Planning Strategically for the Workforce of the Future · Copyright © 2007 by ScottMadden. All rights reserved. 4 Aging Utility Workers 9.4 14.3 16.8 14.8 18.9 25.8 0% 10% 20% 30%

Copyright © 2007 by ScottMadden. All rights reserved.

February 7-9, 2007

Planning Strategically for the Workforce of the Future

EEI Strategic Issues Roundtable

1Copyright © 2007 by ScottMadden. All rights reserved.

AgendaIntroduction

The Direct Labor Challenge

The Indirect Labor Challenge

Two Solution Frames


IntroductionIn this discussion we will address two views of the aging workforce challenge and how it affects utilities

— Directly• Attrition and the challenges to fill vacancies left by departing workers• What the next generations may bring to the mix

— Indirectly• How shortages in craft labor will affect utilities’ construction plans

We also want to explore how your organizations are addressing these challenges

Workforce of the Future – The Direct Labor Challenge


Aging Utility Workers

9.414.3

16.8 14.818.9

25.8

0%

10%

20%

30%

40%

50%

<5 5-15 16-25 26-35 36-45 46+% of Respondents

0%

20%

40%

60%

20-30 31-40 41-50 51-60 61+Age

11%

17%

30%

42%

0%

10%

20%

30%

40%

50%

Mid-LevelManagement

Exec/SeniorManagement

Engineering Technical/Special

Close to 80% of utility workers are older than 40 years of age

2002 Nuclear Energy Institute study found:— Nuclear stations will require 29,000 replacement

workers between 2002-2015— Nuclear industry suppliers will require 58,000 new

workers between 2002-2015— Key shortages forecast in nuclear engineers, health

physicists

A 2006 survey by the Sierra Energy Group for Black & Veatch found:

— Most utilities addressing workforce development needs with traditional methods; little urgency

— Most utilities believe aging workforce will increase labor costs 5-25%, but almost 1/3 expect no increase

Percent to Retire in Next 10 YearsMore than 25% of survey respondents expect 46% or more of

workers to retire in next 10 years.

Average Age of WorkersNearly 4 out of 5 are over age 40.

Shortages Most Critical in 5-10 YearsTech/Specialists expected to be the most pressing workforce

development challenge.

Per

cent

to R

etire

in N

ext 1

0 Ye

ars

Source: Energybiz Magazine, “Vision of Human Resources,” Jan/Feb 2006

% R

espo

ndin

g C

ritic

al S

horta

ge 5

-10

Year

sOver 1,000 new power plant operators will be needed every year between 2005 and 2015 (source: Public Power, 2005)

Demand for entry-level line workers will grow at 9% per year, with 10,000 new workers needed through 2010 (source: Public Power, 2005)


Power Company ExampleCompany Statistics

1,425 employees

About 400,000 retail customers

5 power plants, 160 substations

1,600 miles of transmission lines, 7,000 miles of distribution lines

Over 40% of employees are retirement eligible

Retirement eligible employees represent over 10,000 years of experience

Source: ScottMadden analysis; TRWIB, Inc. 2005

52.3%

27.3%

17.2%

2.9%

45+ 35-44 26-34 <25

Average Age of Workers

Average Age = 44Average Years of Service = 18

Age of Workers

Typical Barriers to Effective Workforce Development:

Limited Perceptions – utilities do not accurately perceive the human resources risk

Lack of Workforce Planning Competencies – lack of skill sets and information systems to enable effective planning

Reduced Internal Training Budgets – “outsourcing” to local educational institutions without clear specification of training content required and scale of needs

Weak Relationships with 2-Year Schools – lack of attention to developing relationships with local community colleges and technical schools

Competition – geographically convenient sites for workforce development may face strong competition from other attractive industries

Tradition – new workers do not value a career with a utility the same way workers did 20 or 30 years ago


Where Have All the Engineers Gone?Engineers are retiring and they are becoming harder to replace – fewer are available in the labor pool

There has been a 50% drop in number of graduating engineers in the past 15 years— According to IEEE, in 2003 there were 360,000 electrical engineers and 23,000 registered power

engineers— Today 500 undergraduate power engineering degrees are awarded

• Fewer than 200 master’s degrees • 20 PhDs

The power industry employed 550,000 engineers in 1990 and employed 420,000 in 2005

Engineers trained in the US may not stay in the US

The current lack of graduating PhDs will exacerbate the problem in years to come — Fewer to teach what will [hopefully] become a growing pool of students

How did the industry get here?

