The Official Publication of the Power & Communication Contractors Association 2nd Quarter 2011 PCCA in the Florida Keys: Hot Times, Hot Topics
You said you needed a small “big” excavator. Consider it done. Weighing in at just over 18,400 pounds, the 85D still manages to pack plenty of your other big ideas into its reduced-tail-swing design. Versatility? It sports a standard blade, a swing boom for tight work, and three track options: continuous rubber belt, rubber crawler pads, or steel tracks. For big excavator technology (and reliability) in a compact package, see your dealer or call 800-503-3373. DESIGNED TO MEET THE MOST DEMANDING SPECS. YOURS. Yo jus big bla be rel YOU’RE ON.TM www.JohnDeere.com/85D
GSA# GS-07F-0166 MCLAUGHLIN and the MCLAUGHLIN LOGO are trademarks of McLaughlin Group, Inc. © 2011 McLaughlin Group, Inc. All rights reserved. No other vacuums perform like McLaughlin. Ours feature an exclusive, three-stage cyclone filtration process, which replaces old technology. The washable two-micron filter completely eliminates the old baghouse common to other vacuums, and the patented, fully external hydraulic door with cam-over locking system prevents spoil contamination, plus is easier to maintain. Our patented, in-tank cleanout system is cleaner for the operator, more efficient, and faster than other models. Don’t use just any old vacuum … “Make it a Mac.” McLaughlin vacuums are available exclusively at your local Vermeer dealer. Anything else is just an old-school vacuum. s MIGHTYMOLE COM VACUUMS
Eastern / Central USA 921 S. Burleson Blvd., Burleson, TX 76028 800-666-6567 Fax : (817) 447-8917 Western USA 19020B S.W. Cipole Rd., Tualatin, OR 97062 800-444-7064 Fax : (503) 692-0474 E-mail: sales@wagnersmithequipment.com Burleson, TX Dayton, OH Tualatin, OR Lawrenceville, IL Sanford, FL Phoenix, AZ Ontario, CA wagnersmithequipment.com wagnersmithequipment.com NOW BUY OR RENT POWERLINE CONSTRUCTION EQUIPMENT ONLINE! Get All The Lineman Tools & Equipment You Need ... Online! • Everything you need for powerline and telecommunications line work • Over 1000 high quality lineman tools and products • Heavy-duty stringing blocks • Most in stock and ready for fast delivery • Backed by 85 years of industry experience
2nd Quarter 2011 Officer Directors Official Publication of the Power & Communication Contractors Association Board of Directors David Aubrey Okay Construction Robert Breeden ElectriCom, Inc. Tony Briggs Vermeer Manufacturing Ed Campbell Henkels & McCoy, Inc. James Dillahunty Henkels & McCoy, Inc. John Fluharty Mears Group, Inc. Matthew Gabrielse Gabe’s Construction Co., Inc. John Hale John Deere Jerrod Henschel Michels Corporation Kevin Mason ElectriCom, Inc. Robert Orr Sherman & Reilly, Inc. Larry Pribyl MP Nexlevel, LLC Rob Pribyl MP Nexlevel, LLC Brad Radichel Condux International Lindsley Thulin Michels Corporation Ron Tagliapietra Michels Corporation Matt Trawick Trawick Construction Co., Inc. Bryan Westerman MasTec, Inc. Publication Staff Publisher Timothy Wagner twagner@pccaweb.org Associate Publisher Cheryl Stratos stratosc@pccaweb.org Editor Michael Ancell mancell@pccaweb.org Advertising Sales Manager Victoria Geis vgeis@pccaweb.org Poison or Nourishment? Why Quantitative Easing Demands That Utility Contractors Hedge Their Risk Today 11 By Mark Bridgers Fearing continued economic stagnation and high unemployment, the Federal Reserve recently announced a policy of “Quantitative Easing” as a panacea for these ills. Many contractors wonder how this policy will affect their ability to profitably construct a client’s capital assets. What is certain is that inflation will increase, the dollar will depreciate in value, and commodity prices will increase dramatically. Unprepared utility contractors will be punished by these environmental changes in 2012 and beyond. DOT and Medical Marijuana 21 By Brandon G. Phillips It’s something all companies and governmental agencies that employ drug testing are handling with kid gloves: medical marijuana. The consequences of an employee using medical or any other mood- or mind-altering drug are different for each company, but they can be severe. PCCA in the Florida Keys: Hot Times, Hot Topics 25 Looking for the latest information on industry issues, in-depth training on important topics, and a fantastic time in the Florida Keys, more than 300 industry professionals and their families convened at the renowned Ocean Reef Club in Key Largo for the 2011 PCCA Convention. Go to page 25 to see all the good times. RDUP News 7 DHS Offers E-Verify Information 19 2011 PCCA Mid-Year Meeting Preview 31 News Briefs 37 Safety News 45 PCCA Member News 47 Industry Calendar 54 Advertiser Index 54 1908 Mt. Vernon Avenue, 2nd Floor Alexandria, Virginia 22301 (800) 542-PCCA • www.pccaweb.org ©2011 Power & Communication Contractors Association President Larry Libla W & L Construction President-Elect Tommy Muse Aubrey Silvey Enterprises, Inc. 1st Vice President Glen Amerine Amerine Utilities Construction, Inc. 2nd Vice President Steve Sellenriek Sellenriek Construction Treasurer Timothy D. Killoren CCI Systems, Inc. Secretary Todd Myers Kenneth G. Myers Construction
VERMEER HELPS MEET YOUR TOUGHEST UNDERGROUND CHALLENGES. Whether you’re facing a tight, congested urban setting or a remote river crossing, Vermeer and our global dealer network will be right beside you. We know the conditions you work in are demanding — it’s why we make equipment that’s up to the task. We offer the industry’s most complete lineup of horizontal directional drills, tooling, and accessories designed to take on your installation challenges. So when it’s tough going out there — look to Vermeer — the trusted name for proven equipment and reliable support. VERMEER.COM Vermeer and the Vermeer logo are trademarks of Vermeer Manufacturing Company in the United States and / or other countries. © 2011 Vermeer Corporation. All Rights Reserved. THIS IS WHERE THE NAME ON THE MACHINE MATTERS MOST. OUR NEWEST HIGH-PERFORMANCE MACHINE. www.vermeer.com
