One should not assume that either the power or water would be lost either: the water and its power will still be there, and part of the plan would no doubt include ways to capture both downstream.
The water can be stored behind Don Pedro dam or elsewhere, maybe raise a different dam, all with environmental costs and water rights issues. But the nice clean reliable green hydro power energy is not recoverable. 835 megawatt hours each year is a lot of green power - enough to power San Francisco's municipal needs. Building other energy plants, natural gas, solar or whatever does not recapture the lost energy stored behind O'Shaughnessy. A fraction of the hydro could be captured seasonally as river run but it would be more expensive and again, create more environmental impacts building it. The investment would take a long time to recoup.
As for water quality and treatment, Hetch Hetchy water is extremely pure. Treating water cost money and it also take energy, uses chemicals, both of which creates pollution. I agree with Steve that canoes and other non-contact recreation should be allowed, but that's another issue.
People need to think through all the various environmental impacts, huges costs, and waste of resources it would entail removing this dam. It sounds great at first thought, and it could be done, but does it make sense? Would we build this today, of course not, but should we tear it down? I think not.
As for the idea that other people are paying for this facility, that's nonsense. It's fully self relianct - there's no federal or state money involved, in fact the SFPUC claims to provide $5 million a year to Yosemite NPS for trails, wilderness preservation and education. Throw that money away too.
The SFPUC just invested $4 billion upgrading this system and hardening it for earthquakes, I know first hand, I worked on the design of parts of it. If the people of San Francisco want to throw that investment away, cut off their water supply and pay thousands of dollars per person, hey, that's their business, but I think they're smarter than that. We'll see in a few weeks.
