The last Secretary of Energy.

Hazel O'Leary says the Department of Energy is too big to fail. Wanna bet?

No one would deny that Bill Clinton's cabinet has been plagued by allegations of scandal and blunder. Recall Ron Brown's messy finances, Henry Cisneros' payments to his mistress, Webster Hubbell's mail fraud, and the nannygates of Bobby Ray Inman and Zoe Baird. Even by those standards, however, a faux pas by the Energy Department, headed by Secretary Hazel R. O'Leary, was a whopper.

According to The Wall Street Journal, an Idaho salvage dealer purchased at a 1993 Department of Energy firesale the essentials to make bomb-grade uranium, including equipment, blueprints, and flowcharts. When the dealer attempted to peddle his wares to a private company British Nuclear Fuels Ltd., the British Ministry of Defense stepped in, flagging the U.S. State Department. "BNFL U.K. isn't interested in the equipment," wrote Ray Gatrell, a Whitehall nuclear safeguard official. "I wondered if Saddam Hussein et al might be."

Arduously, the square wheels of American bureaucracy began to turn: State notified the Nuclear Regulatory Commission. The commission notified the salvage dealer that the equipment was not exportable. NRC Chairman Ivan Selin also rifled off a letter to O'Leary, urging her to resolve the matter, perhaps by buying the equipment back. A full five months later, O'Leary replied, assuring Selin that DOE had the problem well in hand. Ultimately, the department took the NRC's suggestion. Mr. Salvage is now $475,000 richer.

Practically canonized by the press and public for opening top secret government files on radiation experiments involving U.S. citizens, mostly during the Cold War, O'Leary, 58, let one slip through the wickets. No harm done; no nuclear holocaust. But perhaps most notable about the incident, advocates of privatization maintain, is that even the sharpest, most responsive public servants seem slowed - in some cases outright stupefied - by the system. The Clinton administration bills O'Leary as an agent of change; the first-ever energy secretary with private-sector, energy experience; the right person to hack the bloated DOE down to size. At first glance, as a stylish, unrestrained black woman in a Capitol Hill community bursting with paunchy white men in gray suits, that seems about right. But O'Leary may have more in common with the suits than it may appear. With the DOE under assault by Republican turks in Congress and threatened with outright extinction, she falls back on the bureaucrat's basic instinct - self-preservation.

Exhibit A in what promises to be a bloody battle: an 18-page memo released in May, outlining DOE's planned "Strategic Alignment and Downsizing Initiative." O'Leary has pledged to cut DOE's $17 billion annual budget by more than $14 billion over the next five years. The secretary offers Newt's minions a sacrifice, placing assets on the block and slashing the department's work force by more than one-quarter.

But it may take more than that to save the department, and observers wonder how far O'Leary will bend. She bluntly rejects suggestions that DOE privatize its 27 national research laboratories, which cost taxpayers nearly $3 billion a year. She favors the continued development of alternative fuels; many conservative and corporate experts scoff these won't significantly or cost-effectively shrink either pollution levels or American energy dependence. O'Leary is an acknowledged booster of the sustained development initiatives advanced by Vice President Al Gore and a legion of green gurus. And she argues that the federal government alone is qualified to oversee the cleanup of nuclear research facilities - a cleanup that could cost $300 billion and eclipse Superfund as both the largest environmental bill in U.S. history and a leading cause of CEO nightmares.

Is Hazel O'Leary the messiah of efficiency or a bureaucrat in reformer's clothing?

"She can bring home the bacon to recipients of DOE largess," says energy analyst Jerry Taylor at the Cato Institute. "But that does not necessarily mean her performance is in the best interest of the nation."

A CEO who declined to be identified wasn't quite so tactful, saying that O'Leary - in a manner of speaking - couldn't find North with a compass.

Created when President Jimmy Carter hit the panic button during the so-called energy crisis in the late '70s, the DOE is a fat Christmas goose waiting to be plucked, some suggest. The department has a work force of 20,500 federal and 132,500 contract employees and would be 27th on the Fortune 500 if it were a private company. The private sector, including a stop at Minneapolis-based Northern States Power in the early 1980s, is where O'Leary cut her teeth. There, she initiated the quality and team-building strategies she claims will transform the goose into a peregrine falcon. O'Leary's penchant for management bromides recently elicited brickbats from the Journal.

