Portrait of a Federal Fiasco

The Synthetic Fuels Corporation is mired in mismanagement

In the dark days of the Iranian Revolution in 1979, Jimmy Carter left a week-long retreat at Camp David with a plan to free the U.S. from its bondage to OPEC oil. He proposed creating an $88 billion Energy Security Corporation that would encourage alternative energy projects, primarily through loan and price guarantees. The ambitious goal to produce the equivalent of 2.5 million bbl. of oil per day by 1990. When Carter signed the Energy Security Act on June 30, 1980, he declared, “The keystone of a national energy policy is finally being put into place.”

Four years later, the Synthetic Fuels Corporation is in a shambles. Bankrolled by a onetime $15 billion congressional appropriation, the SFC has financed only two projects. In the past year, charges of gross mismanagement and top-level resignations have plagued the 175-member SFC staff. Michigan Democrat Howard Wolpe has gathered 188 House signatures on a bill to block the SFC from spending any more money until Congress figures out what the agency should be doing. Says Wolpe: “We have created a fiscal Frankenstein that is beyond the control of the Executive and Legislative branches.”

The latest chapter in the synfuel saga began two weeks ago with the resignation of Victor Thompson, 59, who had been the SFC’s $135,000-a-year president for just two months. Thompson’s departure means that the SFC board does not have enough members to conduct business legally. Thompson had replaced Victor Schroeder, the organization’s first president, who resigned from the post in August amid a flurry of allegations, among them that he had charged $25,000 in home interest payments to the corporation. Just days after Thompson accepted his new job, the Securities and Exchange Commission filed a complaint against Utica Bankshares of Tulsa, a bank holding company that Thompson had recently headed. The SEC charged that Utica had violated federal securities laws in 1982 by underreporting its estimated losses. Thompson had failed to let other board members know that his bank was the target of a securities probe. It has also been disclosed that while serving on the SFC board, Thompson tried to sell Utica stock to Texas Oilman Belton K. Johnson, even as Johnson sought multimillion-dollar subsidies from the SFC for two tar-sands projects. Last week the agency asked the Justice Department to look into bringing criminal charges against Thompson.

Lost amid the continuing turmoil is the SFC mandate to increase the U.S. energy supply. So far it has granted $120 million for the Cool Water Coal Gasification Project in the Mojave Desert and $620 million for a coal gasification project in Plaquemine, La. The agency has issued letters of intent to four other projects, including one for $365 million to Signal Energy Systems’ Northern Peat Project in Maine and another for $790 million to the Great Plains Coal Gasification Project in North Dakota, which has received $2 billion in loan guarantees from the U.S. Energy Department. Energy Secretary Donald Hodel acknowledges that “drilling in America would produce much more oil” than the SFC will get for its $15 billion.

Despite all the troubles, SFC Chairman Edward Noble last week remained stubbornly upbeat about the agency’s future. Said he: “It would be tragic to see it all stop right now. We’re right on the verge of having an option that will be real, with just a few more projects.” Indeed, the long-term energy independence of the U.S. depends on a strong synfuels program. The problem remains how to achieve that goal through an SFC mired in controversy .

— By Robert T. Crieves.

Reported by Jay Branegan/Washington