Hi, good afternoon, everyone. My name is Chad Dillard. I'm the lead analyst here at Bernstein for the machinery, engineering, and construction sector. Today, I'm really pleased to have Quanta Services joining us. Representing Quanta is Duke Austin. He is the CEO of the company. The way we're gonna run this is gonna be a fireside chat, but I certainly encourage all of you out in the audience to ask your questions. To do so, you can actually access the Pigeonhole link, and then type out your question, and I'll be able to read it on your behalf. Without further ado, let me actually hand it over to Duke to give a brief overview of Quanta, then we'll dive into questions.
Thanks, Chad. Thanks for having us. Quanta, basically, when you think of where we sit in the energy transition and who we are, we're in three segments. Our renewable segment, electric segment, and underground segment. With that said, I think we play, you know, the core to us would be craft skill labor. We bolt on technology, engineering capabilities, really a flip to, you know, construction-led type organization that provides solutions to the transition, utility backed, with about 60% of our spend, our sales come from utilities, regulated type utilities.
We made a large acquisition last year, a year and a half ago, which would provide a balance of plant, wind, and solar. We've traditionally been the interconnections thereof, with utilities, and then driving the industrial segment towards the transition. I think we play roles in across the pendulum of the transition, and gives us a different viewpoint. The infrastructure piece of this, I think is vitally important. That's the role we play with our clients in a collaborative manner.
Excellent. Duke, I want to take us through a couple themes. First of all, addressing, like, the mega trends, maybe some Quanta-specific opportunities, and then maybe, you know, talk about some of the downside risks potentially, you know, what will limit, you know, what could potentially limit growth over the future. Just like starting off with mega trends, maybe you can talk about how the transition EV is gonna impact the demand for grid infrastructure, and the role that Quanta will play in enabling that part of the energy transition.
Yeah. I think electric vehicles is probably the most unknown as far as what it does to the distribution system of electric utility or anything for that matter. There's two ways that we play in that. One would be, we've had a partnership with Navistar recently on, when you think about bus depots or truck fleets, how do we charge them? If you take every over-the-road truck and you turn it into battery trucks, it's 14% of the load today. How do we charge that load? It takes a lot of planning. It takes substations at times, it takes transmission systems at times, depending on what you're trying to charge. I think those things and that planning process, we're doing it for our own fleet.
As we do it for our fleet, obviously we would do it for others. That said, behind that is the whole grid. When you start penetrating with GM and Ford and others going towards this, you know, battery vehicle at mass, at scale, which you're seeing, that transition on every single house, if you're charging at home, which most will, that creates a load, and that demand becomes too much for the system to handle. The infrastructure behind it, I believe is probably the most unknown, and I believe it's $ trillions that will. If we stay the pace we're at, the requirement behind it, and how do we, as an industry, make sure that we educate the regulators and educate the end user on the demands that will require?
We can't say Ford, GM, and have federal policy pushing that, Tesla, pushing that, while the industry says, "Hey, we can't charge your vehicle." It won't work. I do believe we have a finite amount of time to start that planning process, and then start building out the infrastructure necessary underneath to handle, not only just chargers, but even high voltage, high density chargers. I think that's really, really important when you think through it. Those high density chargers are even more impacted to the system. The system load at a distribution level will certainly be something that we're in front of.
Got it. Let's, let's actually just, like, focus on California, for example, right? I think there was either early this year or last year, some commentary coming out, talking about, you know, ending internal and combustion engine sales, I think it's by like, 2035. Maybe you can, like, walk backwards. Let's say, you know, 2035 is the stop date. You know, when do you actually need to see, like, that construction get started? When do you need to actually start seeing, like, the planning? Just, like, walk us backwards for, like, how to think about the timeline from that kind of terminal date.
Yeah, I think, you know, you should be planning now. Your long-term plan as a utility, the problem, it's inputs that you put into the plan. When the manufacturers are giving inputs, but they're exceeding the inputs, or whoever's telling you something's gonna happen, or temperatures matter, or what's the temperature? You got to stress test the grid towards failure. I think those things, when you start planning for it, even in California or everywhere else, you're starting to see those impacts. When you're seeing, you know, $100 billion budgets come out of one utility, I think that's the kind of magnitude you're gonna see. I honestly think it's plus, that's start.
