Jim Murchie heads Connecticut-based Energy Income Partners, an investment firm that focuses on “poles, wires, pipes, and tanks.” In this epsiode, Murchie talks about why the best investing returns come from “natural and legal monopolies,” why shareholders took “the credit card away” from oil and gas drillers, and why despite its many challenges, the U.S. energy sector continues to lead the world. (Recorded March 24, 2023).
Robert Bryce 0:04
Hi, everyone. Welcome to the power hungry Podcast. I'm Robert Bryce. On this podcast we talk about energy, power, innovation and politics. And I'm pleased to welcome Jim Mirchi. He is the CEO of energy income partners. He is a longtime energy investor. And we were acquainted. Oh gosh, now 15 or 20 years ago recently reacquainted. Jim, welcome to the power hungry podcast.
Jim Murchie 0:26
Thanks, Robert. Great to be here.
Robert Bryce 0:29
Now, I didn't warn you. I sometimes warn guests, guests on the podcast introduce themselves. I've given your title. If you imagine you've arrived somewhere you have 60 seconds to tell people who you are you don't know any of them. Please introduce yourself.
Jim Murchie 0:42
So sure, Jim Mirchi. So I am CEO and co founder of a company called energy income partners. We invest basically in the energy sector and infrastructure, what we call poles and wires, pipes and tanks, we run about five and a half million dollars, numerous different kinds of funds, some are New York Stock Exchange listed, some aren't. And we've been doing that now for 20 years.
Robert Bryce 1:05
We talked the other day, and about this whole idea of owning poles, wires, pipes and tanks. The energy sector, as we both know, a lot of people know is volatile. So why is it better to own these kinds of hard assets than to drill for oil or to produce electricity? What attracts you to owning the infrastructure stuff or the hard the big iron rather than the flowing the molecules? What's What attracted you to this part of the business?
Jim Murchie 1:33
Well, it's where the returns are for shareholders. So you know, I started my career at the old Standard Oil Company of Ohio and Cleveland, when it was majority owned, but not completely owned by BP in 1982. And, you know, watched the process of capital destruction, up, up close and personal, you know, you and I first met at the jhanas Herald conference, you know, years and years ago, where Art Smith, who, who owned who owned that fine, fine organization had the had the really the best energy conference of the year. And I, I would kind of say the same thing every year, you know, the cyclical part of the oil and gas business is just lacking in capital discipline. And what you find is that capital discipline and earnings growth tend to occur more in companies that have predictable, smooth earnings and cash flows, it's just not true. And it's just not true, just true and energy. It's true everywhere. I mean, if you observe earnings growth rates across companies, it's just harder for cyclical companies to grow because they're constantly fighting the cycle. So in the world of energy, which, obviously is my expertise, given where I started my career, the best returns come from these natural and legal monopolies, that are operating these really long pipelines and really long poles and wires. And, you know, for the, for whether they're natural or legal monopoly, their pricing structure tends to be sort of a cost plus structure, sort of like a defense contractor. But defense contractors aren't particularly capital intensive, and pipelines and poles and wires are so really at the end of the day, you get this stable return on equity, because that is how the tariffs are derived to begin with, because if you think about it, you're building a pipeline for an oil company, they can build it themselves. So they know the economics and they're not going to use your pipeline unless the economics are good. And so you essentially mimic the economics of an acceptable rate of return with your customer, when he signs up for that pipeline with say 10 or 20 year contracts to backstop it. And so because the earnings are really a percentage of capital, rather than a percentage of sales, which is what all other businesses are not just an energy, you have stable earnings, and if the capital base grows, or you're buying back shares, then the earnings per share are stable and growing. And then when so you know, that, you know, that really provide the stability provides two things It provides for a higher payout ratio. So the payout ratio of our portfolio is roughly 65% of earnings, you know, the s&p 500 is is 30%. And you know, the power ratio of cyclical companies is also comparably low because no one wants to cut their dividend and your earnings are cycling all over the place, you have to have a lower payout ratio on average. So, stable earnings leads to higher earnings growth, more predictable business models, and a higher and a higher yield. And so, when you look at how you make money as an equity investor, it's pretty simple math, it's yield plus capital appreciation and capital appreciation over the long term is driven by earnings, you know, and dividend growth on a per share basis, in the long term and in the short term by changes in sentiment which is measured by valuation like PE. So, so the formula is pretty simple, right? Total Return is yield plus growth. Both plus or minus change in valuation. And so as we tell our investors, we start with the answer and work backwards. And so when you're looking at those attributes, where are you going to get the good yield? Where are you going to get growth? Obviously valuations change all the time. So you try to bias your portfolio towards the cheaper things, but that that changes over time. And you look at that in the industry that me and my partners are experts in and you say, Well, that leads you to poles and wires and pipes and tanks.
