Utility System Construction

Industry Profile Report

Dive Deep into the industry with a 25+ page industry report (pdf format) including the following chapters

Industry Overview Current Conditions, Industry Structure, How Firms Operate, Industry Trends, Credit Underwriting & Risks, and Industry Forecast.

Call Preparation Call Prep Questions, Industry Terms, and Weblinks.

Financial Insights Working Capital, Capital Financing, Business Valuation, and Financial Benchmarks.

Industry Profile Excerpts

Industry Overview

The 17,660 utility system construction firms in the US are specialty contractors that develop buildings, structures, and distribution networks associated with water, sewer, petroleum, gas, power, and communication systems. Firms provide new construction, reconstruction, rehabilitation, and repair services. Companies may specialize in a utility sector or offer services across multiple utilities.

Difficult Work Site Conditions

Utility construction projects can involve complex site conditions, including difficult to reach terrain and underground locations.

Seasonality and the Weather

Seasonal demand for utility system construction services creates uneven cash flow.

Industry size & Structure

The average utility construction firm employs 36 workers and generates about $9 million in annual revenue; the average water and sewer line construction firm employs 15 workers and generates $4 million annually; the average oil and gas pipeline construction firm employs 103 workers and generates about $27 million annually; and the average power and communication line construction firm employs 44 workers and generates about $12-13 million annually.

    • The utility system construction industry consists of about 17,500 companies that employ 543,700 workers and generate about $158 billion annually.
    • The oil and gas pipeline segment and the power and communications segment are concentrated at the top with the 50 largest firms representing 64% and 59% of the segment's total revenue, respectively. The water and sewer segment is more fragmented with the 50 largest firms representing just 20% of the segment's total revenue.
    • The utility system construction industry includes several large players with national to near-national scope, regional firms, and many small independent firms that often serve as subcontractors to larger firms and operate within a limited geographical market.
    • Large companies include MasTec, Dycom Industries, and Layne. Some large firms have international operations.
                      Industry Forecast
                      Utility System Construction Industry Growth
                      Source: Vertical IQ and Inforum

                      Recent Developments

                      May 20, 2024 - Strong Utility Construction Spending Growth
                      • Multiple subsectors of the utility system construction industry saw solid spending growth in March, according to the US Census Bureau. On a not-seasonally adjusted basis, growth was led by water supply construction, which saw a 16.4% rise in year-over-year spending in March. Power construction spending increased 12.8% in March 2024 compared to the same period in 2023, and sewage and waste disposal construction spending grew by 10.5% over the same period. Communications-related construction project spending was relatively flat in March, growing 0.6% compared to March 2023.
                      • In May, amid rising demand for electricity, the Federal Energy Regulatory Commission (FERC) approved two new rules aimed at streamlining the process of building the large transmission lines that are needed to bring more power to the US grid, according to The Wall Street Journal. The first rule will require power producers and transmitters to apply a 20-year scope in their forecasts for electricity supply and demand shifts. The planning rule also urges utilities to implement grid-enhancement technologies, including power flow control devices and sensors, which can make transmission on existing lines more efficient. The second rule deals with permitting changes for new transmission lines to clear bottlenecks that have kept new renewable energy sources from hooking up to the grid. In 2023, the backlog of new power projects waiting to connect to the grid – mainly wind, solar, and battery storage – grew by 30% compared to 2022, according to Lawrence Berkeley National Laboratory. The new transmission line rule favors projects that benefit electricity consumers and adjusts cost allocation for projects spanning multiple states.
                      • Booming demand for artificial intelligence (AI) has unleashed a race to build enough data centers to support the nascent technology, according to The Wall Street Journal. However, building and outfitting the giant warehouses that shelter AI supercomputers is being slowed by land, power, and components shortages. Developers have been challenged to find available tracts of cheap property that are also near enough to large amounts of electricity supply. The lead times for some key data center components, including cooling systems and backup generators, have grown up to five times longer than just a few years ago. According to real estate firm CBRE, US data center space increased by 26% in 2023. However, prices for available data center space are rising while vacancy rates are essentially nil, suggesting demand is far outstripping supply. Data center services firm Equinix notes it is challenging for the industry to scale up quickly due to extensive project planning and supply chain management complexities.
                      • Steady government investments in infrastructure, and building and transportation electrification are expected to drive robust growth in utility system construction spending in 2024, according to construction consultancy and investment banking firm FMI. Grids expect strong electricity load growth in the coming years amid increased investments in manufacturing, data centers, and the electrification of transportation and buildings. Power project spending is forecast to rise 9% in 2024 over 2023 levels. Population growth and funding from the Infrastructure Investment and Jobs Act are boosting spending for sewage and water systems. Construction spending for sewage and waste disposal projects is expected to rise by 10% in 2024, and water supply expenditures will grow by 8%.
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