• The Public Utilities Commission faces significant potential risks for Federal and State regulatory compliance violations, including violations resulting from operating or construction activities, and incurs liability for regulatory violations as well as for damage or destruction of property, natural resources, or public health. For example, the Sea Cliff sink hole incident, which occurred in 1995 prior to the transfer of the Clean Water Enterprise from the Department of Public Works to the Public Utilities Commission and had numerous causes, including inadequate construction management, resulted in regulatory violations. The City paid $300,000 in regulatory fines and $12 million in property loss claims. Despite these risks, the Clean Water and Water Enterprises do not report regularly to the General Manager or the Public Utilities Commission on regulatory compliance, regulatory risks, and how such risks are addressed.
  
  
• The Public Utilities Commission General Manager should consolidate regulatory planning and management functions, which are dispersed throughout the Public Utilities Commission, under the new Assistant General Manager, Clean Water, and new Assistant General Manager, Water and Power, as recommended by the Budget Analyst, to ensure management oversight. Without consolidated regulatory planning and management, the Public Utilities Commission risks implementing operating and capital programs that do not comply with regulatory requirements, project delays, and unnecessary costs. For example, the Public Utilities Commission planned inadequately for regulatory requirements in the Pulgas Dechlorination Plant project design, which was designed prior to 2000 and constructed in FY 2002-2003. The Pulgas Dechlorination Plant does not comply with current discharge regulations regarding chlorinated water, and will require additional negotiations with State regulatory agencies and estimated costs of up to $10 million to retrofit the plant in order to meet current regulations.
  
  
• The Public Utilities Commission needs to ensure that regulatory planning and management are part of the Clean Water and Water Enterprises' business plans, the Public Utilities Commission's strategic plan, and the Water System Capital Improvement Program's project planning and design process.

The Regulatory Environment

The U.S. Environmental Protection Agency, the Federal agency responsible for protecting human health and the environment, regulates the Public Utility Commission's clean water and drinking water programs. The Federal Clean Water Act establishes the standards for discharges to state or federal receiving waters and the Federal Safe Drinking Water Act sets requirements for treatment, monitoring, and reporting of the drinking water program.

The U.S. Environmental Protection Agency has given jurisdiction to some of the states to regulate their discharges into waters of their state and to ensure the safe quality of their state's drinking water. The State of California has delegated oversight of clean water regulatory compliance to the State Water Resources Control Board and the Regional Water Quality Control Board. Clean water regulations pertain not only to the disposal of materials from the treatment facilities but also the operation and maintenance of the sewers and the pump systems, the pre-treatment and pollution prevention program, and the storm water program.

The State of California has adopted the standards in the Federal Safe Drinking Water Act and strengthened them in the California Safe Drinking Water Act. The responsibility for enforcing these drinking water regulations for the U.S. Environmental Protection Agency lies primarily with the California Department of Health Services.

The Clean Water Act was originally enacted in 1948. The amended 1972 Clean Water Act gave the law its current shape and established the National Pollutant Discharge Elimination System which authorizes discharge permits. The goal of the Act is to eliminate the discharge of pollutants into rivers, lakes, streams and other waterways, and to attain, wherever possible, waters deemed "fishable and swimmable." In 1987, the Act was amended again as the Water Quality Act to increase controls on toxic pollutants and again in 1990 to more effectively address the hazard of oil spills.

Regulations for drinking water were first established in 1974 when Congress enacted the Safe Drinking Water Act. This Act gave the country the first comprehensive national program to safeguard public drinking water. In 1986 and 1996, Congress amended the 1974 Safe Drinking Water Act in response to various concerns raised by the public, the U.S. Environmental Protection Agency, state governments, and the water supply industry. As a result, the pace of regulating the drinking water contaminants was increased and the U.S. Environmental Protection Agency gave a schedule for regulating contaminants that threaten public health and deadlines for specifying criteria for the filtration of surface water supplies and the disinfection of drinking water from surface and ground water sources.

