On Thursday afternoon, jurors heard from former JEA executive Melissa Dykes during Day 7 of the fraud and conspiracy trial of former JEA CEO Aaron Zahn and former Chief Financial Officer Ryan Wannemacher.
Dykes is a key figure for JEA and the city-owned utility’s chief operating officer at the time the board approved a controversial bonus plan that could have resulted in payouts of $345 million in the event JEA had been sold.
Dykes testified Thursday that she was very surprised the bonus plan was approved and thought the board understood what could happen and how much money could be paid out. Multiple former board members this week testified they had no idea what they were actually approving.
“I never thought it was going to happen,” Dykes said, adding those kinds of bonus plans don’t have a place in government.
Dykes had been chief financial officer under CEO Paul McElroy, and was interim CEO for a few days after McElroy resigned, until Zahn was named interim CEO. She served as chief operating officer under Zahn, and then served as interim CEO again for several months after Zahn’s termination.
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Over an hour and a half of questioning by prosecutors, she walked the jury through Zahn’s earliest days with JEA, when, as a new board member, Dykes said he “dug in very deep.” She testified he spent far more time at JEA offices than new board members typically did.
When McElroy resigned as CEO in April 2018, Dykes testified she was surprised, because he had been a successful, well-regarded CEO. McElroy previously testified he was pressured to resign by former Jacksonville Mayor Lenny Curry.
Dykes was named interim CEO at that time, but soon heard that the board wanted to reconsider. Dykes described a meeting with Curry as very short and very cordial, but that she later heard feedback through the JEA board chair that she was “not impressive,” and they had decided to go in a different direction. Soon after, the board named Zahn, who was appointed by Curry to the board, as the new interim CEO.
Dykes said as interim CEO, Zahn introduced profitability as a measure of success for JEA, which had not been a measure to that point as it was a not-for-profit, city-owned utility. She said there was a change in how value was measured, from customers to more of a focus on profitability.
Prosecutors questioned Dykes about the strategic planning process, and the hiring of the McKinsey consulting firm, and how there was a parallel discussion of a long-term incentive bonus plan, also referred to as the performance unit plan, or PUP, with another consultant, Willis Towers Watson,
She said she was not involved in the development of it, but did have discussions with Zahn and Wannemacher about tying compensation to long-term performance.
Dykes said she did have a role in developing Scenario Two, the traditional utility response, before it was presented in June 2019, but she didn’t view it as realistic and didn’t think it could be implemented, as it would have meant cutting to the bone, and not worrying about service. As the executive who had led the strategic planning process had left by the time it was presented, Zahn had Dykes give the presentation on June 25, 2019.
“I joked that he was making me the Grim Reaper. I did not want to present it,” Dykes testified.
Before the July 23, 2019, meeting, where Scenario Three and the PUP were presented to the board, Dykes testified that while she did not have any one-on-one meetings with board members, Zahn had. Prosecutors asked if she had any discussions with the CEO about those conversations, and she testified she asked if board members understood what they’d be approving with regard to the PUP.
“Everybody who needs to understand it, understands it,” Dykes said Zahn told her, which she understood to mean board members had been briefed. But, she later testified, she didn’t know exactly what those conversations were.
Once the plan and the resolution were presented, and then approved by the board, Dykes testified she was “very surprised,” explaining that she thought they understood the payout and thought they would not approve it, because of political blowback over JEA compensation in the past.
Prosecutors asked Dykes whether as COO, she would have made a lot of money from the PUP had a recapitalization event occurred. She said theoretically, though she just didn’t think the plan would ever happen.
Dykes said she had a conversation with Zahn about who would run the utility following a recapitalization event, testifying Zahn told her he didn’t intend to be CEO, but would recommend her for the position, and that he intended to be chairman of the board. She said she took that as “almost throwing a bone,” if she stuck around through the process.
Following Zahn’s termination, Dykes was again named interim CEO. In April 2020, she made a presentation to the board of directors, conveying positive news about operations, planning, and strong financial metrics.
“We had it under control,” Dykes explained.
