In the Cold War satire The Mouse that Roared—a 1955 novel also titled The Wrath of Grapes and a 1959 film starring Peter Sellers—the potentates of the Duchy of Grand Fenwick (all played by Sellers) realize that their best chance to avert economic collapse would be to declare war on the U.S., so to become a recipient of lavish U.S. aid to the vanquished. By a series of plot twists involving the holding of Q-Bomb technology for ransom, Grand Fenwick inadvertently wins the war, but is saved by American largesse anyway, not to mention government capitulation to nuclear extortion.
USEC Inc., is a so-called nuclear company, the real product of which is perpetual threatened bankruptcy. It has remained afloat thanks to periodic huge infusions of federal assistance, despite an attitude of overt belligerence toward its governmental patrons. The Financial Times of London called USEC "the trust fund baby of the nuclear industry," and that was in 2006, before its wresting of bailouts became a racket. USEC seems to have adopted The Mouse that Roared as its corporate strategy bible.
Twice in the past three years, USEC has demanded rather than ask for a $2 billion loan guarantee from the Department of Energy (DOE), set its own "deadlines" for award of the federal assistance, been denied for said loan guarantee as unqualified, lashed out at the Obama Administration for the temerity of due diligence and then "negotiated" for lavish material aid as compensation for its troubles. Both times, in 2009 and 2011, DOE capitulated to USEC's extortion, offering aid packages worth up to $595 million, $60 million more than was lost to the U.S. Treasury from the actual award of a loan guarantee to Solyndra.
Now, documents released by DOE under the Freedom of Information Act and made publicly available for the first time here reveal that claimed investments in viable centrifuge technology and nuclear cleanup were actually designed as nothing more than USEC bailout packages.
Unlike the Solyndra debacle, which was packaged as what it was, a public investment gone sour, the USEC bailouts, perpetrated by a small group of highly-placed federal officials with discretionary control of agency funds and government material stockpiles, have constituted a fraud on Congress and the American people. Central to this group was DOE's Assistant Secretary for Environmental Management, Ines Triay, who left the government suddenly last summer in a manner that has sparked intrigue.
With shades of the Reagan Administration's Iran-Contra Affair, let's call this one the Uranium-Triay Affair. Iran-Contra, which broke exactly a quarter century ago, centered on an inter-agency rogue outfit, with involvement of the White House and the U.S. Department of Defense, that planned to "use residuals" from the black-market sale of arms to Iran to fund the Contra guerillas battling the elected government of Nicaragua. Both the arming of Iran and support of the Contras violated the laws of the U.S.
The Uranium-Triay Affair centers on an inter-agency rogue outfit, with involvement of the White House and the U.S. Department of Energy, that has used the barter of government uranium stockpiles to fund politically-motivated programs to bail out USEC, in contravention of various U.S. laws.
By giving concessions like no-bid contracts to USEC, along with stockpiled uranium, which USEC then sells at a profit, DOE has met USEC's needs for emergency float funds, without the time-consuming hindrances of congressional appropriations, budgetary accountability or regulatory oversight.
It's in the sense of lacking those niceties of democracy that the uranium barter operation can be considered rogue. As in the Iran-Contra case, "national security" served as a false shield to keep illegal operations covert, with minimal or fraudulent disclosure to Congress and the public.
In September, the Government Accountability Office (GAO) issued a report finding this arrangement illegal and unconstitutional. According to GAO's summary:
DOE’s uranium transactions with USEC were sales authorized by the USEC Privatization Act, but they did not comply with federal fiscal law.... By not depositing an amount equal to the value of the uranium into the Treasury, DOE has inappropriately circumvented the power of the purse granted to Congress under the Constitution.
DOE's response to GAO, provided in an appendix to the report, has so far quashed investigation and law enforcement by arguing, essentially, that the funded purposes were independently authorized by Congress. Even if the funding mechanism represented a shortcut, according to DOE, it was a shortcut commonly employed by federal agencies in order to make ends meat. If arming Iran and supporting the Contras had been legal and worthy aims, in other words, then the rogue maneuvers and black-market accounting used to accomplish them would hardly have made for a scandal.
The legality and worthiness of the aims of the uranium barter, however, are now called into question by a previously non-public memo to Secretary of Energy Steven Chu, sent by then-Assistant Secretary Ines Triay. (The memo is undated but based on references in the text, it had to be issued between Aug. 4 and Aug. 12 of 2009.)