PCCA Journal|2nd Quarter 2011 7 Agriculture Secretary Tom Vilsack in April announced that 10 rural electric cooperatives and utilities have been awarded funding to build or expand transmission and distribution lines and provide smart grid technology to benefit nearly 20,000 rural consumers. A similar announcement in March included eight states and some 24,000 consumers. “This funding will lay the foundation for sustainable economic growth by out-building and out-innovating our competition to build a more robust rural economy,” Vilsack said. “The investments rural electric cooperatives make in infrastructure and smart grid technology highlight the importance of innovation in ensuring a constant and affordable supply of electricity.” The April announcement included loans totaling $376 million, including nearly $14 million in smart grid technology. The funds are being awarded through USDA Rural Development’s Rural Utilities Service to assist electric utilities with upgrades, expansion, maintenance, and replacement of rural America’s electric infrastructure. Smart grid technology, such as advanced metering, can provide data to consumers and utilities to better manage power use and costs. USDA Rural Development also helps fund energy conservation and renewable energy projects. The following is a list of rural utilities that were awarded funding in April, followed by a list of recipients announced in March. Arkansas, Missouri Carroll Electric Cooperative Corporation - $109,406,000. Funds will be used to connect 8,920 new consumers, build 268 miles of new distribution line and 22 miles of transmission line, and make other system improvements. Arizona, New Mexico Navopache Electric Cooperative, Inc. - $49,329,000. Funds will be used to connect 2,640 new consumers, build 93 miles of new distribution line, make improvements to 36 miles of distribution line, and make other system improvements, including $5.8 million in smart grid technologies. Colorado Poudre Valley Rural Electric Association - $43,246,000. Funds will be used to connect 2,069 new consumers, build 54 miles of new distribution line, make improvements to 186 miles of distribution line, and make other system improvements, including $6.7 million in smart grid technologies. Georgia, Alabama, Florida Georgia Transmission Corporation - $75,327,000. Funds will be used for transmission system projects to build 21 miles of new transmission line and three new substations. Kansas Southern Pioneer Electric Company - $30,000,000. Funds will be used to connect 480 new consumers, build 18 miles of new distribution line and 8 miles of transmission line, and make other system improvements, including $825,000 in smart grid technologies. Maryland Southern Maryland Electric Cooperative - $37,000,000. Funds will be used to serve 3,691 consumers, build 155 miles of new distribution line, make improvements to 71 miles of existing distribution line, and make other system improvements. Minnesota Beltrami Electric Company - $9,057,000. Funds will be used to connect 602 new consumers, build 46 miles of new distribution line, make improvements to 56 miles of distribution line, and make other system improvements, including $185,500 in smart grid technologies. Missouri Ozark Electric Cooperative - $10,000,000. Funds will be used to connect 605 new consumers, build 52 miles of new distribution line, and make other system improvements. Missouri, Iowa Grundy Electric Cooperative - $2,000,000. Funds will be used to connect 79 new consumers, build 4 miles of new distribution line, and make other system improvements. South Dakota Dakota Energy Cooperative, Inc. - $10,695,000. Funds will be used to connect 253 new consumers, build 51 miles of new distribution line, make improvements to 255 miles of distribution line, and make other system improvements, including $175,904 in smart grid technologies. March Announcement The March announcement included $442 million in funding. The following is a complete list of rural utilities that have been selected to receive loan guarantee funding. RDUP News RDUP News continued on page 8 USDA Announces Rural Electric Funding to Benefi t Thousands of Residents
PCCA Journal|2nd Quarter 2011 8 Three-quarters of the broadband stimulus-funded projects to create or expand all-fiber networks have now broken ground or are on the verge of doing so, according to a survey report issued in April by the Fiber-to-the-Home (FTTH) Council. The report, prepared for the council by the market analyst firm RVA LLC, estimates that construction has begun on 38 percent of the FTTH projects funded by the American Recovery and Reinvestment Act, while another 36 percent are actively preparing for construction to begin. Most of the remaining projects are in some stage of engineering or environmental impact evaluation. The report also revealed that 7.1 million North American homes are now receiving Internet, video and/or voice services, and meter reading over end-toend fiber networks—up from 5.8 million a year ago—as telecom providers continue to upgrade their last-mile connections from copper to fiber. FTTH networks now pass nearly 21 million homes on the continent, up from 18 million a year ago. RVA President Michael Render said he expected that the recent increase in construction activity by the stimulus-funded projects would mean an overall uptick in FTTH deployments and connections in 2011, with the economic recovery and recent announcements of large FTTH projects in Canada also contributing to the rise. The increase would come after a moderation in the growth rate of FTTH network deployment over the past two years, with the increase in the annual number of new homes passed dropping to about 3 million in 2009 and 2010 after reaching more than 4 million in 2008. Render attributed