July 2025 Vol. 80 No. 7

Features

Utility & communications construction update

Daniel Shumate, Managing Director, FMI Capital Advisors Inc.  

If you happened to be Rip Van Winkle and fell asleep at the beginning of 2025 and awoke in July, you would have no idea of the volatility that the public markets experienced and the global conflict that occurred in the first half of the year. As it stands, public markets have largely shrugged off global conflict, trade and tariff concerns, and projected U.S. debt increases to hit fresh highs.  

As the third quarter of the year begins, Congress passed Trump’s One Big Beautiful Bill Act (BBB), which I expect to have the largest impact on utility and communication construction through the remainder of the year. There are a few provisions worth highlighting, given their impact on ongoing operations and potential impacts on new construction. 

The first and most applicable to contractors with heavy equipment are the tax incentives for capital investment. BBB reinstates and makes permanent the 100-percent bonus depreciation for qualified equipment. This allows businesses to deduct the full cost of new equipment and machinery from net income, if the equipment is placed in service through 2026. The provision benefits underground utility contractors by lowering tax obligations and encouraging investment in fleet. 

The second area that will have more complex effects is the shift in infrastructure and energy policy. BBB accelerates the phaseout of tax credits for renewable energy projects, with most of these credits ending by 2027. It does retain credits for select energy types including nuclear, geothermal, hydrogen, carbon capture and battery technologies.  

Fossil fuel development is incentivized by reinstating oil and gas development on federal lands and removing some of the regulatory requirements by the EPA to make the projects more cost effective. Additionally, there are investments in more traditional infrastructure (transportation and defense) that frequently have an impact on underground utility construction.  

The full impact of the bill will likely not be felt until later in the Trump administration. However, there are near-term impacts that we would anticipate, including shifts away from new solar and wind infrastructure, toward the incentivized generation and storage infrastructure. I would also expect utilities’ capital investment in new, renewable construction could shift to other priorities, including aging infrastructure and grid hardening.   

UCCI performance & updates

The Utility & Communications Construction Index (UCCI), below, presents the stock performance of the sector’s publicly traded stocks both year-to-date and over the prior three years. In the first quarter of 2024, the UCC Index experienced a greater decline than the broader market, but the UCC Index traded significantly higher than the S&P 500 following the extension of tariff negotiations and passage of BBB (see Figure 1).   

Over the past three years, the UCC Index outpaced the S&P 500, increasing in value by 202.7 percent compared to the S&P 500’s growth of 60.5 percent over the same period (Figure 2). UCC Index volatility is likely to continue as the components of the BBB impact underground infrastructure and tariff negotiations continue. 

Mergers & acquisitions 

The second quarter of 2025 resulted in multiple closed transactions within the utility and communication infrastructure segment. Expectations for the industry remain high (especially for businesses connected to the power industry), and the market shrugged off the DOGE and tariff concerns resulting in markets at near all-time highs.  

Q2 resulted in several high-profile transactions (Figure 4). The first is the announcement by Apollo Global of the PowerGrid Services business acquisition previously owned by Sterling Group. The acquisition further cements the interest of private equity in the power infrastructure services segment of utility infrastructure and creates another platform with substantial capital backing.   

Additionally, Quanta expanded its utility services into the technology, vertically, with the investment in Utilidata. Quanta reports that the investment further diversifies its business of serving the needs of the utility customer by helping to scale “Karman,” a distributed AI platform designed to bring artificial intelligence to the electric grid.  

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