William Hederman, director of the Office of Market Oversight and Investigations, has announced he will be returning to the private sector within the next few months and rumors are circulating that OMOI, created just over three years ago, will be dismantled or significantly reduced under new Federal Energy Regulatory Commission Chairman Joe Kelliher.

Hederman, the division’s first and only director, said he had informed the chairman and the Commission of his plans and would “recuse myself as necessary while I discuss opportunities in the private sector.” Hederman had been appointed by then Chairman Pat Wood in April 2002 to direct the market monitoring unit as the Enron and merchant energy scandal unfolded and FERC came under criticism for failing to aggressively oversee the energy markets.

The division has grown to 130 employees, including a multi-disciplinary team of economists, auditors, lawyers and financial analysts. The unit conducted extensive investigations of market activity and prepared regular reports for FERC and the Congress. Reports are that plans already are underway to split off OMOI’s enforcement functions and transfer them to the general counsel’s office from whence they came. And resumes from other OMOI staffers besides Hederman reportedly are circulating.

Talk centers on Kelliher’s new chief of staff, Dan Larcamp, as the guiding force in the changes. Larcamp was head of the Office of Markets, Tariffs and Rates (OMTR) under Wood, when some of OMTR’s functions were turned over to OMOI and to Hederman, who reports directly to the chairman.

Questioned, FERC spokesman Brian Lee said Kelliher “has made no decisions in terms of restructuring any of the offices at the Commission. The chairman is weighing his options, as chairmen do and have privilege and latitude to do. Anyone who is saying that a decision has been made is getting ahead of the game.” The Commission has been “made and remade over and over again by various chairmen through the years,” Lee said.

“Pat Wood as chairman decided that the Commission needed to be reorganized and created an Office of Market Oversight and Investigations.” And, for example, “there used to be an office of hydro that was separate from the office of pipelines, but those are now combined in an Office of Energy Projects. Assuming the chairman makes any changes and is ready to talk about them publicly, he will do so,” Lee said. A new chairman cannot make major changes until 120 days into his term. For Kelliher that time would run out in early November.

Some procedural changes already have been made which tend to lessen transparency at the Commission. Instead of two sunshine meetings a month, the Commission will have only one public meeting. It has been stated there will be more orders circulated and voted on by the commissioners outside the meetings. Also, the practice of making available draft orders while the meeting is ongoing has been suspended. Instead reporters have been told efforts will focus on publishing the final orders on the same day they are voted out.

In his statement, Hederman said “I appreciate the privilege of serving at the Commission and building a market oversight and enforcement capability that is worthy of the public’s trust and commands the industry’s respect. I can’t say enough in praise of the 130-member staff in the Office of Market Oversight and Investigations, whose work and dedication helped bring about this result.”

Prior to his FERC service, Hederman was a consultant to the energy and financial industries at LECG, a consulting group founded by prominent academics in the antitrust area. He was vice president of Columbia Gas Transmission from 1998 to 2001, and prior to that he served as executive director and board member of the International Centre for Gas Technology Information. Hederman also set up the Washington office of R.J. Rudden Associates Inc.

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