Some of the current lack of engineering graduates can be blamed on the industry itself— Lack of infrastructure development— Cost cutting and early retirements— Process re-engineering— Focus on markets

Roughly 60% of utilities have little or no plan to address this issue

Sources: Power Engineering, “Draining the Talent Pool,” May 2005, ScottMadden Whitepaper “Strategy for Managing Future Workforce in the Utility/Generation Industry,” 2006


Shortage of TalentIt’s not just the US…

According to The Economist the population 15-64 will decrease:

— In Germany by 7%— In Italy by 9%— In Japan by 14%

Shortages in management talent are appearing in various industries all over the world (India, China)

Various governments, including Singapore, Canada, Australia and Ireland, are taking steps to attract foreign workers

What this means for utilities

Utilities will see increasing competition for graduating engineers and other skilled workers

Competition for graduates will force salaries to rise

As salaries rise, cost pressure on utilities will increase

It will be years before the increase in salaries in these positions changes university curricula or student preferences

Strategies to recruit or replace engineering talent may need to turn to the global labor pool

The traditional balance of power between employers and employees is shiftingSources: Christian Science Monitor, “Does the US face an engineering

gap?” December 20, 2005, The Economist “The search for talent,” Oct 7-13, 2006

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

India China USA

It’s not just utilities…

Non-utility industries in the US (defense, high-tech) are facing potentially crippling shortages of graduates

In the US estimates of the number of senior managers (across industries) to retire in the next five years range as high as 50%

Graduating Engineers per Year


Comparison of GenerationsGeneration X (1965-77)

More educated than the baby boomers

Grew up with computers & technology

Witnessed the disappearance of lifetime employment

Shaped by:— AIDS epidemic— Challenger disaster— End of the cold war

Generation Y (1977-95)

More highly educated than any generation before

Technologically dependent and networked (both professionally and personally)

Free agents – no lifetime employment

Most diverse generation of all

Shaped by — Election of Bill Clinton— Oklahoma City bombing— Dot-com and Enron boom (and bust?)

76

40

70

Baby Boomers Gen X Gen YMillions

Baby Boomers (1946-64)

Grew up with lifetime employment

Witnessed the propagation of technology

Experienced lifetime employment

Every day 10,000 turn 55

Sources: The Credit Union Journal, “Analyst: Understanding What Shapes Generation Can Help The… ,” 2/24/04, ScottMadden Whitepaper

Generations


The Future – Flip-flops and I-pods?What do we know about the generations to come?

Generations X and Y will not respond well to the typical ‘command and control’ environment of a traditional utility

They assume that they will change jobs throughout their lifetime

They are technologically savvy

They want to work on teams and move around

They want feedback on how they are doing and an opportunity to voice their opinions

Generation Y

Demand involvement in decision making, want respect for their ideas and contributions – then they will performEntrepreneurial, creative, problem solvers, risk takers

Highly idealisticOpen-minded, tolerant of diversity, willing to fight for social justice, socially and environmentally conscious, high morality & civic duty, frank and honest

Demand work that adds value, demand opportunity for challenge

Well educated, intellectual, respect wisdom, value opportunity more than money

Free-agent, don’t respect status and authorityIndependent, self sufficient

Lifestyle drivenHigh level of sociability, team oriented

Skeptical, cynicalOptimistic

Self-interested, self-gratifying, arrogant, entitledSelf-confident achievers

Impatient, want immediate results, want action not wordsFast moving, highly organized, time conscious

Demand workplace flexibility, transient, commitment is temporary & tentativeFlexible, adaptable, no expectation of stability

ConsPros

Source: Employment Review, “Understanding the Y Generation - Y you should care,” Dec 2002/Jan 2003


What Gen X & Y can bring:What utilities are facing:

Where Gen X and Gen Y Could Help

Knowledge transferExpertise that has leftMinimal documentation of knowledge

Shifting regulatory environmentDivestiture of assetsRetail deregulation

Lean organizationsResult of cost cuttingLittle training availableOutsourced functions