That impact over time, we need to start today, really getting our heads around how do we get the system ready in a systematic way for that impact? It's coming, and we know it is. How quickly is always, is it a 20-year build, a 25-year build, a 30-year build? There's no doubt it's coming our way, just how quickly do we... You used to be able to think about it, you know, most Teslas were expensive, so I pretty much knew what part of California they were going in.
When you start to get a $30,000 car, eventually, I'm sure Tesla will get there or someone, GM, Ford, will get there, and you get a rebate against it from federal government, it's policy that pushes that EV to an area that the grid can't handle. That's the issue, is updating the whole grid to handle a $20,000 car. It's gonna be punitive to go to the pump. It's gonna be total cost of energy. How do we get there? How do we think through EV penetration? I think, you know, while we can handle it on a macro level, people talk about it all the time in a macro way.
Yes, you can invert batteries back into the grid. I do understand that. You got to charge it the first time. Get the generation right, you'll get it right. Eventually, we'll get there. It's not as hard as that. It's like last mile fiber. We're still in the last mile fiber today as a country. You might get away with your TV being a little slower, your internet being a little slower. I doubt you'll get away with your car not working.
Let's actually move on to the Inflation Reduction Act. You know, that's, you know, that's been a driver of a lot of excitement, a lot of expectation. Can you just give a sense for, you know, where are we from, like, a funding design and construction environment, particularly given that, you know, a good portion of your business is involved with building utility scale, wind and solar? When do you start seeing the awards flowing from this act?
I mean, we've seen awards, you know, LNTPs certainly were out there. The act, I think, gives certainty to the industry for sure. Gives you a long-term look at it, more investment, long-term, de-risk some of that ups and downs of PTCs and everything else you're worried with. Tariffs were a big thing that came in. We've built about 25% of solar wind in North America, and I believe that we should pace that way going forward, or more. When we see it, we see, you know, long-term LNTPs or what I would say, you know, verbal awards or however you want to look at them, and outward years, where normally you wouldn't look at it like that, so you get more visibility longer term now.
As you see it now, I think you had a pin up demand from tariffs and panels. As the panels start to come in the first quarter, first part of the second quarter, you're moving into where mobilization, we are mobilizing on all these projects while you're building backlog or at least LNTPs against the later half of the year into 2023, into 2024, 2025, 2026 and beyond. That really gives it a good cadence as it moves forward, and your scalability of the company and some of the things that you were holding on to or knew the market was there, after it should flush out and stay fairly consistent from an earnings power standpoint, throughout.
Gotcha. The LNTP or the limited notice to proceed. It sounds like that's what's driving a lot of, like, your activity this year, and you really haven't seen a lot of the work from IRA.
We haven't seen the work. What we've seen is, we've seen inbounds on, okay, these are all go projects versus, you know, variable. We work for the bigger players in the business. They had very good pipelines of projects, we were able to really. They made them go and made them firm more so than what I would say, than just kind of, well, we might do that next year. We might. Everything turns into, that's a go, that's a go, that's a go. I do think when they get tax credits, you know, when they give good guidance on tax credits, are they transferable? How do you get tax credits? What's the pool of tax credits? It'll even get better.
Got it.
We haven't got that yet.
Got it. Okay. Moving on to the other fiscal bill, the other infrastructure bill, the IIJA. The IIJA is probably the first time where transmission has been considered proper infrastructure, and I think there's about $65 billion of spending tied to that. Have you started... A similar question, right? Like, have you started to see, you know, any opportunity from that front? I guess, you know, secondly, maybe you can talk about, you know, what's the mechanism to convert that $65 billion of stimulus into actual construction activity?
