• The scope of the Public Utilities Commission's recently eliminated Assistant General Manager, Operations position was too broad and made it difficult for the incumbent to be a simultaneously strong manager of the water, clean water, and power systems' policies, planning, operations, and capital investments. As outlined in the Budget Analyst's Phase I Management Audit of the Public Utilities Commission - Clean Water Enterprise Fund, clean water functions particularly suffered from the resulting lack of focus.
  
  
• The Public Utilities Commission General Manager has replaced the Assistant General Manager, Operations position with three new Assistant General Manager positions for Water, Clean Water, and Retail Power. The creation of a new Assistant General Manager, Clean Water position is in line with our Phase I management audit recommendation.
  
  
• The creation of the new Assistant General Manager, Retail Power position has merit but is insufficiently justified at this time. The Public Utilities Commission first needs to make key policy decisions and determine if it is going to proceed with community choice aggregation, which would allow the City (or a larger regional consortium) to procure electricity from a portfolio of power providers on behalf of citizens currently served by the Pacific Gas and Electric Company, and become a public provider of retail power to San Francisco residents.
  
  
• Until that determination is made, there should be a single Assistant General Manager, Water and Power position with integrated management responsibility for the water and power systems, including the sale of retail power. This would be the most managerially effective and least expensive way of ensuring concentrated management oversight of both systems, and of ensuring resolution of the tensions that exist between the water and power systems, most notably the generation of power within the confines of the "Water First" policy. This recommendation will save between $23,170 and $31,324 in incremental salary and mandatory fringe benefit costs annually. It would also prevent further expansion of the Department's executive management ranks.
  
  
• The Assistant General Manager, External Affairs should continue to manage the strategic policy staff working on power policy issues related to community choice aggregation and renewable and alternative energy sources.

Assistant General Manager, Operations

The recently eliminated Classification 5166 Assistant General Manager, Operations position had a very large scope of responsibility for the following functions:

• All water operations functions located in the Hetch Hetchy Enterprise, the Water Supply and Treatment Division, and the City Distribution Division.
• All water quality and environmental regulatory functions located in the Water Quality Bureau and the Bureau of Environmental Regulation and Management.
• All power operations functions located in the Hetch Hetchy Enterprise.
• All wastewater operations located in the Water Pollution Control Division and the Bureau of Environmental and Regulatory Management.
• Security, emergency planning, fleet management, and communications services functions.¹
• The Health and Safety Program located in the Bureau of Environmental Regulation and Management.

Due to this wide range of responsibilities, the Assistant General Manager, Operations managed 1,494.32 FTE positions, or approximately 67.5 percent of the Department's positions, spread across the Department's water, clean water, and power operating systems. This position was responsible for a FY 2004-2005 operating budget of $424,124,475, or approximately 82.3 percent of the Department's total operating budget. Immediately prior to its elimination, the Assistant General Manager, Operations position was filled in an acting capacity and reported to the Assistant General Manager, Infrastructure and Operations.

As noted in the Budget Analyst's Phase I Management Audit of the Public Utilities Commission - Clean Water Enterprise Fund report (September 27, 2004), the responsibilities of the Assistant General Manager, Operations were onerous. The position scope made it difficult for the incumbent to be a simultaneously strong manager of the water, clean water, and power systems' policies, planning, operations, and capital investments. The Budget Analyst's recommendation in Section 10 of the Phase I report to create a new Assistant General Manager, Clean Water position was intended, in part, to relieve the Assistant General Manager, Operations position of responsibility for one whole system, namely the clean water system.

February of 2005 Organizational Restructuring

In February of 2005, the Public Utilities Commission General Manager presented the Public Utilities Commission with a proposed organizational restructuring. The new organizational structure eliminates the Assistant General Manager, Operations position and replaces it with three new Assistant General Manager positions, one each for Water (including wholesale power generated by the Hetch Hetchy system), Clean Water,² and Retail Power.³ This organizational structure is supported by the Public Utilities Commission.

The Budget Analyst:

· Notes that this organizational restructuring indicates the Public Utilities Commission General Manager's concurrence with the Budget Analyst's Phase I report recommendation to establish a new Assistant General Manager, Clean Water position.