Robert Bryce 5:28
Let's go. I looked at some of the holdings in one of your mutual funds, which is traded on the New York exchange, it's EIPI. X. So you hold in looking at that you hold a lot of pipelines, energy transfer, Magellan, and want you to follow up on this idea of the natural monopolies and what for people who not familiar, it's hard to build pipelines, right. So the companies that have these pipelines, explain what you mean by a natural monopoly in why that why there's value there.
Jim Murchie 5:59
So the whole concept of a natural monopoly was discovered in the late 1800s, with the with the railroads in the United States, which financially and for to some degree from the markets as a whole was a disaster. And a guy by the name of what do you mean by that was for the market, they were over, levered and over built. So you know, you know, between Pittsburgh and Cleveland, you know, you probably needed one rail line, but you had three or four. And so you have these guys clobbering each other over the head, you know, with four sets of tracks when really one or two would have done. And so you know, a guy named Charles Francis Adams, who was the grandson of John Quincy Adams, decided to make his career in railroads and was the head of the first railroad commission in Massachusetts. And he made this simple observation that in the rail industry, the lowest prices, the lowest costs are on the routes with the least competition. And it wasn't a competition isn't good and doesn't lead to, you know, you know, better products at lower prices. But what makes natural monopolies different is that it is an unnecessary waste of capital to have three or four sets of rails go in between two towns. So if you so now come to the modern world and say, imagine if you had four sets of poles and wires running down every street, in every neighborhood, it's a complete waste of society's resources. So what's the alternative? Well, the alternative is granting a monopoly, but limiting that company's ability to charge what they want. And so again, I'll go back in history. And there's a famous speech given by a guy named Sam Insel who was Thomas Edison's right hand man. And he developed pretty much what became known as Commonwealth Edison, which is essentially the electric utility in the Chicago area. And he gave a famous speech in 1897, at the North American Electric Light Association, which is now known as the Edison Electric Institute. And he said, we really better off if we want to grow our industry and electrify the country, if we do it as a single franchise for for a given footprint. And that will do two things, it'll, it'll eliminate the duplication of capital, but it will also lower the cost of financing. Because if those companies are granted a stable return, yes, we're not going to be able to make 20% returns, we're going to make 10. But the cost of financing because those cash flows are predictable, both in terms of how much equity we have to issue and what interest we will pay on our debt will be a benefit to society as a whole. And, you know, we're, we're not going to get any farther along clobbering each other over the head, and wasting all this capital going bankrupt, like the railroads did. And so that is the model really around the world. It's it's the model in China, it's the model in Europe. It's the model in the UK, and it really has been with us for 100 years. And so as an investor, you know, you say, Well, okay, where does this go wrong? You know, it's like they've been given us monopoly. They have stable returns, how does it go wrong? And so again, you look through history. And history tells you that when you give someone an allowed rate of return, which in their mind starts sounding like guaranteed, okay, which is a really bad word, they start doing dumb stuff, they start putting too much leverage against those stable cash flows, or they start diversifying into other businesses thinking, well, most of my cash flows are stable, it's okay. If I go over and start, I don't know this energy trading desk. Right. And then, you know, what happens is that activity, you know, initially gets them a higher valuation because it's accretive to earnings until people realize they're destroying the quality of their earnings. And ultimately, it's a self defeating diversification or leveraging and the utility when you're
Robert Bryce 9:54
saying this, Jim, you're both hearing is what I'm hearing is Enron right that this was Enron was one Yep, the pipe line company. But I want to jump back I'm sorry to interrupt but to jump back in everybody who copied
Jim Murchie 10:03
on rock, I mean, you wrote the book on Enron. It's like it wasn't just them. Sure. They were apparently in the early years so successful that if you were running a pipeline or power utility, and you didn't have an energy trading desk, you were you were viewed as being sort of a Luddite?
