Michael Aguirre is former San Diego City Attorney and partner with the firm Aguirre Morris & Severson LLP
Amita Sharma, KPBS Investigative Reporter
Craig Rose, is the editor for Photon Magazine, an alternative energy publication.
Related Story: UCAN Dissolving Amid Investigation
CAVANAUGH: I'm Maureen Cavanaugh, it's Wednesday, February 29th. San Diego's Utility Consumers Action Network UCAN is reeling from allegations of misconduct by board members resulting in a Grand Jury investigation.
Below is a news advisory just issued laying out the controversy. The highly unusual release ó posted by "Anonymous" -- could be an attempt by UCAN directors, including Michael Shames, to get ahead of the scandal and an attempt to calm contributors. It says the organization is being restructured, Superior-court supervised voluntary dissolution."
KPBS investigative reporter, Amita Sharma. Hello.
SHARMA: Hello, Maureen.
CAVANAUGH: This story came to light with the release of a news release from UCAN's board, ostensibly from UCAN executive director, Michael Shanes. It started out with the news that UCAN had petitioned for dissolution. Tell us about that.
SHARMA: Well, it has petitioned for dissolution according to the press release which was in part written by Michael Shanes himself to resolve a number of issues. The resays that there are some lawsuits that are going to be filed against UCAN, and in order to preserve their assets, it needed to do this. As you said, there have been a number of financial -- improper financial allegations against UCAN. And some of those include embezzlement of UCAN funds directly or through kickbacks, others include engaging in unlicensed legal activities, failure to comply with state audit requirements, and entering into illegal contracts. Now, Michael Shanes says, look, we hired some experts recently to look into those allegations, and they found that there was nothing there. He said you're going to find out a lot more in up coming days, can't get into it right now, but it's going to get nasty.
CAVANAUGH: Do we know who these allegations are coming from?
SHARMA: We do. They're coming from people who work within UCAN and have worked within UCAN for some time. I spoke with one of the gentlemen who has made these allegations, and he said a while back, he noticed that mail containing account information was coming to UCAN, the utility consumers action network, but it was mailed addressed to the utility "com"-sumers action network, and that the accounts had that same name. When this gentleman asked Michael Shames about it, he was somewhat dismissive about it, and said they might have had to deal with some Wells Fargo accounts. This develop consulted some of his other colleagues, and they all began investigating this. And they found that these accounts had contained transactions amounting to several hundreds of thousands of dollars. And they then took this complaint to the board of directors at UCAN, hoping there would be an investigation. These folks say these firms were hired to do an investigation, but the insiders from UCAN didn't believe it was a proper investigation. In fact, the comment that was made to me was it appears that they've simply ignored the evidence rather than investigate it. One other piece of information that these insiders -- and I spoke to two this morning, told me was that they learned that UCAN had -- that Michael Shames allegedly had invested $1 million in UCAN money without ever consulting UCAN staff or UCAN board members, and the investment was allegedly made into a hedge fund, that investment lost more than $100,000, but nobody knew about it.
CAVANAUGH: Does it sound to you at this point that the UCAN board of directors is standing behind executive director Michael Shames?
SHARMA: It is not clear. They're not making any comment. We expect a comment to come out soon. But it should be so against this backdrop, a federal grand jury has launched an investigation. And I'm told by insiders that the day UCAN received a subpoena asking for financial records connected to these investments was the day that UCAN filed paperwork to dissolve.
CAVANAUGH: What does, for instance, SDG&E say about all this? Did you speak with them?
SHARMA: I did receive a statement from SDG&E, and they said "while we are not aware of the details involving UCAN's announcement and the allegations made, we will continue to collaborate with participants in the state's regulatory process, including, can, as we do with the numerous other diverse stakeholders." And it should be reiterated that Michael Shames has advocated on behalf of consumers since 1983 in utilities cases, in electric rate cases. And so he's really become a fixture in that community in San Diego and has butted heads time and again with SDG&E.
CAVANAUGH: Well, I want to read just a part of a statement from Michael Shames of UCAN. He says in part "I'm not going anywhere. SDG&E will need to put away that high-priced champagne for at least another five years or so before they can begin popping any corks." I'd like to welcome to our conversation, Michael Aguirre of Aguirre Morris and seizer son, and form San Diego City attorney. His firm is representing those bringing those allegations. Good afternoon.
AGUIRRE: Good afternoon.
CAVANAUGH: What is your reaction to the news release from UCAN this morning?
AGUIRRE: Well, it's disappointment because we have been working with UCAN for several months to try to get them to conduct an investigation into the concerns that were raised. Those have been characterized on the website that UCAN published inaccurately. They're much more precise, and they're not as general as their release has suggested. But we really want to see UCAN preserved. These young men are in the process of losing their jobs.
CAVANAUGH: The whistle blowers that you represent.
AGUIRRE: Right. And there's no reason to shut down UCAN. UCAN has been a very successful organization, they have had lots of income. There's no reason to be shutting it down. There's been a ton of lawyers hired, lots of money spent, but not very many answers acquired, and that's what we're concerned about. One of the young men just went up to the CPU C last week representing UCAN, and little did he know this without his knowledge that UCAN had already filed the paperwork to dissolve the organization.
CAVANAUGH: Are you in a position to release the names of the people making these allegations?
AGUIRRE: No, I don't want to release their names. But I will tell you that this is -- the details, the specific information that's been provided, I will tell you that I met with the UCAN chairman, these outside lawyers, the bookkeeper, and the auditor, and you would ask one a question, and they would say something. And then the other would contradict them. And they had not conducted a proper investigation. And the day following that, I met with the chairman of the board, we went through the check register and the general ledgers for UCAN and confirmed many of the things that the young men had been telling UCAN, and that's why we thought there was going to be some cleanup as opposed to shutting down.
