This industry covers general and special trade contractors primarily engaged in the construction of water and sewer mains, pipelines, and communications and power lines.
234910 (Water, Sewer, and Pipeline Construction)
234920 (Power and Communication Transmission Line Construction)
According to the U.S. Census Bureau's Statistical Abstract of the United States, in 2001 there were 7,483 companies involved in water, sewer, and pipeline construction, down from 8,042 in 1997. Their 165,800 employees earned over $7 million. Although the number of contracting companies declined, the number of employees increased, reflecting consolidation within the industry.
The three segments of the water, sewer, and utility lines construction industry share a common trait: project-based organizational structure. To facilitate project completion, various general contractors and subcontractors form transitory networks that sometimes last for several years. Nevertheless, the three segments of the industry are distinguished from each other by their key stakeholders, market segments, and projected growth rates.
The utility construction industry is exceptionally sensitive to fluctuations in tax legislation and the investment community, and it experienced a decline during the early 2000s, caused by a decline in overall spending in the United States during a time of economic downturn. The pipeline construction industry, however, benefited from declining spot market prices and increased consumer demand for natural gas. As a result, there was a dramatic increase in building for that sector. The water and sewer construction segments respond to legislative actions and government spending. Decreased federal outlays and financially strapped state and local governments slowed growth for this segment of the industry. Legislative mandates that foster modernization and replacement of older aqueduct systems were expected to create long-term growth, however.
Private Electrical Utility Construction. This segment of the heavy construction industry includes the building of new power plants, transmission lines, pollution control facilities, conversion of existing power plants from oil/gas to coal, and modernization of existing power plants. Spending on utility construction slowed considerably after the passage of the 1986 Tax Reform Act. According to a U.S. Industry and Trade Commission report, the inflation adjusted value of electrical utility construction dropped by 47 percent during the 1980s. Other factors that contributed to the slowdown included excess capacity, changing regulatory policies, dissatisfaction in the investment community, and overseas nuclear-generation disasters.
By the early to mid-1990s, however, demand for electrical energy was increasing rapidly, which encouraged the industry to consider building more electrical generation facilities. DRI/McGraw-Hill estimated in Electrical World that one-third of the nation's growth in electrical generation capacity through 2001 would come from retooling and reconfiguring existing power plants rather than new construction, which tends to be far riskier and requires more regulatory permits. In addition, pollution control spending was expected to increase because of environmental restrictions and a federal government program aimed at subsidizing "clean coal" technology.
During 2001 California underwent a serious energy crisis that interrupted service and caused prices to soar. The event highlighted the stress on the country's power lines during high-usage conditions. The average number of megawatts transmitted through power lines during peak summer months increased 22 percent and are expected to increase another 14 percent by 2009. "The grid is literally heating up—when lines are heavily loaded, they get hot, expand, and sag," explained David Stipp in Fortune. "Wires drooping onto branches on sweltering days are a major cause of voltage sags and blackouts."
Despite the need for additional power lines in many heavily populated areas, public resistance to new lines, as well as the enormous cost, is prohibitive. The cost of expanding the transmission system to keep pace with increased use has an estimated price tag of at least $50 billion over the next 10 years.
Oil and Natural Gas Pipeline Construction. The oil/natural gas industry uses pipelines primarily to acquire and transport natural gas. Long-distance, high-pressure "trunk lines" are the most efficient and economical method of transporting gas from areas of production to areas of consumption. Due to seasonal fluctuations in gas demand, transmission companies and large distributors maintain storage facilities near final markets and production markets. At "city-gate" facilities (located as the pipelines near consumer markets), pressure in the pipeline is reduced and an odorant is added to the gas to make any leaks more noticeable. Finally, end-use pipelines distribute gas to homes and businesses.
During the mid-1990s, recently completed construction projects and system expansions were consolidated into the interstate pipeline grid. The construction of new long-line pipeline systems slowed as the industry moved toward projects such as mainline extensions and lateral facilities to reach specific customers.
