Daniel B. Poneman
Centrus President & CEO
at the Nuclear Energy Institute’s Nuclear Energy Assembly
Remarks as Prepared
Thank you Anne for the introduction. Like so many others, I also have to say thank you to Marv Fertel not only for inviting me to share some thoughts today, but more importantly for his incredible leadership and many years of outstanding service to our industry. Honestly, when I heard Peyton Manning talk about leadership, about facing adversity and adapting, about knowing yourself, your teammates, and your opponents and, above all, influencing others, I said to myself: that’s Marv! So, once more, I would like to ask everyone here to thank Marv for his leadership of our industry all these years.
I also should thank Marv for putting me on the agenda today instead of yesterday…Now I have a better sense why Brock Osweiler may have decided to give up on Denver rather than try to follow Peyton Manning’s footsteps…that’s a tough act to follow!
Marv asked me to speak about how I am leading Centrus Energy through our current transformation, which was hard for me because my mother always told me not to talk about myself.
But what made it easier for me to speak about “leadership in a time of transformation” is that the topic has great relevance not only to one company, but also to the industry we all serve.
Since perhaps not everyone here knows Centrus, let me just say that our company traces its roots to the Manhattan Project, and for decades was the uranium enrichment enterprise within the U.S. government, first at the Atomic Energy Commission and later at the Department of Energy. In 1998, that enterprise was privatized and became known as the U.S. Enrichment Corporation, or USEC. I will spare you the long version, but the bottom line is that the company went through a restructuring in 2014 and emerged with this new name.
And the fact is that when I took over Centrus a year ago, we had to change, having gone through the corporate equivalent of Peyton’s four neck surgeries – lawyers call that “Chapter 11” – and playing in a league that had been radically transformed since my rookie season in the nuclear business.
That rookie season was 41 years ago in 1975, when I was a summer intern working for my home-state senator, John Glenn, an American hero. One of my first memos related to concerns about the impending shortage in uranium enrichment! No kidding. In the 1950s people worried about a bomber gap and a missile gap. In the mid-1970s we were worried about a SWU gap! This was a halcyon period for nuclear energy in the United States, after the 1973 oil crisis spurred interest in building up nuclear power and before Three Mile Island threw us off our stride. I still remember a graph from the Energy Research and Development Administration (ERDA), a precursor to the Department of Energy for those of you who remember, showing a big fat yellow wedge of a deficit SWU opening up in the out-years.
And it turned out that a gap did develop, in a way. Just not the one we expected. It was not an absolute gap, but an American market share gap. During my internship the United States served 100% of the global enrichment market outside of the Soviet Bloc. By the 1990s, it had fallen to around 40 percent. By the time President Obama took office it had fallen to 25 percent. Then, with the post-Fukushima collapse of SWU prices, the last of our Cold War enrichment plants shut down in 2013 – leaving our country with just a 5 percent market share, unable to supply its own enrichment needs, much less the world’s.
So when I took over Centrus last year, two things were clear: First, this situation was bad not just for the US nuclear industry, but for the global nuclear industry, if you care about security of supply, diversity of supply, price competition, and nonproliferation. Second, if someone did not do something about the situation now, the United States could literally disappear as an independent enricher, and the situation would grow even worse.
We had to adapt to the Company’s changed circumstance. We were much smaller than we were a decade ago, both in absolute terms and in market share, no longer able to throw the 55 yard pass. And we had to adapt to a radically-changed league. The other teams on the field – like the modern defenses Peyton had to face, were both bigger AND faster than the old days, making it that much harder for Centrus to score.
In short, I had to say “Omaha”, and call a new play.
So what’s the right play to call when looking at competition that is state-owned, state-subsidized, with state-protected markets, and government leaders who often champion their interests as instruments of state policy? And what game plan will succeed for a small team, in a market glutted by overcapacity, where SWU prices have fallen more than 60 percent over the last five years and projected to remain depressed for some time longer?
To answer that question, I looked beyond football to take inspiration from three great scientists: Archimedes, Charles Darwin, and Albert Einstein.
Archimedes said “Give me a place to stand and rest my lever, and I can move the Earth.” In other words, we need leverage.
But where could a small company like Centrus find leverage?
To help find the answers, I went on a listening tour. I listened to employees, colleagues, and customers.
Here’s what I learned:
In Centrus employees, I found smart, dedicated, talented people, who want to rebuild our Nation’s enrichment capability. I found scientists and engineers who are doing the most exciting technical work you can do in uranium enrichment. They want to keep doing it…but only if it serves a vital national purpose.
From colleagues, I learned that many people agree, A, that US-based enrichment is still important to the safe, secure, and reliable supply of nuclear energy around the world, and B, that it is not too late to restore that US role in the market. And so we have recruited some deeply experienced nuclear leaders — and promoted some others from the inside — to help transform our company. And we have recruited new young talent, with new ideas, to help drive our transformation. That’s why NEI did a great thing in devoting the first day of this conference to educating and inspiring the young leaders who will shape the future of our industry.
And from our customers, I heard a consistent message. They all said the same thing: “We want Centrus to stay in the market, and not just because you wear an American flag. We value your presence in the market because we need three things:
But how could Centrus meet these needs 3 years after closing down its last big enrichment plant at Paducah? So I thought about that for a while and realized that, in fact, for 20 years the market treated USEC as a producer when half of its supply came from Russia, and the other half from the oldest, least efficient, highest cost plant in the world. The virtue in Paducah was not in its cost structure, it was precisely that it provided diversity. And with diversity, by definition, comes security of supply and price competition.
So you don’t need to be a rocket scientist to figure out that what would enable Centrus to provide the security and competitively-priced SWU that our customers want is, in fact, to become the most diversified source of enrichment in the market. Diversification can be our lever!
