Consumers Solar Power Corp., a California company that claims to make fuel out of water and whose top executives have been accused of fraud by two federal agencies, is one of the finalists for $8.4 billion in federal subsidies from the U.S. Synthetic Fuels Corp.
The Synthetic Fuels Corp. announced Wednesday that the California firm's plan to use the sun's energy to produce a hydrogen fuel from water is one of 27 projects still in the running for federal aid.
Consumers Solar Power is seeking a $25.5 million government loan guarantee so it can put its process into production, company Chairman Gerald Schaflander said.
Schaflander and Consumers Solar President Stephen Wright were indicted on 11 counts of mail fraud last September by a federal grand jury in Los Angeles and are scheduled to go on trial there Feb. 9.
In May, the Securities and Exchange Commission charged Schaflander and Wright with defrauding investors by illegally selling 11 million shares of unregistered stock in Consumers Solar Power. Without admitting or denying the charges, the company and the two men agreed to follow SEC rules in selling stock.
The mail fraud indictment charged that, among other things, Wright and Schaflander falsely claimed that they had made two cross-country trips in a car powered by their revolutionary fuel.
"In fact, the car was towed most of the distance across the country," the indictment alleges, and the fuel the car did use was "purchased commercially."
In a telephone interview yesterday, Schaflander called the indictment "a malicious, vicious prosecution," adding, "we are confident we will be exonerated by a jury of our peers."
Schaflander said the Synthetic Fuels Corp. asked the company about the California criminal charges. "They've been apprised of it fully," he said. "They consider us innocent until proven guilty, unlike some people in this country."
A synfuels agency spokesman said the agency has not yet decided whether the indictment will disqualify Consumers Solar Power from getting federal aid.
"We are not at the stage where that will be a determining factor," said Bill Rhatican, vice president for external relations of the independent government corporation.
Rhatican said the 27 companies still in the running for subsidies are all of those that have provided all the data sought by the corporation's staff and no qualitive evaluation of the proposals has been made.
Also on the list is a Kentucky project that uses a process developed by Dynalectron Corp. of McLean to produce synthetic crude oil from coal. A subsidiary of Ashland Oil Co. and the Bechtel Corp. are seeking a federal loan guarantee to finance construction of a commercial plant to replace a pilot facility now in operation.
Originally, 63 projects submitted bids for synfuels aid, but most of them dropped out in the past year, Rhatican said. The corporation's board will begin weeding out the remainder when it meets Jan. 13.
Consumers Solar Power's plan combines solar energy and alternative fuels in a two-step process to create an alternative to gasoline for automobile engines.
Schaflander said his company has developed "a semiautomated process" for producing photovoltaic solar cells that can turn the sun's energy into electricity. The electricity is then used to extract hydrogen from salty water drawn from wells in the Arizona desert, Schaflander explained. The Arizona site was chosen, he added, because it has the sunshine and the salty water.
Last September, Schaflander's corporation announced plans to sell 2.5 million shares of stock for $10 a share; the next day the company was indicted on the mail-fraud charges.
The SEC later agreed to let the company try to sell the stock, so long as it told investors about the mail-fraud charge. The prospectus for the stock offering notes that part of any funds raised will be used to defend the two executives against the criminal charges.
Schaflander claims the charges are the result of a vendetta by the Postal Service, which once offered to test a car powered by the hydrogen fuel, then backed out of the deal, saying Schaflander never produced the car.