The memo reveals that the real purposes of the uranium barter were not the advertised ones of accelerating cleanup at the Superfund site near Piketon, Ohio. Rather, the purpose was to assist USEC with its proprietary personnel management problems, in the wake of DOE's denial of a $2 billion loan guarantee. The memo lists its first two "assumptions" as:
USEC could begin to lay off the expected 300-400 workers within the next month; those workers typically have a broad experience in working in the nuclear industry.
The only significant work the Department has at Portsmouth [Piketon] is the current EM [Environmental Management] work involving deactivation/shutdown and environmental cleanup of the diffusion plant and the planned decontamination and decommissioning (D&D) of the facilities, including the environmental cleanup of the site.
Triay went on to argue that this was the only "short-term" work for which the uranium could be bartered. In other words, USEC had to be given an infusion of resources immediately, and so-called cleanup was the only way to do it, even though the managerial and regulatory apparatus for the cleanup work was not in place.
This shifting of funds from one congressionally-mandated purpose to another purpose is illegal under the Antideficiency Act. DOE was acting as if it still is responsible for personnel management decisions at the Piketon site, but the point of the USEC Privatization Act had been to take that management out of the hands of government, precisely so that local politics and employment considerations would not adversely impact national interests at the two gaseous diffusion sites in Ohio and Kentucky.
The Triay memo acknowledges that the decision to deny a loan guarantee for construction of a new enrichment plant at Piketon was conveyed to USEC on July 27, 2009, and a decision to accelerate cleanup at the neighboring site of the old enrichment plant at Piketon was made on July 28, one day later.
While the goal of accelerating cleanup at a Superfund site sounds admirable, one day was hardly enough time to make that work "shovel-ready," especially given the complex procedural requirements of CERCLA, the statute governing Superfund cleanup. Indeed, the CERCLA decision-making process at Piketon is only getting in gear now at the close of 2011.
Workers reassigned or hired-on in 2009 wound up sitting idle on paid time, waiting for the necessary technical and regulatory assessments, while huge contract fees for the make-work employment accrued to USEC. Perhaps worst of all, those expenses may be counted toward the total Piketon cleanup budget, meaning that fewer funds will be available to complete the cleanup when work is most needed years from now.
Pike is indeed the county with Ohio's highest unemployment rate. But employing large numbers of temporary workers in a spurt followed by a dearth of jobs because no careful cleanup strategy is employed is hardly good for the region's revitalization. To date there has been no public assessment or accounting for USEC's slap-dash cleanup work, for fear that it would damage USEC's remaining if vanishing chances to secure a $2 billion loan guarantee.
Indeed the logic of the Triay memo was that a one or two-year acceleration of the Piketon cleanup would coincide perfectly with the coerced extension of time for review of USEC's loan guarantee application. About four hundred workers from USEC's on-again off-again centrifuge project could be retained locally, even if there was little immediate cleanup work to be done, so that they'd be ready to transfer back to the construction project, when the loan guarantee was obtained, as Triay was sure it would be.
The problem with that logic was that USEC's centrifuge project had been an empty shell all along, a vehicle for obtaining more lucrative contract service work from DOE, not an end in itself. After two more years elapsed, USEC was, by intention, no closer to demonstrating the commercial viability of its centrifuges than it had been in 2009, and certainly the company is much worse off financially. Thus, Ines Triay was helping USEC retain employees on payroll at government expense for a re-transfer that never was a possibility.
Conflicts of Interest
In addition, Triay's memo completely contradicted the earlier decision by the DOE General Counsel barring USEC from bidding on the general cleanup contract at Piketon, due to conflict of interest. While the reasoning behind the order was not released to the public, it may be inferred that USEC, as purveyor of a new enrichment plant project at the site and as a sponsor of other nuclear projects, had demonstrated interests against those of cleanup—that is, in biasing future site development toward continued nuclear use, for example by intentionally failing to remove contamination. Though it's federal land, USEC has long regarded Piketon as its own proprietary site to do with as it pleases: the Sovereign Grand Duchy of USEC in Ohio.
The general cleanup contract was subsequently given to Fluor Corporation, but the changeover from USEC to Fluor, originally scheduled for March, 2011, was extended at least through September, in yet another apparent effort to offer contract work that would keep USEC from going belly-up.