But how to find the fulcrum? By making a virtue of necessity: We are no longer burdened by the need to build and operate for excess capacity that the market does not yet need. Therefore, our cost structures are light. That fact allows us to take advantage of overcapacity in the market – including by working with some reactor operators who have bought more enrichment than they need. And by leveraging decades of strong relationships around the global industry, we are working to become the world’s most diversified source of enrichment.
The place we stand is in the United States, diversification is our lever, and light cost structures our fulcrum…so, little by little, we can move the earth.
To channel Marv here, the larger question is how we can apply Archimedes’ principle to the nuclear industry as a whole. We heard the answer to that question in virtually every speech yesterday. As an industry, our lever is the unique ability of nuclear energy to provide safe, reliable, clean base-load power, and the fulcrum is the growing demand for resilient, low carbon energy. We saw that fulcrum in the Midwest, during the Polar Vortex of 2014, when the brutal cold froze coal stacks, sent natural gas prices soaring, and triggered major power outages in fossil-fueled plants. Meanwhile, nuclear power plants kept humming along at 95% capacity.
We saw that fulcrum in the global climate deal – whose high ambitions cannot be achieved without a robust, growing nuclear industry.
So the diversity of carbon-free nuclear power can serve as the Archimedes lever to both preserve and rebuild nuclear power in this country.
This brings me to our second scientist, Charles Darwin.
The lesson here isn’t just “survival of the fittest.” The lesson – as Peyton Manning reminded us again yesterday — is that to survive, you have to adapt to an ever changing environment.
The old business model of our company was focused on the near-term deployment of a technology the company spent a decade developing, the American Centrifuge. It’s the most advanced centrifuge in the world. I have seen it. It is truly an impressive piece of engineering.
But the environment has shifted. First, the global market was so oversupplied that no viable business case could be made today to deploy a new green field facility – no matter what technology you are using.
Second, the US Government decided it did not need to deploy more enrichment for national security purposes for a long time.
So we needed to adapt. Again, let us make a virtue of necessity. Let’s take the design that the Department of Energy has publicly called the most technically advanced and lowest risk option to restore US enrichment capability, and continue to improve it, squeeze out costs, and simplify the design to enhance manufacturability, so when the commercial market or the government do call for new capacity, we are ready, because our long-term goal is to return to production. But we can’t afford to have any sacred cows. If there is a cheaper, faster, more efficient alternative technology than what we now possess, we are going to explore that as well.
Again, what is true for Centrus is also true for the industry as a whole. Change is not our enemy; it is a fact of life. So we need to embrace it.
This brings me to Albert Einstein, who said: “It’s not that I’m so smart, it’s just that I stay with problems longer.” He wasn’t afraid to make mistakes, and he knew that the value of his work might take a lifetime to bear fruit.
In other words: we have to play the long game.
In the corporate world, there’s a lot of focus on what happened in the last quarter, and rightly so. But our strategic goal must be to build value over the long term.
At the risk of dating myself, when I started working on this issue, Gunsmoke had only just recently gone off the air and Harrison Ford was a carpenter. It took a long time for the United States to lose the lead in the global enrichment market; reversing that trajectory will not be easy.
When I go out jogging, I try to apply the theory of Chi … instead of fighting the force of gravity and stressing your shins and knees, you lean forward and let gravity pull you along. At Centrus, we are working hard to be successful by being nimble and agile, listening to our customers, tailoring our efforts to their needs, and trying to leverage the reality of the gravitational pull of current market forces to our advantage.
So for us the long game is to survive the short-term challenges by leveraging our light cost structure and strong global relationships to grow our order book and diversify our supplies. Meanwhile, we are working hard on the technology and manufacturing enhancements that will serve us well in the long term, when the market demands more supply. Global enrichment demand is projected grow from about 45 million SWU today to 60 million in 2025 and 70 million in 2030. We are positioning ourselves to be ready to invest and grow our capacity when the market is ready.
Our industry faces a similar challenge. While we are working hard to complete five new builds here in the United States and fighting to prevent the premature closure of our existing reactors, we are planning for the future through further regulatory reform, continuing to seek lasting solutions for the back end of the fuel cycle, and leveraging the Clean Power Plan and the Paris climate deal, while cultivating advanced technologies and the talent to develop them.
We need to continue executing our long-term game plan as an industry – delivering reliable, affordable, safe and clean electricity – strengthening physical protection and nonproliferation efforts – and building a new framework for assured nuclear fuel supplies for peaceful purposes – so that we can help build a safer, cleaner world.
Yesterday when Ben Heard spoke so passionately and convincingly about South Australia and the promise of closing the back end of the fuel cycle – I was delighted to hear of the resurrection of an idea that I worked on 20 years ago in Australia and did not succeed at the time, but may now again have a real chance. It is yet another reminder that when it comes to the fuel cycle, we need to stay focused on the long game.
Ultimately, the question is what kind of future we’re going to leave to our children and grandchildren. At Centrus we view ourselves as a small but integral part of that much larger enterprise, one that energizes and inspires all of us in the industry. Just as Peyton Manning inspired us yesterday, showing what one person can do with passion, grit, determination, and hard work. But though we all know how his leadership and his talent contributed to the victories he achieved, in every interview I ever saw, Peyton always gave the most credit to his teammates. That was gracious but also wise; as he told us yesterday, teamwork is absolutely essential..
And I can say with confidence that the team we have fielded here, and the people in this room and throughout our industry, are ready for the challenge. We have great talent and commitment behind us, and great challenges and opportunities before us. Working together, I know we can succeed. And when we do, we will know that we have done something truly important –not just for our country, but for the world.