who will do the work? & pipeline construction demand factors ... continuum prepared forecasts...

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www.ContinuumAG.com

Mark Bridgers & Glyn Hazelden

Continuum Advisory Group

Grapevine, TX

May 22, 2015

Who Will Do The Work?:

Assessing the Capacity of Gas Distribution Contractors to Tackle the

Growing Backlog of Gas Distribution Replacement Work

“Confidence is what you have before you understand the problem.”

Woody Allen

Objectives

– Introduce the audience to the likely landscape they will face over the

next decade where volatility and change will stress the financial,

leadership, and people resources of firms in the utility capital

construction industry.

Agenda

– Distribution & Pipeline Construction Demand Factors

– Distribution & Pipeline Construction Supply Factor

– Implications

– Utility & Contractor Solutions

Who Will Do The Work?

www.ContinuumAG.com


5/22/20152

Objective & Agenda

The Situation

Utility/Pipeline

Contractor

Engineer

Material/EquipmentUnion

Associations

Potential Workforce

Unprecedented

volume of work,

regulatory

scrutiny, and

challenge with

hidden

opportunities

The Actors & Perspectives


5/22/2015


www.ContinuumAG.com4

Potential

Workforce• Looking for “attractive” work

Associations• Helping stressed members face a volatile environment and

search for solutions

Unions• Trying to adapt and provide both quality and quantity of skilled

labor

Material /

Equipment

• Responding to global competitive pressures and trying to

provide high service levels

Engineers• Facing cost and business model pressures placing lower value

on the services offered

Contractors• Stretched thin and facing higher and broader performance

expectations from customers

Utility /

Pipeline

• Buffeted by intense regulatory scrutiny in a higher risk

environment where replacement programs are key to utility

growth and PUCs expect superior performance

Agenda

Distribution & Pipeline Construction Demand Factors

Distribution & Pipeline Construction Supply Factor

Implications

Utility & Contractor Solutions


www.ContinuumAG.com


5/22/20155

Gathering, Pipeline, and

Distribution Construction Market Drivers


5/22/2015



Driving Factor Gathering Pipeline Distribution

Replacement Funding

Integrity Requirements

Falling Oil Price

New Housing

Pipeline Capacity

Hydraulic Fracking

Legislative Action

State Specific Drivers of Pipeline Spending

7Mark Bridgers & Glyn Hazelden

5/22/2015


www.ContinuumAG.com

5 Hot Spots

U.S. Pipeline Spending Overview


5/22/20158


www.ContinuumAG.com

6,935 9,175

11,085

16,2

65 24,6

12 32,3

89

35,1

22

33,2

59

32,7

41

37,7

38

40,3

39

43,8

38

65,5

17

80,5

78

45,0

00

-6.1%

32.3%

20.8%

46.7%51.3%

31.6%

8.4%

-5.3% -1.6%

15.3%

6.9% 8.7%

49.5%23.0%

-44.2%-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2020 2027 2034

T&D Gas/Liquid

% Change

Source: Building permits, construction put in place, and trade sources. Continuum prepared forecasts for 2014, 2020, 2027, and 2034.

US Gas & Liquid, Transmission & Distribution

– Waves of spending through 2034

US Gas& Oil Pipeline Wave Drivers


5/22/2015



Wave 1

2008-2013

Wave 2

2016-2021

Wave 3

2025-2030

Wave 4

Beyond 2031

Trans. Integrity & Dist.

Replacement

Industrial & Power Gen

Renaissance

Trans. Replacement &

Dist. Integrity

The Cliff

• $32 to $43 billion (+34%) • $43 to $65 billion (+49%) • $65 to $80 billion (+23%) • $80 to $45 billion (-44%)