that to the combined effects of the recession, a slowdown in FTTH network construction by the largest U.S. deployer Verizon as it approached its project targets, and what he called the “unintended consequences of the stimulus legislation.” “We have found in our surveys over the past two years that quite a number of FTTH builds were put on hold while RDUP News Continued from page 7 Florida Talquin Electric Cooperative, Inc. - $45,360,000. Improvements will serve more than 4,000 consumers, build 150 miles of new distribution and four miles of new transmission line, and make system improvements. Glades Electric Cooperative, Inc. - $30,382,000. Funding will be used to serve 1,500 consumers, build 688 miles of new distribution line and one mile of transmission line, and make system improvements. Georgia Altamaha Electric Membership Corporation - $10,000,000. This project will serve over 2,000 consumers and build and improve 417 miles of distribution line. Louisiana South Louisiana Electric Cooperative Association - $19,777,000. Funding will benefit over 1,800 consumers, build 16 miles of transmission line, improve 30 miles of distribution line, and make other system improvements. Pointe Coupee Electric Membership Corporation - $11,618,000 Serve 1,500 consumers, build 33 miles of transmission line, and improve 24 miles of distribution line. Concordia Electric Cooperative, Inc. - $13,182,000. USDA funding will benefit 4,000 consumers, build 111 miles of transmission line, and improve 40 miles of distribution line. Minnesota South Central Electric Association - $14,000,000. Serve 160 consumers, build and improve 219 miles of distribution line, and make other system improvements. Missouri Osage Valley Electric Cooperative Association - $17,150,000. This project will serve 1,240 consumers, build and improve 191 miles of distribution line, and make other system improvements. Gascosage Electric Cooperative - $6,500,000. Funding will be used to benefit 700 consumers, build and improve 73 miles of distribution line, and make other system improvements. North Carolina South River Electric Membership Corporation - $22,000,000. This project will benefit 3,100 consumers, build and improve 190 miles of distribution line and make other system improvements. South Carolina Edisto Electric Cooperative, Inc. - $25,000,000. Funds will be used to serve 3,400 consumers, build and improve 301 miles of distribution line, and make other system improvements. Texas Swisher Electric Cooperative, Inc. - $5,200,000. Funding will serve almost 1,000 consumers and build and improve 181 miles of distribution line. Texas and Louisiana Northeast Texas Electric Cooperative, Inc. - $91,000,000. This funding will be used to help acquire portion of ownership interest in Harrison County Power Plant. East Texas Electric Cooperative, Inc. - $131,000,000. This funding will be used to help acquire portion of ownership interest in Harrison County Power Plant. Report Says FTTH Stimulus Projects Now Moving Forward
PCCA Journal|2nd Quarter 2011 9 the stimulus program was sorted out and the network operators got a clearer picture on whether their projects would be funded,” Render said. “But of course that is all behind us now and our latest survey results are indicating that most FTTH projects are now going full speed ahead.” RVA estimates that there are more than 770 entities now providing FTTH services in North America, 61 percent of which are small and mid-sized independent telephone companies. Another 13 percent are competitive broadband providers, 11 percent are municipalities or public electric utilities, 10 percent are associated with real estate developments, and 4 percent are cable television providers. In its survey, RVA also found that 70 percent of FTTH providers said they are “very likely” to continue to build out their FTTH networks to reach more subscribers. Many New Offerings The RVA report also said that FTTH providers are beginning to more aggressively differentiate their internet offerings from DSL and cable modem competition with high-speed offerings that are often the same upstream and downstream. These include a number of providers that now offer symmetrical 100 megabit service, while EPB in Chattanooga, Tenn., has become the largest internet service provider in North America to offer 1 Gigabit symmetrical service. Recently, the internet giant Google announced that it would build an FTTH network providing 1 gigabit connectivity in Kansas City, Kans. “Given the enormous and widespread interest we are seeing in next-generation connectivity, it is not surprising that, as the recession fades, telecommunications providers across North America are resuming their onward march toward all-fiber access,” said FTTH Council President Daniel O’Connell. “With emerging HD video, 3D video, and other applications in areas like tele-health, distance learning, and cloud computing, most telecom providers recognize that they will have to upgrade to FTTH in order to keep pace with the ever-increasing consumer demand for more bandwidth.” RVA surveys all types of North American FTTH providers and potential FTTH providers throughout the year and has conducted more than 360 interviews thus far in 2011, including interviews with more than 50 providers who received an ARRA stimulus grant specifically for FTTH projects. EECI10208-S01-01 BRON logo is a registered trademark of RWF Industries • Static or Vibratory • 84” (213 cm) Plow Depth • Left/Right Offset ADD-ONUTILITY PLOWS GET UNDERWAY
astecunderground.com When you need powerful performance, Astec Underground provides the answers. For the complete line of Astec Underground products, visit www.astecunderground.com Wh d W f l f werful performance 7+( $67(& '' 7+( $67(& 57 Get the Astec 357 Protection Plan on the DD-4045, all C Series drills and the new line of Astec trenchers. One more reason customers choose Astec with confidence.
