds of having an accident.
Before Prop. 103 went into effect in 1990, insurance companies could
pretty much charge whatever they wanted, based on whatever criteria they
saw fit. And that freedom became a gold mine in 1984 when the
California Legislature required all drivers to have car insurance.
"After that, everyone in the marketplace is required to buy insurance
and there's no protection against how much insurance companies could
charge you for it, or even if they refused to sell it to you because of
where you lived or the color of your skin. There were just no
protections," said Harvey Rosenfield, founder of Consumer Watchdog.
So Rosenfield wrote Prop. 103 and he's been battling Mercury
Insurance ever since. They've tangled in the halls of the Legislature,
where politicians from both major parties have received millions of
dollars in campaign contributions to push bills to undermine Prop. 103.
They've fought in court in countless hearings over more than two
decades, most recently on March 12 in a dispute over Prop. 17 ballot
language and arguments. And they've fought in the court of public
opinion, right up to today, as Rosenfield leads the fight to defeat
"One of the most pernicious practices after the Legislature said you
have to buy insurance was that when you went to the insurance companies
and said, 'OK, I'm required by law to buy insurance, now sell it to me.'
They'd say, well you didn't have it before, so we're not going to sell
it to you now. Or, you didn't have it before so therefore we're going to
surcharge you and double the price of insurance. Talk about a Catch
22," Rosenfield said.
Rosenfield and other consumer advocates appealed to legislators, but,
he said, "Of course, the Legislature was too beholden to the insurance
lobbyists to do any of the proposals that we were offering, so we went
to the ballot box in 1988." And despite an $80 million campaign financed
by the insurance industry, Rosenfield's group won — sort of.
"No longer would your ZIP code be the dominant determinant for how
much you pay," Rosenfield said. But the struggle to implement the law
continued. "That battle, just to get that put it in place, we didn't win
that until 20 years after [Prop.] 103 began. We won basically in 2006,
18 years later, after court challenges and going to the [insurance]
Mercury was one of the major industry players challenging Prop. 103
in court. The company also deftly worked the political system, most
scandalously through former Senate President Pro Tem Don Perata, a
Democrat now running for mayor of Oakland. Mercury not only gave
extensive political contributions to Perata, who then carried
legislation for Mercury, including a bill to basically do what Prop. 17
would do, but a San Francisco Chronicle investigation in 2004 found that
Mercury's cash allegedly went into Perata's personal account in a
money-laundering scheme that reportedly triggered an FBI investigation
and raid on Perata's house (no charges were ultimately filed).
Rosenfield described how the company operates in the political arena:
"Mercury realizes it's going to lose the civil suit, goes to
Sacramento, spreads a fortune in campaign contributions, and lo and
behold, gets a bill passed overriding this provision of Prop. 103,
legalizing its surcharges. [Gov. Gray] Davis vetoes it in 2002 on the
grounds it violates Prop. 103. Another year goes by, Mercury spreads
even more money around, and this time Davis is in a recall election and
needs Mercury's money. So he takes the money — it's $100,000 or more —
and Davis signs the bill. We have to go to court and challenge the bill
as an unconstitutional amendment to Proposition 103, which we finally
succeed in doing and it's upheld by the Court of Appeals in 2005. All
that time, Mercury is overcharging people. Ultimately, Mercury is told
that the law you sponsored is invalid and you can't do it anymore, so it
stops in 2005 — 10 years of wanton, brazen violation of the law. And
that brings us to the Mercury initiative."
Joseph refused to talk to us (he grants almost no press interviews)
and Mercury spokesperson Coby King referred questions to Kathy
Fairbanks, who heads the Mercury-sponsored Cal-FAIR.
But when we noted that this group is supposedly independent of
Mercury, and that my questions were about the company's history of
hostility to Prop. 103, King finally made this comment: "Prop. 103 is
the law of the land, but to the extent there are improvements that can
be made that are pro-business and pro-consumer, Mercury has not been shy
about acting in the public interest."