• Shale gas and oil

exploration expansion

• Interstate transmission

network expansion

• TIMP acceleration of

activity

• Distribution replacement

programs start

• DIMP plan preparation

• Transmission and high

pressure distribution

lateral construction

• NGL and shale oil

transmission system build

out – Replacement for rail

transport

• Distribution replacement

programs accelerating

• Housing starts

accelerating

• Interstate transmission

replacement programs

accelerating

• DIMP acceleration of

activity

• Early distribution plastics

replaced

• Rising natural gas prices

increase domestic gas

production

• Transmission

replacement activity slows

• 100 years of distribution

infrastructure replaced in

20 years

• Industrial/Power/Export

infrastructure complete –

modest to no growth

• Housing starts tempered

by low population growth

Province Specific Drivers

of Pipeline Spending


5/22/2015



Province Population

Growth

GDP Growth Replacement

Growth

Alberta High–2.5% High–9% High

British Columbia Average–1.0% Average–4.5% Low

Manitoba Average–1.0% Average–4.5% Low

Ontario Average–1.0% Average–4.5% High

Quebec Average–1.0% Average–4.5% Medium

Saskatchewan High–2.1% High–9% Medium

Other Low – 0% Average– 6.9% Low

Province New Construction

Growth

Alberta High

British Columbia Medium

Manitoba Low

Ontario High

Quebec High

Saskatchewan Medium

Other Low

3 Hot Spots

Canada Pipeline Spending Overview


5/22/2015


www.ContinuumAG.com

Canada Gas & Liquid, Transmission & Distribution

– Pipeline spending is volatile

– Distribution spending is stable ($1.5-$2.0 B) and increasing

1,1

03

1,2

15

1,4

17

2,5

82

2,6

42

6,0

13

5,6

46

3,3

17

3,7

66

6,0

09 6,9

81

8,4

88

7,4

86

4,7

41

4,6

39

5,0

41

-20.8%

10.2%16.6%

82.2%

2.3%

127.6%

-6.1%

-41.2%

13.5%

59.6%

16.2% 21.6%

-11.8%

-36.7%

-2.2%

8.7%

-60.0%

-40.0%

-20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

140.0%

-

2,000

4,000

6,000

8,000

10,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

T & D Gas/Liquid

Spending Change

Source: Statistics Canada. Continuum prepared forecasts for 2014-2018

Agenda



Implications



www.ContinuumAG.com


5/22/201512

Thesis


– Thesis: That growth in spending on pipeline construction activity

from $31 billion in 2008 to $45 billion in 2014 has stretched

resources in a way that makes continued expansion problematic

for contractors and the utilities they serve.


5/22/2015



2008 Today

Today:

Contractor Oil & Gas Pipeline Workforce


www.ContinuumAG.com


5/22/201514

Source: Continuum analysis of 2013 U.S. Bureau of Labor Statistics (www.bls.gov) data for NAICS 23712 Oil and Gas Pipeline Construction, industry interviews, and

proprietary Continuum information.

Today:

Gas Utility Construction Workforce


www.ContinuumAG.com


5/22/201515

Source: Continuum analysis of 2013 U.S. Bureau of Labor Statistics (www.bls.gov) data for gas distribution utilities, industry interviews, and proprietary Continuum

information.

Today:

Combined Workforce – 17,000 Crews

16

Field production staff consist of the following

– Construction Laborers

– Operating Engineers and Other Construction

Equipment Operators

– Plumbers Pipefitters and Steamfitters

– Helpers--Pipelayers Plumbers Pipefitters and

Steamfitters

– Welders Cutters Solderers and Brazers

Foreman & Superintendents are classified as

first-line supervisors of construction trades

Other field support includes truck drivers,

inspectors, mechanics, pavers, landscapers,

etc.

Assuming 4 staff per crew on average equals

17,000 available crews

69,000

13,000

4,700

30,000

27,000

Combined Workforce

Breakdown

Field Prodcution Staff Foreman & Supers

Construction Managers Other Field Support

Office & Management


5/22/2015


www.ContinuumAG.com

Source: Continuum analysis of 2013 U.S. Bureau of Labor Statistics (www.bls.gov) data for NAICS 23712 Oil and Gas Pipeline Construction and gas distribution utilities,

industry interviews, and proprietary Continuum information.

Today:

Age of Workforce


5/22/2015



0%

5%

10%

15%

20%

25%

30%

35%

16 to 19 years 20 to 24 years 25 to 34 years 35 to 44 years 45 to 54 years 55 to 64 years 65 years and over

Pipeline transportation Utilities Construction Pipeline Contractors

Source: Continuum analysis of 2013 U.S. Bureau of Labor Statistics (www.bls.gov) data, industry interviews, and proprietary Continuum information.