"I've never been accused of sounding like a bureaucrat," O'Leary says during an interview in her seventh-floor offices in Washington's Forrestal Building, situated on the Mall with the obligatory view of the Capitol. That's particularly evident on the rubber-chicken circuit where O'Leary frequently roams audiences with a wireless microphone, setting a tone that is a cross between televangelist fire-and-brimstone and Oprah-style confessional.

Elegant and outspoken - an image she relishes - the secretary exhibits a flair for anecdote and, occasionally, for the politically incorrect. On her first morning at Northern States Power, she recalls, "I walked into a room with 23 white guys. They all had the same socks on, and half of them had the name Jim. And this was Minnesota, so they all looked alike to me."

A lawyer by training, O'Leary first came to Washington in the 1970s to join the Cost of Living Council, a doomed attempt to fight inflation through wage/price command and control. Her serendipitous assignment to the council's energy sector came after she read the book, "The Coming Petroleum Crisis," found it interesting, and volunteered. It follows that if she had read a book on the White House, O'Leary might now be president, and Hillary Clinton would have missed her moment in the spotlight.

O'Leary later joined the Federal Energy Administration, DOE's antecedent, where she was responsible for regulating the oil, natural gas, and electric industries. At the end of the 1970s, like many public servants before her, O'Leary walked through the revolving door into the private sector to cash in on her experience and contacts. Around that time, she learned she wasn't likely to become the next Peter Lynch. Betting FEA regulations that created a shortage of natural gas would remain in effect, O'Leary invested in gas wells the moment she left Washington. "Of course, we deregulated," she says, "and the bottom fell out of that."

O'Leary's first stop in business was Coopers & Lybrand, where she became a "rainmaker," seeking energy clients for the accounting side of the Big Six firm. Then, in the early 1980s, she and her husband, Jack O'Leary, founded an energy consulting firm. After her husband's death, O'Leary was recruited by Jim Howard, CEO of Northern States Power, where she signed on as an executive vice president. Initially overseeing human resources, government relations, and environmental affairs, O'Leary eventually was named president of NSP's natural gas division, where she installed Total Quality Management practices. She also zeroed in on diversity at the company, or a lack of it.

"We implemented a diversity goal for people. Note, this is not affirmative action," she says, failing to explain the difference between the two. Tying management pay to specific hiring goals - presumably not quotas - she "got everybody's attention." She also got results, earning a reputation as a tough boss: By the time O'Leary left NSP, there were three other women officers, and a second black officer.

She also pushed employee empowerment at NSP, and continues to put it to use at the DOE, where staffers "own" projects and are accountable for them. Does that mean underperformers are fired? "No," O'Leary says irritably. Ironically, the reason for that relates to another management trend: team-based management. "More often than not," she points out, "one individual bureaucrat is not responsible for the goal; the focus is on the team."

Presumably, that means the DOE official who placed World War III in the hands of a junk man is still picking up a check.

"The DOE is not like the private sector, where management is in charge of everything," O'Leary observes. Counselor fails to take the Fifth, conjuring images of Newt posting CE in the Republican lounge on Capitol Hill to fire up the troops come game time. In any case, for all her insight, O'Leary can't reverse a truth that rings eternal in Washington and every civil-service administration across the land: Incompetence is not grounds for firing an employee.

Let's be fair: O'Leary has made inroads to downsize the DOE. For example, the department owns and runs five power marketing authorities, which produce electricity from federal dams. O'Leary's May proposal recommended that four PMAs be privatized and that the largest, the Bonneville Power Administration, be made into a government corporation, with the eventual goal of privatizing it, too. Her delay in privatizing Bonneville is because the DOE doesn't want to "render rate-shock to small businesses in these communities." Not to mention large, politically connected businesses such as Boeing and Alcoa, which suck up subsidized power from federal dams.

Privatization makes sense, according to analysts. "The idea that public power could be provided cheaper than private power has been shown to be socialist nonsense," says Cato's Jerry Taylor. "While it's true that PMA customers typically pay only about half the national average for electricity, that is because every other taxpayer in America is picking up the difference, and then some."