Another corporation that has not been shy about flexing its muscle in
the political arena is SF-based PG&E, California's largest and most
influential utility company. It is single-handedly bankrolling the Yes
on 16 Campaign. Dubbed the "Taxpayers Right to Vote Act," Prop. 16 was
crafted by a Sacramento public relations outfit and law firm that have
long histories with PG&E. Its goal: end the expansion of public
power in California.
The utility has amassed a war chest of funding to sink into passing
Prop. 16, which would make it difficult for municipal governments to
break into the electricity business by requiring a two-thirds vote at
the ballot before any such efforts could get underway.
Last month, PG&E executives notified shareholders that the
estimated $35 million expenditure for the Prop. 16 campaign would affect
individual share values by 6 cents to 9 cents. Following on the heels
of this news brief was the revelation that PG&E CEO Peter Darbee
received a total compensation of $9.4 million in 2009, reflecting a 9
percent pay spike from the previous year, according to the Associated
Since PG&E Corp., the parent corporation, derives 100 percent of
its revenue from PG&E Co., the utility company regulated by the
California Public Utilities Commission, critics have argued that
PG&E is using ratepayers' money to finance a campaign ultimately
designed to limit ratepayers' ability to choose their electricity
As the utility seeks to alter the state constitution with Prop. 16,
it is also boldly pursuing a rate hike of roughly 20 percent by 2011.
Winning the Prop. 16 campaign could trigger an economic boon for
PG&E since it would dramatically decrease the potential for
municipal competitors to spring up and win over customers with lower
rates, cleaner power, and more reliable service. Locking in such a
monopoly would leave consumers with little choice but to endure rate
If Prop. 16 fails, however, the utility company's financial outlook
will be dicey. If twin efforts at green, community choice aggregation
(CCA) programs moving steadily forward in San Francisco and Marin County
prove successful, PG&E could see a depletion of its customer base
from those territories and any other municipalities that follow suit.
What this means is that the stakes are high — and PG&E is
prepared to pull out every trick in the book to win the Yes on 16
campaign. And yes, there actually is a playbook for how to use deceptive
tactics to win these campaigns, a copy of which was obtained by the
PG&E'S PROPAGANDA MANUAL
The San Francisco public relations firm Solem & Associates, which
has worked with PG&E for nearly 30 years, has produced a
step-by-step guide tailored specifically to its anti-public-power
campaign needs. This hefty insiders' playbook is titled "Defending Your
Shareholder-Owned Electric Company Against New Municipalization Threats:
A Tactical Guide."
Jonathan Kaufman and Anne Solem, both executive vice presidents, are
listed as coauthors. Kaufman is a white-haired guy with owl-like
spectacles who can be seen regularly in the public seating section in
meetings at City Hall, furiously scribbling notes, whenever the city's
green CCA program is up for discussion. He did not return the Guardian's
calls for comment.
The key strategy explained in Solem & Associates' playbook is to
create the impression that there are influential community leaders and a
grassroots coalition agitating independently for the company's agenda —
when in fact the entire campaign is funded, organized, and run by one
Although the playbook never comes out to state just how the utility
should go about persuading these "community allies" to see things their
way, it makes it clear such allies are crucial to convince legislators,
voters, and the general public that electricity programs run by
municipal entities are "fraught with financial risks and other hazards."
The playbook even recommends seeing to it that "independent" studies
are published with findings that support this claim. "To provide
third-party credibility to your company's point of view ... develop
various reports and studies that analyze the risks and costs involved in
a new public power takeover," the playbook suggests. "It is preferable
that the studies come from an independent group rather than your
At certain junctures, Kaufman and Solem blatantly encourage the
electric company to engage in misleading practices to hide the influence
of campaign consultants working to advance a corporate agenda. "Develop
opinion editorials and draft letters to the editor," the playbook
instructs. "Then ask your community supporters to personalize them and
submit them to local newspapers."
