End-User Trends in the Electrical Industry by Mike Eby, Editor-in-Chief EC&M magazine

What’s Going on in the Engineering Community? It’s all about global expansion and diversification

EC&M ‘s Top 40 We conduct an annual survey of the largest electrical design firms in the country (completed in 1 st quarter) We conduct an annual survey of the largest electrical design firms in the country (completed in 1 st quarter) We rank them based on annual sales We rank them based on annual sales We create a special report for the magazine based on the answers they provide to the survey (published in April/May issue) We create a special report for the magazine based on the answers they provide to the survey (published in April/May issue)

EC&M ‘s Top 40 Year-over-year overall design revenue for the 28 firms present on last year’s list averaged an 11.1% increase Year-over-year overall design revenue for the 28 firms present on last year’s list averaged an 11.1% increase When drilling down, design service revenue specifically tied to electrical work revealed a year-over-year increase of 4.4% When drilling down, design service revenue specifically tied to electrical work revealed a year-over-year increase of 4.4%

EC&M ‘s Top 40 Many of the firms on the list are cautiously optimistic regarding the speed of the economic recovery Many of the firms on the list are cautiously optimistic regarding the speed of the economic recovery However, despite growing backlogs this year, most firms don’t expect real economic recovery to occur until 2012 However, despite growing backlogs this year, most firms don’t expect real economic recovery to occur until 2012

EC&M ‘s Top 40 When asked what challenges they faced for the remainder of this year and into 2012, many identified the need to retain and recruit well-trained engineers and project managers as a key factor. When asked what challenges they faced for the remainder of this year and into 2012, many identified the need to retain and recruit well-trained engineers and project managers as a key factor. Other concerns include: Other concerns include: Pressure from clients to lower fees Pressure from clients to lower fees Meeting faster project delivery times Meeting faster project delivery times

EC&M ‘s Top 40 More firms offering construction management services More firms offering construction management services More firms looking for projects outside the U.S. borders More firms looking for projects outside the U.S. borders More firms reporting Design/Build and other turnkey project delivery methods continue to grow in popularity More firms reporting Design/Build and other turnkey project delivery methods continue to grow in popularity

EC&M ‘s Top 40 When asked about the future technologies that would most likely change future design practices, firms mentioned the following: When asked about the future technologies that would most likely change future design practices, firms mentioned the following: Building Information Modeling (BIM) Building Information Modeling (BIM) Energy efficient products Energy efficient products Intelligent building products Intelligent building products

Architecture Billings Index (ABI) Serves as a leading indicator of construction activity (any score above 50 indicates a growth phase) Serves as a leading indicator of construction activity (any score above 50 indicates a growth phase) October score was 49.4, following a September score of 46.9 October score was 49.4, following a September score of 46.9 Overall, business conditions remain negative Overall, business conditions remain negative Source: American Institute of Architects

What Does All of This Mean for Young Engineers? Rise of the business-minded engineer Rise of the business-minded engineer Today’s engineering graduates are expected to step right off campus armed with the skills for organizing projects, leading teams, and dealing with difficult supervisors and co-workers Today’s engineering graduates are expected to step right off campus armed with the skills for organizing projects, leading teams, and dealing with difficult supervisors and co-workers Engineering programs are modifying their curriculums to meet these needs Engineering programs are modifying their curriculums to meet these needs

What’s Happening on the Contractor Front? It’s all about surviving hard times

EC&M ‘s Top 50 We conduct an annual survey of the largest electrical contractors in the country (completed in 3rd quarter) We conduct an annual survey of the largest electrical contractors in the country (completed in 3rd quarter) We rank them based on annual sales We rank them based on annual sales We create a special report for the magazine based on the answers they provide to the survey (published in September/October issue) We create a special report for the magazine based on the answers they provide to the survey (published in September/October issue)

EC&M ‘s Top 50 Total sales for electrical and datacom services dropped yet again Total sales for electrical and datacom services dropped yet again A 6.3% year-over-year drop on top of a 4.5% drop the prior year A 6.3% year-over-year drop on top of a 4.5% drop the prior year Some companies reluctant to participate (assume they didn’t want to inform the world of their poor performance) Some companies reluctant to participate (assume they didn’t want to inform the world of their poor performance)

EC&M ‘s Top 50 Wild swings seen among this elite group Wild swings seen among this elite group +63.1% to –49.3% +63.1% to –49.3% Surprisingly, nine companies reported a percentage gain of more than 20% Surprisingly, nine companies reported a percentage gain of more than 20% However, nine other companies reported a drop in sales of more than 20% However, nine other companies reported a drop in sales of more than 20%

EC&M ‘s Top 50 Nearly 75% of the companies reported using the design-bid-build project delivery method to complete projects Nearly 75% of the companies reported using the design-bid-build project delivery method to complete projects Design-assist is the second most popular method of delivery Design-assist is the second most popular method of delivery The most active market sectors they worked in included: The most active market sectors they worked in included: Health Care Health Care Education and Institution Education and Institution Power (Utilities and T&D) Power (Utilities and T&D)

