Former Energy Department official wins huge pay raise after moving to firm with deep ties to DOE

Introduction

Five months after Deputy Secretary of Energy Daniel Poneman resigned and left the department’s Forrestal Building in Washington, he started a new job eleven miles away as president of a troubled corporation that he had championed while serving in the department’s top ranks.

Over five-and-a-half years as the department’s chief operating officer, Poneman approved or advocated giving hundreds of millions of dollars in contracts and other assistance to the United States Enrichment Corporation (USEC) during public hearings and private discussions with lawmakers and White House officials, according to interviews with those present.

The company, which processes uranium and sells nuclear fuel under its current name of Centrus Energy, gave Poneman a roughly 700 percent pay raise when it hired him as its chief executive officer on March 5. It will pay him roughly $1.5 million in salary and bonuses this year and up to $2 million starting in 2016, according to the company’s reports to the Securities and Exchange Commission. His salary at the DOE was $178,700 a year.

It’s common for federal officials to move from government to industry, expanding their contacts and influence in the former and their salary in the latter. But Poneman’s passage from government overseer to a company he financed with public funds has drawn unusually harsh and bipartisan scrutiny from lawmakers and watchdog groups.

It has also brought new attention to the department’s controversial, ongoing efforts to bail out a private firm with highly paid executives, which passed through a 2014 bankruptcy and still experiences huge losses. USEC was once government-run, but it was bought by investors for $1.9 billion in 1998, and they’ve been the beneficiaries of the stream of federal aid that Poneman helped arrange.

In interviews, Poneman and other Centrus officials said there is nothing inappropriate about his new job and that the company did not solicit him for its top position until several weeks after he left the Energy Department. “This thing came quite unexpectedly,” Poneman said, after he had already arranged a fellowship at Harvard’s Kennedy School of Government. He says that he will follow ethics laws that restrict his future dealings with the Energy Department.

Under those rules, Poneman is barred for a year from seeking federal action from DOE at meetings with DOE employees. In 2009, he took the Obama administration’s ethics pledge to extend that rule to two years.The rules also permanently bar Poneman from representing Centrus before DOE on contracts and grants he was “personally and substantially” involved in deciding.

Discussing Centrus’ work with officials at a DOE-funded lab

But the rules primarily bar contacts between Poneman and DOE’s direct employees. For a federal agency like 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 National Laboratory in Tennessee, 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’s contractors. “I don’t think that there’s any conflict that I would be concerned about,” he said. DOE declined comment.

“He’s running a company now whose business is deeply intermingled with his work as a public official,” said 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.”

Key lawmakers are also concerned about Poneman’s new work. In March, Reps. Jason Chaffetz (R-Utah) and Rep. Cynthia Lummis (R-Wyo.), told Centrus officials in a letter that Poneman’s shift 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.

Finding federal support despite large risks

The USEC aid 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, it was bought for $1.9 billion by investors.

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 problems posed serious financial challenges 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 way of helping the firm, which evoked substantial controversy.

They offered the firm $45 million to conduct advanced research on its centrifuges and pledged several hundred million dollars of additional spending 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.

Three years earlier, the Government Accountability Office (GAO) had accused USEC of providing inadequate data on its cleanup work and described concerns within DOE that USEC might not be operating “in a cost-effective manner.” The company, in a written response at the time, defended its record and attributed the reporting gaps to confusion over what data were required.

But DOE didn’t have all the money it needed for the rescue plan, 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 Department proposed giving USEC thousands of tons of high-quality depleted uranium at no cost, so the firm could enrich it and then sell it at a profit. The firm valued the transfer at $194.3 million, according to a September 2011 report by the GAO. The report concluded that the transfer had “violated federal fiscal law,” which barred such transactions.

DOE officials 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 decision memorandum detailing the uranium transfer, it bore Poneman’s signature as the final approving authority.

The uranium deal only helped USEC for a short time. The earthquake and tsunami in March 2011 that devastated the Fukushima nuclear power plant 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 should be propped up by the government so it could produce tritium for nuclear weapons and fuel for the Navy’s nuclear fleet.

One slide, which was reviewed by the Center, put forward several alternatives, one of which was 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 where Poneman spoke out. “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.

Another uranium deals questioned by GAO

Then, 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 both the DOE and the Pentagon, the former White House officials said.

So the department scrambled to come up with yet another plan to help USEC. By May 2012, it pledged to pay up to $280 million over the next two years to continue financing the firm’s centrifuge research. Some of that amount would be paid directly, and the remainder would be financed through two additional uranium transfers, involving five separate, two-party contracts between DOE, USEC, and three utilities, all signed within a day of each other.

The new deal brought more cash to USEC and allowed it to keep the Paducah plant in operation for another year. But the Energy Department’s unorthodox financing of it again drew criticism from GAO, which said in a May 2014 report that one of uranium transfers raised “legal concerns,” and that the material involved was potentially worth $300 million more than the Energy Department claimed.

According to a former Congressional staff member, speaking on condition he not be named, Poneman was once again “instrumental in leading the push” for this additional USEC help on Capitol Hill.

During a House Energy and Commerce committee hearing in September, 2012, Poneman said he supported keeping the company alive partly because of the country’s persistent 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 said that even though the company had received a billion dollars in federal support over almost two decades, 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. “[W]e 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.

While 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,” said a former administration official, who requested anonymity to discuss internal deliberations. A month later, the DOE-owned, contractor-run Oak Ridge laboratory signed a $34.1 million subcontract with the bankrupt company to keep its enrichment development program going.

Poneman “was heavily involved in decisions to keep USEC afloat,” at a time when the company was “not meeting its goals or timetables,” said Sen. Dianne Feinstein, who chaired the Senate Appropriations Subcommittee on Energy and Water Development during most of Poneman’s tenure, at a March 25 hearing this year. Feinstein, who is now its ranking Democrat, told Energy Secretary Ernest Moniz at that hearing that Poneman’s work at the company will make people distrust the department’s future decision making about Centrus.

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 Dec. 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.

Dozens of lobbyists press the company’s case

Getting ahold of federal funds can cost money, as most corporations know. And so USEC-Centrus, 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 and analyzed by the Center.

The filings state that 59 lobbyists pressed the company’s arguments, on Capitol Hill and at the White House, the Department of Energy, the Nuclear Regulatory Commission, and elsewhere in Washington. In 2014 alone, USEC-Centrus spent more than $1.6 million on lobbying, including advocacy by 25 former congressional and administration staffers from both parties.

Poneman isn’t a lobbyist now, but is in a position to hire and direct dozens of them, noted Tyson Slocum, director of energy programs for the watchdog group Public Citizen. As a result, Slocum added, 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 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 DOE’s Office of Domestic and International Energy Policy and counselor to the deputy secretary between 1989 and 1993.

During his interview with the Center on March 9, Poneman said that his decision to take the top job at Centrus reflected his decades-long interest in promoting the rebirth of America’s nuclear industry, both in and out of government. He has said that the U.S. needs to stay in the forefront of nuclear technology in order to promote sales and influence the industry’s direction.

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. “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 was co-published with Mother Jones.