PCCA Journal|2nd Quarter 2011 11 Fearing continued economic stagnation and high unemployment, the Federal Reserve recently announced a policy of “Quantitative Easing” as a panacea for these ills. There is broad diversity of opinion about whether using $600 billion to purchase bonds will work, even among the Federal Reserve System’s Board of Governors. “[Quantitative easing] won’t push inflation to ‘super ordinary’ levels,” said Ben Bernanke, Federal Reserve System Board of Governors Chairman, on November 3, 2010. “The Federal Reserve is not a repair shop for broken fiscal, trade or regulatory policies. Given what ails us, additional monetary policy measures are, at best, poor substitutes for more powerful pro-growth policies,” said Kevin Warsh, Federal Reserve System Board of Governors Member, on November 8, 2010. Many utility contractors wonder how this policy will affect their ability to profitably construct a client’s capital assets. What is certain is that inflation in the U.S. will increase, the dollar will depreciate in value, and dramatic commodity price increases will take place. Unprepared utility contractors will be punished by these environmental changes in 2012 and beyond. Federal Reserve System The Federal Reserve controls the interbank borrowing or federal funds rate and pushed this rate down to essentially 0 percent. This rate is the cost for reserve system member banks to borrow funds and in theory lend these amounts to individuals and businesses. Exhibit 1.1 displays a 40-year period covering seven recessions and comparing the federal funds rate to one measure of inflation (CPI) and the U.S. unemployment rate. At essentially 0 percent, the federal funds rate is much lower than it has ever been during this 40-year period, and both inflation and unemployment are at their historical extremes. A low federal funds rate traditionally boosts economic growth, but in this case, it has not sparked a higher growth rate or reduced unemployment. This federal funds rate indirectly affects interest rates that utility contractors pay for financing through lines of credit, debt, or corporate bonds. It is, however, related. When the federal funds rate goes down, the interest rates these firms will pay for various forms of credit can fall. The Federal Reserve effectively steps on the brake or accelerator for the economy with this tool. Long-Term Credit Markets Adjustments to the federal funds rate tend to have low impact on the cost of longer-term forms of credit like treasury and corporate bonds. The interest rate or cost for these credit instruments are more directly tied to longer-term economic risks faced by both the borPoison or Nourishment? Why Quantitative Easing Demands That Utility Contractors Hedge Their Risk Today! By Mark Bridgers Continued on page 12 Exhibit 1.1 40 Year Comparison of Recessionary Periods to Federal Funds, Infl ation (CPI), & Unemployement Rates Source: U.S. Department of Labor, Federal Reserve, compiled by Mark Bridgers
PCCA Journal|2nd Quarter 2011 12 rower and lender. This explains in part why some fall in longer-term rates has occurred but they are still within historic ranges, particularly for long-term treasury and corporate bonds. Exhibit 1.2 presents the coupon rates for 1yr, 10yr, and 30yr treasury bonds over the past 40 years. Both 10yr and 30yr bonds are at the low end of their historic range, while 1yr treasury bills are at unprecedented low rates. Since December, the rates on the 10yr and 30yr instruments have trended slightly up rather than down. Another way to look at how investors are anticipating market risks to rise or fall is to prepare a yield curve comparison. Exhibit 1.3 depicts the yield curve for treasury bonds as of December 30, 2010, for maturities ranging from 1-month to 30-years. This particular yield curve is classified as a “normal” yield curve reflecting an expectation of increasing risk meriting higher yield or return as the term lengthens. The intervening months since December have results in no yield curve shape change. Quantitative Easing as Alchemy? Given that there is little more that the Federal Reserve can do with interbank borrowing rates, it has moved to a policy of quantitative easing. The Federal Reserve is going to essentially create the $600 billion necessary to implement this policy either by crediting the accounts of banks and brokerages from which it buys securities or the printing of currency through the treasury. The net effect of either approach is the same, placing more currency into circulation. This is manufactured demand for bonds and an increase in the money supply. The first round of $75 billion was undertaken in November 2010, a second round of the same amount occurred in December 2010, and subsequent monthly expenditures are expected through June 2011. Over this implementation timeline, the intended result is a more Quantitative Easing Continued from page 11 Continued on page 14 Exhibit 1.2 1 Year, 10 Year, and 30 Year Bond Coupon Rates Source: Federal Reserve, compiled by Mark Bridgers
PCCA Journal|2nd Quarter 2011 14 direct lowering of the long-term rates for bonds, as higher rates are not necessary any longer to attract the dollar investment. In reality, longer-term rates rose between December 2010 and April 2011. The additional liquidity in the markets may have finally had an effect as May 2011 has finally seen a fall in these longer-term rates. The addition of $600 billion in new liquidity injected into the system will result in more money sloshing around with the hope it will get the economy growing at a higher rate resulting in additional jobs to drive down the unemployment rate. We have yet to see the impact in either economic growth or widespread reduction in unemployment. What is taking place is similar to a chemistry experiment. The Federal Reserve is going to pour a catalyst, the $600 billion dollars, into a liquid, the economy, and see what happens. We already know that this catalyst will cause a chemical reaction; we just do not know if the $600 billion is enough catalyst to cause an observable or visual reaction—higher economic growth rates and more jobs. While the $600 billion is applied, there will be vigilant observation of the economy to see what happens. If little is observed over some time period, a decision about additional expenditures and pouring more catalyst into the economy will be made. The problem with this approach is no one can really know how much catalyst is necessary to have a visual reaction nor how long to wait to observe this reaction. Therefore, it is more likely we will get the mix wrong as there are many more wrong answers than there are right ones. If the Federal Reserve is wrong on the toomuch-catalyst side, we will experience high inflation, and if we are very wrong, potentially hyperinflation. There are nearly 20 recent examples of hyperinflation over the past 50 years around the globe.1 Several