The JEA board, which by that point was made of entirely new members, then voted to terminate Dykes later that meeting.
During cross-examination, Wannemacher’s attorney, James Felman asked Dykes about the time when she was briefly interim CEO in April 2018, until the board replaced her with Zahn. She explained why she stayed on at the utility, after that point.
“I stayed because I believed in my team, I stayed because I believed in JEA,” Dykes testified, saying she believed in what they were doing.
She was then asked about a conversation in Zahn’s office with other senior leadership team members.
Dykes recalled then Chief Administrative Officer Herschel Vinyard saying that people would “light themselves on fire,” when they learned of the bonus plan, and that he stressed the importance of making sure everything was properly vetted, saying he was working on getting the approval of the Florida Attorney General and the Florida Commission on Ethics.
Felman also asked Dykes her opinion of the character of Wannemacher, someone she has known for about 20 years.
“I think he’s one of the most honest people I know,” Dykes said.
Dykes will return to the stand Friday morning for additional questioning.
Earlier Thursday, the juries were excused and the courtroom was closed to the public and the media in order for the judge to conduct a hearing with an upcoming witness, Jeff Panger of S&P Global. The purpose of the hearing was to determine whether statements that Zahn and Wannemacher gave to city attorneys in January 2020, either directly or indirectly impacted Panger’s testimony. The hearing, known as a Kastigar hearing, was similar to hearings conducted in May 2023 and January 2024 with other witnesses in the case. The previous hearings were generally open to the public, and only closed at certain times, when the protected statements were going to be discussed, but Thursday morning’s hearing was closed entirely.
After the hearing, the courtroom was reopened and Panger gave his testimony to the juries. Panger, who has been an analyst with S&P Global for more than 30 years, explained how his firm issues bond ratings for entities, including the power utilities that he specializes in. Panger testified that while S&P had a “very strong” view of JEA’s financial metrics, the firm gave the utility a “negative” outlook at one point over JEA’s lawsuit over Plant Vogtle, a nuclear power plant in Georgia that was being expanded. JEA had entered into an agreement in 2008 to buy power from the new reactors once they were completed. Due to cost overruns and delays, JEA filed a lawsuit against one of the utilities that owns Plant Vogtle, and Panger said that lawsuit led to the negative outlook. However, once Plant Vogtle began commercial operation, and the lawsuit was lifted, the negative outlook was lifted.
Panger testified how in August 2019, S&P became aware that JEA had issued the ITN, or invitation to negotiate, for the sale of JEA, and then went back and watched some of the discussions in board meetings about the ITN. Prosecutors showed a series of emails from early August between S&P analysts and JEA executives, where the rating agency tried to get additional information about the presentation to the JEA board about strategic planning and the ITN.
The two sides then met in New York City, discussing the strength of JEA’s financial operations, and the process they were going through with strategic planning. A presentation prepared for the meeting conveyed a positive view of the utility and its financial projections, Panger said, all of which contributed to a strong credit rating for JEA. But Panger said he disagreed with a portion of the presentation dealing with strategic planning, and a projected cash gap, saying it was something he saw as not likely to happen, based on his experience with JEA and the electric industry.
Following the meeting, S&P Global issued a ratings bulletin where it said its ratings of JEA were unaffected by the announcement that it would study restructuring, because of the utility’s robust financial metrics, and its plan to reduce debt balances.
Prosecutors then showed another string of emails where Panger tried to get answers to a list of questions and concerns, asking for the basis of the estimates prepared by consulting firm McKinsey, for JEA’s strategic planning process. Panger testified that he got a response with some data he had also requested, but never got responses to the specific questions. He said JEA also offered to come and speak with S&P Global, but that never happened either. During cross-examination, defense witnesses pointed to JEA’s offer of a meeting in October, but Panger said the offer was to explain the process, and their questions were not about the process, but about the underpinnings of it – the analysis from McKinsey – and a meeting was never set up.
The trial is expected to last four weeks in all. Zahn and Wannemacher could get up to 25 years in prison if convicted on all counts.
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