The Revolving Door Goes Nuclear

 
Photo of former Deputy Energy Secretary Daniel Poneman
 Former Deputy Energy Secretary Daniel Poneman touring the National Renewable Energy Laboratory (NREL) in April 2013. Photo by Dennis Schroeder, NREL
 

After years of investigating the well-oiled revolving door between the federal government and the businesses it oversees, we thought we’d seen it all.

But even our jaws hit the floor when we learned that Daniel Poneman had taken a job as the head of Centrus Energy Corp.

Poneman served from May 2009 to October 2014 as the number two official at the Department of Energy (DOE), in charge of more than 100,000 federal and contractor employees and a budget of just under $30 billion. Less than six months after leaving his government post, Poneman was named the president and CEO of Centrus, where he’ll be making as much as $1.7 million a year. He took charge of the company earlier this month.

If the name Centrus doesn’t ring a bell, that’s because it was known as the United States Enrichment Corporation (USEC) until last March, when the company filed for Chapter 11 bankruptcy. Before it went under, USEC had enjoyed decades of special treatment from DOE and other government offices. Like its predecessor, Centrus is likely to need a lifeline from U.S. taxpayers in order to stay afloat. With Poneman now on board, the company may be able to utilize his cachet to attract future government bailouts, no matter the potential taxpayer losses.

Poneman’s rapid transition to a high-paying job with Centrus has drawn scrutiny on Capitol Hill, where lawmakers from both sides of the aisle are questioning whether government ethics rules are strong enough to safeguard the integrity of DOE actions that affect the company’s bottom line. Company and government records reviewed by the Project On Government Oversight add to the picture, showing how Poneman and DOE took positions—on issues such as the downblending of highly enriched uranium (HEU) that has been declared excess to military needs—that favored USEC/Centrus, a supplier of low enriched uranium (LEU), and the nuclear power industry  in general. The records show how the revolving door blurs the lines between the government and the corporate world, enabling an official in Poneman’s position to enrich himself and the industry he used to oversee.

Blurring the Lines

As the longest-serving Deputy Secretary in DOE’s history, Poneman often found himself in a position to shape Department policies that affected the fortunes of USEC/Centrus and the industry at large.

There’s no indication that he gave special treatment specifically to USEC or Centrus. As Politico pointed out, he was part of a board that denied the company’s 2009 application for a $2 billion loan guarantee. Poneman “had no relationship with Centrus or USEC” throughout his DOE tenure, company spokesperson Jeremy Derryberry wrote in an email to POGO. “It was appropriate for him to handle matters relating to entities, including Centrus or USEC, when he was not talking to anyone affiliated with the company in question about future employment opportunities.” Poneman didn’t start negotiating for a job with Centrus until after he left government, Derryberry said.

Nonetheless, Poneman was one of DOE’s top officials at a time the Department supported USEC and Centrus with millions of taxpayer dollars, as detailed below. Poneman himself explored other ways to support USEC after DOE denied the company’s loan guarantee request. In 2011, he was part of a team of deputies from cabinet-level departments that advised the White House to support the company “despite its financial challenges,” according to a presentation slide cited by members of the House Oversight and Government Reform Committee in letters sent last month to DOE and Centrus.

In addition, Poneman was in a position to coordinate the Department’s decisions about downblending excess HEU, a material that can be used in small quantities to build a devastating improvised nuclear device. For years POGO has recommended accelerating the pace of downblending HEU into LEU, which would reduce security vulnerabilities, cut costs, and generate millions or even billions in revenue for U.S. taxpayers. Nonetheless, the rate of downblending has steadily decreased over the past ten years, including during Poneman’s tenure.


Source: Department of Energy annual performance reports and budget requests

USEC and Centrus have had a major stake in the rate of downblending. “Given the current oversupplied nuclear fuel market, any additional LEU from downblended highly enriched uranium released into the market would have a significant negative effect on prices for LEU,” Centrus wrote in its latest annual report. POGO has argued, however, that the government could alleviate these fears by storing downblended LEU until market conditions change and by publishing a plan for the material’s release.

During Poneman’s tenure at DOE, the Department’s decreased rate of downblending helped to protect USEC from further fluctuations in uranium prices. Now that Poneman has gone through the revolving door, he’s in a strong position to represent Centrus’s position on downblending and other issues.

Poneman’s movement to Centrus also raises questions about his treatment of other companies and industries during his time at DOE. In 2010, he issued a memo that called on DOE officials to provide “near-term relief” and “longer-term streamlining” of safety and security requirements for Department contractors. Several years later, he offered a lifeline to the over-budget Mixed Oxide Fuel (MOX) program at the Savannah River Site when it was targeted for cancelation. Poneman’s posture suggests he was keeping several companies and industries happy before he decided on his post-government career path.