Robert Bryce 10:18
Sure. Well, let me jump back to insulin because I'm pleased, you know, insulin is vilified by a lot of people. But he was really a great innovator. And that was one of his key insights. I didn't realize that speech went back to 1897. But he was famous for essentially saying, yes, grant us a monopoly and regulate us, right, going to the state and saying, you regulate us and make sure we you know, and we'll make sure we reduce the price of electricity. And that's exactly what he did. He saw that, that in his great insight was, the more the bigger generators I can, I can deploy, the more customers I can get the cheaper I can provide power to everyone. And that was one of his, obviously, his great innovations and was often maligned in the history of the power business in America, but really was one of the greatest of all of the energy entrepreneurs in the first part of the 20th century.
Jim Murchie 11:07
Yeah. But this is like history is full of ironies. Right. And so it was his company, that was the most guilty of creating these utility holding companies that were essentially pyramid in companies on top of companies. And so by the time you got to the late 1920s, you had 19 companies that control 92%, of the electricity in the United States, right. And, and so and you had for every, for every dollar of assets, you only had 10 cents of equity. I mean, they were levered like the banking system is, and and so what happened in 1929, was, you know, when there was weakness in the market, it was really the utilities that created the downside volatility because they were so levered. And people didn't realize how levered they were, because they didn't look through all those holding companies. So when the so in the early 1930s, we got the public utility Holding Company Act, which then said, Look, you guys, first of all, we're going to undo all these pyramids, to lower the overall average of three, you're gonna go back to poles and wires, okay, which is what you're supposed to be you're getting into real estate and all kinds of other stuff. And we're gonna sort of, you know, get you back to state regulation, as you mentioned, you know, Sam Insel preferred state regulation, because in Chicago, if he wasn't buying off the aldermen, he wasn't going to get a franchise. Right. And so it's so funny when people you know, they're afraid of you're afraid of government regulation until you realize the alternative. And state regulation was far more preferable to him than regulation from the Chicago Alderman which was extremely corrupt.
Robert Bryce 12:45
Right. Yeah. And just one last point on on insulin in written about this, but in when he was on the stump in 1931, when Roosevelt was campaigning for president, I mean, he would call out insulin specifically by name, right. So it became this symbol of corporate greed. And then, of course, the public utility Holding Company Act 1935. And the Rural Electrification act of 1936, fundamentally changed the shape of the electric grid here in the US. So but in looking at your the mutual friend funds that you're running, just glancing at them this morning, EIP i x and EIPF. X? I see a lot of pipelines. I don't see I didn't in just glancing at them. I didn't read the entire prospectus. I didn't see many electricity companies, do you hold a wires? Companies? If so, who what are they what it would tell me about that part of your investment?