The sale of the four smaller power authorities would net $3.7 billion for the Treasury. O'Leary also wants to sell off the Naval Petroleum Reserves for $1.6 billion. The NPRs, established during World War I, have long operated simply for commercial oil production and have no national security purpose.

O'Leary talks the downsizing talk, but she does have her touchy areas. Chief among them is the 27 national labs scattered across the U.S., which originally served as design facilities for nuclear weapons. With the end of the Cold War, these labs have been scrambling to find justification for their existence - many by repositioning themselves as environmental and industrial research centers, keeping America safe by turning out stronger golf club shafts, a radar for construction workers to detect nails in walls, and other extravagant widgets.

Private industry now can partner with the labs for research, where 50 percent of project costs are paid by the Feds. But O'Leary refuses to privatize the labs outright, because they "represent a competitive edge for the 21st century" and a foil to government-supported programs in other industrial nations.

Half-hearted industrial policy? Perhaps. But with more than a few companies growing fat on government-subsidized research, there's little motivation for change. Asking the business community to kick the habit "is a bit like asking an Iowa corn farmer to forego his grain subsidies," says Fred Smith, president of the Competitive Enterprise Institute, a Washington-based think tank. Meanwhile, questions remain about the labs' commercial potential. Intermittent R&D success fails to justify a $90 billion taxpayer bill over a four-decade period, some observers argue.

"Miss Privatization," as she describes herself, also rejects letting go of the labs because the business community has told her that "no one can afford to buy them." O'Leary fails to mention that members of her staff proposed a highly unconventional privatization plan along the lines of the successful Czechoslovakian model - by distributing shares to the public, which then would trade them in a secondary market. O'Leary deep-sixed the plan and punished the staff members who proposed it. Now that's accountability.

O'Leary's rise to media stardom has been fueled largely by her handling of nuclear weapons issues. Her first turn on the Washington stage came when she defied the military establishment by refusing to sign an order authorizing new nuclear bomb tests. President Clinton supported her decision and banned testing at least through this year. In making the decision, O'Leary tapped the expertise of an elite team that included the directors of weapons labs, bomb designers, former Energy Secretary James Schlesinger, and testing opponents such as Princeton University Professor Frank von Hippel.

The secretary wins high marks for addressing the environmental problems caused by America's nuclear weapons program. More than half of DOE's budget is allocated to management and cleanup efforts. O'Leary argues that the cleanup goals set by earlier energy secretaries were unrealistic. Cato Institute's Taylor agrees. "Current cleanup practices are riddled with fraud and misuse," he says. "Forty cents of every dollar is wasted in a generally unnecessary campaign to meet ridiculously excessive remediation standards."

When O'Leary took over DOE, she placed Bill Clinton on notice that she planned to leave at the end of four years. But she drops hints that she may reconsider. "I'm being romanced across the line by the very nature of the agenda," she says. "I get more and more captured by the clear reality that it takes longer than four years."

Of course, that timetable may be irrelevant, and Inauguration Day 1997 may find her benefactor jigging for catfish back in the Land of Opportunity. "We need a second Clinton administration," O'Leary says. "If this thing gets aborted halfway," she adds - in dead earnest - "people will be very confused."

Will there be a Department of Energy two years hence? "Yeah, we're too cumbersome," says O'Leary. "It costs more than it's worth to dismantle us."

Maybe so, but there's a brigade of revolutionaries up on the Hill that's hankering for a chance to try.

"A poisonous weed should be ripped out by the roots," says CEI's Fred Smith. "Why are we wasting money?" Moving from flora to fauna, Cato's Taylor adds that O'Leary's fancy footwork may simply delay the inevitable. "It is a lot like a back-packer running away from a bear, throwing trail mix to keep it away," he says. "This Republican bear is unlikely to be dissuaded."

The first assault on the enemy stronghold - by Ronald Reagan during his first term - came up short. Says here it's no worse than even money that this time, conservative forces will succeed.

Even Pete Rose wouldn't place a bet that they won't.

Ronald Bailey is the producer of the national weekly public television series "Think Tank With Ben Wattenburg, "and author of "Eco-Scam: The False Prophets of Ecological Apocalypse" (St. Martin's Press).

Joseph L. McCarthy is managing editor of Chief Executive magazine. Frances Nuelle contributed research to this article.