EC&M ‘s Top 50 What are they thinking as the year comes to an end? What are they thinking as the year comes to an end? 83% of the group expect to meet or exceed their sales goal this year 83% of the group expect to meet or exceed their sales goal this year 77% plan to implement lean construction practices into their projects 77% plan to implement lean construction practices into their projects 55% expect to maintain or reduce current staffing levels 55% expect to maintain or reduce current staffing levels 58% do not plan on purchasing major construction equipment 58% do not plan on purchasing major construction equipment

EC&M ‘s Top 50 What are they thinking as the year comes to an end? What are they thinking as the year comes to an end? 59% expect to increase their use of BIM 59% expect to increase their use of BIM 45% expect to build more projects to Leadership in Energy and Environmental Design (LEED) standards 45% expect to build more projects to Leadership in Energy and Environmental Design (LEED) standards A whopping 70% do not expect the construction economy to improve until 2013! A whopping 70% do not expect the construction economy to improve until 2013!

How does all of this relate to employment levels?

General Construction Added 18,000 jobs in the last 12 months Added 18,000 jobs in the last 12 months However, lost jobs for a second straight month (shed 12,000 alone in November) However, lost jobs for a second straight month (shed 12,000 alone in November) Overall construction industry unemployment rate remains high at 13.1% Overall construction industry unemployment rate remains high at 13.1% But this is down from 18.8% a year earlier But this is down from 18.8% a year earlier Source: Bureau of Labor Statistics

General Construction (cont’d) Residential construction employment decreased by 3,000 in November Residential construction employment decreased by 3,000 in November -400 jobs as compared to same time last year -400 jobs as compared to same time last year The resi specialty trade contractor subsector added 3,000 jobs for the month The resi specialty trade contractor subsector added 3,000 jobs for the month +20,800 jobs year-over-year +20,800 jobs year-over-year Source: Bureau of Labor Statistics

General Construction (cont’d) Non-resi building construction employment dropped by 1,200 in November Non-resi building construction employment dropped by 1,200 in November +9,900 jobs as compared to same time last year +9,900 jobs as compared to same time last year The non-resi specialty trade contractor subsector lost 3,500 jobs for the month The non-resi specialty trade contractor subsector lost 3,500 jobs for the month -9,900 jobs as compared to same time last year -9,900 jobs as compared to same time last year Source: Bureau of Labor Statistics

Electrical Contractors Electrical contractor employment level held steady in September, down 0.6% from the previous month (according to Dept. of Labor) Electrical contractor employment level held steady in September, down 0.6% from the previous month (according to Dept. of Labor) However, it is up 2.3% year-over-year However, it is up 2.3% year-over-year Annual average level for all of 2010 was around 723,000 Annual average level for all of 2010 was around 723,000 However, as a point of reference, this figure was slightly higher than 900,000 in early 2007 However, as a point of reference, this figure was slightly higher than 900,000 in early 2007

What About the Buying Power of Electrical Contractors? Electrical contractors account for an estimated 36% of all electrical products sold through electrical distributors Electrical contractors account for an estimated 36% of all electrical products sold through electrical distributors Each employee at an electrical contractor makes $43,880 in purchases, annually Each employee at an electrical contractor makes $43,880 in purchases, annually Source: Electrical Wholesaling magazine

Source: Electrical Wholesaling (proprietary survey) What Do Contractors Think About New Technologies?

Are You Making Money Selling Energy Efficient Products?

The Time is Now Renewed Energy Consciousness Among Consumers Renewed Energy Consciousness Among Consumers Utility Rebate Programs are Abundant Utility Rebate Programs are Abundant Energy Performance Service Contracts Energy Performance Service Contracts New Federal Energy Legislation and State Regulations New Federal Energy Legislation and State Regulations LEED Certification and Green Building Guidelines LEED Certification and Green Building Guidelines Rapid R&D in the Lighting Market Rapid R&D in the Lighting Market

Points to Ponder Are the electric utilities in my market offering rebates? Are the electric utilities in my market offering rebates? Do I have the on-staff expertise to be a player in the energy market? Do I have the on-staff expertise to be a player in the energy market? Which distributors & energy-service companies (ESCOs) are the key players in this business? Which distributors & energy-service companies (ESCOs) are the key players in this business?

Incentives Being Offered Lighting equipment (CFLs, LEDs, daylighting and occupancy sensors) Lighting equipment (CFLs, LEDs, daylighting and occupancy sensors) HVAC equipment (installation of higher efficiency units) HVAC equipment (installation of higher efficiency units) Motors & drives (installation of premium efficiency products) Motors & drives (installation of premium efficiency products)

PECO Smart Home Rebates

PPL Rebate Programs

PennPower Rebate Programs