City Council investigation into the abandoned sale of JEA says the effort was pushed amid possible Sunshine Law violations.
A yearlong Jacksonville City Council investigation shows evidence that Mayor Lenny Curry’s administration engaged in a “multi-year” effort from 2017-19 to sell JEA and shielded some actions from the Florida Sunshine Law and the public.
Council’s independent attorney, Steve Busey of the law firm Smith Hulsey & Busey, released the 132-page report and companion 242-page chronology of events Jan. 4.
The report, led by the Council Special Investigatory Committee into JEA Matters, gives a narrative account of three phases used by the Curry administration and now-former JEA officials in the effort to privatize Jacksonville’s municipal electric and water utility:
• A Dec. 20, 2017, request for proposals for financial services related to a sale.
• JEA’s strategic planning process led by fired CEO Aaron Zahn.
• The utility’s August 2019 Invitation to Negotiate with private companies interested in buying the utility.
“Knowing that public sentiment disfavored transferring JEA to private ownership, the city’s effort to market JEA was conducted with a purposeful lack of transparency,” the report states.
According to a news release Jan. 4 from the Office of the City Council, copies of the report were distributed to Council members and the mayor’s office.
The report is available online at JEAinvestigation.com.
The committee’s report details how the Curry administration began working to advance a JEA sale quickly in late 2017 after then-JEA board Chair Tom Petway recommended the utility explore the benefits to the city of private ownership.
Curry endorsed the idea publicly the same day, Nov. 28, 2017, that Petway made the statement.
But the report shows Curry’s team issued a request for proposals to find an adviser for JEA privatization outside of the city’s traditional procurement process.
According to the report, the solicitation that led to hiring Morgan Stanley Inc. to manage JEA’s privatization in 2018 was not posted to the city Procurement Division’s public portal.
The RFP selection process was outsourced to city-contracted Public Financial Management Inc., the same financial advisory firm that created a public report that showed JEA’s market value in 2018 at $7 billion to $11 billion.
The report cites sworn testimony from former JEA board Chair Alan Howard, who told investigators that using PFM to handle the RFP was likely an attempt to hide the action from the public.
“I would speculate there was an effort to shield the responses from … Florida Sunshine laws and open reference laws,” Howard told investigators.
The RFP was not made public until former Council Auditor Kyle Billy discovered the document and supporting material in February 2018.
Former Council President Anna Brosche was unaware of the RFP, according to the report. Busey’s team states that Brosche was approached by then-Curry Chief of Staff Brian Hughes in February 2018 to consider emergency legislation to consider “next steps” in the JEA sale process.
According to the report, the Curry administration denied Brosche’s statement.
Despite Curry administration officials’ assertions and the fact that the official RFP did not specifically mention JEA privatization, documents referenced in Busey’s report show J.P. Morgan and Morgan Stanley understood the RFP was related to selling the utility.
A Feb. 4, 2018, email referenced in the report from law firm Holland & Knight reinforced the investigator’s findings. The report states the firm wanted to represent the city in JEA privatization talks.
“Jacksonville’s new young Republican mayor is out to shrink government and wants to privatize JEA - quickly, while the mark is ‘right.’ He says within 3-5 months,” the report states. “Obviously, Plant Vogtle and the (purchase power agreement) greatly affect valuation,” the email stated. “Speed and time are of the essence to Jacksonville’s mayor.”
The report states Curry “apparently hoped” the sale could advance to a point where a purchaser offered billions of dollars to the city and with “so much money on the table the Mayor would have sufficient support in the City Council to secure Council approval.”
Zahn and The PUP
Curry ultimately announced in April 2018 he would not submit a JEA privatization plan due to public and Council pressure. But the report states work continued behind the scenes.
“In spite of the public calls to cease any effort to privatize JEA, and in spite the board’s express direction to that effect, the senior leadership of JEA nevertheless continued for the balance of 2018 into 2019 to develop a plan intended to result in the sale of JEA,” the report states. “It is apparent that the forces driving the JEA sale initiative recognized the public opposition, and as a result chose to reframe the discussion from ‘sell/don’t sell’ to a more subtle characterization of developing a long-term ‘strategic plan’ for JEA.”
The Council investigation and report conclude that Curry positioned Aaron Zahn to become JEA’s chief executive officer to “facilitate a sale” after the 2018 effort ended.
Busey’s team said Curry’s plan to sell JEA “appeared to many to be on a path to success” by early 2019 but “ran afoul through Aaron Zahn’s greed.” Zahn coupled the sale effort to an employee bonus and long-term incentive plan officially called the Performance Unit Plan.
A framework of the plan was approved by the JEA board at the same July 23, 2019, meeting that they authorized Zahn to proceed with an invitation to negotiate with private companies to explore a sale.
Two law firms working with JEA — Nixon Peabody and Foley & Lardner — told the utility’s senior executives the plan likey violated Florida statue.
Busey’s report states, although the plan was modified to include all JEA employees, the payout was always meant to favor JEA executives.
In a Nov. 23, 2019, email exchange, Foley & Lardner attorneys said they spoke with someone that the bonus plan was sparking talk of a federal grand jury investigation.