Technology challengesReplacement of legacy systemsMarket systemsT&D automation

Self startersNew ideasInformal mentoring

FearlessnessAttraction for Gen X & YSkills that match requirements of new systems

AdaptabilityWillingness to try new thingsLack of pre-conceived ideas

Independent risk takersWillingness to learn and possibly fail

Infrastructure investmentGenerationTransmissionLarge capital projects

Project focusTime consciousnessOrganization

What they will need:

Training

Job shadowing

Career development opportunities

Attractive corporate culture

As the balance of power shifts toward the employee, the employer’s offering becomes ever more important

What they will need:

Training

Job shadowing

Career development opportunities

Attractive corporate culture

As the balance of power shifts toward the employee, the employer’s offering becomes ever more important


Direct Hire – Discussion QuestionsHow did we get ourselves into this position?

Is the sky really falling with respect to the workforce? Why or why not?

Why are extraordinary plans not being put in place to manage this business risk?

How long before workforce demographics will be a required disclosure in financial statements?

How much of an answer does technology hold?

What are the hurdles to overcome when hiring engineering expertise from outside the USA?

Are the values of Gen X and Gen Y really that different?

Workforce of the Future – The Indirect Labor Challenge


4,2964,646

5,8036,117 6,218 6,187

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2003 2004 2005 2006 2007 20080

5,000

10,000

15,000

20,000

25,000

2003 2004 2005

Expansion

New Plant - Regulated

New Plant - Competitive

Investment/Project Challenge

Source: EEI

New Generation Plants OnlineFossil, Hydro, Nuclear

Transmission Investment

$ M

illion

s (R

eal $

2005

)

MW

s

Indirect workers are defined as the skilled employees of the contractors, manufacturers and fabricators who will build and install

the equipment and projects implied by these growth estimates


Architects/Engineers and Fabricators

0 2 4 6 8 10 12 14 16 18 20

+4 +5 +5+5

+6.5+7

+2.5+3 +5

+2+3.5 +4

+3 +3 +5

+5.5+7

+6.5

+10 +10+20

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

ProjectManager

FinancialManager

IT Manager HRDirector

MarketingDirector

OfficeManager

Principal

2004 2005 2006

AE Salaries

Source: Fluor Corp., quoted in ENR 6-26-06

2007 Pipe Delivery Times

Source: Zweig White Info Services, quoted in ENR 12-18-06

“We’re at 100% capacity through December [2006] and turning work down everyday.” Structural Steel Fabricator

“Suppliers are not expanding capacity to keep up with demand.”

“Ten years ago in the last boom, shops expanded and then found themselves 60% full.”

Logistics companies are just as strained as suppliers

Project cost increases of 14 – 63% on environmental retrofit projects resulted mostly from increases in labor, materials and equipment KCP&L SEC filing

Design firms are competing with the big construction programs of large corporations who often offer higher salaries and better benefits

International equipment sourcing plans will only add complexity to the tasks of AEs

Growing resistance among candidates to relocate – no “soft” regional labor markets

With an average age of 50, over half of the petroleum industry’s employees in the USA will retire by 2015

Alloy

Alloy

Alloy

Stainless Steel

Stainless Steel

Stainless Steel

Weeks

2005

2006

2007

BonusBase

Bas

e C

ompe

nsat

ion

($)


Construction

Unemployment is at 5.9%, down significantly from the recent high of 7.4% in 2002

7.8 million blue and white collar workers are employed in the construction industry

— Non-residential (industrial) employment increased 3.4%

— Specialty employers accounted for 5 million workers

Contractors expect to give average salary increases of nearly 4% in 2006

+6.142.15Heavy Equipment+5.842.50

Operating engineersCrane Operators

+2.741.48Millwrights

+5.146.56Pipefitters+2.736.52Painters+5.839.11Small Equipment

+4.535.24Roofers+5.646.34Plumbers+5.338.22Plasterers

+3.947.88Electricians+2.738.02Cement Masons+2.939.35Carpenters+3.440.09Bricklayers%∆Rate

20-City Average ($/hr)