It's hard for me to get my head around the $65 billion, where it goes. I haven't seen it, like shovel-ready projects that are out there. Certainly, we announced SunZia. It would be one of them that was out there. I'm not sure the stimulus went to SunZia, but that said, we have one customer who just announced a $110 billion capital budget. I mean, there's so many big capital budgets we're concerned ourselves with. The $65 billion, yes, it's incremental. Where it goes, it's hard to say, and from the acts, like you can't see it, but you know it's helping something. It's probably BPA, TVA, something like that, where they have projects internally that can move faster through government money than the IOUs. I'm confident we're seeing it. We will see it somewhere. I can't put my finger on it today.
Got it. I want to spend a little bit of time on grid modernization and specifically, the undergrounding of electrical lines. That's probably a bigger opportunity out west. Can you just talk about your dialogues with the utilities out there? How to think about the timing for these sorts of projects, and how Quanta is positioned to execute and potentially win these sort of projects?
Yeah, I mean, California is even the whole West, I mean, California is the second largest state for us. When we look at it and look at the clients, I think what you see is they have three things coming at them at once. They have the undergrounding, as [showed in] for fire. It's necessary. It will create bankruptcy and human life. It's the first priority for the utilities in California. That said, the EV penetration is at the front end of everything in California, and they just announced, what? $7 billion of transmission interconnections from ISO. That's on top of everything else they had. I guess I'm more concerned with capital structures and where you get the capital and how it moves through rate base.
Those things are important, and I think as those utilities get themselves around what's coming at them, it's all good things. It's a growth company. It creates growth for the utility. That said, I do think there's prioritization to the underground, and it's moving forward in a nice cadence, and they're not deviating at all from it, and it's the right answer long term. Two things: It's uninsurable for most, and almost anyone in fire-prone areas in California can't get insurance, so very much necessary. When you start looking at tree trimming and everything you had to do for it, if you do it over time, I think it's the right decision. I would have never said that, 15 years ago, but today, given the environment, given where you're at and the way California looks, it's necessary to underground or some form of mitigation, significant mitigation to fire-prone areas.
In your Investor Day, you guys laid out an organic growth algorithm that you're basically suggesting you should expect growing at upper single digits. That was before the IRA. You know, that was before, like, the recent slate of, you know, large-scale transmission projects. Where do you think your growth algorithm goes after you factor, you know, some of those recent developments in?
I mean, I think we were hesitant to talk about top-line growth for that, for the reasons you're talking about, cause you couldn't get your head around the top-line growth. I always thought it was better. What I was concerned with was our EPS guidance. We said we could de-risk our EPS guidance on a go-forward basis over the plan on a 10% CAGR. When you think, okay, you de-risked it at 10%, all levers of the balance sheet, and had the opportunity to grow at 15+.
When you start stocking on SunZia and other major projects to it, you would get in those outer numbers within the plan. Can we do it consistently? I'm not signing up for it yet. That said, there's opportunities to do so. If we continue to see it and continue to stock on top of what we think the 10 is, we'll have a 2-year plan. We'll start again.
Now I want to spend a little bit of time on, you know, more of, like, the Quanta-specific opportunities. Where are we in the revenue synergy journey, you know, post the Blattner acquisition? Maybe you can talk about SunZia. You know, to what extent do you think that's a proof point? What does that tell you about the combined business model going forward?
I think when we look at it, the acquisition, we based everything on those synergies, straight up. We knew there were synergies in the business. A couple things it does for us, we see internal spends of HVDC equipment. They're a large buyer of HVDC equipment. That would be transformers and gear, everything around substations as well as wire. Large buyer of product. We were a large buyer of product, consolidated. You know, it very much drives a big HVDC spend yearly. I think we can look at that different, get synergies out of that, for sure. We will. We are. That's one thing. At the customer base, we were heavier at the utility level, where you're seeing utilities now develop, which will give us opportunities there. We're seeing that.
Those are showing up on that side of the business. The developer side, where Blattner was building the wind, such as SunZia, had a very good relationship, had built the last wind farm. We were able to talk to them about the substation. They were having issues on the substation, we were able to build a sub for them. When we started talking about that, we found synergies and aggregates and lots of different things. We were able to really drive home the value of one person building a project.