CAVANAUGH: Now, Michael Aguirre, did the people you represent go with their concerns to the federal grand jury about what was happening at UCAN? We have a federal grand jury subpoena and investigation also underway.
AGUIRRE: We really have nothing to say about that. Those are all confidential matters, and we can't comment about this. I will tell you that what they did though is they went to the board, and they detailed the information. And the lawyer that was hired wrote a letter back basically dismissing what they had said by ignoring what the allegations were, not by resolving them but in part saying things like, well, we decided just to drop that issue or not to look further into that issue. And the point is, San Diego has the highest electricity rates in the country. Sempra just announced record earnings yesterday. So when people say that there's been a lot of advocacy, you know, with the power link UCAN in about $1†million. That was not a successful effort. The last two general rate cases were both settled. So there is a deeper problem that goes beyond UCAN. And it has to do with just how effective the advocacy is on behalf of the ratepayers, and I think as time unfolds, we'll see this is a larger mosaic of a problem.
CAVANAUGH: The news release says that the board expects the staff members to file highly critical lawsuits against them. Will you be doing that on behalf of your clients, filing lawsuits against the board of directors as UCAN?
AGUIRRE: Well, we're trying to figure out what the right thing to do is right now. Think about this, we're not the ones that went to court. And I think most people know me know that I know my way to a courthouse. And we really shunned that. We did not want to go to court. We wanted the issues resolved without the loss of representation on the part of UCAN. So we're trying to figure out exactly what to do. Of the petition that's been filed, unless someone resists it, then UCAN will go out of existence. So that's one option. There are other options still. One of the board members asked the board to please convene to withdraw the petition, and that's a possibility. We're looking at all the different options. But the board did not -- I didn't see the board's name on the news release. It was released under the name anonymous. So I know that there are certain members of the board who I've spoken with who know that it was not our intent to sue but was our intent to do what we've done since last July and try to resolve this out of court. I will tell you the No.†1 focus will be to how to keep UCAN in existence. %F01
CAVANAUGH: Thank you for speaking with us.
AGUIRRE: Thank you.
CAVANAUGH: I want to bring in Craig rose to our discussion. He's editor of photon, an alternative energy magazine and former energy analyst for the City of San Diego. And of course former long time investigative reporter for UT San Diego. Welcome.
LEF3: Thank you.
CAVANAUGH: What does this all mean for the residents of San Diego?
LEF3: It's got to be troubling. The utility regulatory process in the State of California almost requires organizations to represent ratepayers. There is nominally an organization within the state utility commission called the division of rate payer advocates. That organization does apparently good work on behalf of rate payer, but its resources appear limited. So in this process of regulating utilities in the state, it is great when individual citizens stand up and express their point of view. But confronted with the big resources of these utilities, organizations are needed as counterweights to the big organizations that utilities can bring to bear in the regulatory process. An individual citizen versus a utility, it's not really a fair fight. And UCAN has been one of the organizations along with Turn in San Francisco that have played that role in the state very prominently.
CAVANAUGH: This is a particularly upsetting time for ratepayers to have this happen with the recent request by SDG&E regarding wildfire compensation. We just talked about this earlier this week.
LEF3: Right. As you know, SDG&E wants to recover about $500 million in costs related to the wildfires of several years ago. Those were fires that two regulatory agencies determined that SDG&E played a large role in causing, and now SDG&E is seeking to recover those costs from individual customers. It would be several hundred dollars per customer. So the fight over their ability to recover this $500 million is an important battle. UCAN would have been expected to play an important role in this case. Whether or not it can continue to do so with this legal clout hanging over its head remains to be seen.
SHARMA: Can another utility group come in, can Turn come in and represent San Diego customers?
LEF3: I think it's entire possible. Whether or not it's practical is another matter. These cases are big, complex affairs. And in the sunrise power link, which is this long power line, $2 billion SDG&E is building from San Diego to imperial county, this was a long, multiyear fight. While there were several citizens groups that rose in opposition to the power link, it was UCAN that I think has to be credited with doing a lot of the very difficult legal and analytical work in that case. UCAN played an important role in that case that would be difficult for individuals to play. They have the resources with tens of thousands of paying members and a long institutional history.
SHARMA: And Michael Shames said this morning I'm not going away. My advocacy on behalf of San Diego consumers is not going to end. In fact, if I'm not speaking -- if I don't have to speak to reporters today to answer questions about this, I'll be writing a legal brief challenging which latest attempt to increase rates.
CAVANAUGH: But the larger question it seems to me is what does this do to the credibility of an organization like UCAN as it tries to move forward?
LEF3: It's going to remain to be seen how the process unfolds, and can the cloud be cleared? Sure. Is it difficult? Sure. So they have a formidable task.
CAVANAUGH: And Michael Aguirre seemed to challenge the idea that UCAN had been a very active or positive force for ratepayers recently. Would you agree with that? Was there something left to be desired in their advocacy lately?
LEF3: Listen, in UCAN's long history, I think there are things anybody might disagree with. But I think the role they played on behalf of ratepayers was very large, and not just in the area of electricity and gas delivery, but also in water and telecommunications, in monitoring gas prices in the county. UCAN has a large presence nominally on behalf of consumers in the county.
CAVANAUGH: We have to end it there. I want to thank my guests, Amita Sharma, Craig rose, editor of photon magazine, and earlier we spoke with Michael Aguirre. And I want to let our listeners know that we will be following this story tonight with more information on KPBS evening edition.