The Department's Management of Regulatory Compliance

Responsibility for managing drinking water and clean water regulatory compliance is dispersed within the Department. The Water Quality Bureau, the Water Supply and Treatment Division, the Water Pollution Control Division, the Planning Bureau, and the Bureau of Environmental Regulation and Management all have some responsibility for managing and reporting compliance with Federal and State drinking water and clean water regulatory requirements.

Managing Compliance with Clean Water Regulations

The Water Pollution Control Division and the Bureau of Environmental Regulation and Management have primary responsibility for managing regulatory compliance with the Federal Clean Water Act. The Water Quality Bureau is also responsible for managing (a) the discharges of drinking water to the environment to comply with the discharge permits issued by the Regional Water Quality Control Board for the Harry Tracy Water Treatment Plant, Sunol Valley Water Treatment Plant, Pulgas Dechloramination Facility, and (b) disinfection activities throughout the Regional Water System.

Table 7.1
The Department's Clean Water Regulatory Management Programs

Sources: Bureau of Environmental Regulation and Management, Water Pollution Control Division, and Planning Bureau

The Federal Clean Water Act requires that all 19 pumping stations and 900 miles of a combined sewage collection system function according to the specific regulations established in the Act. Additionally, the Public Utilities Commission must also operate 35 pump stations and a collection system at the Treasure Island, which is owned by the U.S. Navy, according to the regulations in the Federal Clean Water Act. The three wastewater treatment plants which provide 24-hour per day operations of the City's citizens, commercial and industrial waste treatment, and the Treasure Island Trickling Filter Wastewater Treatment Plant operated under the Cooperative Agreement with the Navy, must also comply with these regulations.

The City is required to have a Pretreatment and Pollution Prevention Program to protect the sewerage system, operation and maintenance personnel, and the treatment plants from disruption, interference and pass through, and to provide beneficial and economic disposal of treatment plant sludge. Under this program, the Bureau of Environmental Regulation and Management issues several hundred permits to industries in the Bay Area, monitors these industries' performance against basic standards for the discharge of wastewater into the sewerage system, and reports their performance annually in a Pretreatment Program Annual Report to the Regional Water Quality Board.

Storm Water Regulations

In March 2003, the Regional Water Quality Control Board required the San Francisco Public Utilities Commission to participate in the Storm Water Program implemented by the Federal Environmental Protection Agency. Because San Francisco has a combined sewer and storm water system which provides primary treatment for storm water before discharge to the bay or the ocean, San Francisco was part of the second phase of permits issued under the Storm Water Program. This Storm Water Program only applies to those areas of the City that are served by separate storm and sewer collection systems. In these areas, the storm water that goes into street storm drains flows directly to open bodies of water, such as the Bay, the Pacific Ocean, or local lakes. Since most of San Francisco is served by a combined storm sewer system, where storm water, along with residential and commercial sewage, is directed to treatment plants prior to being released to the San Francisco Bay, the Pacific Ocean, or local lakes, the only areas in San Francisco to which the Storm Water Program applies are currently Lake Merced, Lobos Creek, Stow Lake, Middle Lake, Elk Glen Lake in Golden Gate Park, and Pine Lake. In the future, Treasure Island and the Mission Bay and Hunters Point Shipyard will also be included in the City's Storm Water Program when the City assumes jurisdiction over these areas.

Managing Compliance with Drinking Water Regulations

The Water Quality Bureau manages compliance with the Federal and State Safe Drinking Water Acts.

Table 7.2
The Department's Drinking Water Regulatory Management Programs

Source: Engineering Division of the Water Quality Bureau

The Drinking Water Program includes the operation of two 24-hour per day water treatment plants, one disinfection facility, and one pH adjustment facility in the regional water system. The two treatment plants, the Harry Tracy and the Sunol Valley Water Treatment Plants, can provide direct filtration and conventional filtration, respectively up to 340 million gallons of water per day. The Tesla Disinfection facility is the primary disinfection point at which sodium hypochlorite is added to the Hetch Hetchy water supply. The Rock River pH Adjustment Facility is another treatment point in which lime is added to the Hetch Hetchy water supply for corrosion control.