notorious devaluations are briefly described below: • Argentina 1975-1991. Suffered three rounds or printing progressively larger denomination bills finishing with a 1,000,000 pesos denomination. Three rounds of currency reform were implemented to drive down inflation. The overall impact of hyperinflation: 1 (1992) peso = 100,000,000,000 pre1983 pesos. • Brazil 1986-1994. The base currency unit was adjusted three times concluding with a currency reform and adoption of the real in 1994. The overall impact of hyperinflation: 1(1967) cruzeiro = one trillionth of a U.S. cent in 1994, including a single-year record of 2075.8 percent inflation. • Germany 1923. The highest denomination of the German mark increased from 50,000 to 100,000,000,000,000 in a span of 15 months. A currency reform in 1923 helped stem hyperinflation and linked the value of the currency to the U.S. dollar.2 • Israel 1971-1985. Inflation rose from 13 percent in 1971 to 111 percent in 1979, to 133 percent in 1980, 191 percent in 1983, and then to 445 percent in 1984, threatening to become a four-digit figure within a year or two. A 1985 currency reform, price freeze, and other measures finally stabilized the currency in 1986, reducing inflation to 19 percent for the year. • Yugoslavia 1989-1994. The highest denomination in 1988 was 50,000 dinars inflating to 2,000,000 dinars in 1989. Five separate currency reforms in 1990, 1992, 1993, 1994, and 1995 finally brought inflation under control. The overall impact of hyperinflation: 1 novi dinar = 1 × 1027~1.3 × 1027 pre-1990 dinars. Yugoslavia’s rate of inflation hit 5 × 1015 percent cumulative inflation over the time period 1 October 1993 and 24 January 1994. What Will It Mean to Utility Contractors? The bond markets already anticipate higher inflation rates over the long-term. Recent rises in oil and other commodity prices are precursors to a more competitive and volatile environment. Devaluation of the U.S. dollar has already started and is impacting some commodity prices. Uncertainties primarily revolved around the speed of economic recovery, growth, and employment rates in the U.S. There are three certainties utility contractors will face: 1) increasing inflation in the U.S., 2) devaluation of the dollar outside of the U.S., and 3) commodity price increases. All three will punish U.S. centric firms operating in what is likely to be a slow-growth U.S. economy. Inflationary Pressure Increasing The likelihood of the U.S. experiencing hyperinflation, defined by the International Accounting Standards Board as greater than 25 percent annually, is low. The likelihood the U.S. will experience inflation at a rate higher than our recent history is very high. Roughly speaking, the U.S. has experienced annual inflation of less than 5 percent for essentially the last 30 years starting in the early 1980s (Exhibit 1.1). Prior to that point, the late ’70s and early ’80s, the U.S. experienced much higher inflation than this level, and for several periods it approached or exceeded 10 percent. From a current economic standpoint, all of the factors Quantitative Easing Continued from page 12 Continued on page 16 A good catalyst needs to adsorb the reactant molecules strongly enough for them to react, but not so strongly that the product molecules stick more or less permanently to the surface. BaCl2 (aq) + Na2SO4 (aq) J 2 NaCl (aq) + BaSO4(s)
PCCA Journal|2nd Quarter 2011 16 Quantitative Easing Continued from page 14 that are likely to cause inflation currently exist, and if they are not unwound in the next 12 to 36 months, the U.S. will enter a period of higher inflation. In point of fact, the quantitative easing policy is intended to create inflationary pressure to stave off the threat of economic stagnation, defined as a very low growth rate of 1 percent or less. Policymakers at the Federal Reserve currently fear stagnation to a greater degree than they see future inflation as problematic. Two examples of inflationary expectations can easily be found. First, a recent auction of inflation-adjusted securities sold at an anticipated negative return. This negative return is an overpayment for the face value of the security, like buying a $10 bill for $11. The buyers of these securities anticipate that the inflation adjustment mechanism of these bonds will be utilized in the future and result in higher interest payments. Essentially, investors expect to earn the negative return back with these higher interest payments over time. If inflation at higher rates does not come to pass, investors will simply have paid too much for these bonds, again like buying a $10 bill for $11. “The Treasury sold $10 billion of fiveyear Treasury Inflation Protected Securities at a negative yield for the first time at a U.S. debt auction as investors bet the Federal Reserve will be successful in sparking inflation.” [Footnote3] The second is the credit-default swap market where activity volumes have spiked since November of 2010. “Plenty of investors are concerned about the potential impact of the Federal Reserve’s monetary policies and inflationary pressures on Treasury bond yields. Treasuryrelated default swap contracts worth nearly $1.4 billion changed hands in the two weeks ended January 21, 2011, according to the Depository Trust and Clearing Corporation—two-and-a-half times the average activity over the previous six months. The surge in activity points to an intensifying investor perception that the possibility of government default can no longer be completely dismissed.”4 The likelihood of U.S. default on existing debt is exceptionally remote, but the increase in trading activity in instruments that hedge against a potential default speaks to the shifting perceptions of the creditworthiness of the U.S. government. U.S. Dollar Devaluation Transactions or purchases denominated in dollars for goods or services created outside of the U.S. will result in the makers of these goods or services demanding more dollars for their efforts as the value of the dollar will fall in relative terms to their home currency. Exhibit 1.4 displays the value of the U.S. dollar as measured in Euros, and since the implementation of the quantitative easing policy took place on November 3, 2010, the U.S. currency has lost value in comparison to the Euro. The British Pound Sterling has followed a similar trajectory. Closer to home, the Brazilian Real and Canadian Dollar are also appreciating against the dollar, eroding the purchasing power of the U.S. currency. Since December 2010, the pace of appreciation has accelerated for each of these currencies. Overall, devaluation of the dollar makes U.S. exports more cost competitive and attractive as well as making imports to the U.S. more expensive. Many construction commodities, particularly lumber, copper, oil, and petrochemical products, are imported or internationally sourced through transactions denominated in dollars.