DOE and USEC: It’s Complicated

From its inception, USEC was repeatedly propped up by DOE and other government agencies as it tried to make a profit supplying uranium fuel for commercial nuclear power and the Navy’s nuclear needs. As the Government Accountability Office (GAO) put it, the “relationship between DOE and USEC is long and complex.”

After decades of managing the nation’s uranium enrichment operations, the government gave the job to USEC and privatized the company in 1998. But USEC relied on the federal government and U.S. taxpayers to keep it on life support. The company was “the beneficiary of several favorable arrangements with the U.S. government” over the years, according to the GAO. For example:

  • DOE gave USEC the license to gas centrifuge technology—one of the methods used to enrich uranium—that the Department had spent around $3 billion in taxpayer funds developing in the 1970s and 80s;
  • In 2012 and 2013, when DOE transferred uranium to USEC to support its enrichment work, it reportedly didn’t collect enough money to compensate U.S. taxpayers, and the GAO has repeatedly questioned the legality of these sales; and
  • A government lease allowed USEC to pay nominal rent for the use of gaseous diffusion facilities—another method used to produce enriched uranium—in Ohio and Kentucky.

Despite this and other government assistance, USEC struggled to stay afloat, especially in the aftermath of the Fukushima disaster when dozens of nuclear reactors in Japan and Germany went offline and prices for LEU plummeted. The company eventually had to file for bankruptcy, listing $70 million in assets and more than $1 billion in debt.

Poneman is joining Centrus at a time when the company continues to rely heavily on government funding as it tries to turn a profit. According to its latest annual report, two of Centrus’s biggest three customers in 2014 were the U.S. government and the Tennessee Valley Authority—a government-owned corporation that has a long-term agreement to purchase LEU from USEC/Centrus in order to produce tritium, an important component of nuclear weapons.

A Lobbyist by Any Other Name

As a former “senior” official under government ethics rules, Poneman is required to wait at least one year before representing Centrus in front of DOE. Like other senior Obama appointees, Poneman agreed to extend this cooling-off period to two years, and to wait until the end of the Administration before lobbying anyone in the executive branch. He also faces a permanent ban on representing Centrus before the government regarding a “particular matter” in which he “participated personally and substantially” during his DOE tenure.

Centrus’s spokesperson told POGO that the company and Poneman will follow all applicable ethics rules. He said that Poneman “was not hired to conduct government relations or to lobby the U.S. Government,” but rather to “lead Centrus in continuing to reliably deliver nuclear fuel to reactors in the United States and internationally and in expanding its commercial business.”

However, the revolving door rules still allow an executive in Poneman’s position to direct his company’s lobbying strategy behind the scenes, as long as he personally doesn’t contact his former government colleagues during the required “cooling-off” period.

“[I]t’s safe to say his appointment as CEO is all about maximizing [the company’s] influence with key federal officials for all types of federal support,” Public Citizen’s Tyson Slocum told Environment & Energy News. “There’s no question he’s going to help open a lot of doors; that’s the reason you make him CEO…His real value is his high-profile government service and his Rolodex.”

Poneman’s new employer is no stranger to lobbying. USEC and Centrus have spent more than $21 million over the past ten years lobbying the federal government, according to the Center for Responsive Politics.

The company’s lobbyists have included former senior officials who, like Poneman, traveled through the revolving door shortly after leaving government. Last year, when Centrus wanted to lobby DOE, Congress, and the White House on “federal support for uranium enrichment,” it retained the services of government alumni at BlueWater Strategies, according to a 2014 lobbying disclosure report. BlueWater’s lobbying team included McKie Campbell, a recent staff director on the Senate Energy and Natural Resources Committee who “worked on the gamut of energy and natural resource issues and legislative initiatives including nuclear energy,” according to an online company bio.

Centrus also stands to benefit from the appointment of former company representatives to senior positions at DOE. The Department’s new Chief Financial Officer is Joseph Hezir—a former lobbyist who represented USEC and consulted with the company on “DOE financial assistance programs,” according to a 2013 ethics disclosure form spotlighted by the Washington Examiner.

Centrus’s spokesperson told POGO the company’s operations “are regulated by the Nuclear Regulatory Commission, not the Department of Energy.” Apparently this would mitigate any concern about the revolving door between DOE and USEC/Centrus. But DOE has still been heavily involved in Centrus’s oversight, said Autumn Hanna of Taxpayers for Common Sense (TCS), a group that has opposed the federal subsidies granted to USEC over the years. The Department is “very closely connected” to the company’s gas centrifuge project “and always has been,” Hanna wrote in an email to POGO.

Photo of Centrifugemach
Uranium enrichment technology licensed to USEC by the Department of Energy. The government resumed control of the project last year when the company filed for bankruptcy.

