JACKSONVILLE, Fla. – The juries for the first time in the federal trial of two JEA executives accused of trying to take millions in personal profits from a proposed sale of the city-owned utility through a controversial bonus plan heard from three former JEA board members on Tuesday.
They talked about the thought process during the summer 2019 board meetings and all said that had they known of the potential for bonus plan payouts of $345 million in the event JEA had been sold, they would not have voted to approve the plan at the July 2019 board meeting.
The alleged scheme resulted in the federal indictments of former JEA CEO Aaron Zahn and former JEA CFO Ryan Wannemacher. They are accused of conspiracy and wire fraud and could face 25 years if convicted.
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Kelly Flanagan, a former business executive with the Jacksonville Jaguars, served on the JEA board from late 2015 to February 2020.
Flanagan was asked about a July 23, 2019 board meeting and explained that she received the board packet of materials for the meeting in a hard copy, delivered in person, which was a departure from the typical procedure under Zahn, when they would be posted online. She also said that before the meeting, she didn’t have her standard one-on-one meeting with Zahn, though when defense attorneys later asked why the meeting didn’t take place, Flanagan said she did not go back to figure out why.
Prosecutors then played a clip from the board meeting where Flanagan asked Wannemacher about any implications of Scenario Three — known as the non-traditional utility response — on the performance unit plan (PUP), and how they would interact. At the meeting, Wannemacher explained the only implication would be that if there’s a transaction, the performance period used to calculate payouts would end, when the transaction is finalized. In court, Flanagan was then asked what was in her mind in asking that question.
“I was trying to piece together what I perceived to be a lot of content that had been presented on that day,” saying at the time of the PUP presentation, she was trying to understand any connections to the strategic planning work.
Flanagan was then shown the council auditor’s memo published that November that laid out the possibility of hundreds of millions of dollars in bonus payouts if JEA were sold. Flanagan explained she had received the memo just a few days after Zahn expressed that the bonus plan had been indefinitely postponed. She told prosecutors that had she known of those potential payouts, she would not have voted for the resolution approving the plan.
Former JEA board members Rev. Fred Newbill and Andy Allen also said he would not have voted for the bonus had he known the payouts could have been in the millions for executives had the utility sold.
Prosecutors also questioned her about the resignation of former CEO Paul McElroy in April 2018. Flanagan testified she was surprised that was happening.
“I thought that Paul was doing a very good job,” Flanagan testified, explaining he seemed personally invested in the organization.
She also said that she felt the office of Mayor Lenny Curry was not supportive of McElroy as head of JEA. Flanagan said that during the search for a permanent CEO that followed, she inferred that the mayor’s office’s preferred candidate was Zahn, but that it didn’t control how she voted or ranked the candidates.
During cross-examination, Zahn attorney Eddie Suarez asked about the outlook Zahn and Wannemacher gave to the board in 2018, with reports over the utility’s overall health, month after month, despite the challenges the utility was facing. Additionally, she testified the presentations about metrics reported to key rating agencies and measures about customer satisfaction and addressing environmental concerns, in addition to financial metrics, were generally positive.
Suarez asked if she ever voted to sell JEA, or any board members voted to sell JEA, and Flanagan responded no, rather that they voted on a variety of options intended to address the constraints and uncertainty on the horizon, and to learn more about the options.
Anton Derkach, a senior partner with consulting firm McKinsey & Company, then testified about how his firm came to work with JEA on strategic planning starting in 2018. He testified that their goal was to help JEA become a leading municipal utility of the future.
Derkach also testified about discussions of a “performance partnership,” which would have been a joint venture between JEA and McKinsey, in which McKinsey would put up $20 million to help JEA carry out initiatives to achieve its vision.
The consultant’s compensation would be linked to that, after putting specific metrics in place. The discussion of the partnership came to an end in June 2019, when they were informed JEA was exploring a “pivot.”
The consultant testified that McKinsey supported JEA’s development of Scenario Two, the traditional utility response – the scenario that would have led to large layoffs and rate increases. When Derkach attended the June 25 board meeting where that was presented, he said he was there to continue with helping toward the goal of moving JEA toward being a leading municipal utility of the future. A few days after the meeting, Derkach got a phone call from Zahn, informing him that JEA management had decided to explore privatization. He said that surprised him because they had not had conversations about privatization since December, when it was in the rearview mirror.