Hard to play this game when there's such little information provided, and the goal posts keep moving.
Sorry .. ok Yes the sheathing allowed for the exposure of the element no one can determine, although after I mention it you probably will see it.
As I looked at this nasty mess, I looked closely and came to the conclusion that moisture must have gotten in this box, as I visualized the debris in the box I then saw what appeared to be dried liquid paths, I wiped the residue gave it a whiff .. whew, right away I figured it out. Rat urine, So.. Mr Rat must of been nesting on top of this warm electrical box, decided to routinely relieve himself which in turn dripped down along the cable , finding the exposed insulation cut from the dull razor which then while saturated completed the circuit emitting the wondrous blue flame the tenant claims he saw. I came to the conclusion that the stripped insulation was the reason for the issue although the Rat drizzle made it all happen.