• Pipeline Contractors

addressing aging workforce

through growth

• Operators & Utilities still face

aging workforce challenge

Future Labor & Management Need?

18

5,750

23,000

6,651

2,405

15,349

13,814

- 5,000 10,000 15,000 20,000 25,000 30,000 35,000

Additional Labor Needed by 2020

Office & Management

Other Field Support

Construction Manager

Foreman/Super

Field Production Staff

Crews

11,000

44,000

11,186

4,044

25,814

23,233

- 10,000 20,000 30,000 40,000 50,000 60,000

Additional Labor Needed by 2030


5/22/2015


www.ContinuumAG.com

From Today:

2020 = 5,750 Additional Crews

2030 = 11,000 Additional Crews

Source: Continuum analysis of 2013 U.S. Bureau of Labor Statistics (www.bls.gov) data for NAICS 23712 Oil and Gas Pipeline Construction and gas distribution utilities, industry interviews, and proprietary Continuum information.

Agenda



Implications



www.ContinuumAG.com


5/22/201519

Pennsylvania Case Study

20

CPA Equitable PECO Peoples PGW UGI

Customers 400,000 275,000 475,000 350,000 500,000 475,000

Miles Main 7,000 3,500 6,500 6,500 2,500 5,000

Replacement Mature New New New New New Source: Proprietary Continuum analysis of Pipeline and Hazardous Materials Safety Administration (PHMSA) data, Federal Energy Regulatory Commission (FERC) Form 2 filings, company websites, and other public sources. All figures are rounded and approximate.

► Who will do the work?

– There are six large utilities that have roughly the same size system

– Columbia Gas of Pennsylvania (CPA) has a mature main and service replacement program in existence

that will likely continue for another 5-10 years

– The additional five are only just beginning their replacement programs

– Using CPA as a guide, it is possible that in 3-5 years, Pennsylvania exhibits 5-10 times the current

amount of distribution pipeline related capital construction and maintenance activity

– Ohio, New York, Maryland, Virginia, and New Jersey, traditionally states that Pennsylvania might have

pulled staff from in order to execute pipeline work, are all undertaking similar types of replacement

programs


5/22/2015


www.ContinuumAG.com

21

Contractor vs. Utility Cost Model

Ac

cu

mu

late

d $

Jan. Time Dec.

Variable Cost Business

Fixed Costs Variable Costs Revenue

Fixed CostsSalaries, depreciation, fixed payments, rent, etc.

Variable CostsLabor, Equipment, Materials, Subcontractors

Ac

cu

mu

late

d $

Jan. Time Dec.

Fixed Cost Business

Fixed Costs Variable Costs Revenue

Fixed CostsSalaries, depreciation, fixed payments, rent, etc.

Variable CostsLabor, Equipment, Materials, Subcontractors

Contractors have a highly variable

cost model and are not able to reduce

prices easily, through volume

increases.

Lower costs can come from two

approaches

– Risk reduction through longer term

predictability

– Well managed and highly productive

crews that aggressively control and

reduce variable costs

In contrast, utilities have a fixed cost

model and can gain greater savings

from managing salaries, fixed

payments, etc.


www.ContinuumAG.com


5/22/2015

Margin vs. Price

? vs. ?


5/22/2015



Utility costs up 10-40% since 2009

Contractor revenues up 50-200% since 2009

Contractor margins flat or falling during same time period

3.3%3.9%3.6%3.8%4.6%5.1%4.3%5.1%5.2%3.9%4.0%1.6%

1.1%0.3%-0.2%-0.5%0.6%0.3%0.6%1.8%1.9%0.0%-1.3%0.1%-5%

0%

5%

10%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Per

cen

t

Net Income After Tax 1st Quartile All 3rd Quartile All

Source: Proprietary Continuum database and industry interviews.

Labor Availability Implications

Growth Faster Than Demographics

– The overall workforce of pipeline construction workers must continue to grow at

rates well above the overall US workforce, as well as above the rate of growth

observed in 2013 of 6.6%. From 2007 to 2011 the overall construction

workforce shrank annually. Since 2011 this workforce has grown by 3.4%

annually increasing the difficulty of growing the pipeline workforce.

Faster Development of Leaders

– Given the timeline to develop foreman and superintendents the 6,000

additional employees needed in these positions must already be working in the

industry and be beginning to develop the skills and knowledge needed to

assume these roles in the next 5 years.