The Public Utilities Commission has obtained approval from the State Department of Health Services for filtration avoidance which exempts the Hetch Hetchy water supply from filtration.

Departmental Compliance with Clean Water and Drinking Water Regulations

Since 2000, the Public Utilities Commission has received one citation but no fine for drinking water regulatory violations and no citations or fines for clean water regulatory violations.

Drinking Water Regulatory Citations

Drinking water regulatory compliance has improved since 1998. Prior to 1998 the Public Utilities Commission received an administrative order to correct several out of compliance issues but did not receive fines. Over the past five years, the Public Utilities Commission has received one citation for failure to comply with drinking water regulations but did not receive a fine. The citation was not for violating drinking water standards.

In August of 2003, the Tesla Portal Plant failed to monitor turbidity at required reporting intervals and to report a power failure incident to the Department of Health Services. The power failure incident resulted from an outage caused by lightning and miscommunication between the operating departments of the Hetch Hetchy Enterprise and the Water Supply and Treatment Division. According to the Water Supply and Treatment Division Manager, in response to the incident the Water Supply and Treatment Division purchased two additional backup power generators for the treatment plant's chemical feed and monitoring systems and developed a new standard operating procedure to improve communication and notification during abnormal monitoring events.

The Public Utilities Commission received a citation and fine for drinking water regulatory violations at the former Hunter's Point Naval Shipyard facility, but the State Department of Health Services reversed the citation and fine because the Public Utilities Commission is not the owner or permit holder for the facility. Nevertheless, the Public Utilities Commission implemented some changes to the Hunter Point facility and provided training to Fire Department staff to help correct the Hunter's Point facility's problems.

Clean Water Regulatory Citations

The Public Utilities Commission has not received regulatory citations or fines for clean water operating facilities in the past five years. Between 1994 and 2000, the Clean Water Enterprise, which transferred from the Department of Public Works to the Public Utilities Commission in 1997, paid a total of $312,000 in fines for four separate clean water regulatory violations.

By far the most serious violation was the sinkhole (200 feet across and 40 feet deep) in December, 1995, resulting in a $300,000 fine to the Clean Water Enterprise, which was under the jurisdiction of the Department of Public Works, for non-compliance with eleven discharge prohibitions related to the discharge of raw sewage into Lobos Creek and adjacent areas. The sinkhole occurred when storm flow from heavy rains was constricted by the storm water overflow structure and pressurized the brick sewer, thereby forcing water through cracks in the sewer wall. Disturbance of the soil surrounding the brick sewer, caused by earlier excavation, relaxed the soil confinement, allowing cracks to widen and water to escape, resulting in complete rupture of the brick sewer. The Sea Cliff sink hole incident resulted from numerous causes, including problems in construction management, which resulted in regulatory violations. Although the Clean Water Enterprise paid a $300,000 fine, the City's ultimate costs exceeded $12 million to compensate property owners for destruction of their homes.

Identifying and Reporting Regulatory Risks

The Federal Clean Water and Safe Drinking Water Acts, which underpin the California water and clean water regulations, are intended to provide drinking water that is safe and of high quality and to protect natural water systems and public health from contamination. Regulatory risks include not only fines and citations for violations, but also liability for damage or destruction of property, natural resources, or public health. As shown in the 1995 sinkhole incident, the City's costs for property or other damage resulting from failure to manage regulatory risks can exceed the regulatory fines by a large amount.

Currently, the General Manager and the Public Utilities Commission do not receive regular reports on the Water and Clean Water Enterprises' management of regulatory risk. The Bureau of Environmental Regulation and Management, the Water Pollution Control Division, and the Planning Bureau managers only report to the Department's executive level managers when a large or critical regulatory compliance issue requires executive level discussion. The Water Quality Bureau distributes reports developed for the State Department of Health Services internally and only large or critical regulatory compliance issues receive executive level discussion.