Gas pipeline companies reported an industry gasplant investment of more than $59.8 billion in 1995, up from $55.5 billion in 1992. Despite nearly stagnant operating revenues, natural gas and petroleum liquids pipeline companies increased their net incomes slightly in 1995 by improving their efficiency. Oil and gas pipelines were highly volatile during the late 1990s, as production levels and prices swung widely. During the early 2000s, as oil and gas prices rebounded, the pipeline industry was looking toward a brighter future. Natural gas drives 80 percent of pipeline activity in the United States.
New natural gas pipelines from Canada and the Gulf of Mexico began coming online in the late 1990s. The increased supply caused some dips in the price of natural gas, but these fluctuations were generally offset by increased demand for energy. In contrast to the utility construction segment of the industry, world pipeline construction is a rapidly expanding industry.
Water and Sewer System Construction. Water and sewer construction is heavily influenced by growth or decline in the construction industry, since new homes require a water supply and sewage treatment facilities. Developers and local utilities usually pay for water and sewer systems for new subdivisions. During the early and mid-1990s the industry grew moderately, but some projects were postponed because of problems with financing by local governments. This was particularly true of sewer projects. The industry did benefit, however, from federal legislation. The Safe Drinking Water Act Amendments of 1996 required system upgrades, and the Water Resources Act of 1991 increased federal funding for water supply construction.
In 1998 Forbes magazine reported that there were almost 60,000 U.S. water companies owned by cities or private enterprises, and many cities were placing their water supply services up for bid. Some U.S. waterworks projects were being taken over by foreign companies.
In the early 2000s, many municipal water and sewer systems were faced with significant problems in maintaining and upgrading aging pipes. The Environmental Protection Agency (EPA) began pressuring municipalities to cut down on combined sewer overflows. These systems, used by some 770 cities, have combined sewer systems that use the same pipe to collect sanitary sewage, wastewater, and storm water. Other cities have replaced defective pipes to meet EPA guidelines. According to the EPA, to meet new environmental standards, cities will need to spend between $93 and $123.5 million per year.
Leading companies in the water, sewer, and utility line construction industry in 2002 included Qwest Communications International Inc., of Denver, Colorado; Morrison Knudsen Corp., of Boise, Idaho; MasTec Inc., of Miami, Florida; and Perini Corp., of Framingham, Massachusetts. One of the largest companies operating in this segment was EMCOR Group Inc., of Norwalk, Connecticut. Previously known as Jamaica Water Power, EMCOR had declared bankruptcy in 1993, was restructured, sold some of its businesses, and acquired others, including Marelich Mechanical Company in 1998 and Poole & Kent in 1999. In 2002 EMCOR recorded a net income of $62.9 million on $4 billion in sales.
Another huge company in the industry, Suez (formerly known as Lyonnaise des Eaux), was based in France but expanded its global operations in 1998 by bidding successfully for the contract to supply water to Atlanta, Georgia. In 2002 the company reported revenues of $37.8 billion.
"Distributed Intelligence." Transmission & Distribution World, 1 June 2001, 44.
"Electric Utilities Still Try to Send Words Down Their Wires." World Gas Intelligence, 13 November 2002, 7.
Griffin, Jeff. "Utility Infrastructure Needs Repair, Rehab, Replacement." Construction Equipment, February 2002, 72-75.
Helman, Christopher. "Tilting at Power Lines." Forbes, 20 January 2003, 87.
Kuhn, Thomas R. "Who's Minding the Grid?" Public Utilities Fortnightly, 1 January 2002, 10-11.
Stipp, David. "The Real Threat to America's Power." Fortune, 5 March 2001, 136+.
Truini, Joe. "Cities Turn to Gov't for Help with Sewers." Waste News, 6 January 2003, 14.
U.S. Census Bureau. Statistical Abstract of the United States: 2002. Available from http://www.census.gov .