• Agrees with the integrated management responsibility, under the Assistant General Manager, Water position, for both the Hetch Hetchy water system and the wholesale power generation and distribution system up to Newark. Such integration will (a) improve resolution of policy and operational disputes between the water and power systems, (b) encourage conflict resolution at the Assistant General Manager level, rather than elevating it to the General Manager level, (c) prioritize the "Water First" policy whereby power is a by-product of the water system, (d) improve coordination of the Water Enterprise and Hetch Hetchy Enterprise operations and business planning processes, (e) encourage objective review of all the organizational structure alternatives available to the water and power systems, and (f) integrate management responsibility for the water and power systems' support services. Integrated management responsibility for both the water and power systems would avoid placing the executive manager responsible for the wholesale power system into a position of false managerial accountability because s/he did not, in fact, control the water inputs managed by his or her colleague responsible for the water system.
  
  
• Considers the establishment of a new Assistant General Manager, Retail Power position has merit in the event that the City becomes a community choice aggregator,⁴ but is insufficiently justified in advance of that decision being taken. Such a position could be justified if the Department establishes a fourth enterprise fund (the "San Francisco Power Company") as a new line of business, to become a public provider of retail power responsible for developing a portfolio of power providers and customers. In that event, differentiating between wholesale power under the new Assistant General Manager, Water position and retail power under the new Assistant General Manager, Retail Power position would ensure a valuable demarcation line. On one side of the demarcation line, there would be the Public Utilities Commission's current responsibilities for wholesale water and power provision under the Raker Act, the Settlement Agreement and Master Water Sales Contract, and the Commission's "Water First" policy, all key responsibilities of the Assistant General Manager, Water position. On the other side of the demarcation line, there would be the Public Utilities Commission's potential responsibilities under City legislation related to community choice aggregation, solar and renewable energy initiatives, and the San Francisco Electric Reliability Project, all key responsibilities of the Assistant General Manager, Retail Power position. Such demarcation would ensure that those third parties with water and/or power interests derived from the Raker Act, such as the Modesto and Turlock Irrigation Districts, or the 29 wholesale customer signatories to the Settlement Agreement and Master Water Sales Contract, do not perceive any adverse impact from the City's investments in community choice aggregation and/or solar and renewable energy initiatives.
  
  
• Considers that the new Assistant General Manager, Retail Power position has too small a span of management control at this time to justify being another Classification 5166 Assistant General Manager position. Without community choice aggregation and the Streetlight Management Program (recommended for transfer to the Department of Public Works in the Phase II Management Audit of the Public Utilities Commission - Hetch Hetchy Enterprise Fund), the position is responsible only for the work of the current Power Policy Division, the San Francisco Electric Reliability Project, and certain power-related services previously performed under the Assistant General Manager, Operations.
  
  
• Recommends instead that the Assistant General Manager, Water should be renamed "Assistant General Manager, Water and Power" and retain responsibility for the Hetch Hetchy Enterprise Fund's retail power functions at this time. The Assistant General Manager, Water and Power should consider restructuring positions and functions funded by the Hetch Hetchy Enterprise Fund into a wholesale power unit and a retail power unit to begin the development of a business relationship between the wholesale and retail components of the Hetch Hetchy Enterprise.
  
  
• Recommends that the Assistant General Manager, External Affairs remain responsible for the Department's power policy and planning functions. The Assistant General Manager, External Affairs position, which is only responsible for the Communications Bureau, legislative affairs staff, the Planning Bureau, and (per the February of 2005 organizational restructuring) Real Estate Services, has the capacity to remain responsible for the Power Policy Division. The Assistant General Manager, External Affairs and the Director of Power Policy can continue to manage the community choice aggregation initiative until such time as the City determines whether or not it wishes to become a community choice aggregator, on either a City-wide or a regional basis.
  
  
• Notes that the water and power system operations already receives additional managerial coverage from the Deputy General Manager, Infrastructure and Operations position in the medium term. The creation of the Assistant General Manager, Retail Power position represents further expansion of the Department's executive management ranks.