It's interesting, given this advice, that a Twitter feed posted
recently by Californians to Protect Our Right to Vote, a
PG&E-bankrolled front group set up to promote the Yes on 16
campaign, highlights two different op-eds in the Fresno Bee and
Sacramento Bee published within two days of one another. Both editorials
were written in support of Prop.16 — one from a former sheriff of
Sacramento, and the other from a former city council member of Fresno.
Both editorials mention budget cuts to police and fire departments in
the second paragraph. Both express surprise at the publications'
editorials against Prop. 16 in the fourth paragraph. Both cite the same
statistic in the second-to-last paragraph. And both conclude with the
words: "Taxpayers Right to Vote Act." Is it a strange coincidence?
The playbook contains specific instructions for media-relations
techniques, too. "Identify several community and business leaders who
are willing to serve as spokespersons for your company," the playbook
recommends. "Try to keep the community leadership out in front of the
reporters. Your community supporters can be much more effective with the
media than perhaps your company's own spokesperson."
In other words: Try not to let anyone know that this is nothing more
than a special-interest campaign.
Solem & Associates also suggests planting people at key local
government meetings (in case of public comment, "provide them with
talking points," Solem & Associates recommends).
ON THE GROUND
How these tactics get played out in real life can be seen this year
in the fight between the PG&E and Mercury front groups, and the
eclectic coalition of grassroots organizations and public officials who
are opposing them.
Jeff Shields, general director of South San Joaquin Irrigation
District, a body governed by five elected board members, described how
PG&E operates in testimony to a legislative hearing in Sacramento
"PG&E attends every board meeting of SSJID, often taking video
and tape recordings of our meetings, and they fund political consulting
firms to campaign against our efforts and pepper us with Public Records
Act requests," he said. "Never once has a voter in our service area had
the opportunity to cast a vote to allow PG&E to provide service and
never have our citizens been afforded an option to vote for a PG&E
Board member or attend — let alone record — a PG&E meeting."
Yet all of the rhetoric by PG&E's Californians to Protect the
Right to Vote perversely casts the measure as about voting rights, even
though this undemocratic measure protects an unelected power provider
and is promoted with money that ratepayers didn't approve for the
purpose. "I am a California veteran," Shields said. "I defended this
country in uniform and I am appalled that PG&E has stated in no
uncertain terms that its shareholders are paying to amend our
constitution. If that is true, then it is important to examine who those
He pointed out that Barclays Global Investors U.K. Holdings, Ltd., a
U.K. bank, owns roughly 4 percent of PG&E shares, while JP Morgan
Chase & Co. owns around 2.5 percent. "If these foreign banks and
Wall Street institutional investors are truly at will to manipulate the
California Constitution and this legislature has no ability to prevent
that, God help us all, for the greed that motivates PG&E's
Proposition 16 is only the first thread to be pulled from the fabric
that binds our society."
John Geesman, a former member and director of the California Energy
Commission, raised the possibility that if the utility is able to amass
so much funding for a ballot initiative, its rates are too high. "The
indisputable truth is that PG&E's rates are set by the CPUC to
provide capital to invest in needed infrastructure. If rates are so
generous that PG&E can create a $35 million slush fund for political
adventurism, something is seriously wrong."
Indeed, Sup. Ross Mirkarimi, who shepherded the creation of this
city's CCA, Clean Power SF, told a recent Harvey Milk Democratic Club
forum that the campaign raises larger concerns about corporate power.
"Know what? If we're gonna lose, we go down as warriors. And if we
win, then we win not for San Francisco or Marin, but we win to address
the very fact that Washington is not moving in the direction we would
like addressing climate change," Mirkarimi said. "The complete corporate
hubris and arrogance in that they think they can continue to operate in
the way that they have is unimaginable."
The people representing these corporations and their front groups,
such as Cal-FAIR director Kathy Fairbanks, stressed to us the "broad
coalitions" that support their measures. Those coalitions include
"consumer groups" such as Consumers First and Consumer Coalition of
California — each which seem to be comprised of only single individuals
that back business-friendly measures each election.
