The electrical power industry hit rock bottom in 2002, leading to lower-than-expected revenues for design firms nationwide. This downturn, coupled by the weak economy, has resulted in intense competition, plummeting price levels, and a buyer's market. Three years ago, electrical design firms had more work than they could handle, but today many markets have all but disappeared.

To gain a better understanding of the challenging marketplace, Electrical Wholesaling's sister magazine, EC&M surveyed the nation's largest electrical design firms for its inaugural Top 40 listing. These powerhouse firms identified the latest hot and cool markets, current trends in electrical design, and the challenges that lie ahead for the remainder of this year. In the table on the facing page, the companies are ranked based on a combination of factors, including 2002 revenues submitted by the firms, data from Dun and Bradstreet's Million Dollar Database, and the companies' involvement in electrical design. The headquarters locations, employee counts and founding dates are also listed.

To give you a general overview of the companies, on the Web at www.ecmweb.com, you'll find capsule summaries that describe the firms' size and branch office locations, how the companies were founded, their areas of expertise, and the key markets they serve. In a tough economy, these firms are discovering ways to survive and even thrive amongst a tough field of competition.

The power plant market exploded in 2000, forcing electrical design firms to turn away customers. But all that work seemed to vanish overnight.

“No new projects were booked, and it seemed like every day, all we heard about was the cancellation of projects,” says Doug Butcher, chief control and electrical engineer of the energy, engineering and construction division of Overland Park, Kan.-based Black & Veatch. “It's gut-wrenching when a project is cancelled, especially if you're well into it. People pour their hearts and personal lives into these projects.”

Merchant power plant developers pursued every opportunity available to make a high return on investment. As a result, the number of plants that went online in the past three to five years experienced exponential growth. The amount of speculative building led to a surplus, and the bubble eventually burst.

The problem was compounded by the fall of Enron, which lowered lending institutions' confidence in developers' ability to accurately report the financial performance of a project.

Energy prices also played a role in the overcapacity. “Over the last five to seven years, gas and electric prices were very attractive, and it appeared to be a good investment for merchant developers,” Butcher says. “Due to overbuilding, gas prices have gone up and power prices have gone down. Throw into that mix the investors' lack of confidence, and it all went down in flames at once.”

Because of the surplus of power, some developers decided it was in their best financial interest to cut their losses, cancel projects that were already well underway, and sell off the assets at fire-sale prices. Excess capacity was built up to manufacture the power plant equipment, and components like transformers, pumps, and gas turbines were stored for future projects or sold in secondary markets.

The power plant industry, however, is slowly showing signs of recovery. Some U.S. developers are seeing the downturn in power plant construction as an opportunity to cost effectively build generation, and more of the utility-based clients are starting to return to the market. The power market has traditionally been very cyclical with six- or seven-year cycles, Butcher says.

Until the power market stabilizes, many firms are branching into other sectors to compensate for the lull in power plant construction. Black & Veatch, which specializes in infrastructure development for energy, water and information, experienced growth in the water and wastewater industries when the power market crashed. Other companies have pursued such hot markets as health care, security and education. Hospital work across the nation posted a 17 percent gain in 2002, and the Dodge division of McGraw-Hill Construction forecasts a 2.9 percent increase for 2003. With the aging of baby boomers, breakthroughs in medical research and cutting-edge medical technology, more electrical design firms are pursuing opportunities in the hospital market.

Some of the Top 40 electrical design firms are also helping businesses to ramp up security after the 9/11 terrorist attacks. Syska Hennessy Group, New York, landed a contract to design the electrical, HVAC, telecom, and security systems for the Pentagon's Phoenix Project, and many firms are helping to tighten security at airports nationwide.

Colleges, universities, and K-12 have also become hot markets. “Over the years, a lot of the school infrastructure has fallen behind the student enrollment,” says Russell Laird, the program manager and senior vice president of facilities for Carter & Burgess, Fort Worth, Texas. “We've been involved in many education projects, and we expect our involvement in this market to continue.”

Carter & Burgess, a national architecture and engineering firm, gained power-quality experience during the buildup of telecom infrastructure. When this market crumbled, the firm was able to apply this knowledge to its clients in the education and federal marketplace.

The company managed to maintain a steady workload in 2002 by turning to markets like cogeneration plants and large central chill water plants. Deregulation efforts in Texas also presented new opportunities in the utility market for Carter & Burgess and other area firms.

Along with diversifying its markets, Carter & Burgess also branched out into different geographic locations. Acquisitions and market diversity have helped the company increase its revenues from $22 million in 1990 to $351 million in 2002. “Back in the 1980s, we looked at whether we wanted to remain a Texas firm or die on the vine,” Laird says. “We're very fortunate that we expanded into the hot spots where things are happening.”

Electrical design firms have been able to survive not only by market hopping, but also by taking advantage of advances in design tools, such as the advent of advanced personal computing and the Internet. Butcher remembers constructing scale models of power plants by hand when he began his career as an electrical engineer in the '80s.

“Each of us has more computing horsepower on our desktop than we even dreamed about having corporate-wide 20 plus years ago,” he says. “Everything we used to design with pen and paper is being done in a 3D modeling environment.”

Today's modern electrical engineering software brings about a quantum leap in capabilities, efficiency and speed. Easy-to-use graphical user interfaces simplify the design and layout process and allow users to test multiple design configurations in a short time. The Internet also allows engineering firms, electrical contractors, general contractors and owners to collaborate online, review and approve documentation, and share drawings and job-site photos. Due to the availability of business software, building owners now have a thirst for real-time information.

“Our customers want to have lots of information at their fingertips and be able to make real-time operating decisions,” Butcher says.

Many markets, especially the power plant industry, have nowhere to go but up. After surviving a few grueling years, many segments may start to recover, but according to the survey respondents, 2003 will be another challenging year.

Funds aren't readily available, the cost of energy is uncertain, and there has been a reduction in manufacturing production due to the economic recession. Regulatory and market uncertainty for the electrical energy industries will also make transmission and distribution and generation project funding a challenge.

“We need to try to avoid the marketing of services as a commodity in an ever price sensitive market,” says Sharon Williams, T&D business development department manager for Power Engineers Inc., Hailey, Idaho. “The lack of available work in many markets has created an expected downward push on pricing levels. Additionally, as work volume declines, maintaining staff will be a constant challenge. Those that are thin in overhead and effective in expenditures will fare better.”

The flat economy will result in a compressed market for services, and the lack of government and private funds will force the cancellation, postponement, or downgrading of traditional projects. More companies will be competing for less work, and to stay in business, more firms will be forced to explore more traditional markets and get jobs done more quickly and cost effectively through techniques like design/build. Butcher forecasts that the industry will gradually start to turn around.

“After 9/11 and Enron, we hit rock bottom, but things are starting to improve now,” he says. “We're optimistic that 2003 will be a better year.”

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