MWD Adopts Massive Plan to Reorganize

Pushed by outside critics and embarrassed by at least $220 million in cost overruns for their high-profile reservoir project, directors of the Metropolitan Water District of Southern California Tuesday approved the most massive reorganization in the agency’s 71-year history.

Without a dissenting vote, the directors decided to give new General Manager Ronald R. Gastelum broad authority to appoint new managers, transfer others and reorganize the agency from top to bottom.

The action by the wholesale provider of water to municipal and private water agencies in Southern California could have a far-reaching effect on the price, quality and availability of water to two-thirds of the state’s population.

The shake-up is the most compelling evidence yet that public water agencies are bracing for the same sort of deregulation that has turned California’s electric utility industry upside down in the last few years, resulting in layoffs, mergers and lower rates to consumers. Admittedly getting a late start, the MWD hopes to shore up its finances and position itself for what is expected to be a more competitive environment for water utilities in the next century.

Seeking to transform the powerful water wholesaler into a leaner entrepreneurial agency, Gastelum hopes to save $100 million over the next several years with broad structural changes, such as collapsing the ranks of middle management and trimming the budget. He canceled plans to purchase eight compact cars this year.

With the reorganization, “The public will have more confidence that this organization is doing what it needs to do to be more cost-effective,” said Gastelum, who replaced John R. Wodraska, the general manager who resigned in October. “If we are able to achieve the cost savings that we are projecting, it will provide rate relief--perhaps not rate decreases, but certainly it will minimize rate increases that otherwise might have occurred,” said Gastelum, a former waste industry executive who took over the MWD in March.

The MWD provides about 60% of the water used by nearly 16 million people in six Southern California counties from Ventura to San Diego.

Strong criticism from lawmakers in Sacramento helped drive the reorganization.

Several hearings were held by a state Senate oversight committee into cost overruns at the Eastside Reservoir project near Hemet, shining a spotlight on MWD management practices that even agency insiders say were badly out of date.

Gastelum called past management practices “hierarchical” and likened the MWD’s system of independently operating departments to “silos,” saying in a written summary of the reorganization plan that past practices created “turf battles” and led to “inefficient and less productive” operations.

“Metropolitan is like a tree,” said Adan Ortega, the acting chief of communications who was handpicked by Gastelum, along with Joseph Tait, the new assistant general manager, to carry out the reorganization. “During wet years, you get real thick growth rings. In dry years, you get small rings, but the tree always grows bigger, and that is how management has grown here.”

Ortega said the reorganization will remove about seven layers of division chiefs and their assistants. No numbers were given on how many employees might be affected.

As if they needed a reminder of their financial problems, MWD directors Tuesday approved a $115-million budget augmentation for the $2-billion Eastside Reservoir.

An outside audit showed that the project is at least $220 million over budget, with the possibility that overruns could reach $500 million.

Looming issues such as bitterly contested negotiations with other water agencies over a split of Colorado River water and potentially costly demands by private water companies that they be allowed to use MWD pipelines to sell water directly to Southern California cities are not directly addressed in the reorganization plan. Nor does the plan satisfy those who long have criticized the 51-member board of directors as unwieldy and too removed from public accountability.

Still, critics are generally supportive, citing confidence in Gastelum rather than any specific initiative in his plan.

State Sen. David Kelley (R-Idyllwild), a sometimes acid-tongued critic who heads a special legislative oversight committee created to monitor Southern California water districts, praised Gastelum for taking a more moderate approach to negotiations over Colorado River water distribution. “I think you will see we are going to be able to work with them in a more compatible fashion,” Kelley said. “He has got to bring the agency in line. The basic economy of the state relies on the service they provide by bringing water into Southern California.”

Bob Cole, head of the Long Beach Water Department, said his city underwent a similar retrenchment about three years ago. “All of us see that the same kind of changes that led to deregulation of the electrical industry are coming to water,” Cole said. “We are heading into a period of major change.”

Representatives of employee organizations at the MWD generally took a reserved position of the reorganization plan, saying they wanted to withhold judgment until they see how the shake-up is implemented.