Stir 1 1/2 cups of the onion with the egg, salt and pepper.
Place remaining 1/2 cup of onion in food processor, add potatoes. Blend until potatoes are very finely chopped and some of the mixture is pureed; transfer to prepared colander. Wrap towel around potatoes and squeeze out as much liquid as possible. Scrape into bowl with egg mixture. Stir in flour and baking powder.
Heat 4 Tbsp. vegetable oil in large skillet over medium high heat. Drop potato mixture by 1/4 cup scants into pan. Flatten each latke to 2 1/2 inch. rounds with metal spatula. Reduce heat to medium and cook until golden brown, about 4 minutes per side. Transfer to baking sheet.
Heat over to 425 degrees.
Bake latkes for about 6 minutes per side until crisp and deep brown. Serve with sour cream or applesauce if desired.