Jim Murchie 13:31
Yeah, sure. It's a registered investment, I got to be really careful about talking about funds and individual stocks. So I'll speak in generalities. But what you'll, what you'll find is that, you know, our overall exposure to the sort of the electric sector, you know, has ranged in the last 15 years from sort of, you know, 20, to almost 50% of the portfolio. When you look at any managers portfolio, and you look at the top 10, you may only be looking at 40% of the portfolio. So, companies that are only one or 2% positions, don't get in that list, but they in fact, could make up the bulk of the portfolio. So that that very often, that very often happens with us. So, we may have only a handful of pipeline companies that we really, really like, and they're larger positions. And we have a whole bunch of electric utilities that and increasingly over the last 10 years, they became more homogenous. So for example, when we we, when we got our start, we didn't really have much in a way of exposure to the electric utilities. And the reason was that they were still dealing with the unregulated businesses that came about when a we deregulated the power generation part of the business in the 1980s and 1990s. And Ron said, Look, I know this sounds scary, but it's an opportunity. And so they they went after the opportunity by acquiring infrastructure assets and building an energy trading desk so they could trade around that volatility, right. So you've got physical assets to deliver against an obligation. And you need a sort of a financial operation to be able to make the contracts forward contracts, buying and selling contracts over the course of five years and making sure that book is hedged. Of course, everybody copied them, we know what happened. But when we got our start in 2003, the the energy conglomerates were spinning off their stable assets, the pipeline conglomerates into MLPs. And in the US, and pipeline income trusts in Canada, and there was some divestments in the, in the power sector. But mostly as investors, what we had to do was wait for them to close their energy trading desks, and to divest of their cyclical and merchant business, which is primarily at that point, power generation with highly cyclical earnings. And remember, you go back to what I said at the top, those aren't the kind of earnings we want. And so when you go back over the last 15 years of our history, it is it is the cleaning up of the corporate entities, where, you know, at deregulation, as much as half of their assets were cyclical. And here we are today, all these years later. And you're finally getting to the point where the larger publicly traded utilities are mostly the poles and wires, you know, stable earnings types of businesses. The only exception to that are the states that never deregulated so like the southeastern states in the US. So for someone like, you know, Georgia Southern Company, or Georgia Power, all those guys, so there's a, they never deregulated there, or they never put their legacy generation assets for those companies into the merchant market, they still get that allowed rate of return on those assets the same way they do on poles and wires and pipes and tanks. And so, when you look at the US as a whole, about half the US is generation is still in that rate base model allowed rate of return. In the other hand, the integrated utilities, right, integrated utility model, and the other half
Robert Bryce 17:13
is the same that insole and Edison had going back from the very beginning, right. And let me ask about that has that because when the you know, we met shortly after my you know, after the Enron debacle, and in writing that book, my first book pipe dreams I remember very clearly one of my interviews with a guy named Jim walls L and while ZIL worked for Houston pipeline company, and he quit Enron, shortly after Ken Lay took over. And while zeal said at that time, this is more than 20 years ago now, he said, I don't see how this deregulation going to be good for the consumer. You know, he said, I just looked at this, and I and this was shortly after Texas had deregulated and now we're looking at this, we're seeing this massive it costs are being laid on consumers, because these lot of these utilities were left naked, you know, especially after the Texas freeze, and prices are going up dramatically. So it's a long way to get to the question, Has deregulation been good for the consumer?