Unbalanced Challenge & Opportunity

– Hot spots in New England & California


5/22/2015


www.ContinuumAG.com

Today:

Supply vs. Demand


5/22/2015



Labor supply versus today’s

regional spending:

– New England – Critical

– Pacific – Critical

– Middle Atlantic – Challenging

– East North Central – Challenging

– South Atlantic – Challenging

– West North Central - Challenging

– East South Central – Challenging

– Mountain – Manageable

– West South Central – Manageable

3 Hot Spots

2020:

Supply vs. Demand


5/22/2015



2030:

Supply vs. Demand


5/22/2015



Construction Labor Market

Analyzer (CLMA) Dashboard


5/22/2015



Agenda



Implications



www.ContinuumAG.com


5/22/201528


5/22/2015



What Should You Do

Today?

Collaborate to Win: Utilities and all service providers face the same set of

problems…big demographic, age, business environment, and cultural issues


5/22/2015



Utility/Pipeline

Contractor

Engineer

Material/EquipmentUnion

Associations

Potential Workforce

Unprecedented

volume of work,

regulatory

scrutiny, and

challenge with

hidden

opportunities

Utility Centric Solutions

Balanced Strategy: Balance internal and external strategies for project and program execution– Scarcity Environment: Identify strategies, processes, & technologies to

operate in a “scarcity” environment - labor constraints, equipment constraints, etc.

– Upgrade Service Providers: Lock in effective and efficient service provider resources with 5-7 year contracts

– Upgrade Skills: Improve internal talent acquisition and retention for the replacement of baby boom generation and growth in market

– Align Contract Duration with Program: Move from one or three year contracts to extended contracts of five-to-seven years to lock in resources and match contract with program duration

Utility Customer of Choice: Become the preferred customer or “purchaser of choice” in the regions served in order to maintain capacity to implement replacement programs


5/22/2015



Contractor Centric Solutions

Differentiate: Increase business development and differentiation capabilities versus competitors to secure “high fit” and attractive customers

Invest in Training:1. Technical – To sharpen skills and meet quality specifications;

2. Management – To drive production improvement and waste elimination;

3. Cross Functional – To thrive in an environment that demands more than simply construction

Apply Technology: Build expertise in the application of technology to control or mitigate risk, drive out labor content in the work and adapt to an environment where simply constructing is not enough for success

Build Competitive Advantage in a Scarce Resource: Highly qualified field staff, field leadership, and construction management professionals


5/22/2015



Joint SolutionsCollaborate to Win:

– Strategic Alliance: Partner or integrate along design and construction value chain

where appropriate

– Support Joint Investment in Attraction, Retention & Training Effort: Pool resources to

address common challenges in a common way – “think globally and act locally”

– Knowledge & Risk management: Capture, document, and pass knowledge from one

generation to the next and attack risk mitigation with both traditional (Trees) and non-

traditional (Forest) approaches

– Transparency: Proactive planning to build visibility into future work (CLMA)

LEAN Operations: Improve efficiency and share the gains

– LEAN Construction: Develop partnering, collaboration, and integration skills to drive out

waste

– Business model, structure, and cost understanding: Fixed vs. variable cost business

strategies applied in the “right” situations

Embrace Innovation, Disruption, and Scarcity: Focus on thriving, adapting, and

anticipating an environment where change in regulation, resource scarcity, etc.

drive disruptionMark Bridgers & Glyn Hazelden

5/22/2015



CLMA


5/22/2015



Free Trial

Continuum has

negotiated a free

trial for companies

interested in both

participating in

and utilizing this

resource.

Contact Mark

Bridgers for

information.

Labor Availability

THE SOLUTION?


5/22/2015



Source: YouTube Download; “Last Week Tonight with John Oliver: Infrastructure (HBO)”, http://youtube.medjed.org/video/last-week-tonight-with-john-oliver-infrastructure-

hbo--Wpzvaqypav8.html.



www.ContinuumAG.com

Thank You

MARK BRIDGERSPrincipal, Raleigh


shipping: mailing:

405 Forsyth Street PO Box 31026

Raleigh, NC 27609 Raleigh, NC 27622

www.ContinuumAG.com

919.345.0403

[email protected]

Twitter: @MarkBridgers

Skype: mark.bridgers.continuum

LinkedIn: www.linkedin.com/pub/mark-

bridgers/12/9b4/81

GLYN HAZELDENConsultant, Chicago


1140 Columbian

Oak Park, IL 60302

www.ContinuumAG.com

O 708.763.8871; M 708.985.5399

[email protected]

Twitter: @GazzyUK



www.ContinuumAG.com

Mark founded and leads a Utility Vertical Market team team at Continuum Advisory Group.