In 2009, and again in October of 2011, the DOE Loan Programs Office determined that USEC was far from meeting the performance and risk requirements of the Energy Policy Act of 2005 and its Title XVII loan guarantee regulations. A Solyndra-like loan default was thus avoided. But a group of high-level DOE and White House officials arranged to substitute two compensatory packages for USEC, funded extra-legally, principally through the uranium barter.
In short, the Loan Programs Office, with its unappreciated review requirements, turned down USEC flat, actually requesting that USEC withdraw its application in July of 2009. Immediately, an ad-hoc bipartisan group of officials scurried to ensure that USEC did not sink, even though USEC is a private company, the federal supports for which supposedly had been cut by statute in 1996—the USEC Privatization Act.
That group, in addition to Ines Triay, included Chu's Deputy Secretary of Energy Daniel Poneman, formerly of the high-powered Scowcroft Group; Obama energy adviser and Special Assistant to the President in the White House, Joseph Aldy; and Assistant Secretary for Nuclear Energy Dennis Spurgeon, who had come to DOE during the G.W. Bush Administration after serving as Executive Vice President and Chief Operating Officer of USEC, the company being extraordinarily assisted.
Of that group, only Poneman remains at his post, though a letter to the White House from 2008 Obama campaign adviser Dan Carol, reported by Politico on Nov. 11 called for his ouster as early as 2009: "At a minimum, Poneman and Kelly need to leave" as they are "scaring away the talent we need," wrote Carol. The leak of this letter now, by an anonymous government source, bodes ill for Mr. Poneman.
Spurgeon was removed by President Obama at the start of 2010. Aldy left the Obama White House later in 2010, after serving for only one year.
In September of 2010, Poneman and Triay visited Piketon for a gala event with state and local politicians, in tents outside the black-glass USEC office building. Ines Triay resigned her post over the July 4, 2011, holiday, citing the proverbial "family reasons," but the timing of her unexpected departure coincided with DOE's receipt of the scathing draft GAO report, which declared her uranium barter arrangement illegal.
Apparently, Poneman and Triay worked together as a regular nuclear disaster squad—not addressing disasters but worsening them. On Nov. 22, Congressman Ed Markey (D-MA) sent a letter to Secretary Chu about the horrendous situation at Hanford, Washington, including an accusation that Poneman and Triay collaborated in suppressing Hanford whistleblowers.
I'm beginning to understand why Rick Perry might want to block the Department of Energy from his memory.
The Trouble with Triay
One of the highest-level appointments of a Hispanic woman of the incoming Obama Administration, Ines Triay was assumed by many to be a harbinger of new progressive environmental leadership. Triay was placed in charge of the multi-billion dollar program to clean up the nation's Cold War-era nuclear sites, including notorious radio-toxic messes at Hanford and Piketon.
In fact, Triay represented the most right-wing elements of American shadow government. She had come to the U.S. in 1961 at age three as a boat-person refugee from revolutionary Cuba, and achieved academic prominence within the Cuban exile community of south Florida—the same community in which support for the Nicaraguan Contras was organized in the 1980s. With a Florida PhD. in physical chemistry, she rose through the ranks at the nuclear weapons laboratory at Los Alamos, New Mexico. Her confirmation as an Assistant Secretary of Energy was marred by accusations of political influence from the right, owing to large campaign contributions she had made to the Republican Senator from New Mexico and powerful Chairman of the Senate Appropriations Subcommittee on Energy and Water, Pete Domenici.
That same subcommittee, under the chairmanship of Diane Feinstein (D-CA), is now deciding on round two of the USEC bailout package along lines originally proposed by Triay—a $300 million additional federal outlay, funded partly through the uranium barter. The Energy and Water Appropriations bill was scheduled for a Senate vote on Nov. 17, but now is delayed until after Thanksgiving.
In both the first and second rounds of the USEC bailout scheme, Secretary of Energy Chu has acted like an automaton, implementing the orders given by his inferiors. Within days of receiving the Triay memo in 2009, relayed to him through Daniel Poneman, Chu sent letters mimicking the memo, informing Congress of his determination to bail out USEC through the uranium barter, but failing to ask for congressional authority or an appropriation to do so.
He also failed to tell Congress that the cleanup work being funded was premature in the regulatory process, or that the centrifuge technology in development had already been pegged as lacking commercial potential.
