Mother Jones
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Five months after deputy Secretary of Energy Daniel Poneman resigned in October 2014 and left the department’s Forrestal Building in Washington, he started a new job 11 miles away as president of a troubled corporation that he had championed while serving in government.
Over five and a half years—during public hearings in Congress and in private discussions with lawmakers and White House officials—Poneman, as the Energy Department’s chief operating officer, approved or advocated giving hundreds of millions of dollars in contracts and other assistance to the United States Enrichment Corporation (USEC), which processes uranium and sells nuclear fuel to private and government utilities, according to interviews with those who attended these sessions. Now, as head of that company, Poneman is making about $1.5 million this year and will pocket up to $2 million next year, according to reports filed with the Securities and Exchange Commission—a big jump from the $178,000 he earned annually as a government official.
Members of Congress have denounced Poneman’s lucrative move from government job to the private sector, and good-government advocates see this as a classic example of Washington’s so-called revolving door. It’s common for federal officials to shift from government to industry, but Poneman’s journey has drawn unusually harsh and bipartisan scrutiny. It has also brought new attention to the Energy Department’s ongoing efforts to bail out a private firm that has highly paid executives and still experiences huge losses.
In March, Reps. Jason Chaffetz (R-Utah) and Cynthia Lummis (R-Wyo.) wrote to Centrus—the new name USEC adopted after it declared bankruptcy in 2014—stating that Poneman’s new job raised questions about whether he had complied with rules requiring that federal officials looking for private employment report their contacts with potential employers and recuse themselves from related decision making. They noted that Poneman had been “substantially involved in business arrangements between the DOE and Centrus” when he was at the department.
Centrus spokesman Jeremy Derryberry confirmed in an email that Poneman “addressed” issues at the Energy Department that affected USEC, but he said Poneman did so to protect national security and to “advance the best interest of the American public.” A DOE lawyer told House lawmakers in an April 30 letter that there is no “indication” that Poneman violated the department’s ethics rules.
In interviews, Poneman and other Centrus officials maintain that there is nothing inappropriate about his new job and that the company did not recruit him for its top position until several weeks after he left the Energy Department. “This thing came quite unexpectedly,” Poneman says. He notes that he had already arranged a fellowship at Harvard’s Kennedy School of Government, and he says that he will follow ethics laws that restrict his future dealings with the Energy Department.
“He’s now running a company whose business is deeply intermingled with his work as a public official,” says Michael Smallberg, an analyst with the Project on Government Oversight, a government watchdog group. “At the very least it creates a perception that he was too cozy with a company that he should have been overseeing at an arms-length distance.”
The USEC tale is a tangled one. Congress created USEC as a government-owned corporation in 1992, when the United States was one of the world’s largest suppliers of enriched uranium fuel to utilities throughout the world. But the government eventually wanted to get out of the uranium business, and when USEC was finally privatized in 1998, investors bought it for $1.9 billion.
After privatization, the company struggled to turn a profit. In 2001, it closed the first of the two uranium enrichment plants it had inherited from the government. (It shut down the second in 2013.) Meanwhile, its efforts to build a new enrichment plant stalled due to technical challenges and soaring costs.
The struggles resulted in serious financial difficulties for the firm. In 2008, the company first applied to the Energy Department for a loan guarantee for its new enrichment plant, but Obama administration officials did not approve it because of USEC’s poor financial condition and uncertainty about the technology.
But DOE officials, including Poneman, found another, controversial way of bolstering the firm: They offered the firm $45 million to conduct advanced research on its centrifuges, which can make fuel for power reactors, and they gave it several hundred million dollars under a no-bid contract to clean up waste at a Cold War-era uranium enrichment plant USEC had operated in Piketon, Ohio, until May 2001.
USEC received this contract even though three years earlier, the Government Accountability Office (GAO) had accused the company of providing inadequate data on its previous cleanup work at Piketon. The report described concerns within the DOE that USEC might not be operating “in a cost-effective manner.” In a written response at the time, the company defended its record and attributed the reporting gaps to confusion over what data it was required to submit.