He works with gas/electric utilities, power generators, pipeline companies, and energy

companies. As a recognized expert in capital construction and operational challenges,

Mark was recently honored with membership in the Society of Gas Operators (SOGO).

Mark helps firms prepare for and successfully navigate “strategic transitions.” His passion

is helping organizations achieve breakthrough innovations through collaborative or

integrated relationships. He is the architect of an approach for integrated service provider

management referred to as the “Extended Enterprise” among construction industry

participants.

Mark Bridgers

Mark is an avid educator, trainer, and writer with more than 20 years of industry expertise including financial

performance analysis; development and implementation of tools to reduce construction cost, life-cycle cost, and

operational friction; restructuring of processes and procedures - often times using LEAN Construction

techniques; and leader development.. He is a recognized expert in capital construction and operational

challenges . Mark is also author of over 150 articles and research papers published internationally in industry

journals, including ENR, PE – The Magazine for Professional Engineers, Pipeline & Gas Journal, Utility

Contractor (NUCA), Underground Contractor, Electric Energy (RMEL) and Electric Perspectives (EEI).

Mark holds a master’s degree in business administration from the University of Virginia’s Darden school of

Business and a bachelor’s degree in financial management from Clemson University. In addition, he earned the

designation of Chartered Property and Casualty Underwriter (CPCU) and Associate in Reinsurance (ARe).



www.ContinuumAG.com

Glyn Hazelden brings a wealth of experience, utility industry understanding, and gas utility

operations and capital construction skills. He is a recognized industry expert with over

25 years of experience. He has lead Hazelden Group, a utility industry consulting firm

providing services in all areas of utility operation and capital construction.

Previously, Glyn has also worked with Gas Technology Institute (GTI), leadership

positions at NUI Elizabethtown Gas/NUI and Peoples Gas Florida. Glyn has

authored and presented papers at Gas Industry Conferences all over the world,

and participated in workshops as a panel member. He has published articles in

various Industry publications, led an American delegation in a joint AGA/Japan Gas Operations Safety Task

Force, has been a guest lecturer at the Institute of Gas Technology, and has presented papers and

participated in Industry panels in various locations in the USA, and other countries.

Glyn has served as President of the New York Society of Gas Operators, and as a committee chairman with

the American Gas Association. He is a registered Professional Engineer (PA, FL, NJ, and Europe: CEng &

Eur. Ing.) and a member of the National Society of Professional Engineers. He holds a bachelors degree in

Gas Engineering and earned an MBA from the University of South Florida, Tampa.

Glyn Hazelden



www.ContinuumAG.com

Founded in 2010, Continuum Advisory Group provides management consulting, training, and

capital services to the residential, institutional, and energy industries supporting development

and capital asset construction.

Continuum delivers innovative, customized solutions to production homebuilders and

developers, institutional facility owners, and energy or utility owners who want to transform their

development and capital asset construction processes. Service providers to these firms,

including building products manufacturers, contractors, architects and engineers, are integrated

into the transformation process, frequently forming what Continuum refers to as an “Extended

Enterprise.”

Continuum’s experienced consultants can assist your business with Capital Construction/O&M

Unit Effectiveness, Program Management Office Transformation, Risk Management/Mitigation

for Capital Asset Construction, Project Management/Controls Installation, Process Analysis &

Improvement, Management of RFI/RFQ/RFP/Procurement, Extended Enterprise/Alliance

Formation, and Field Productivity Assessment & Improvement. Additional and specialized

services include, Direct Cost Savings, New Product Development, New Product

Commercialization, Market Strategy, Market Research, Cost Analysis & Savings, Cost to

Complete Analysis, Cost to Convert to Best Purpose, and Cost to Restore Asset.

Let Continuum Advisory Group transform your business!

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