For the sauce, warm the oil in a large saucepan over medium heat. Add the onion and garlic and saute until soft, about 3 minutes. Stir in the chile, breaking it into lumps. Gradually pour in 1 quart of water, stirring to combine. Bring the sauce to a boil, then reduce the heat to a simmer. Cook for about 15 minutes, stirring occasionally, until it coats a spoon thickly. (The sauce can be made several days ahead, then cooled, covered, and refrigerated. Reheat before proceeding.)
Separate the eggs, placing the whites in a nonplastic mixing bowl and the yolks in a separate medium bowl. Whisk the yolks lightly, just to combine, then add the flour, baking powder, and salt.
Beat the egg whites with a mixer on high speed until they are stiff but not dry. Gently fold the yolk mixture into the egg whites. It's fine to have a few streaks remaining.
Heat 1-inch of oil to 375 degrees F in a large skillet or Dutch oven. Drop a large spoonful of the batter gently into the oil. Within seconds it should puff up to be about double in size. Fry briefly until golden-brown and crisp, turning as needed to cook evenly. Remove with a slotted spoon and drain. Cut into the fritter to verify that is has cooked through but is still moist with a nearly melting center. Adjust the oil temperature a bit if necessary to get the desired result. Fry the remaining fritters a few at a time until all the batter is used. Spoon chile sauce on a platter and arrange the fritters over it. Serve immediately, passing any remaining sauce separately.
Recipe courtesy of Cheryl and Bill Jamison; authors A Real American Breakfast