We have the scale to do so, the certainty to do so, and we know Pattern well, great client. Made sense for us to look at it and look at this, collaborate on the constructability of everything, where we could find synergies and really, I believe, have a great project for both of us, and really proof of concept that the acquisition did create synergies that we didn't see, and we should see them on a go-forward basis.
Got it. To what extent does it, I guess, allow you to, I guess, generate, like, a higher win rate on these sorts of, like, turnkey projects? Yeah, maybe we can start there.
There's two things that I think when we go through it, we should be able to find value within, on the win rates. If we would find value for our customers, ultimately, their projects become more profitable, we should become more profitable, and it's a win. Two, the other part of this is, we're not gonna win them all, and it takes a certain kind of a developer or client to really sit down with you and actually believe that you can collaborate and get a better end result on a total cost basis. I think the customers that we work for today all believe that, and we certainly prove it up. You want certainty, you want bankability, and the balance sheet allows them to point at, you know, a investment-grade balance sheet.
I think when you're going to get funding for your project, they know it's our name on it. We gotta continue to execute at a high level, make sure there's certainty in the work we do. It means something, the name means something, that collaboration is key. The constructability is key, from right of way to interconnections, to everything else that we can do for the client, we should, we should. It should be more than just a build, it should be a solution to them and provide more value than just building it.
You talked a little bit about the Navistar partnership and at the top of this hour, but maybe we can revisit that. Just wanna understand, I guess, what exactly is Quanta's role in the partnership? Is this somewhat of a, I guess, a framework for, you know, working with other OEMs on a go-forward basis?
I mean, primarily, we used a lot of Navistar, third largest fleet in North America. We used a lot of Navistar vehicles in our equipment. That said, we were trying to find the safest truck, asking questions, what can be done? You know, can you have Super Cruise type? Can, will it drive itself? All this kind of stuff. I believe we need to stay in front of technology. We're trying to get in front, work with the client. That turned into: What else can we do together? We, and then we talked about bus depots, how do we electrify them? We talked about our role in planning, what we can do.
It just made sense from where they sit when they're selling electric vehicles, to someone who doesn't have anywhere to charge that, to how do we think about the stations? What do we do for them? So different viewpoints from us. It can go a lot of places here, but from our standpoint, the engineering, the planning, the consulting, per se, towards a client of theirs, or ours for that matter, and give them a product that they can actually use day one, I think is necessary for fleets.
That, our ability to do that is paramount. Not only tell them, but engineer it, but also build it, and on time. A lot of people say they can give that service, but they don't build it. We build it. When you start talking about high voltage chargers on large fleets, you're talking substations and transmission. I do think it's, it could be a really nice partnership. We get along really well and collaborate on other things, so we're excited about it.
A question for you on your renewable business. Why can't renewable margins be higher than the upper single-digit range that you guys have guided to? I mean, especially since like, you know, projects have gotten bigger, labor's more scarce, you should theoretically be able to price and capture that advantage.
I mean, we've operated in double digits in the past on both sides of that segment. It's the interconnections as well as the balance of plant solar wind. Historically, over decades, we've operated in double digits. That said, I mean, the tariffs, the reforms, everything that you were seeing, we were hesitant, you know, to not hedge the margins down, and we did. I do believe over time, we will operate in those levels.
Can you talk about Quanta's focus on growing the front-end side of your business? How much does it represent today? Maybe you can contrast that to, you know, what, like, the industry operates at typically?
Primarily, it'd be engineering firms would operate the front side. We have a large engineering group and firms. That said, it's a minor part of the business on $19 billion. It's just, it's not as big. The way we look at it is, we probably have 2,500 engineers and support around that. That group, in general, provides rate card type engineering or whatever it may be, to the client. More importantly, when you start looking at programs, we can lead with constructability, we can lead with a lot of different things, put engineering with it, or environmental or whatever it may be, and really help the client on right-of-way selections, different things like that, from a construction standpoint of actually who's going to build it.