PCCA Journal|2nd Quarter 2011 17 Commodity Price Increases The quantitative easing policy will have an immediate effect on the cost of construction commodities. Oil, copper, and lumber are three examples that began increasing in cost during 2010 and have accelerated since November in part due to the change and anticipated change in the value of the dollar. The Economist on January 15 pondered, “Given that the global recovery is at a very early stage, do high prices indicate that the world faces significant supply constraints... for years to come...prolonged inflation... tighten[ing] monetary policy...speculative activity in the futures market?”5 Changes in commodity, material, and equipment costs will obviously impact construction budgets. In the vast majority of cases, utility and industrial owners constructing capital assets over the previous two years have observed savings on construction spending primarily related to lower commodity, materials, and equipment costs rather than somewhat lower labor or construction labor costs. In Exhibit 1.5, the drop in lumber prices beginning in 2006 and the drop in steel and non-ferrous metal (copper, etc.) pricing since 2008 is obvious. Not shown in the chart, the high point of pricing for steel, nonferrous metal, and lumber after 2006 to the low point that occurred in 2009 or 2010 is in excess of 40 percent, 60 percent, and 30 percent reduction respectively. “Higher pricing may cause a surge in head line inflation but their main effect will be to act as a tax on consumers”6 of these commodities. Industrial and utility owners, and the contractors that work for them, are among the biggest consumers of construction commodities. Benefits accrued over the previous two to four years will be eroded through this “tax” over the coming 24 to 36 months through rising commodity prices. These owners are unlikely to succeed in simply pushing all of this risk onto the contractors or vendor community while commodity prices are likely to be both highly variable and rising over the coming 24 to 36 months. Both lumber and non-ferrous metals are already experiencing increased pricing that is anticipated to accelerate. Actual results since December 2010 have shown just this type of acceleration, with steel and non-ferrous metal particularly exhibiting rapid increases. Conclusions The old quip “a stitch in time saves nine” offers some insight into the window of opportunity facing U.S. utility contractors as they plan for and mitigate three risks: • U.S. inflation • Devaluation of the U.S. Dollar • Commodity price increases With these certainties are a host of relative uncertainties associated with the policy of quantitative easing. Utility contractors will be forced to navigate these challenges and search for real opportunities to eliminate or mitigate the risks faced. Four initial recommendations are appropriate for nearly every utility contractor to begin the process of mitigating the risks faced and creating accessible opportunities. • Hedging: Mitigate downside risk in fuel, interest rates, and commodity materials. ◆ Fuel, interest rates, and under certain conditions commodity materials offer multiple opportunities to mitigate both price increases and variability. Continued on page 18
PCCA Journal|2nd Quarter 2011 18 • Control Cost Content: Understand and forecast your cost content for both materials and labor at the company and project level. ◆ Create a full and complete understanding of both, what and how much material, equipment, and labor you are or anticipate buying or using for projects or potential projects. • Leverage Your Spend: Build closer relationships with your customers, distributers, and critical subcontractors to jointly leverage your spend and mitigate or eliminate the risks all these stakeholders jointly face. ◆ Building closer relationships offers the opportunity for all parties to achieve both higher value and risk reduction, primarily through highervolume purchases that allow for leverage, pricing discounts, and the sourcing of alternative materials/ equipment to mitigate commodity risk. This type of collaborative relationship is one that few utility contractors have nourished with distributors or other stakeholders. • Create Local Connections: “Think Globally and Act Locally.” ◆ At the local level, where all construction takes place, contractors must identify the labor resources, crew leaders, and trade subcontractors who bring the tightest control of their labor and equipment to the jobsite. If these resources are external, it is critical to establish long-term, mutually beneficial relationships with them to drive performance improvement in the execution of construction. We refer to these more collaborative relationships as an “Extended Enterprise.” If they are internal, effective promotion, incentive compensation, recognition, and performance management are necessities to motivate these individuals. Looking beyond the tactical options available to the typical utility contractor, understanding the global drivers of change is critical. One example is the perspective of the U.S.’s banker. While this writer places little faith that the Chinese governmental authorities have the best interests of the U.S. at heart, their perspectives on the quality of U.S. government debt are relevant as they are currently the largest debt holder. The Chinese ratings agency, Dagong, scorned quantitative easing as “a practice resembling drinking poison to quench thirst.... In essence the depreciation of the U.S. dollar adopted by the U.S. government indicates that its solvency is on the brink of collapse.”7 Federal reserve policy, industry regulation, financial and banking reform, and most importantly, a return to robust economic growth in the U.S. will all dictate whether the U.S. is consuming “poison” or nourishment. All in all, the quantitative easing policy is very complicated to explain, difficult to implement effectively, and speculative as there is only limited insight into the likelihood of the potential outcomes. Prudent contractors and owners will take action today and ensure they make a “stitch in time.” Mark Bridgers is a principal with Continuum Advisory Group, specializing in driving transformation of the capital construction process. He can be reached at (919) 345-0403 or mbridgers@ ContinuumAG.com. NOTES 1. HyperInflation, Wikipedia, http:// en.wikipedia.org/wiki/Hyperinflation, downloaded on January 2, 2011. 2. Bresciani-Turroni, Costantino, The Economics of Inflation, A Sir Halley Stewart Publication, 1931. 3. Eddings, Cordell, and Kruger, Daniel, Treasury Draws Negative Yield for First Time During TIPS Sale, Bloomberg, October 25, 2010. 4. Swann, Christopher, and Crane, Agnes T., The Default Bet, New York Times, February 1, 2011, pg. B2. 5. The Economist, Buttonwood: Material Concerns, Commodity prices are surging at a very early state of the cycle, January 15, 2011, pg. 82. 6. Ibid. 7. LU, Sinan, and DU, Mingyan, Surveillance Report for Sovereign Credit Rating The United States of America, November, 2010, pg. 8 Quantitative Easing Continued from page 17 Relative Certainties Relative Uncertainties Increasing U.S. inflation starting in 2012 Will 2012 yield job growth that drives down unemployment? Volatile and rising construction commodity prices for 2011 and first half of 2012 Can commercial properties secure refinancing in 20112014 and avoid a second foreclosure crisis? Devaluation of the U.S. dollar reducing the buying power of U.S. centric firms Will a combination of U.S. deficits and debt unleash a disruptive impact on the economy or financial markets? Lower U.S. financing cost during 2011 for qualified utility contractors and their customers Can utility contractors successfully mitigate significant commodity price increases via better contracting, internal process improvement, and material substitution? Increasing financing cost in 2012 and 2013 in response to inflation How will regulation and energy efficiency requirements affect design, construction, and life-cycle cost performance of utility assets? Increasing competition for U.S. firms for resources of all types from high growth economies of Brazil, China, India, and the Middle East At what point will higher financing cost impact facility size, geographic location, and go/no go decisions strangling utility demand for capital asset construction? Very slow job growth in 2011 resulting in unemployment unlikely to fall below 8 percent Will social and political disruptions result in more or less economic stability?
