There are two things you need do to accomplish the use of just the watch with the Powerbeats. You are going to have to move a single playlist to the watch through the music app.
Then you can do the following:
1) Make sure your Bluetooth is configured and sees the Powerbeats.
2) While in the music app on the watch.. long press on the screen until the source options show themselves. Choose the Apple Watch.
3) Play your music for the win... The slider underneath your song is the volume control.
As long as the source indicates the watch - it should work. There is always an issue with the sound when the phone again comes into range (it tries to trump the signal.. but it lasts about 10 seconds from my tests). Turning off BT on the phone can correct this as you note.
Hope that helps.