Then talking directly to the client, we construct our standards and our towers, our structures, the way that we believe is the most optimal way to build and the most optimal cost in a holistic way, versus saying, "Hey, go put that tower up." It's much better for us to be at that side of it. We didn't have the capabilities in the past. We've been growing that business since 2009. Substations, we probably self-perform EPC more than anyone in North America by far, have for a long time, but we weren't on the line side.
I think we've really separated ourselves a bit to push that forward, then we'll continue to add engineering capacity to the business. It really facilitates our construction crews on the backside. If we don't have the capacity or the utilities don't have the capacity, then we get hung up on the construction on the backside of it. We really want to make sure that the system runs smoothly, against the construction on the backside, where utilities, capital spends stay within the realms that they want, and allows us a lot of flexibility.
Got it. Okay. I guess front end represents what, maybe like 30% or something?
Of a capital spend, it would. Of the business, it's less than 10%.
Okay. Okay.
Way less.
Actually, let me move on to some questions from the audience. You touched on this a little bit, but California has the highest number of EVs in the U.S. How has Quanta changed the grid so far there?
I think in California, we've certainly worked with our, the utility customers to. We know where the concentrations of EV are within the state, so really upgrading the grid in those areas. We do some planning work in California. I do believe the manufacturers and any data you look at, it's moving faster than the data says. They've got to catch the data to, you know, if it's a competitive advantage or what, but for whatever reason, more EVs input every year than what's said. That, along with heat, air conditioners starting to come into SoCal, it really causes some havoc on your distribution system. We work with them quite a bit on interconnections and transmission load, as well as our distribution level.
What we're seeing across the country, I think is really important, on systems. You know, a couple times, I believe it was last year, could have been the year before last, I can't remember, where there was days, weeks, they said, "You can't charge a car." They just told everyone to get rid of your combustion engine. I don't think it's really good policy to get rid of your combustion engine and don't charge a car. I don't know how you're going to just work from home. We're not fortunate enough to do that at Quanta. That said, like, you have to change policy to make it work. I mean, there's no way around it. It won't last. It'll last a little bit, as the penetration comes out and gets through the organization, it's gonna cause bigger issues.
The next question from the audience: Could you provide some color on the biggest bottlenecks you're currently experiencing?
I think federal policy and state policy is disconnected a bit from a standpoint of how we're pushing incentives for builds. I think that needs to be more of a collaborative environment, you know, everywhere from permitting down to funding. The ratepayer, certainly if you ask the ratepayer to bear the cost of the grid for EV or anything else, then we need to make sure that we're showing them why you should. I think we can do a better job on total cost of energy, looking at it long term, looking at what fuel does to a bill and how that goes down as you penetrate with renewables, what EV does to your total cost of energy. We've got to do a good job of that.
I do think that could cause constraints in the business, in the rate base. When you go to the regulator and you talk to them, they're gonna be concerned with: What does that do to the bill? That day, that year, instead of looking at this more of a, in a long-term nature. It needs to be looked at long term, long-term plan, to get us from where we're at today to carbon-free environment with electric vehicles. That's the policy, we need to work towards it. I think those hangouts will be out there. You'll see some political strife on that over time. Immediately, I would say supply chain, transformers, poles, connection queues are difficult.
Substations, if you're not in the queue on big transformers, things like that, you're 24 months away, that supply chain has not got better. It's got a little better. It's just. I do believe in the next 12 months, you'll see it get much better, but it still has issues. So I think we've got to get through some of the supply chain problems that we see today, as we move forward, it's not terrible, but it's still an issue. I think if you're a smaller utility or you're a developer trying to build, it's difficult. Very difficult. Connection queue is gonna be a problem, too.
Actually tying onto that question, you know, Quanta has a decent amount of scale, you know, relative to a number of your customers. Is there anything that Quanta can do to help their customers in terms of procurement? You know, is that something that you can price for?
I definitely think we can source materials. We can and should. I think we're doing it for ourselves. I don't think we do a good enough job internally, so when we get our internal situation, Blattner is just coming into the organization. I do believe that when we do this in a centralized way, we will get scale out of it. When we do that very, very well internally, then certainly when we look to our clients, we can offer them something different than they have today. I'd like to get ourselves fixed first, but definitely see a market there.