The Assistant General Manager, Clean Water (as recommended in the Budget Analyst's Phase I management audit report) and the Assistant General Manager, Water and Power (as recommended in Section 10 of this report) should provide quarterly reports to the General Manager and annual reports to the Public Utilities Commission and the Board of Supervisors on compliance with clean water and drinking water regulations, potential regulatory risks, and how such risks are addressed.

Planning for Regulatory Changes in Operating and Capital Programs

Regulations governing the clean water and drinking water programs have evolved over the years. In the future, clean water and drinking water regulatory requirements are expected to increase in number and complexity. The Public Utilities Commission needs to plan for changing clean water and drinking water regulatory requirements and the impact on operating and capital programs.

The U.S. Environmental Protection Agency is developing new regulatory requirements that impact the Public Utilities Commission's operating and capital programs. For example, the U.S. Environmental Protection Agency is completing development of new regulations limiting sediment contaminants in lakes, rivers, and other bodies of water. These proposed new regulations will directly impact Islais Creek, Mission Creek and Yosemite Creek which currently have sediment contaminants that may exceed limits to be established by the proposed new regulations. Some of the sediment contaminants are legacy pollutants and no longer manufactured, but have characteristics that persist in the environment. It is possible that the City's sewer system was a transport conveyance of these pollutants to the receiving waters when they were historically used. Also, population growth and changes in accepted biosolids handling practices will impact the Department's handling of biosolids waste, requiring new methods of disposal or treatment.

The Public Utilities Commission needs to participate in shaping future clean water and water regulations as well as plan future operating and capital programs to meet evolving regulatory requirements. Although Water Enterprise has allocated staff to perform regulatory planning and management functions, the Clean Water Enterprise has only recently assigned this responsibility. The Assistant General Manager, Operations has delegated drinking water regulatory planning and management responsibility to Water Quality Bureau engineering staff. However, the Planning Bureau's clean water regulatory planning and management position was only filled in September, 2004, after a five year vacancy.

Responsibility for managing regulatory compliance and planning for regulatory changes is dispersed throughout the Public Utilities Commission. The Bureau of Environmental Regulation and Management and the Water Pollution Control Division manage permitting, reporting, and other clean water compliance requirements established by the Clean Water Act and the California State Water Resources Control Board. The Planning Bureau manages clean water regulatory planning and management. The Water Quality Bureau manages drinking water reporting and other compliance requirements and provides some planning functions for future drinking water regulatory compliance established by the Federal and State Safe Drinking Water Acts. The Assistant General Manager, Clean Water should consolidate regulatory compliance and planning functions within the Clean Water Enterprise under his or her direction, and the Assistant General Manager, Water and Power should consolidate drinking water regulatory compliance and planning functions under his or her direction.

The Clean Water and Water Enterprises' business plans need to address the current and evolving Federal and State regulatory requirements to ensure that current regulatory requirements are met and that future regulatory requirements can be met with existing or planned resources. Further, the Public Utilities Commission needs to include regulatory planning in the strategic planning process, to ensure that the Public Utilities Commission is participating in Federal and State rule-making processes and planning for the changing regulatory environment.

Planning for Regulatory Requirements in Capital Project Designs

The Public Utilities Commission needs to ensure that regulatory permitting and planning are included in the design phase of capital projects. By not planning for regulatory requirements in constructing capital projects, the Public Utilities Commission risks future costs for capital projects that do not comply with regulatory requirements. For example, the Water Enterprise planned inadequately for regulatory requirements in constructing the Pulgas Dechlorination Plant, which was designed prior to 2000 and constructed in 2002 and 2003. The San Francisco Bay Basin Plan regulations prohibit all chlorination discharges into receiving waters. These regulatory requirements were not fully addressed in the Pulgas Dechlorination Plant project design, and although the Pulgas Dechlorination Plant design was intended to remove chlorine and ammonia discharges, the completed facility was not fully able to remove all chlorine from all flows, resulting in occasional chlorinated discharges into Crystal Springs Reservoir. Including professional staff with knowledge and responsibility for regulatory compliance on the design team would better ensure that regulatory requirements are incorporated into the design of the facility. The Water Enterprise will need to negotiate with the San Francisco Bay Regional Water Quality Control Board and incur additional estimated capital costs of up to approximately $10 million in order for the Pulgas Dechlorination Plant to meet the current permitting requirements.