Jim Murchie 18:04
Ultimately, it has. So here are the statistics. And I'm glad you brought this up. Because this is when you look at the deregulation of electric power generation, it is a great window into the challenge of something that most people would agree is critical infrastructure. And most people would agree that reliable infrastructure, whether it's your water, or sewer, or roads, or bridges, whatever is a public good, that the public in general is better off just like we're better off if everybody is literate, which is why we fund public school. And so you know, the when I when I was at Standard Oil of Ohio in the early 80s, and I was in the in the Business Development Group running economics and everything. One of the things I was running economics on was making our own electricity, which we could do for three cents a kilowatt hour, we were the biggest electric electricity consumer in the state of Ohio, and we were paying six cents a kilowatt hour to the grid. When I go back and look at DOE data, the national average back then for industrial consumers was five cents, five to six cents, adjusted for inflation over the last 40 years. It's between 17 and 22 cents per kilowatt hour. Wholesale price of electricity today, five cents a kilowatt hour. So you're talking a 65 to 75% reduction in inflation adjusted wholesale prices of electricity. Now, that's hard to say that that's not good for the consumer. On the other hand, once you take those power generation assets out of the integrated utility, where that company remember in return for that monopoly monopoly, they've agreed to two things. One is limits on what they can earn. And the other is an obligation to serve anyone who wants power gets it. You know, there's no sign that says no shirt, no shoes, no service restaurants can do that. Utilities can't. Right once you deregulate and go out into the free market. It's like every other free market. It's like okay, I make Cabbage Patch Ah, dolls, I make microwave ovens. When, when I'm sold out, I'm sold out, I don't have an obligation to go source microwave ovens for the public. And so what you have when you deregulate something is you have the efficiency that comes with competition. But you have now I lost your link to public policy. And so what we've done is we've built all these kind of, you know, quasi guardrail types of things to try to ensure reliability. But I was at I was at a conference recently, and I ran into a guy who knows these regional transmission organizations, which is what we put in place, once we deregulated so that all this power generation could be coordinated, because, you know, they're kind of regional markets. Sure. And and I asked them, I said, it's a simple question. And it's a very difficult one, who, or what entity is ultimately responsible for the reliability of the power grid. And he said, it's really two things. It's the state regulated utilities. And it's the regional transmission organizations. And he was actually the person who was talking was actually instrumental in designing market structure for two of the largest ones in the country. So he knew what he was speaking about. But I said, but ultimately, those regional transmission organizations, they're not going to get the blame. If the lights don't go on, you know, it's really going to be the utilities exception might be Texas, because they're their regional transmission operation, which is called or caught, the Electric Reliability Council of Texas, happens to line up with the state of Texas. That's that's an exception, the others cross state lines, mostly. And so, you know, that is the challenge. How do we make the electric system reliable, and still have that free market competition principle, which keeps the cost down? And I think anyone who thinks the answer to that is easy, hasn't tried to solve the problem? Well,
Robert Bryce 21:54
yes. And that's just it. And that's what happened after the Big Freeze here in Texas was, well, who's responsible for reliability? The answer is no one there, you know, we'll we'll point it ERCOT. But, and ERCOT took a lot of hits. But it wasn't ultimately, we've still got a very complex market in which the buck doesn't stop anywhere. Right. Oh, the market failed. Well, who made the market? Oh, bunch of lawyers. And so but who's responsible? Well, nobody really at the, at the end of the day. But so,
Jim Murchie 22:21
which works for most industries over time? I mean, it's most of the time. It's the worst system except for all the others. Yeah. Right.
Robert Bryce 22:30
So but in terms of the wires business, I'm more familiar with pipelines because they're, they're more more obvious in terms of their I think they're just bigger, but can you name any companies that I can't off the top of my head come with the wires companies that are a pure play, whether they're you're important in your portfolios or not? Or they're publicly traded entities? I don't know of any what? Oh, sure.
Jim Murchie 22:50
Yeah. So it's, as I said, you know, the most of the utilities now you'll find in the in the Philadelphia utility index, are mostly poles and wires, and, and they have power generation in their rate base. And so it's at the end of the day, when you look today, at the composition of earnings for the Philadelphia utility index, it is fundamentally different than it was 15 years ago, where it's poles and wires and for the most part, power generation that is in their rate base.
Robert Bryce 23:22
So encore would be one that I guess would be a poles and wires company. I'm just thinking about here in Texas, right that that's there the Okay.
Jim Murchie 23:29
And for your listeners, that's encore with an O not an E. Sure. That's right. Encore is a pure transmission company ever saw Eversource in New England, which is the merger of the old Connecticut Power Light and Bastien Edison. They don't have any power generation. They are pretty much a pure poles and wires company. So there's there's a few and as if your listeners, you know, Encore is now been acquired by another company called Sempra, which was based utility. Yeah. Yep.