PCCA Journal|2nd Quarter 2011 19 Now is the ideal time to ensure that employers and employees understand the E-Verify and the federal employment eligibility verification processes. E-Verify is a fast, free, and easy-to-use internetbased system run by the Department of Homeland Security (DHS) that allows employers to verify the eligibility of their newly hired employees to legally work in the United States. All United States employers are already required to complete and retain a Form I-9—the “Employment Eligibility Verification” form—for each person they hire in the United States. That includes citizens and non-citizens. E-Verify takes the Form I-9 process one step further. It compares information provided on a Form I-9 against information in government records. In most cases, E-Verify tells the employer in just seconds if an employee is eligible to work in the United States. E-Verify isn’t a database, but simply a secure way for employers to check a new employee’s employment eligibility information against existing records in the Social Security Administration, DHS, and the State Department—depending upon which form of identification the employee presents and the employee’s citizenship or immigration status. To use E-Verify, an employer must first enroll online at www.dhs.gov/E-Verify. Employers complete a basic registration application, then must take a tutorial and pass a test before being granted access to the system. E-Verify users give the signup process a high score and rate the program as fast and easy to use, according to a recent American Customer Satisfaction Index survey. For example, E-Verify cannot be used by employers in a discriminatory way, such as only checking some employees but not others. Employers may not use E-Verify to prescreen job applicants. Also, employers may not take any adverse action against an employee, including firing or delaying the employee’s start date, who is in the process of resolving an initial mismatch. According to survey results, most employers are confident in E-Verify’s accuracy. Also, users are likely to use E-Verify in the future and recommend it to others. DHS conducts free, live webinars about E-Verify that can be attended without ever leaving the office. The 90-minute webinars include a demonstration of E-Verify and an opportunity to ask questions. By the end of the webinar, employers will have a good understanding of E-Verify. DHS also offers Form I-9 webinars. E-Verify is currently used by more than 233,000 employers and is growing rapidly, with more than 1,400 new businesses enrolling each week. For most employers, using E-Verify is voluntary and limited to verifying new employees only. Since September 2009, E-Verify is mandatory for many federal contractors. Visit the E-Verify web pages for more information and follow E-Verify and Form I-9 on Twitter @USCIS. Assistance from USCIS To help employers better understand the Form I-9 process, the U.S. Citizenship and Immigration Services (USCIS) recently issued a revised Handbook for Employers: Instructions for Completing Form I-9. The handbook (Rev. 01/05/11) is available in the Form I-9 page of www.uscis.gov and in the publications section of www.dhs.gov/E-Verify. The handbook, also known as the M-274, is the official guide for the Form I-9 process. Some of the many improvements, new sections, and tools included in this revision are: • New visual aids for completing Form I-9 • Expanded guidance on lawful permanent residents, refugees and asylees, individuals in Temporary Protected Status (TPS), and exchange visitors and foreign students • Expanded guidance on the processing of employees in H1-B and H2-A status • Expanded guidance on extensions of stay for employees with temporary employment authorization • Examples of new and revised documents issued by USCIS • Guidance on Native American tribal documents • Electronic storage and retention of Forms I-9 • Updated answers to frequently asked questions DHS Offers E-Verify Information for Employers NOTE: This information was provided by the U.S. Department of Homeland Security. Francine Hill, DHS deputy chief of the Outreach Branch, Verification Services, spoke at the recent PCCA convention and urged association members with any questions or issues to contact her at francine.hill@dhs.gov.
PCCA Journal|2nd Quarter 2011 21 It’s something all companies and governmental agencies who employ drug testing are handling with kid gloves: medical marijuana. The consequences of an employee using medical or any other mood or mind altering drug are different for each company. In a recent online article posted on the Society of Human Resources Management website, Portland, Ore., employment attorney Richard Meneghello made several valid points about observing employees to assess impairment. He also pointed to a frightening 1985 Stanford University study. In the study, airline pilots consumed a low-grade marijuana cigarette before entering a flight simulator. The flight simulator involved a stressful scenario, and the test resulted in numerous crashes. Although all the pilots reported no residual effects of the drug the next day and had no reservations about flying, they crashed the simulator again. “As long as there’s information like that out there,” Meneghello said, “employers aren’t going to be interested in climbing the slippery slope between an employee’s condition within five seconds, 24 hours, or two weeks of ingestion—all it takes is one catastrophe.” Recently, the Department of Justice (DOJ) issued guidelines for federal prosecutors in states that have enacted laws authorizing the use of medical marijuana. But the Department of Transportation (DOT) has its own ideas on the matter. Director of the Office of the Secretary of Transportation, Office of Drug and Alcohol Policy and Compliance Jim L. Swart’s message is clear: DOJ guidelines will have no bearing on the DOT’s regulated drug-testing program. In a public letter posted on the DOT website, Swart addressed the issue. “We have had several inquiries about whether the DOJ advice to federal prosecutors regarding pursuing criminal cases will have an impact upon the Department of Transportation’s longstanding regulation about the use of marijuana by safetysensitive transportation employees—pilots, school bus drivers, truck drivers, train engineers, subway operators, aircraft maintenance personnel, transit fire-armed security personnel, ship captains, and pipeline emergency response personnel, among others,” he said. “We want to make it perfectly clear that we will not change our regulated drug testing program based upon these guidelines to federal prosecutors.” The DOT’s Drug and Alcohol Testing Regulation—49 CFR Part 40, at 40.151(e)—does not authorize medical marijuana under a state law to be a valid medical explanation for a transportation employee’s positive drug test result. Medical Review Officers will not verify a drug test as negative based upon information that a physician recommended that the employee use medical marijuana. Marijuana, medical or otherwise, remains a drug listed in Schedule I of