Even though, when USEC filed for bankruptcy last year, DOE resumed control of the gas centrifuge technology it licensed to the company for uranium enrichment, Centrus continues to work as a subcontractor on the project, and could play a bigger role in the future. In its annual report, Centrus said the government would need to provide billions of dollars in loan guarantees if it wants the centrifuge project to be “economically viable” on the commercial marketplace.

USEC, and then Centrus, also sought to influence proposed DOE rules. In 2010, DOE issued a proposal requiring nuclear companies to contribute to a fund that would compensate victims of nuclear accidents. In response, USEC and its allies said the rule would burden the U.S. nuclear energy industry “with the specter of uncertain costs” and would “reduce the [industry’s] competitiveness.” USEC urged DOE to adopt a cap on the maximum amount any company would be required to pay. “[T]his cap, plus the very low risk that a covered incident would ever occur, should allay fears that implementation of the [rule]…will undermine U.S. exports or impose an unpredictable and burdensome costs on U.S. companies,” the company wrote. DOE included a proposal for a cap when it officially introduced the rule last December.

In other words, Centrus still has a major stake in DOE policymaking and would stand to benefit from Poneman’s knowledge and contacts as a former Department official. Since leaving government, Poneman has also the joined the boards of companies that operate in the energy world and are often seeking to influence DOE actions. He recently became a director of Venture Global LNG, which is seeking DOE authorization to export natural gas to countries with which the U.S. does not have a free trade agreement. And he joined the board of The Traxys Group, a commodity firm that trades in uranium components and recently weighed in on a DOE proposal to downblend additional HEU.

So even if Poneman never takes another step inside DOE, he is now leading or advising companies that have a major stake in the agency’s actions and would stand to benefit from his knowledge and contacts as a former government official.

The Road Not Taken

Perhaps it’s no surprise that Poneman has taken a job in the same industry he oversaw as Deputy Secretary. But it’s important to remember that the revolving door is not inevitable. Many government alumni have managed to find high-paying leadership jobs outside of the very industry they used to oversee.

Another former DOE Deputy Secretary, Kyle McSlarrow, left government in 2004 after serving in the same position as Poneman to head a lobbying group for the cable industry. He is now a vice president at Comcast. Even if McSlarrow is collecting an executive’s salary, he isn’t trying to influence his former DOE colleagues, and nobody could accuse him of giving favorable treatment to his future industry employers while he served in government.

Congressional Concerns

POGO and TCS are hardly alone in sounding the alarm about Poneman and Centrus. Members of Congress from both sides of the aisle have expressed concerns about the integrity of DOE actions in light of Poneman’s movement through the revolving door.

“DOE has long had an improper relationship with USEC,” Senator John Barrasso (R-WY), a member of the Senate Energy and Natural Resources Committee, wrote in a letter last month to DOE Secretary Ernest Moniz. “Mr. Poneman’s appointment as President and CEO only promises to make that record worse.”

Representative Jason Chaffetz (R-UT), Chairman of the House Committee on Oversight and Government Reform, and Representative Cynthia Lummis (R-WY), Chairman of the Interior Subcommittee, also sent letters about Poneman’s new position at Centrus. Poneman had been “substantially involved in business arrangements between DOE and Centrus” when he served in government, they wrote last month. His work relating to Centrus and USEC “raises questions about whether he complied with ethics guidelines and federal conflict of interest laws that cover government employees who are seeking private employment.” Chaffetz and Lummis requested additional information on the relationship between Poneman and Centrus during his time at DOE.

At a recent hearing, Senator Dianne Feinstein (D-CA), Ranking Member of the Senate Appropriations Subcommittee on Energy and Water Development, added her own concerns. “[Poneman] was heavily involved in decision[s] to keep USEC afloat,” she said. “How can anyone fully trust a DOE or contractor decision that benefits Centrus?”

Officials at DOE and Centrus continue to insist that nothing is amiss. The company’s spokesperson told POGO that Poneman, “[d]uring his many years in public service as well as the private sector…has always demonstrated the highest level of ethics and integrity, which he believes is vital to both good business and good government. At all times, [Poneman] and the company have fully complied with all applicable post-employment restrictions  and government ethics requirements and will continue to do so in the future.” Secretary Moniz told Senator Feinstein that the agency has given Poneman a “refresher course” on the restrictions he faces. (DOE did not respond to POGO’s request for comment.)

We have no reason to doubt that Poneman followed the ethics rules when he joined Centrus. But that’s exactly the problem. The rules allow plenty of room for former officials to take an influential job with a company they used to oversee, even if gives the company an unfair advantage or damages the public’s trust.

POGO has issued recommendations to mitigate these harmful effects by forcing officials to cool off for longer before taking a job with a company they used to oversee, and by requiring more online disclosure of their ethics records. These simple steps would go a long way toward restoring the integrity of our government and its leaders.

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