Robert Bryce 24:01
With San Diego Gas and Electric, which just wrote about today, in fact, and so on substack they're seeking it was a safe and 17 or 18% rate increase in California, for next year, year on year increase win this year, the rates in California went up 15%. So
Jim Murchie 24:16
well, their cost plus entities, right? I mean, it's a cost plus pricing formula. So you know, again, that's what that's what you get, right? You get an allowed rate of return on your equity. And then you add up all your other costs, your interest on debt, your operating costs and your fuel costs. And you pass them through, right and so and that sets up as you know, as because I wrote a wrote a blog on LinkedIn just just yesterday about you know, this, this issue of moral hazard. And so we, you know, we as long term investors, we worry about moral hazard creeping back in we had it in the 1920s. We had it in the 1970s when the industry overbuilt nuclear power, which led to deregulation of the power generation part of the business. And every you know, moral hazard is A word that's in every article now about what's going on in the banking system. So I thought it's like, Well, okay, I'm not an expert in banking. But let me let me give you a little historical perspective from the utility sector, about moral hazard and how it's been dealt with in the past. But I think it's, I think it's a constant battle. And our firm myself whenever we talk to regulators and industry associations. You know, we filed expert testimony with the Federal Energy Regulatory Commission, I testified in front of the Senate Energy Committee is, as you did once, we argued that those allowed rates of return should vary with company performance on cost, reliability, safety, and emissions, you know, not just carbon, not just methane, but particulates, you know, mercury, sulfur, nitrous oxides, things that are not healthy for people today. Not.
Robert Bryce 25:58
So that's. So the state should calibrate that allowable return based on performance metrics that are measurable, and are ones that are impactful on society, would that be a way to think about how you're approaching?
Jim Murchie 26:14
Absolutely, they're kind of doing that anyway, in, in the back and forth about whether or not they're going to allow a project and, you know, you know, Eversource, got dinged by their Public Utility Commission in Connecticut, because they, they were deemed to do a bad job and Storm Recovery when we had when we had a bad storm. And you know, anyone's been to Connecticut, it's a forest, there's trees everywhere, falling down on these wires. And so they took, you know, they took like a 90 basis point hit out of their allowed rate of return. And it's like, well, how did you get that number? Why is that the right number and not 50 basis points, or 150 basis points. And I think the way you introduce competition, in poles and wires is other than wasting capital and having four companies run four sets of poles and wires down your street, is to have the scale of performance. And you set up the incentives of competition without the waste of capital. And I've talked to a lot of regulators about this. And they're like, yeah, so long as it's clear, because I don't want to be taken to court every time. The companies, you know, the good ones are for it, the bad ones aren't. So industry associations, which represent the whole list because you think about it. Once you go to that half, the companies will be below average, and half companies will be above average. And an Industry Association represents everybody. So they're against it, because half their members might end up in the bottom half. As investors, we think we're good at picking who's going to be in the top half. So it's in the interest, it's in our interest, but it's also in the interest of the public. And I think ultimately, it's in the interest of the utility industry. Because if they don't evolve with all these new technologies that are coming out, you know, it's you know, I don't know, what's Chinese philosopher says, you know, if you don't bend you break. So I think it's time I think it's time to modify the system that was put in place in, you know, in the late 1890s by Salman soul, and bring it up to modern times.