Another question from the audience. How big of an issue is permitting? How has this evolved? Maybe you can actually tie this into the debt ceiling negotiations and the permitting opportunities related to that?
Permitting has been an issue, older now, but I would say my career, but I don't know if it's been quite that much. Yeah, probably so. Permitting has been an issue my career, and 4 generations in the business. It's probably my dad's and granddad's career as well. It's always when you have federal policy against states' rights, it I mean, you never, I just said it before, permitting is the same. When you're trying to build across the state or anything in a regional that's not located in the same state, it becomes extremely difficult. Utilities, you're trying to bypass the utility to build long-haul transmission. It hasn't worked very well in the past. I don't think it works very well in the future.
How do you play nice together in the same sandbox with an infinite amount of capital? I mean, it should be, sounds easy, it's not. I do think there is progress against different things. I don't think you'll see a 20-year type timeframe, much less than that. Don't know where that is yet. Especially when you're connecting renewables. You know, you're trying to solve to connect renewables, and you can get them in the same corridors, I believe. You might have to change some standards. We might have to do some things different as an industry, but I do believe we'll make progress due to the fact that we are building out for renewables. We got to educate better while we're doing things, work with the landowners a little better.
I underneath, when you see it, you see the mega projects that are held up. Underneath, from regional authorities and a lot of regional authorities, the coastlines are a little different, but in the middle of the lower 48, definitely you're seeing some build there underneath, that they may be cut up projects and increments, but they're still providing for resources for renewable generation.
Here's a related bottleneck question. If labor is tight, why won't salaries increase? How do you price for that? Can your employees earn more if they go to work at a utility?
That's a good question. I think in general, there's areas of the country, sometimes people want to stay home, sometimes people want to travel. It works different in different parts of the country. Fortunately for Quanta, we have a lot of good, loyal people that we've worked with many, many years that lead these projects. You know, they require a following that stay with them through and through. We provide very good equipment, safety, career paths, many things that we can do for craft, and we value that. We don't really see them running to the next highest job. Typically, we pay at the high end of the range anyway.
Not to say you couldn't see one or two move around, but in the masses, no, and the key people, no. We tend to be, you know, get the necessary resources into the work without significant escalations. Your work out west is union, typically, and that union has got criteria around it. You work out of local jurisdictions. You can pay above scale if you want. I, you know, sometimes you'll see Saturday, Sunday type work versus, you know, straight work. Normally if someone's traveling, they want to work seven days a week. I like working seven days a week here. I don't. They want to work seven days a week.
we work through that, and sometimes we'll do it, sometimes we don't, but they usually get double time on Sunday, so they like that. I do think you have to be flexible. You have to work with your work groups. In general, we were on 12 major projects during CREZ, is every bit as big as anything we've looked at now, and we worked right through the highest margins the company put out for in the electric segment for a long time. I'm not concerned.
One big tailwind that Quanta's benefited from has been the trend of utilities outsourcing their work. One question that I continue to get from investors is: If you have this, you know, multi-year, multi-decade build, like, why wouldn't the utilities just reverse that trend, insource and capture that labor cost for themselves or save that labor cost for themselves?
No, I think a couple things. For one, on the coastlines, you do have a big, large union workforce internal. You're not gonna ramp up for these builds. You're gonna keep us some steady flow of a workforce, typically. If you say, well, I'm gonna ramp up internally, well, it'll take you four years internally to ramp to train. In four years of training, you've got too many things coming at you at any given time to try to start building a workforce that you're going to say, If you have capital, you're gonna spend capital on fleet, and you have a finite amount of capital. A line's a 30-year line, you don't need a mechanic on. Typically, it lasts 30 years, you don't have to do a lot of maintenance to it.
