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2011

Other Budget Issues

Further Detail

Proposal. The Governor’s January budget proposes a total of 123 new positions funded by SWP funds. Of these positions, 90 are requested for the budget year, and an additional 33 are requested for either 2012-13 or 2013-14. Our initial recommendation was to approve six positions.  The Legislature subsequently denied the entire proposal without prejudice to allow the department to respond to the Legislature's questions.  Here we present an updated recommendation.

Update as at May Revision: Approve Three AB 32 Compliance Positions. In our April 27th recommendation, we recommended withholding approval of three positions for AB 32 implementation (one Associate Hydroelectric Power Utility Engineer and two Senior Hydroelectric Power Utility Engineers), pending the submission of a zero-based budget for AB 32 expenditures statewide.  Although that budget has since been submitted, these positions were not included in that budget, apparently on the basis that they would not be assisting with the administration of AB 32 program implementation. Rather, these positions--characterized by the Administration as for purposes of "AB 32 compliance"--are being requested to increase the portion of renewable energy in the State Water Project's (SWP's) portfolio.  After further review, we find that these positions have been justified on a workload basis and we now recommend that they be approved.

Thirty-Three Future-Year Positions Should Be Rejected. We continue to recommend rejection of the 33 positions requested for future years. The department states that they do not possess the capacity to hire and train all 123 new positions in a single year and thus will staff up over the course of three years.  However, that reasoning does not justify the need to authorize all of these positions this budget year, instead of through future-year budget change proposals.  Furthermore, staging the requests for positions over several years provides the Legislature (and the department) an opportunity to evaluate the impact of adding staff on the operational issues the SWP faces. 

87 Positions for SWP Regulatory Compliance, Safety, and Maintenance Have Now Been Justified and Should Be Approved.  We recommend approval for the remainder of the request--87 positions for regulatory compliance, safety, and maintenance--given that the department has now provided adequate justification for these positions.  Our analysis backing this up is as follows:

• Shift in SWP Maintenance Regime Initially Increased Operational Availability.  As a result of an independent consultant’s recommendations, in 2000 the SWP adopted utility industry best practices for plant operations and maintenance that heavily emphasized proactive inspections and scheduled repairs up to five years in advance.  This shift to preventative maintenance produces two benefits: it reduces the frequency of  unexpected mechanical failures (forced outages), and it reduces the time required to repair units by up to 50 percent relative to repairs performed after a forced outage.  Because forced outages and repair time were minimized, the SWP maintained pumping capacity at a high level through the mid-2000s, as measured by "Operational Availability" (OA), which is the percentage of time in a set period that a pumping unit is available for use. 

• Preventative Maintenance Masks Impact of Staff Losses on OA.  The high level of OA continued through 2007, despite losing staff because of department-wide vacancy sweeps and hiring freezes from 2000-2005.  However, the decline in staff reduced the SWP’s ability to perform preventative maintenance, ultimately contributing to a decline in OA from 92.6 percent to 79.5 percent over the past seven years.  We noted in our initial analysis that staff levels in any given year appeared to have no relationship with OA, and therefore adding staff did not appear to be an appropriate strategy to reverse the decline in OA.  Upon further analysis, the decline in staff did impact operational availability, but no immediate drop in OA resulted because the SWP’s mechanical equipment had been kept in good condition by the preventative maintenance regime.  However, without adequate staff to continue the preventative maintenance, wear and tear on the equipment over several years increased the number of forced outages, leading to reduced OA as pumps remained out of service for longer periods of time. 

• Increasing Regulatory Requirements Can Impact OA. In response to our prior recommendation, the department has provided information directly linking the positions in the budget change proposal to regulations which have been recently added but it has not met and to regulations which will become effective in the near future.  (These regulations relate largely to electricity generation.) We find it reasonable to provide additional staff in response to new regulations, and the department has provided examples from other utilities that verify that SWP’s request for additional staffing tracks the staffing increase in the industry as a whole.  This request is additionally justified by the linkage between regulatory and maintenance activities.  Many of these regulatory standards are designed to codify industry best practices for reliability and therefore compliance can improve SWP operations.  Moreover, many SWP personnel perform both regulatory compliance and maintenance activities.  An increase in regulatory requirements can therefore reduce the staff available to perform maintenance, leading to a drop in OA.  More importantly for this request, adding regulatory compliance staff frees up other personnel to perform maintenance activities, thereby increasing OA.

• Additional Staff Needed for Preventative Maintenance.  As we noted in our prior recommendation, staff has in fact been added over the past several years, with the effect that more people are working on the project now than at the peak of OA (in 2004).  But we concur with the department that in order to increase OA to its former peak, additional staff are needed to first respond to higher rates of forced outage and then to resume the preventative maintenance schedule.  Although the department was unable to provide a statistical model that demonstrated precisely the number of staff needed, they did provide several other measures which confirm that the number of proposed staff is appropriate.  The number of maintenance personnel requested roughly equals the number of employees needed to return the staff per pumping unit to the level in 2000 (when the project was able to keep up with preventative maintenance).   The request also equals the personnel-year equivalent of the overtime currently being worked by trades and crafts workers on the project.  The department states that a long term overtime goal should be five percent of total time worked for trades and crafts classifications; the current rate is approximately 20 percent which the department considers to be unsafe.  We therefore recommend approval of the remaining 87 positions for regulatory compliance, safety, and maintenance.