The U.S. Department of Justice issued a federal grand jury subpoena filed April 21 related to the JEA sale effort.
In the emails, Foley & Lardner attorney Kevin Hyde said he warned then-JEA COO Melissa Dykes and JEA Chief Administrative Officer Herschel Vinyard it was an “incredibly bad idea and would kill the whole deal.”
Foley & Lardner mergers and acquisitions attorney Gardner Davis replied, “Pigs v hogs.”
The exchange took place after Billy issued a memo Nov. 18 warning the plan’s payout would be $636.6 million if the city netted $5 billion from selling JEA and advised the plan should be rescinded or changed to add a value cap.
The report states JEA would later outsource senior leadership’s payroll to third-party firm Automatic Data Processing Inc. to conceal the PUP payments.
NextEra/Florida Power & Light
The report cites at-length interviews and more than 600,000 documents from JEA and city officials and the financial and legal firms contracted by JEA to advise and aid the sale.
Investigators determined that Florida Power & Light Co. parent company NextEra Energy Inc. always appeared to be the Curry administration and JEA’s preferred buyer.
Several top Curry aids were connected to FPL through their consulting firms.
Busey’s report details what he previously told the Council committee that the mayor’s former political consultant Tim Baker’s company Bold City Strategic Planning LLC had a consulting agreement with FPL from Dec. 21, 2017, the day after the city issued the first privatization RFP, to July 31, 2019.
Former City Chief Administrative Officer Sam Mousa had a consulting agreement with FPL and the city simultaneously, the report finds.
Mousa Consulting Group LLC executed an agreement with FPL on July 23, 2019, the day the JEA board voted to consider privatization.
Baker gave a presentation during a July 10, 2019, off-site JEA senior leadership team meeting at The Club Continental in Orange Park. Plans were drafted there for the resolution that JEA’s board of directors would vote on July 23, 2019, to issue the ITN.
During December 2019 negotiations with JEA bidders in Atlanta, Curry Deputy Chief Administrative Officer Stephanie Burch accelerated negotiations with JEA’s bidders.
Burch was the city’s lead negotiator in JEA’s effort last year to seek bids to buy the city-owned utility from nine private companies after she and two other Curry administration officials replaced JEA executives to lead the effort.
Burch testified to Busey’s team that she and a Morgan Stanley representative working on the ITN tried to “weed out” companies that were not up to NextEra’s $11.05 billion bid for JEA.
Burch said NextEra “had the highest bid, so if everything else panned out then they would have been considered the best value (for the city) at some point.”
Busey’s report states NextEra’s bid included an immediate layoff of 50% of JEA’s electric system employees.
Misleading financials/strategic planning
In a written statement released Jan. 4, Council investigative committee Chair Brenda Priestly Jackson said the committee found the push to market and sell JEA was “pursued by advancing a false narrative of JEA’s financial soundness and conducted with less-than-appropriate transparency, in many instances purposefully, and were further encumbered with an egregious plan by JEA’s senior management to personally profit from the sale.”
The JEA management’s presentations materials and resolutions on the strategic planning option that would have led to selling JEA were left out of the July 23, 2019, board packet.
The report states JEA officials only intended to provide the documents to the public and the Council Auditor’s Office after the meeting where the board voted to explore a sale.
Busey’s report details previously reported efforts by Zahn, Dykes and CFO Ryan Wannemacher and others to omit data showing JEA would experience flat or modest growth in electric sales over the next 10 years in favor of a “doom and gloom” economic forecast for the utility.
This was a narrative pushed by Zahn beginning with his board appointment by Curry in February 2018 and continued after he became interim then permanent CEO of the utility.
Busey’s report recaps how Curry repeated Zahn’s message that solar and direct energy technologies and increasing energy efficiency would drive down JEA’s revenue as a way to publicly support exploring privatizing the utility.
Road to the report
The attempt to sell JEA resulted in the JEA board firing CEO Aaron Zahn for cause on Jan. 28, 2020 and led to complete management and board turnover at the utility by April 2020.
Busey and the committee’s work ends an investigation that began with a public hearing by Council members Rory Diamond and Ron Salem of JEA’s ended bonus plan in December 2019.
The Council voted to hired Smith Hulsey & Busey on Dec. 10, 2019.
This led to former City Council President Scott Wilson forming the investigatory committee in February 2020 with Priestly Jackson, Council member Randy DeFoor and Diamond as the first chair.
Council appropriated nearly all of the $1.85 million it approved for the work in October 2019 in legislation introduced by Council member Garrett Dennis.
Diamond resigned from the committee in September 2020 and Council President Tommy Hazouri named Priestly Jackson chair. Hazouri replaced Wilson on the committee after he left Council in November 2020.
The report suggests the Council consider 23 changes to JEA and the city’s policies and procedures to ensure efforts to sell city assets without full transparency are avoided in the future.
They include requiring all material city procurement documents be posted on public websites; establishing a policy to preserve city and JEA official mobile data and text messages, and giving future Council investigatory committees similar authority to the city Office of Inspector General with unrestricted access to consolidated government records.
Busey reported problems early in the investigation with JEA official under Zahn providing access to documents and emails.