The pathway to an infrastructure bill

One key priority of the Biden administration is to rebuild and reimagine the next horizon of the U.S. economy by investing in new infrastructure, creating well-paying jobs and accelerating the clean energy transition. The American Jobs Plan (AJP) is set to provide a historic level of funding to utilities that could catalyze the next horizon of the industry. The plan could also prepare companies to be “future ready” by building clean infrastructure that will drive pathways to decarbonization for the U.S. economy.

Since the AJP was released by the White House, it has been subject to multiple rounds of negotiations and evolving total funding levels ahead of its’ late September 2021 target for final legislation.

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A timeline of the road to the Bipartisan Plan, including Democrat and Republican spend proposals and month by month activities from March to August 2021.

Caption: Road to bipartisan plan and what comes next

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What’s new: The bipartisan infrastructure framework

In late June 2021, a core bipartisan group of 22 senators (including 11 Republican senators) reached a deal with the White House to spend $973 billion over the next five years—and $1.2 trillion if continued over the next eight years—on a sharpened infrastructure package. This package would fund improvements to roads, bridges, transit, airports and enhanced infrastructure for broadband, water and electric vehicles (EVs). The plan includes nearly $400 billion in expected baseline transportation funding that Congress must regularly renew, along with $579 billion in new spending. Of the new spend, there is $312 billion for transportation projects and $266 billion for other infrastructure needs like water systems, broadband and improving power grids.

There are some important differences between the initial AJP proposal and the latest Bipartisan Infrastructure Framework. Specifically, the $579 billion in new spend has some priorities from the AJP, with historic investments planned for electric infrastructure:

  • $73 billion to upgrade power infrastructure, including building “thousands of miles of new, resilient transmission lines,” in comparison to the AJP proposal of $100 billion. 
  • A $7.5 billion investment in EV infrastructure and another $7.5 billion in electric buses and transit. While lower than Biden’s initial ambition of a $60 billion investment into these two categories, the combined $15 billion still amplifies the administration’s desire to “win the electric vehicle market.”
  • $47 billion in "resilience" projects, in comparison to the AJP proposal to spend $50 billion for infrastructure resilience. “Resilience” is not specifically defined the infrastructure framework, but would likely include projects such as microgrids, cybersecurity and grid hardening.
  • For water utilities, there will be $55 billion for water infrastructure, with an emphasis in replacing lead-based water service lines.

Ahead of the September target for final legislation are still several potential impediments that could further delay or substantially reshape the bill. The most significant is what will become of the Democrat’s recently announced $3.5 trillion top-line spending level for a bill that focuses on more partisan priorities—climate and social services. Democrats don’t expect GOP support for these provisions, and it is an open question whether the Democrats will be able to gather enough support within their own party to pass the second package through budget reconciliation—a maneuver that enables legislation to advance via a simple majority.

Refined guidance for utilities, and some risks to watch

While the utility and adjacent industry-related investments are narrower than the administration’s initial ambitions, there are still substantial opportunities for utilities to advance their growth agenda through stimulus-backed infrastructure—similar to the 2009 American Recovery and Reinvestment Act (ARRA).

The 2009 ARRA continues to provide a good blueprint for how the infrastructure plan might unfold and offers steps utilities could take now. One major lesson learned from this earlier legislation: utilities that were prepared and acted early generally were the biggest winners. These utilities ultimately received funding for their smart meter/smart grid programs and are the foundations of current grid modernization programs.

To maximize impact of the future 2021 infrastructure program (and any companion legislation), utilities should consider activating the following actions now:

  • Track evolution of proposed infrastructure legislation and stimulus: Over the next three months, Congress will be focused on finalizing infrastructure legislation to send to the president’s desk for signature, with funding programs stood up in relevant agencies shortly thereafter (U.S. Department of Energy, Department of Transportation).
  • Build awareness and alignment across the organization: Build alignment across relevant areas such as external affairs, transmission and distribution, customer, finance, and accounting; outline the intersection of the infrastructure plan priorities with the utility’s growth strategy.
  • Build awareness and alignment with community stakeholders: Reach out to state and local officials to align on priorities and develop communication, coordination and support strategies to fully leverage potential investment impact.
  • Develop a “jumpstart” portfolio of potential stimulus candidate projects: Examine the list of projects in the utility’s multi-year asset investment plan (and non-funded aspirational projects) to understand which ones may align well to AJP goals and be candidates for external stimulus vs. those that may be eligible for rate-based investment.
  • Strengthen capabilities needed to deliver future infrastructure projects: These future-state capabilities include capital project management, using automation and AI-enabled technologies to help enhance productivity, and next-generation asset management. With equitable job creation as an explicit requirement of any stimulus-funded projects, utilities should look to identify and activate potential partners that can catalyze local community workforce development.

Finally, there are potential broad market risks that are likely to be further amplified when more than $1 trillion of infrastructure projects is injected into the market. These include the following commodity risks, labor shortages and permitting delays:

  1. Commodity Risks
    • Supply chain repercussions are still being felt from earlier COVID impacts across the industrial supply chain.
    • This has manifested itself in drastically increased prices in steel (+71% since January 2020), diesel fuel (+51%) copper (+30%) and other basic commodities necessary for construction projects.
    • No-regrets steps utilities can take now: For any specialized commodities and technical equipment, they can seek to secure commodity supply agreements and technical equipment early to “get in the queue.”
  1. Labor Shortages
    • The Associated General Contractors of America indicates that 81% of construction firms cannot fill salary and craft positions and 72% view workforce shortages as their biggest obstacle of 2021.
    • 1 million construction workers were laid off in March/April 2020, with many not returning to work.
    • No-regrets steps utilities can take now: Continue to emphasize utility apprenticeship programs to bolster field force and find opportunities for local workforce development programs—particularly those that emphasize disadvantage communities (and are aligned with the Biden administration equity priorities).
  1. Permitting Delays
    • Federally funded projects, especially interstate projects, often require stringent environmental and other permits.
    • Environmental impact statements can take (on average) four years to complete.
    • No-regrets steps utilities can take now: For complex projects such as new electric transmission buildout, begin to lay the groundwork for stakeholder support—state and local leaders, community leaders, labor advocacy groups and clean energy advocacy groups, to mitigate any “not in my backyard” objections.

The utilities industry is on the cusp of an historic level of infrastructure investment that has the potential to serve as the catalyst for its next horizon of growth and enable the utility to activate projects that otherwise would not be fully rate-based recoverable in their jurisdictions. Now, more than ever, there are also significant convergence opportunities with the public sector, automotive companies and communications companies given the types of infrastructure categories being considered (such as end-to-end electric vehicle enablement). Now is the time to act.

Please contact me to find out more and how.

James Mazurek​

Managing Director – Strategy, Utilities, North America

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