Likewise, when the loan office turned down USEC for the second time in October of 2011, the company's agents at the second-rung of the Department of Energy struck a deal for a second infusion of funding that need not be paid back like a loan. Once again, Chu relayed the package as negotiated to Congress—half to be funded through the uranium barter already found to be illegal, and half through a new congressional appropriation, requested on an emergency basis to make 2012 budget deadlines.
At the end of October, when USEC announced a new deal with DOE, including $150 million to come from mysterious "existing funds" at the agency—existing funds that DOE refused to identify—the reference was to the uranium barter, claimed as outside the realm of congressional appropriations.
Broke and Broker
So let's total up the recent government bailout packages for private company USEC Inc. Not counting the billions of dollars dumped on USEC in gifts of uranium, transferred assets, no-bid contracts, and various federal subsidies attending its privatization, USEC was offered a $45 million payment for "technology development" in 2009 (not all of it paid), along with a no-bid cleanup contract for up to $200 million. In its 2011 third-quarter 10-Q statement filed with the SEC, USEC also acknowledged receiving an additional $50 million from DOE for unspecified and previously unanticipated contract services. USEC is requesting $150 million in uranium, immediately, to fund a "Research, Development and Demonstration" project that it had previously committed to complete on its own, for a hypothetical plant that has no chance of ever opening for business. On top of that, DOE and USEC are asking for another $150 million from 2012 congressional appropriations, at a time when federal funding is suspected of being kinda tight.
That's a recent total of up to $595 million, none of it to be repaid. A pretty good percentage on turn-down of a $2 billion loan! The modus operandi, as the potentates of Grand Fenwick would appreciate, is to continually demand a federal loan guarantee, and insure through belligerence that you get rejected!
All this for a company that produces shockingly little. Half or more of the enriched uranium fuel that USEC provides to utility customers comes from old Soviet nuclear warheads, with the uranium downblended to reactor-grade at Russian facilities. USEC only acts as a broker for that uranium, a service it used to provide at substantial profit as a sweetheart concession from the U.S. government, until the Russians threatened to withdraw from the treaty arrangement if USEC's profits weren't radically cut. The deal terminates entirely in 2013.
A declining share of USEC's uranium product is enriched at the government-owned gaseous diffusion plant at Paducah, Kentucky, which consumes an enormous amount of electricity, for which USEC cannot afford to keep paying. Paducah is scheduled to close next May, a deadline that Steven Chu has defended in verbal engagement with Kentucky's Senator, Mitch McConnell.
Meanwhile, all the uranium bartered to bail USEC out of its difficulties has dramatically distorted the uranium market, constituting a form of dumping, artificially lowering the price of uranium. This has had negative feedback effects on USEC earnings, mired deep in negative territory throughout 2011. The barter has also worsened unemployment among American uranium miners, outweighing any jobs maintained on the USEC payroll. Only 8% of the uranium fuel used in U.S. nuclear reactors is currently mined in the United States, due largely to USEC's dependence on raided U.S. stockpiles and Russian supply.
Since USEC will have access to no enrichment facility as soon as May, and since its new plant remains a pipe dream with cracked pipes, it is generally expected that USEC, which inherited a uranium supply monopoly, will soon be nothing more than a uranium broker, entirely an office operation. The billions of federal dollars spent on USEC bailouts will have netted a few extended cubicle jobs in beltway Maryland.
The USEC Hustle
The hustle for a new USEC bailout aims at staving off a pre-election bankruptcy (stock price down 78% in 2011), though the FOIA documents reveal a deeper problem: DOE staff acting like naive facilitators for an insider corporation judged too rigged to fail.
A 2009 memo by DOE Public Affairs director Dan Leistikow demonstrates that DOE was well-aware that USEC was inflating if not fabricating jobs numbers associated with the proposed "American Centrifuge Plant." Despite that awareness, DOE allowed USEC to continue using the "4,000 Ohio jobs" sales pitch uncorrected, even while USEC has attacked DOE for denying a loan guarantee. The baseless 4,000 number is still the one commonly cited by the news media today, on the assumption that DOE would have long ago corrected it, if it weren't true.
After the loan guarantee denial decision was finalized on July 27, 2009, the "rollout" process for announcement of that decision was turned over to Administration operatives—principally Joseph Aldy and Daniel Poneman--who did not work in the Loan Programs Office and had not been part of the due-diligence review. Aldy did not even work for DOE and had only a few months experience in government. Aldy and Poneman shuttled drafts of DOE's rollout statement between them, in stages removing harsh explanations for the denial decision, and replacing them with booster comments about USEC's shining future. This undercut the denial decision, making it seem irrational, while forestalling realistic planning for project failure in Ohio.
