Former JEA CEO Paul McElroy said Thursday that he was “surprised” and “somewhat disappointed” when Aaron Zahn became interim CEO of the city-owned utility following McElroy’s 2018 retirement.
Zahn, who later became CEO of JEA, and former JEA CFO Ryan Wannemacher are facing federal charges of conspiracy and wire fraud in connection with the utility’s proposed sale, which could have netted the pair and other JEA executives millions of dollars through a controversial bonus plan tied to the sale.
The pair are being tried together but separate juries were picked for each defendant last week.
McElroy, the first witness to take the stand following opening statements, testified Wednesday that he was told in early 2018 by the chair of JEA’s board that Mayor Lenny Curry’s office wanted him to resign. He initially declined but then decided to retire, not knowing who would be named interim CEO, he said.
Former JEA CEO Paul McElroy named interim leader of utility
Shortly after McElroy’s retirement, Zahn, who had been appointed to the JEA Board by Curry, resigned from the board and became interim CEO.
“I was surprised at the appointment and somewhat disappointed,” McElroy said of the decision, adding that he felt there were executives at JEA who could work out as interim CEO and work with the board through its process to pick a new permanent CEO, including Melissa Dykes, who is also slated to testify in the federal trial.
DOCUMENT: Witness list submitted by prosecution in U.S. vs. Aaron Zahn & Ryan Wannemacher
McElroy spent 16 years as a JEA executive until his 2018 retirement, with the last six years as CEO. He later came back to serve as interim CEO for six months in 2020 after the scuttled JEA sale and the firing of Zahn.
Prosecutor Tysen Duva asked McElroy about JEA’s financial status in April 2020, when he came back as interim CEO. McElroy testified that he watched that month’s board meeting, including a presentation that was going to be given to rating agencies.
“I was surprised to find how much it sounded like the presentation we had put together in the spring of 2018,” said McElroy, explaining that what he saw on the horizon for JEA were many of the same challenges he saw in April 2018, with electric generation, changing sales, and constraints on the water business, all of which had been addressed with JEA’s operations. McElroy testified he didn’t see any different challenges that the utility now faced.
Zahn, who was removed as CEO in December 2019 after the alleged scheme began to come to light, had proposed the sale of JEA after leadership began asserting falsely that JEA “was in trouble.”
TIMELINE: The federal case against two former JEA executives | JEA Scandal: A closer look at Jacksonville’s largest fraud case
Later, the public learned of the controversial bonus plan that would have benefited Zahn and others, had the sale gone through.
The city council investigated, as well as the state attorney’s office, and Wannemacher and other executives were also let go. But the case was turned over to the feds, who later indicted Zahn and Wannemacher in March 2022. Both have pleaded not guilty.
After McElroy’s testimony, prosecutors called New York-based attorney Elizabeth Columbo, of the law firm Nixon Peabody, which JEA used as its attorneys related to issuing bonds, which were sometimes needed to pay for large projects. She was contacted by JEA in March 2019 about the possibility of a possible incentive plan, by issuing bonds and compensating employees.
Lawyers with Nixon Peabody researched the idea, and eventually prepared a memo for JEA in May 2019, informing utility officials that they did not believe the program would be able to clear legal hurdles under Florida law, in part because some people who could receive bonus payments would also be the ones controlling the metrics that would lead to the payments creating a conflict of interest, according to Columbo.
Columbo testified that after the memo was sent, she did not hear from anyone at JEA until about a month later, when she spoke with Wannemacher, Zahn, and Melissa Dykes, who told her that the board’s compensation committee had put together a form of a long-term incentive plan, and they wanted Columbo to start drafting documents for the board. Columbo said she was surprised they decided to move forward, and said she still didn’t think she could move forward with drawing up the documents. She said Wannemacher told her they had received a memo that said it would have been okay to move forward with the bonus plan. Columbo testified that the following day, she got the memo, which came from the city’s Office of General Counsel, but told the court, it did not resolve the concerns she had about the plan.
The court also heard a brief testimony from John Zipperer, an investigator who worked on the case in its early phases. Zipperer, a longtime JSO detective who spent time in that agency’s Integrity Unit prior to his retirement in 2003, was an investigator with the state attorney’s office in 2019 and 2020, and was assigned to talk with people who were coming forward with concerns about the proposed bonus plan at JEA in late 2019.
Zipperer discussed reviewing the November 2019 council auditor’s memo with another investigator in the state attorney’s office, Tim Adams, himself a former FBI agent. Zipperer told the court that when he reviewed the memo, which outlined potential payouts under the bonus plan, “it looked like some people were going to become very rich off the sale of JEA.”
FBI special agent Angela Hill, a member of the local public corruption, then took the stand to describe her work as co-case agent from the early stages of the investigation.
Prosecutors played clips from the May 2019 JEA board meeting, when strategic planning Scenario 1 was presented. Before moving on to the June 2019 board meeting where Scenario 2 was presented, prosecutors showed two different versions of the “Performance Unit Scratch Sheet” spreadsheet, which contains calculations related to the proposed performance unit plan. Hill testified both versions were obtained in a records request from JEA, and were also brought to their attention by a member of the council auditor’s office in June 2021. At that point, it was realized that one version of the spreadsheet added $4 billion to the book value, or valuation, of JEA, for the last year in the spreadsheet’s calculations. Hill testified that they then worked to determine where that version of the spreadsheet came from and started recontacting individuals they had spoken with, including attorneys who had worked on the proposed sale of JEA, lawyers who had worked on the proposed bonus plan, and JEA employees.
Prosecutors also showed a presentation from a June 2019 meeting of the JEA board’s compensation committee. The presentation involved the design of the Long Term Incentive Plan, outlining how it worked, and gave an estimated cost of $3.4 million.
The testimony then moved forward to the June 25, 2019, JEA board meeting, where strategic planning Scenario 2 was presented to the board, with the testimony including clips from that board meeting. Scenario 2was known as the “Traditional Utility Response,” the response that involved a 26% rate increase, the loss of 574 JEA jobs, the cancellation of the new downtown headquarters building, and reductions in capital expenditures. The presentation that day also included Zahn introducing the “non-traditional response.”
Testimony from Hill is expected to take up much of Friday, between questioning by prosecutors and cross-examination by defense attorneys.
The trial is expected to last four weeks. Zahn and Wannemacher could get up to 25 years in prison if convicted on all charges.
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