the Controlled Substances Act. This renders it unacceptable for any safety-sensitive employee subject to drug testing under the DOT’s drug testing regulations to use marijuana in any form. “We want to assure the traveling public that our transportation system is the safest it can possibly be,” Swart further clarified. Beyond the level of testing, the bottom line is that levels of impairment vary from individual to individual and are hard to prove. Even in cases when those shown not to be impaired have marijuana metabolites in their system, experts say best practices require termination based on a zero-tolerance policy, not actual impairment. In fact, high courts in both California and Oregon have backed up employment decisions in cases where employees tested positive for medical marijuana. The law clearly recognized that the use of medical marijuana doesn’t undercut an employer’s right to dictate drug-use standards for its workforce. Many employers are concerned that applicants and employees with drug or alcohol abuse histories may be protected from discrimination with regard to drug testing under the Americans with Disabilities Act. The law applies to employers with 15 or more employees and while current users of illegal drugs are not protected, alcoholics and recovered drug addicts are. This means that an employer may be required to accommodate employee recovery treatment plans. However, employers and the DOT can breathe a collective sigh of relief. This ADA Act does not prohibit employers from taking action consistent with their policies against individuals who test positive, and drug tests that are compliant with state and federal regulations are not considered medical examinations DOT and Medical Marijuana By Brandon G. Phillips Human Resources Continued on page 22
PCCA Journal|2nd Quarter 2011 22 under the ADA. The Federal Family Medical Leave Act states that while substance abuse might qualify as a serious health condition requiring protected time off from work, employees can’t ask for accommodation or leave after testing positive as a means of avoiding discipline or termination under either regulation. Check your state’s specific rules and guidelines regarding substance abuse to ensure compliance with local regulations. Studies repeatedly prove that actual expenses within a business are reduced when sound drug testing programs are applied thanks to fewer workers compensation claims, fewer injuries incurred on the job, lower worker absenteeism, and increased productivity. Mark A. de Bernardo, executive director of the Institute for a Drug-Free Workplace and an attorney in the Washington, D.C., area office of Jackson Lewis, said a November 2010 ballot initiative in California that would legalize the use of marijuana represented “a reckless retreat in our long-standing—and successful—national policy on substance-abuse prevention” and “would severely compromise employee safety and health.” Taking the issue even further, de Bernardo suggested Proposition 19 may cause multistate employers to decide not to expand in California or perhaps move out of the state, effectively sending jobs overseas. He worries that employers who know the value of having drug-free workplaces and who are impeded in efforts to have drug-free workplaces will relocate or expand elsewhere. The safety risks of marijuana—medical or otherwise—on the job continue to mount. Marijuana today has as much as 10 times the tetrahydrocannabinol content as marijuana in the 1970s and is highly addictive, de Bernardo said at a September 13, 2010, news conference at the National Press Club in Washington, D.C. He reiterated that employees who engage in substance abuse are more than three times as likely to be involved in workplace accidents and five times more likely to be involved in an accident off the job, which affects attendance or performance on the job. And what of employee morale? Other studies have shown that most employees are not drug abusers and have little to no interest in working side-by-side with drug abusers. They recognize the severe workplace safety compromise that is imposed on workers who work near drug abusers, not to mention the statistics that reveal how much less productive drug abusers are than fellow workers. Under ADA Section 1630.16(b), employers are allowed to prohibit alcohol as well as the illegal use of drugs in the workplace. And employees who engage in illegal drug use or who are alcoholics can be held to the same qualification standards for employment, job performance, and behavior as other employees. Moreover, employers with 25 or more employees subject to Department of Defense (DOD) and DOT regulations addressing alcohol and the illegal use of drugs are further allowed to require their employees to comply with these regulations. These regulations permit and in some case require employers to administer drug tests and even remove employees who test positive for illegal drugs from those positions. The DOT is split into six different agencies, but employees covered by the testing regulations generally fall into these categories: • Commercial vehicle operators • Operators of nonrevenue service vehicles, if the job requires a commercial driver’s license • Dispatchers and anyone who controls the dispatch or movement of revenue service vehicles or equipment used in revenue service • Maintenance personnel for revenue service vehicles (except cleaning crews) • Security guards who carry firearms Although no drug-testing system is foolproof, a reputable provider like Global HR Research can help ensure your drug testing program is accurate and reliable. Our company is committed to providing a drug testing program that meets the requirements of a company, taking into account company culture, size and impact on employee morale, and budgetary matters. A full array of screening platforms is available on the Global HR Research website under services. It’s safe to say that with dozens of drug-screening solutions for virtually any type of business, we approach drug screening with anything but a paint-by-number attitude. We understand that with 20 million Americans age 12 and up admittedly using illicit drugs (8 percent of the total U.S. population in that age group), this is serious business. A quick reference listing of what we offer includes customized drug-screening services whereby company officials can order and receive results online (drug tests and exams, urine, saliva, breath alcohol, hair, DOT and non-DOT physicals, wellness, vaccines, and lift tests). In addition, instant, on-site, post-accident and pre-employment testing, random program management, and reasonablesuspicion and return-to-duty testing. Brandon G. Phillips is CEO of Global HR Research, a PCCA affinity partner that provides member discounts and financial support to the association. For more information on DOT’s drug- and alcoholtesting regulations, visit www.dot.gov. For more information on Global HR Research, their drug screening, and other services, go to www.globalhrresearch.com. Human Resources Continued from page 21
RkJQdWJsaXNoZXIy MjE3MDU=