But the DOE didn’t have all the money needed for its USEC rescue plan in its budget, so it found a creative way of obtaining the funds—which auditors later said was illegal. In an August 2009 memo (first published by Ohio blogger Geoffrey Sea) addressed to Poneman and then-Energy Secretary Steven Chu, the DOE proposed giving USEC thousands of tons of high-quality depleted uranium for free. The firm could then enrich it and sell it at a profit.
The department transferred uranium to the firm valued at $194.3 million, according to a September 2011 GAO report. The report concluded that the transfer had “violated federal fiscal law,” which barred such transactions.
DOE officials said they disagreed and the deal went through, allowing USEC to keep its staff employed. According to a current government official who said he saw the internal DOE memorandum detailing the uranium transfer, it bore Poneman’s signature as the final approving authority.
This uranium deal only helped USEC for a short time. The March 2011 earthquake and tsunami that devastated the Fukushima nuclear power plant in Japan triggered a global slide in reactor fuel prices that hit the struggling company hard. By the end of the year, USEC had racked up hundreds of millions of dollars in losses.
At a June 2011 meeting of National Security Council deputies, Poneman made a PowerPoint-style presentation in which he argued that the partly finished USEC plant for making nuclear fuel needed government assistance so it could produce tritium for nuclear weapons and fuel for the Navy’s nuclear fleet. One slide, which was reviewed by the Center for Public Integrity, put forward several alternatives, one of which was the approval of the stalled $2 billion loan guarantee—despite “significant obstacles,” including the “poor financial condition of USEC, the potential for substantial cost overruns for the project and technology uncertainty.”
From Poneman’s perspective, there was no real alternative to keeping USEC alive, according to two former White House officials who attended interagency meetings with him. “He was a strong advocate of having a domestic enrichment company, and of course there is only one firm that provides that, and that is USEC,” one of the former officials said.
In December 2011, USEC abruptly announced it would shut down the country’s sole operating enrichment plant, located in Paducah, Kentucky, which provided fuel for the Pentagon’s tritium supply. That set off alarm bells at the Energy Department and the Pentagon, the former White House officials said.
It took several months, but by May 2012, a plan was devised to keep USEC propped up and Paducah running. This time the DOE agreed to pay up to $280 million over the next two years in a complicated deal (which again included uranium transfers) to continue financing USEC’s centrifuge research.
The new deal brought more cash to USEC and allowed it to keep the Paducah plant in operation for another year. But once again, the Energy Department’s unorthodox financing of USEC’s programs drew criticism from the GAO. The watchdog agency said that the uranium involved in the deal was worth $300 million, yet the Energy Department insisted it had no value at all.
According to a former congressional staffer, speaking on condition he not be named, Poneman was “instrumental in leading the push” for this additional USEC help on Capitol Hill.
Getting federal funds can cost money, as most corporations know. And USEC, which is now owned in part by Toshiba and Babcock & Wilcox, spent a total of $11 million to lobby the federal government during Poneman’s tenure at DOE, despite being in precarious financial shape, according to lobbying disclosures filed with the Senate.
The filings note that 59 lobbyists pressed the company’s arguments on Capitol Hill and at the White House, the Department of Energy, and the Nuclear Regulatory Commission. and elsewhere in Washington. In 2014 alone, Centrus spent more than $1.6 million on lobbying, including advocacy by 25 former congressional and administration staffers from both parties.
During a House Energy and Commerce Committee hearing in September, 2012, Poneman said that he supported keeping the company alive partly because of the government’s need for tritium, a key component of nuclear weapons that decays rapidly and must be replenished.
“But are you going to give them money, even if they’re going bankrupt?” then-Rep. Edward Markey (D-Mass.) asked Poneman. Markey noted that the company had received a billion dollars in federal support over almost two decades, yet it was then worth only $62 million and at risk of defaulting on its debts.
“To me,” Poneman began, before changing his terminology. “To us, Congressman, the question is not a specific company and its status. The question is the capability for the nation. We will do what we need to, to make sure that we still have the deterrent that we need to defend America.”
“Well, I just disagree with that 100 percent,” Markey replied. “We should find a way, indigenous, of doing it, enriching the uranium needed to make tritium but not by subsidizing companies that are going bankrupt. It’s just—it’s just wrong.”