The differences between (a) the previous organizational structure of water, clean water, and power functions, (b) the Public Utilities Commission General Manager's organizational restructure, and (c) the Budget Analyst's recommended organizational structure are shown in Exhibits 10.1 - 10.3 below.

Exhibit 10.1:
Previous Allocation of Water, Clean Water, and Power System Functions

Exhibit 10.2:
Current Allocation of Water, Clean Water, and Power System Functions with
Two Assistant General Managers for Water and Retail Power
(Per the Public Utilities Commission General Manager's February of 2005 Organizational Restructuring)

Exhibit 10.3:
Budget Analyst's Recommended Allocation of Water, Clean Water, and Power System Functions with
One Assistant General Manager, Water and Power

Conclusion

On balance, the Budget Analyst considers that a single Assistant General Manager, Water and Power position would be the most managerially effective and least expensive way of ensuring concentrated management oversight of the water and power systems, and ensuring resolution of the tensions that exist between those two systems. However, should the Department become a community choice aggregator, particularly on a regional basis, then the concept of a separate Assistant General Manager, Retail Power position should be reconsidered.

Not upgrading the existing Classification 0941 Manager VI, Director of Power Policy position ($120,165 to $160,977 per year, inclusive of mandatory fringe benefits⁶) to a Classification 5166 Assistant General Manager, Retail Power position ($151,489 to $184,147 per year, inclusive of mandatory fringe benefits) would save between $23,170 and $31,324 per year, inclusive of mandatory fringe benefits.

Implementation

In order to establish a new Assistant General Manager, Water and Power position, the General Manager should:

• Implement the Phase II Management Audit of the Public Utilities Commission - Hetch Hetchy Enterprise Fund recommendation that the Streetlight Management Program be transferred to the Department of Public Works (Recommendations 7.1 - 7.3).
  
  
• Implement the organization structure recommendations contained in Section 6 of this management audit report, namely transfer responsibility for the Southeast and Oceanside Water Pollution Control Plant laboratories to the new Assistant General Manager, Clean Water position (Recommendation 6.1).
  
  
• Convert the existing Classification 5166 Assistant General Manager, Operations position into a Classification 5166 Assistant General Manager, Water and Power position responsible for (a) the Hetch Hetchy water and power systems, (b) the Water Supply and Treatment Division, (c) the City Distribution Division, and (d) the Water Quality Bureau, exclusive of the Southeast and Oceanside Pollution Control Plant Laboratories.
  
  
• Maintain the Power Policy Division's report to the Assistant General Manager, External Affairs as part of that position's strategic policy and planning responsibility.
  
  
• Assign the single Assistant General Manager, Water and Power position with the responsibility to (a) improve resolution of policy and operational disputes between the water and power systems, (b) encourage conflict resolution at the Assistant General Manager level, rather than elevating it to the General Manager level, (c) prioritize the "Water First" policy whereby power is a by-product of the water system, (d) improve coordination of the Water Enterprise and Hetch Hetchy Enterprise operations and business planning processes, (e) encourage objective review of all the organizational structure alternatives available to the water and power systems, and (f) integrate management responsibility for the water and power systems' support services.

Conclusion

The scope of the recently eliminated Assistant General Manager, Operations position was too broad and made it difficult for the incumbent to be a simultaneously strong manager of the water, clean water, and power systems' policies, planning, operations, and capital investments. As outlined in our Phase I Management Audit of the Public Utilities Commission - Clean Water Enterprise Fund, clean water functions particularly suffered from the resulting lack of focus.

The Public Utilities Commission General Manager has replaced the Assistant General Manager, Operations position with three new Assistant General Manager positions for Water, Clean Water, and Retail Power. The creation of a new Assistant General Manager, Clean Water position is in line with our Phase I management audit recommendation.

The creation of the new Assistant General Manager, Retail Power position has merit but is insufficiently justified at this time. The Public Utilities Commission first needs to make key policy decisions and determine if it is going to proceed with community choice aggregation and become a public provider of retail power to San Francisco residents.