Try to buy a truck for 30 years and see what happens, like, it won't work. It's a better place for capital in areas where, like, in the way the rate base works, they need a certain amount of workforce internally. I just for them to ramp to try to get to these builds, we have not seen that, matter of fact, seen it the other way. They want a good finite amount. I think people in general, you know, I think we have to fill the gaps internally. As long as we can fill those gaps, we can help them with the workforce that they may want internally, but it's difficult. They're under different circumstances as a utility, and the way that they operate, than we are.
We can move people from utility to utility. We can move trucks from place to place. Our workflows move, we move. They don't have that flexibility. They're not meant to. They're meant to really sustain the area that they're in, with levelized type work, not the growth, outward growth. Not to say if you don't, but, I would just say in general, that's the discipline that they have.
Got it. A question for you on utility CapEx, especially utilities that run a network of electrical and gas distribution. Since, you know, CapEx is finite, how are utilities handling the trade-off between investing in the electric grid, which is clearly needed, there's also natural gas distribution, depending on where you live, maybe that may be at risk on a go-forward basis? I guess tacking on to that question, what do you think that means to the long-term growth algorithm for your underground business?
I think the LDC business, local distribution businesses, you know, they're valuable, number one, because they're not, probably not building a whole lot more in a lot of the areas. Some they are, but in some areas they're not. The ones that they're not, the methane release, things like that, they have finite commission to, over a period of time, to replace X amount of miles of pipe. Typically, that's what we're doing over a 30-year period. It's written and they'll do it. Now, I guess you can move it up and down over time, but typically, they like to stay within the realm. They do have flexibility to move capital, if necessary, over into the electric side, I'm confident. And they do. I'm sure, but vice versa. They'll do that.
I think the gas business in general, while we're not making acquisitions and investing capital there, it's a nice business. Throws nice free cash for us. It certainly, when we have combined clients where they have both gas and electric, it helps us with the client base as well, I like it from that standpoint as well. We can move those crews. If you look at Quanta as a portfolio, which I look at it that way, those underground crews can be building telecom one day, gas the next, and electric the next. They're very flexible until you get to the end. I think that our ability to get operating leverage while we move, if they move. If they move capital, we move. The same people doing the same thing.
I just like the structure. It works very well from an operations standpoint. It doesn't look as good when you have to look at it in segments, but if you look at the whole thing, the whole company, you'll see return on invested capital coming up, you'll see margins coming up in certain areas. I think that's the right answer for the business.
Got it. Just moving back to a question of labor and the ability to source. You've got this unique asset, the Northwest Lineman College, but you also have a tremendous amount of growth ahead of you, and basically every dollar of revenue you generate, it's a pretty proportionate amount of labor that you need to generate that. How do you solve that problem? How do you scale the labor that we'll eventually need to see this energy transition through?
I think the big thing for us, we do have Lineman's College and campuses, six campuses, another training facility for up-training. I think all that we've invested in over the last nine years is significant for us to get to where we want to go. We do have to work with the unions and work with them as well here. They're an integral part of this. We work together often, and I think our ability to help them grow as well. We need everyone to grow here, and the union has to go. We have to really facilitate that growth. We've worked together quite a bit on does everyone train the same way? Are they trained? Does it take four years? Can someone do it in two? Well, yes, they can do it in two.
I know they can. How do we think through this? Is it time-based training or competency-based training? There's a lot of ways to train. I think we can do it safely under controlled environments. A little bit of a disagreement there, but we'll get there. As long as you have a controlled environment, we can have safety factors, and if you're really if you short burst train, people don't like to sit in classrooms 10 hours. It doesn't work anymore. ADD came in somewhere, I don't know, but maybe my generation. It just doesn't work to sit there and be bored to death for 10 hours on books.
Like, they've got to get them in the field, short burst training, get their hands on something, bring them back into the classroom, use data that's used in colleges and curriculum, really work on the brain. We've done that with the colleges. We've proved it. We got AI against it. We can show them, we can tell them, we have so many training hours, there's so many work hours. We've got all that data, and it proves it out. We just got to use the data properly in our training. If you want to think about how you use AI in a business, you use it in training, you use it in work methods. I use it in ChatGPT, to answer all my questions up here. Kidding. Seriously, I do believe that we have to think through exactly how we use intelligence.