+4.244.04Structural+5.243.00

IronworkersReinforcing

+3.643.99Insulation Workers+3.640.58Glaziers+7.950.38Elevator Constructors

+3.934.48TeamstersTruck drivers

+3.746.42Sheet Metal Workers

+3.831.29Heavy & Highway+4.531.37

LaborersBuilding

Hourly Union Pay ScalesSeptember 2006

Source: ENR 9-25-06

+3.1% +0.5%-1.9%

+0.9%

+3.6%

+4.4%

+2.9%

6

6.3

6.6

6.9

7.2

7.5

2000 2001 2002 2003 2004 2005 2006

Millio

ns E

mpl

oyed

Construction Employment

Source: ENR 9-25-06


Craft Labor – Age DistributionOver 16% of the construction labor force is over age 50Almost 9% of the construction labor force is over age 55Annually, 185,000 new construction craft workers are required to replace 95,000 retiring workers and enable 1-2% annual workforce growth

12.48.353,080Millwrights

n/a8.5985,900All Other Construction Employment

9.0

8.66.1

8.5

9.6

8.4

8.8

9.5

11.1

11.3

11.0

2.1

% Age 55and up

15.4934,000Laborers

15.568,900Ironworkers

15.9935,920Carpenters

17.1606,500Electricians

20.7378,720Equipment Operators

21.6420,770Pipefitters/Plumbers

n/a5,146,620TOTAL

13.4174,550Sheet Metal Workers13.6204,720Cement Masons

15.6249,850Painters

19.5115,950Bricklayers

27.717,760Boilermakers

% Age 50 and up

2005 EmploymentCraft Category

Construction Industry Workers

Have more workers in “prime”working years

Tend to leave the industry early

Are increasingly Hispanic

Construction Industry Workers

Have more workers in “prime”working years

Tend to leave the industry early

Are increasingly Hispanic

Source: CLRC, “Craft Labor Supply Outlook,” 2005; BLS May 2005

15

9

16

2225 22.5

16

27 27.5

18

0

5

10

15

20

25

30

16-24 25-34 35-44 45-54 55+

% o

f Wor

kforc

e

All industriesConstruction craft workers

Since 1997, this category has increased over 3 percent points


Coal Capacity History and Forecast

Forecast - Annual Energy Outlook 2005Historic Data - UDI 2001 Operating Data, J. Figueroa, NETL

Cap

acity

Add

ed M

Ws

01,0002,0003,0004,0005,0006,0007,0008,0009,000

10,00011,00012,00013,00014,00015,00016,00017,00018,00019,00020,000

1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

Industry Growth Trend Not Seen in

50 Years?

20 YearMarket Trough

1973 additions greater than total for last 15 years


Indirect Labor for ConstructionBecause labor markets are largely regional, simultaneous projects will compete for a limited supply of workers.

Assumes significant application of pre-fabrication and modularization techniquesQualified boilermakers, pipefitters, electricians and ironworkers are expected to be in short supply in all regionsGlobal nuclear plant construction is expected to strain the global supply base for nuclear engineered equipment

6,0006001,600

NuclearGEN III+ 1,100 MW(first of a kind)

Up to 30,000 MWs of the new coal capacity may be built between 2006 and 2010 (Peabody Energy estimate)Regional shortages of ironworkers and boilermakers already being experienced by FGD retrofit projects

42,2003001,200 – 1,500Pulverized Coal600 MW

Over 90 projects will be required to meet the projected MW growth through 2020Modest on-site craft labor needs offset by shortage of supplier and fabricator shop space

55,600100400-500

Combined Cycle600 MW

Over 25 projects announced or in developmentPipefitters and iron workers expected to be in heavy demand for these projects15,6004001,500 – 2,000

IGCC600 MW(first of a kind)

NotesPlanned Capacity

Additions 2005 – 2020

(MWs)1

Construction Support (FTEs)

Craft Labor (FTEs)

Plant Type

Peak Labor Estimates2

1Annual Energy Outlook, 2006; ScottMadden analysis2DOE NP 2010 Nuclear Power Plant Construction Infrastructure Assessment, 2005; ScottMadden analysis


Why the Indirect Labor Challenge Matters to Utilities

Observations:Industry demographics are working against improvements in the supply of craft laborCraft labor organizations are behaving in ways that fail to expand supply; seeking higher wages instead of higher aggregate employmentContractors (and suppliers) are behaving in ways that maximize use of existing capacity without expanding existing capacity