DOE's statement underwent major revision after a tip-off allowed USEC to preempt DOE with the media, as USEC would do yet again with the second denial in October of 2011. According to a July 27, 2009, e-mail by Matt Rogers of DOE, USEC CEO John Welch delayed DOE's denial announcement: "[Welch] needs some time with his board to define the path forward and how they announce to the market." DOE thus timed its denial announcement to considerations of effects on USEC stock price. But Welch wasn't so concerned about stock price, he was stalling for time to get a jump with the media and Ohio politicians.
The Loan Programs Office asked USEC to withdraw its application on July 27, as the lack of evidence for qualification was painfully apparent. It stymied the DOE staff that USEC did not automatically comply, as any loan applicant would if told that the alternative to withdrawal was denial. But USEC played a shrewder game, using the crucial week of agreed postponement to marshal lobbying forces , including Ohio Democrats Governor Strickland and Senator Sherrod Brown, for an immediate compensatory aid package.
By the time USEC delivered its answer of a refusal to withdraw, the political operatives outside the loan office—Poneman, Aldy, and Triay—were ready to give USEC everything it wanted: a $245 million aid package plus an indefinite extension of the loan guarantee review, so the scam could be run all over again. Triay's August memo to Chu concretized the government capitulation. Not a peep of protest came from Chu.
And the scam was run all over again, in 2011, with a string of deadlines for DOE decision issued by the applicant USEC, a final demand for material compensation, a preemptive release to the media, and DOE's mimicry of the deal as USEC had described it, with a total take upped to $300 million in federal funds, half to be provided immediately through the uranium barter. The loan guarantee review has also been left open, to permit endless future iterations.
USEC re-framed both denial decisions as positive DOE commitments to move forward with the technology, when that was not at all the result of DOE technical and financial reviews. In both cases, perhaps for political reasons connected to that old Ohio electoral magic, DOE felt compelled to play to USEC's lead with the media. Don't try this at home with a mortgage lender: Preempting a home loan denial with a news release that alleges the bank's commitment to future approval is not guaranteed to bring positive results.
For U.S. Aid, Wage War on the U.S.
It's not that the Obama Administration "could not say no" to applicants, as has been the accusation. When the Administration did say no, in USEC's case, the message was massaged to sound like a yes, with hundreds of millions of dollars in compensatory payments attached.
Many have misread the Solyndra problem as one of the Obama Administration's commitment to "green energy," or a failure to foresee changes in energy markets. The Washington Post editorial board gets it right when it says "the Department of Energy's loan guarantee program is the real Solyndra scandal."
But the Uranium-Triay Affair reveals that the scandal reaches far beyond the Loan Programs Office. Twice, after that office accurately assessed USEC's commercial non-viability and refused to award the company a loan guarantee, the Deputy and Assistant Secretaries of Energy, with direct White House involvement, intervened to offer USEC huge compensatory packages which would never have to be repaid.
And to date, despite reports by watchdog agencies like the Government Accountability Office, the scandal has received virtually no attention by either the media, Congress, or law enforcement agencies.
GAO, it must be said, pulled its punch. It only accused DOE of violating the Miscellaneous Receipts Act, which sounds practically like a misdemeanor. More explicitly, DOE personnel violated the Antideficiency Act, aimed at protection of the U.S. Treasury, which forbids an official from diverting federal funds from one congressionally authorized purpose to another. That's exactly what Ines Triay and her companeros did. The Antideficiency Act carries penal sanctions, meaning jail time, a fact which I have reason to believe was brought to the attention of Ines Triay just prior to her July resignation.
Other laws were callously broken. Of lasting impact on the stakeholders at Piketon, budgets were blown and major cleanup decisions were made before any of the mandatory public participation processes could be implemented. And so this Appalachian community will likely be stuck with a massive 90-acre waste cell, placed to please the tenant who won't be around—USEC Inc.
When Solyndra requested a second loan guarantee to stave off bankruptcy, it was flatly denied. It seems they should have taken a page from The Mouse that Roared, waged war on the U.S. government, and made a set of extortionist demands. Then, like USEC, they might have gotten some material aid from the U.S. government, if not cold hard cash.