Fairbanks defends claims that Prop. 16 would lower rates for most
Californians, citing state figures that 80 percent of drivers in the
state have continuous coverage and therefore could quality for the
discount even if they change carriers to a provider like Mercury that
generally offers lower rates than many of its competitors.
And while she grudgingly acknowledges that premium discounts for some
are always offset by increases for others, she said the measures would
create more "competitive markets" that would cause insurance companies
to lower costs and decrease rates across-the board. "They're going to do
whatever they need to do to get more customers," she said.
Asked whether Mercury's bad reputation, and the difficulty many
voters will have in believing that they're spending millions of dollars
to lower the premiums they collect, hurt the campaigns chances of
winning, she said, "Voters are not going to do anything more than read
the measures and vote in their interests."
Rosenfield agreed that this campaign could turn on who can convince
voters where their interests lie. "Here's the issue in a nutshell: will
California voters be duped by a $20 million insurance initiative
campaign in which the insurance company has to hide behind a phony front
After Prop. 17 qualified for the ballot last year, the struggle to
defeat it moved into the office of Attorney General Jerry Brown — who is
running for the Democratic Party nomination for governor — and again
Rosenfield was frustrated by the unwillingness of powerful Democrats to
challenge Mercury Insurance.
The Attorney General's Office writes the ballot title and summary for
all initiatives. Given the complexity of insurance law and
attractiveness of claims by proponents that the measure would save
consumers money ("as much as $250 per year" for "your family,"
proponents claim in their ballot arguments), the language of the summary
could decide the outcome of the election.
Initially, last August, the AG's office summarized the measure as
"allows insurance companies to increase or decrease the cost of auto
insurance based on a driver's coverage history," something that seemed
to accurately capture what it would do.
"Mercury went crazy because I guess their polling showed that if
voters read that it allowed insurance companies to raise your premium,
they wouldn't vote for it. So Mercury made a completely cosmetic change
to the ballot measure, refiled it, and this time, magically, the title
and summary comes back from Jerry Brown's office: 'allows insurance
companies to discount your premiums.' Nothing about raising them,
nothing about surcharges. It was outrageous," Rosenfield told us when we
met with him on Feb. 9.
Consumer Watchdog formally challenged the language and issued press
releases shaming Brown, which resulted in a minor scandal in which a
Brown aide got fired for illegally recording a telephone conversation he
had with Chronicle reporter Carla Marinucci about the issue. By Feb. 5,
Brown's office had retreated slightly, including the line "may allow
insurance companies to increase costs of insurance to drivers who do not
quality for a discount," but it came below the emphasis on the discount
and had weak language that didn't reflect reality.
Eventually, after Rosenfield submitted studies proving this reality
to the AG's office, it issued language that Consumer Watchdog finds fair
and accurate: "Permits companies to reduce or increase cost of
insurance depending on whether driver has a history of continuous
Then something strange happened. Due to what AG's spokesperson
Christine Gaspara labeled a "clerical error," the office inadvertently
sent the old, weaker "may allow" language over to the Secretary of
State's Office. And because they didn't realize this before the deadline
passed, the AG had to sue the state and its ballot printer to get the
correct language in the voter guide.
On March 12, Judge Allen Sumner ruled against Mercury, so the
language will read: "Will allow insurance companies to increase costs of
insurance to drivers who do not have a history of continuous coverage,"
which the official ballot argument against Prop. 17 says will be
"$1,000/year (based on Mercury's numbers)."
Meanwhile, Rosenfield has also been jousting with Assembly Member
Dave Jones (D-Sacramento), who is running for Insurance Commissioner
this year, trying to shore up his opposition to Prop. 17 over the last
few months. When we spoke last month, Rosenfield said Jones privately
said he opposed the measure but had yet to do so publicly.
But Jones, who has a strong voting record supporting consumer rights,
told us the criticism wasn't accurate, and that he has consistently
opposed the measure. "As I campaign throughout the state, I point to
Prop. 17 as a measure that we should defeat ... Certainly what Mercury
is proposing in Prop. 17 would be bad policy and I oppose it. It
undermines Prop. 103."