Here's another question from the audience. Can you discuss or quantify any benefits related to the IRA, related to prevailing wage benefits that would accrue back to Quanta?
I think we meet the criteria, the training programs, our curriculum, the things that we have that are DOL. Even on union, not both the union and non-union side of the business, we'll check that box for the. You know, you have days vacant, we meet that criteria, you have to have so many apprentices per, I think it's per 1 apprentice per 6. I can't remember what the ratio is. The ratios are easy for us. I don't see any issue for us to check the box on that criteria. That should be good.
Here's another one for you. Is it unique to renewables somehow, that because they are more localized and within states, that permitting will be inherently easier if you're not crossing borders?
I think when you think about renewables, yeah, building a renewable is fine. Like, you can build it, no problem. It's just where you're going to... The load, the PPA you're signing, who you sign it with, and where's it going? You can build it, you can build solar all day long in the desert of Nevada. What load is that going to serve? I think as a country, we know where the best place to build solar is, and so it's probably where we should build it, and we should build transmission against it, but it has to move across states to get to where it needs to go. Said a lot. It, that's the problem, is that line that runs across. If you run it from Nevada to California, there's only a couple, 4 or 5 interconnections, if that.
We need more interconnections in the West. Unfortunately, the grid doesn't tie very many places, and it just doesn't allow for the robust system that you need. In Europe, the corridors are all connected. There's probably 3 times bigger than the corridors we have, and they don't have enough. They're right now scrambling to upgrade their corridors. These corridors that we have are so small and not connected, it doesn't allow us to put generation in the right places at times, so you do it in a local way.
You'll see local generation, sub 100 megs getting built out. It's not a bad thing, it's a good thing. I think you'll see some of that as well. It'll fill in some of these gaps and then, you know, I think some of it will be rate-based, probably, and some of it won't. I do believe that continues on to the sub-utility scale, kind of 70 megs and below will be prevalent, widespread.
Another question for you. As an EMC player, strategically, what does Quanta focus on to improve its long-term return on invested capital? Is it cost savings? Is there anything else that you would highlight?
Yeah, I mean, I don't think we're an EMC, for one thing. I do believe we're a solution provider. I know we get stuck in the EMC world, but okay, fine. We build things. I do believe we provide the solutions against this transition, and it's much different to me. I do think that we can actually have a great conversation around helping our client be successful in the transition. When you do that, when you think about the ultimate rate payer, when you think you know the models, you know the interconnection side, you understand solar, wind, and you're able to really articulate that and know that with certainty you can actually build it for what you say you can do it for, it means something.
I think our ability to continue to stay in front of that transition, will ultimately allow us to continue to differentiate, and that we'll need to be nimble. We'll need to be able to predict the markets and where they're going to have constraints. When we see constraints in the market, we need to be developing against it. I think that's what we do, is we see constraints, we think, you know, this is going to happen. How do we, as a company, get in front of that, and how do we help our client?
As long as we can stay and use our capital, deploy capital in the areas long term, and we're thinking out 5, 7, 10 years from now, where do we deploy that capital at? We know it'll be self-driving. We know that, yellow iron, our tractors, they will be automated. How do we get ourselves ready for that as a, as a company? It's necessary for us to make sure that we have design capabilities. We use artificial intelligence in our engineering, and our people, and think differently than everyone else. You're not an EMC.
Since you brought up AI, so what's your ability to leverage technology? I know you talked about AI in engineering. You talked a little bit about AI and training, but maybe more broadly, where do you see the ability to actually, like, drive just a step function, higher productivity goes for the projects that you execute?
I mean, I think it gives you tons of intelligence on your engineering capabilities. It helps you train, it helps you move to the field faster. It tells you where you've gone wrong. Proposals, bids, look, you can run data across just about anything these days, just ask it, and it'll really help us become better as a company. Just support all the way through data centers. We'll certainly support the load on data centers. Just a lot of things there for us, and we're excited about it.
Okay, great. Well, we are all out of time. Thank you, Duke.
Thanks, Chad. Thanks, everyone. Appreciate it.