Markey’s concerns were prophetic; USEC declared bankruptcy in early 2014 and in its reorganization was renamed Centrus. And Poneman intensified his efforts. At a White House budget meeting on March 31, he argued that the “USEC situation is acute” and that the company needed federal money promptly to continue development of new uranium enrichment machines, according to notes taken by a participant. Several officials at the meeting were dubious about the company’s management and searched for an alternative to giving it more federal cash. “Poneman always believed that” handing USEC more taxpayer money was “the right path,” says a former administration official, who requested anonymity to discuss internal deliberations.
Even bankruptcy didn’t end the flow of federal largesse. In the last-minute spending bill that passed and was signed by President Obama on December 14 of last year, the company got additional tens of millions of dollars for its centrifuge development work, and since then its contract has been extended. Under the department’s proposed 2016 budget, it would get about $100 million more.
The federal ethics rules don’t restrict Poneman from giving his new employer strategic advice about whom to contact at the DOE and which levers it should pull to win a $2 billion loan guarantee the company has been seeking from the federal government since 2008. The Energy Department has declined to approve the application, but it has not formally rejected it. The application is still pending before the department.
At a March 25, 2015, hearing of the Senate Appropriations Subcommittee on Energy and Water Development, Sen. Diane Feinstein said that Poneman “was heavily involved in decisions to keep USEC afloat” at a time when the company was “not meeting its goals or timetables.” She expressed her concerns about Poneman’s job shift, saying that Poneman’s work at the company now will make people distrust the department’s future decisions about Centrus.
At the hearing, Energy Secretary Ernest Moniz told Feinstein that prior to Poneman’s departure he was given a “refresher course” on government ethics rules. Under those rules, Poneman is barred for a year from seeking federal action from DOE at meetings with DOE employees. And Poneman had voluntarily extended that period for another two years when he took the Obama administration’s ethics pledge in 2009. The rules also permanently bar Poneman from representing Centrus before the DOE on contracts and grants he was “personally and substantially” involved in deciding.
But the rules primarily bar contacts between Poneman and the DOE’s direct employees. For a federal agency like the DOE, which does an overwhelming proportion of its work through contractors, this restriction is not so limiting.
For example, Thom Mason, the director of Oak Ridge, which is operated for DOE by contractor UT-Battelle LLC, told the Center for Public Integrity he spoke to Poneman in late March—shortly after Poneman started at Centrus—to discuss the performance of the uranium enrichment machines that Centrus is developing under a $117 million subcontract with the lab, which gets about 80 percent of its budget from the Energy Department.
Asked if he felt that his discussion with Poneman raised any ethical issues, Mason said he felt it was “within the scope of the relationship we have with Centrus.” Mason said that while Poneman may be barred from contacting DOE officials, that prohibition does not apply to DOE contractors. “I don’t think that there’s any conflict that I would be concerned about,” he said. The Energy Department declined comment.
But Tyson Slocum, director of energy programs for the watchdog group Public Citizen notes that Poneman can use his “deep knowledge” of the Energy Department and his contacts to aid his new employer as it seeks additional federal funds.
In moving to Centrus, Poneman has joined at least two other former senior DOE officials already at the company. Philip Sewell, Centrus’ senior vice president and chief development officer, was deputy assistant secretary at the DOE before taking a senior post at USEC in 1993, shortly after it was formed as a government-owned corporation. Peter Saba, another senior vice president, was a deputy assistant secretary in the DOE’s Office of Domestic and International Energy Policy and counselor to the deputy secretary between 1989 and 1993.
Asked about the ethics of his move, Poneman said he was puzzled by the question. “I’ve been 100 percent consistent and have thought about this for 40 years,” he told the Center for Public Integrity. “I don’t frankly see the issue. I’ve always believed that nuclear energy has a constructive role to play in combating climate change, I also believe that if nuclear is going to be part of global energy portfolio…that the United States should remain a leading light in that.”
Even with all the federal help, in the last quarter of 2014 Centrus lost $38 million, according to its annual Security and Exchange Commission filing. It lost another $15.4 million in the first quarter of 2015, the company announced on May 6.
This story is from the Center for Public Integrity, a nonprofit, nonpartisan, investigative news organization in Washington, DC. For more of their reporting on national security and accountability, go here or follow them on Twitter.
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