Like Rosenfield and other critics of the measure, Jones said the
measure is bad for all Californians because it makes insurance more
expensive for those who haven't had coverage. "The danger here is that
the dramatic price increases could cause these drivers to drive without
insurance — and that is dangerous for all of us," reads a statement on
his Web site.
But the cached Web site function on Google shows that statement was
the only one of nine issue statements that wasn't on the site as of Jan.
30. Asked when the statement was posted, Jones told us he directed
staff to include it "some time ago, but we've had some issues with our
site. It may have gone up recently for all I know."
Jones' Democratic primary challenger, Assembly member Hector de la
Torre (D-Los Angeles County), has made an issue of his stand on the
measure, telling us, "I came out very clearly and strongly on the
measure and I wasn't calculating or cautious ... I came out against it
months ago and I'm working within the Democratic Party to have them
The state party has yet to take a stand on the measure, and neither
Democratic Party executive director Bob Mulholland nor chair John Burton
returned our calls on the issue, just as Rosenfield told us he "can't
get Burton to return my calls." But he remains hopeful the party will
oppose the measure at its April convention and put money into defeating
"I'd like to think the Democrats will stand up against this insurance
company, but Mercury Insurance is very politically connected and the
Democratic Party, as we know all too well lately, doesn't seem to have
that kind of backbone," Rosenfield said.
San Francisco Democratic Party chair Aaron Peskin said he's confident
the state party will join the fight to defeat it: "This is a complete
abuse of the initiative process and the voters of California should not
Rosenfield isn't the only one who has battled with Mercury for many
years. "I've been after them for 20 years, so this is not a new issue
for me," said U.S. Rep. John Garamendi (D-East Bay), who served as
California's first Insurance Commissioner from 1991 to 1995 and then
again from 2003 to 2007. "He [Joseph] has refused to accept the fact
that the world has changed around him."
Beyond just trying to change the rules, Mercury has blatantly ignored
them, as a decade's worth of documents from the Department of Insurance
that were released last month show, triggering upcoming legislative
inquiries. In 275 pages unearthed by the Chronicle and then obtained by
the Guardian, Mercury documents show the company illegally
discriminating against certain professions, including soldiers, artists,
bartenders, and traveling salespeople.
The Department of Insurance, now headed by a Republican, singles out
Mercury as an especially bad actor with a history of hostility to
regulation. As Rosenfield told us Feb. 9, "Here's what California
Insurance Commissioner Steve Poizner said about Mercury in a case that's
actually going to be heard tomorrow in Oakland. This is a quote:
'Mercury's lengthy history of serious misconduct and its attitude,
contempt towards and/or abuse of its customers, the commissioner, its
competition, and the Superior Court are all relevant to determining the
penalty needed to best ensure the protection of the public for future
violations and wrongdoing.' In my 22 years of working on insurance
stuff, I've never heard the Department of Insurance refer to a company
And here in San Francisco, the Guardian has a long history of
exposing political corruption by PG&E, from essentially bribing
local officials to give it control of the city electricity system — in
direct violation of the Raker Act, the federal legislation that
authorized the city to construct O'Shaughnessy Dam — to illegally
funneling money into anti-public-power campaigns (one such violation in
2002 resulted in the largest fine ever issued by the San Francisco
The record on both companies is clearly malevolent, their political
dealings utterly corrupt. Good government advocates say Props. 16 and 17
represent a clear litmus test on the power of corporations to push
their interests ahead of the general public's in California.
"To me, it's a classic case study of what's going on with the
initiative process in California and politics in general," said Derek
Cressman, western regional director of Common Cause. "These are two
initiatives literally sponsored by corporations to push very narrow
"They are laws designed to give a financial advantage to a specific
industry or company," Garamendi said, adding that he is afraid the
effort may be successful. "Money talks. It always has, particularly in
propositions, and the odds are money will talk again."
Sen. Mark Leno (D-SF), who also opposes both measures, was a bit more
hopeful: "Californians have been savvy in the past, and I do believe
they'll be able to see through the tens of millions of dollars in
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