Until that determination is made, there should be a single Assistant General Manager, Water and Power position with integrated management responsibility for the water and power systems, including the sale of retail power. This would be most managerially effective and least expensive way of ensuring concentrated management oversight of both systems, and ensuring resolution of the tensions that exist between them, most notably the generation of power within the confines of the "Water First" policy. This recommendation will save between $23,170 and $31,324 in incremental salary and mandatory fringe benefit costs annually. It would also prevent further expansion of the Department's executive management ranks.

The Assistant General Manager, External Affairs should continue to manage the strategic policy staff working on power policy issues related to community choice aggregation and renewable and alternative energy sources.

Recommendations

The Public Utilities Commission General Manager should:

10.1 Convert the Classification 5166 Assistant General Manager, Water position into a Classification 5166 Assistant General Manager, Water and Power position.

10.2 Not upgrade the existing Classification 0941 Manager VI, Director of Power Policy position to any higher classification.

10.3 Reinstate the reporting line between the Director of Power Policy and the Assistant General Manager, External Relations.

10.4 Reconsider the need for a separate Assistant General Manager, Retail Power position if the Department becomes a community choice aggregator.

Costs and Benefits

There would be no costs associated with converting the existing Classification 5166 Assistant General Manager, Public Utilities Commission position from Assistant General Manager, Water to Assistant General Manager, Water and Power.

Not upgrading the existing Classification 0941 Manager VI, Director of Power Policy position ($120,165 to $160,977 per year, inclusive of mandatory fringe benefits) to a Classification 5166 Assistant General Manager, Retail Power position ($151,489 to $184,147 per year, inclusive of mandatory fringe benefits) would save between $23,170 and $31,324 per year in incremental salary and mandatory fringe benefit costs annually.

A single Assistant General Manager, Water and Power position would (a) improve resolution of policy and operational disputes between the water and power systems, (b) encourage conflict resolution at the Assistant General Manager level, rather than elevating it to the General Manager level, (c) prioritize the "Water First" policy whereby power is a by-product of the water system, (d) improve coordination of the Water Enterprise and Hetch Hetchy Enterprise operations and business planning processes, (e) encourage objective review all the organizational structure alternatives available to the water and power systems, and (f) integrate management responsibility for the water and power systems' support services.

¹ The Assistant General Manager, Operations established a Security Manager position which had three direct reports: (a) an Emergency Planning Manager; (b) a Fleet Management Manager responsible for the vehicle pool, the fleet purchasing program, and vehicle fleet policies; and (c) a Communications System Manager responsible for all phones, pagers, radios, satellites, and the dispatcher's desk. Under the organizational restructuring being implemented by the Public Utilities Commission General Manager, the Security Manager position has become a direct report to the Deputy General Manager, Infrastructure and Operations but the Fleet Management Manager will be part of the asset management group.

² While the position title presented by the Public Utilities Commission General Manager is "Assistant General Manager, Wastewater," this report refers to the position as the "Assistant General Manager, Clean Water" to be consistent with the Phase I and II management audit reports.

³ While the position title presented by the Public Utilities Commission General Manager is "Assistant General Manager, Power," this report refers to the position as the "Assistant General Manager, Retail Power" to distinguish between the retail power functions for which the position is responsible and the wholesale power functions which are located under the "Assistant General Manager, Water" position.

⁴ Community choice aggregation would allow the City (or larger regional consortium) to procure electricity from a portfolio of power providers on behalf of citizens currently served by the Pacific Gas and Electric Company.

⁵ The Phase II Management Audit of the Public Utilities Commission - Hetch Hetchy Enterprise Fund report recommended that the Streetlight Management Program be transferred to the Department of Public Works (Recommendations 7.1 - 7.3).

⁶ To maintain consistency with the Phase I and II reports, mandatory fringe benefits are calculated on an average of 24.5 percent for non-uniformed positions. However, the Department is budgeting for FY 2005-2006 mandatory fringe benefits on an average of 30.0 percent to reflect the upcoming budget year's increases related to Charter mandated retirement provisions and increased health and dental benefit costs.