The projects in the Water System and Clean Water Capital Improvement Programs will undergo extensive environmental review prior to approval and construction of the projects, which will address standards for current regulatory requirements. The three Assistant General Mangers of Clean Water, Water and Power Operations, and Infrastructure need to develop a formal process to collaborate and exchange information to ensure that regulatory planning is coordinated with and incorporated into capital project design and management. The Public Utilities Commission General Manager should direct the responsible Assistant General Managers to provide status reports on the coordination of regulatory planning and capital project design and management as part of the Water System Capital Improvement Plan monthly updates.

Conclusion

The Public Utilities Commission operates its clean water and drinking water utilities under regulatory requirements imposed by the Federal and State governments. The Federal Clean Water and Safe Drinking Water Acts, which underpin the California water and clean water regulations, are intended to provide drinking water that is safe and of high quality and to protect natural water systems and public health from contamination. Regulatory risks include not only fines and citations for violations, but also contingent liability for damage or destruction of property, natural resources, or public health.

In the past five years, the Public Utilities Commission has generally complied with Federal and State regulatory requirements. The Clean Water Enterprise received no citations or fines, and the Water Enterprise received one citation but no fines.

The Public Utilities Commission needs to consolidate regulatory planning and management responsibilities, which are currently dispersed throughout the organization, within the Clean Water and Water Enterprises. Since the regulatory environment is evolving, the Public Utilities Commission General Manager needs to ensure that the Clean Water and Water Enterprises are planning for changes in regulatory requirements and participating in the Federal and State rule-making processes to ensure that the Public Utilities Commission is incorporating regulatory changes in operating and capital programs.

Recommendations

The Public Utilities Commission General Manager should:

7.1 Direct the Assistant General Manager, Clean Water and the Assistant General Manager, Water and Power to provide quarterly reports to the General Manager and annual reports to the Public Utilities Commission and the Board of Supervisors, which include:

(a) Overall compliance with clean water and drinking water regulations, delineating only areas of non -compliance.

(b) Potential regulatory risks and how such risks are addressed.

(c) Planning for future regulatory requirements and participating in the Federal and State rule making processes.

7.2 Consolidate regulatory compliance and planning functions within the Clean Water Enterprise and the Water Enterprise, under their respective Assistant General Managers' directions, including:

(a) The Planning Bureau's clean water regulatory planning and management position should be transferred to the Clean Water Enterprise, as recommended in the Phase I management audit report.

(b) The Bureau of Environmental Regulation and Management clean water regulatory positions should be transferred to the Clean Water Enterprise, as recommended in the Phase I management audit report.

(c) The Bureau of Environmental Regulation and Management drinking water positions should be transferred to the Water Enterprise, as recommended in Section 9 of this report.

7.3 Direct the Assistant General Manager, Clean Water and the Assistant General Manager, Power and Water to address the current and evolving Federal and State regulatory requirements in their business plans to ensure that current regulatory requirements are met and that future regulatory requirements can be met with existing or planned resources.

7.4 Include regulatory planning in the strategic planning process, to ensure that the Public Utilities Commission is participating in Federal and State rule-making processes and planning for the changing regulatory environment.

7.5 Direct the Assistant General Manager, Clean Water, and the Assistant General Manager, Water and Power, to provide status reports on the coordination of regulatory planning and capital project design and management as part of the Water System and Clean Water Capital Improvement Programs' monthly updates.

Costs and Benefits

The costs of the above recommendations would be minimal since as of September 2004, both the Clean Water Program and the Drinking Water Program had an individual assigned to oversee these regulatory compliance processes. The benefits would include (a) improved planning of costs and resources with respect to the new projects in the Water System Capital Improvement Project and the Clean Water Master Plan, (b) elimination of the need for costly fixes when problems occur, and (c) better communication of key information to the Public Utilities Commission General Manager and the Public Utilities Commission leading to more informed decision-making.