HypothesisHypothesis

Dem

and

Time

Because both craft labor and contractors perceive the workload to be a temporary spike…

… they are likely to be weak partners in craft labor solutions that seek to expand supply. Their best risk/return solution is to maximize existingsupply/capabilities

Today

The traditional approach to acquiring necessary indirect (i.e., craft) labor has generally been to rely on independent contractors to acquire workers from a deep and liquid pool

“We’re big enough, we don’t have to worry about access to craft labor or contractors”-- Major Utility

However, in the emerging craft labor market, contractors and labor supply sources may not, on their own, create solutions in time to meet utility needs


Indirect Hire – Questions to ConsiderWhat is your view of the indirect labor workforce market?

What do recent project experiences indicate regarding the degree of indirect labor risk?

What level of strategic discussion has this risk generated at your firm?

What are some of the strategic options for managing this risk?

Why (or why not) will traditional contracting approaches be sufficient to manage indirect labor risk?

What regulatory risks would be encountered if expansion/addition projects fall behind schedule?

Workforce of the Future – Two Solution Frames


Solution Frame 1

Craft Degreed

Dire

ctIn

dire

ct

Skill Classification

Empl

oyee

Typ

e

Companies must have effective strategies to address all four types of workers

Long-term contracts to manage peaks and valleys in demand

Creative approaches to labor relations and contracts

Efforts to craft labor to expand skills

Structure contracts to obligate contractors to assist in workforce development

Development of co-op programs

Adjunct teaching at universities

Working with career development offices

Marketing of industry and jobs

High school outreach

Cooperative agreements with technical schools

Development of internship programs

Marketing of industry and jobs

Long-term agreements with A/E and construction firms to ensure access to talent

Participation with A/Es and contractors in promoting technical careers

Management of retirement rate & knowledge transfer


Solution Frame 2Broadly defined, risk management is the deliberate and intentional process of identifying, evaluating and controlling risks in ways that balances the costs and benefits to the stakeholders

Grow Grow SupplySupply

Moderate Moderate DemandDemand

Contractor/Contract Contractor/Contract ManagementManagement

KnowledgeKnowledgeManagementManagement

SituationalSituationalAwarenessAwareness


Selected SourcesChristian Science Monitor, “Does the US face an engineering gap?” 12/20/05

The Credit Union Journal, “Analyst: Understanding What Shapes Generation Can Help The… ,” Michael Bartlett, 5/24/04

The Economist, “The search for talent: Why it’s getting harder to find,” October 7-13, 2006

Employment Review, “Understanding the Y Generation - Y you should care,” Catherine Allen, Dec 2002/Jan 2003

EnergyPulse, “Generational Differences in the Workplace: Fact or Fiction?” Robert Cenek, 10/6/05

EnergyPulse, “Why Have Lessons Learned Not Been Transferred to the Current Generation of Power System Engineers, Managers and Policy Makers and What Can Be Done About It?” Jack Casazza and Frank Delea, 10/1/04

Pink, “Welcome to the Matrix,” Diane Danielson, August/September 2006

Power, vol 149, issue 5, “Aging workforce challenges industry,” 6/15/05

Power Engineering, “Draining the Talent Pool,” Drew Ross, 5/5/05

USA Today, “Generation Y: They’ve arrived at work with a new attitude,” Stepahie Armour, 11/7/05

DOE NP2010 Nuclear Power Plant Construction Infrastructure Assessment, 10/21/05

Energy Information Administration, Electric Power Annual 2005, rev. 11/9/06

Energy Information Administration, Annual Energy Outlook 2006

Steve SandersPartner

[email protected] – 404.814.0020Mobile – 770.490.8684

10 Piedmont Center #805Atlanta, GA 30305

Cristin LyonsPartner

[email protected] – 919.781.4191Mobile – 919.247.1031

2626 Glenwood Ave, Ste #480Raleigh, NC 27608

Documents

Planning Strategically for the Workforce of the Future · Copyright © 2007 by ScottMadden. All rights reserved. 4 Aging Utility Workers 9.4 14.3 16.8 14.8 18.9 25.8 0% 10% 20% 30%