Robert Bryce 28:10
Yeah, and this is the heart. I mean, this is the challenge, though, isn't it? Right? Is this, you know, what is the enough regulation for these entities, and that calibrating that regulations, and you make sure it's the right level of regulation. But let me shift and just why
Jim Murchie 28:25
a score is so much better, right? Because, you know, once you agree to it, that's what it is. As a people, you know, you just imagine a public utility rate hearing, where you have business advocates, consumer advocates, environmental advocates, advocates for the poor, you know, they're all there. And they all have a voice, which is so so great about our system, and they're all sort of shouting out their complaints about this or that. And it's like, Well, okay, but those are all adjectives, we need to turn this into numbers, right? I mean, you don't go to a restaurant and you say, Geez, what do I owe you? And they say, you owe us a lot. It's like, no, no, you need to tell me the number. Right. So I think that's hard to come up with a number. But I think once you do, then it makes it easier for the utilities to hit that number. And they'll provide the incentive, they'll do it, they'll figure it out. Why.
Robert Bryce 29:13
So I see. So you're saying we need a some, you know, kind of a fair scoring system that would allow them this, this rate of return to be calculated.
Jim Murchie 29:22
And they will argue they will argue till the cows come home about what that scoring mechanism is, but you know, what? Fine, have the debate. Right.
Robert Bryce 29:31
So let's back up just a little bit. So you only invest in public companies. Is that right? I'm not. Okay. So
Jim Murchie 29:38
private equity is a whole nother skill set. It's very labor intensive.
Robert Bryce 29:41
Right. So well, let me ask you the direct question because I was looking at your you know, the two mutual funds that I found on your website, EIP, investments.com EIPIX and EIP FX. You charge about a point and a half for your management. Why would I invest in it? Sell me here. Why would I invest with you and you charge me a percent and a half a year then put it in s&p 500 What do you do better? I mean you know what tell me Give me the the opposite if you if I was John Bogle tell me why Bogle is wrong? Bogle said, Get it, get a index fund and put your money there Don't you know don't trust these, these money managers, they're not going to pick stocks better than the average. Why are you are you are your returns better than the average? And are you worth a point and a half a year?
Jim Murchie 30:28
Yeah. So yeah, so the management fee of that fund is actually is actually less than that you're looking at the expense ratio, but But I agree with John Bogle, when people asked me, Geez, you're in the business, what should I do with the money? The answer is before they finish their sentence out of my mouth is indexing. So s&p has this research group. It's like SPI V, it's, you know, it's their, it's their research arm on on a number of things. And they have done these studies over the year that shows that 90 to 95% of asset managers underperform the indexes. So when I talk to financial advisors, I say, Look, I'm an active manager, the first question you should ask me is, are you in the 95%? Or you and a 5%? And the history, our history is that we're in the 5%. And, and so the question is, why is that? And, you know, there's, I would say, there's sort of, you know, three things that make EIP different, you know, one is, and it's not, it's not unique, we are a niche investor, we, we all come from the energy industry, most of us have experienced in the energy industry. So it's what we know. And we have figured out sort of where in the energy industry, you can invest and beat not only the energy index, but the s&p 500. And so ERP was, so that's the first thing, it makes us different. But yeah, there's plenty of other niche managers out there. But as a percentage of assets run, they're very, very small. The second thing is that EIP was formed from inbound inquiries, people come to us and said, I know, this is what you're doing with your own capital, would you do it for us? And so we're, when I meet a new group of investors, I always say, you know, you have to understand the partners that tip go to work everyday to manage their own money, you're welcome to invest alongside of us. So, you know, all these money managers, you know, have this little phrase, we, you know, we invest alongside our clients, we don't invest alongside our clients, they invest alongside us. If I want to invest alongside my clients, I would have money with them. I don't they have money with us? Because we're, we have this, this expertise. And you say, Well, okay, so you have expertise. You're performance oriented, not asset gathering oriented, which is why by the way, we have virtually no institutional money, because institutions carved the world up into categories, and we don't fit any of their categories. And we've gotten numerous requests in the past saying,
Robert Bryce 32:57
so just to be clear, so you're saying you don't you're not getting money from Fidelity or Blackrock or any of these big, those kinds?
Jim Murchie 33:03
Well, they're fund managers. So I'm thinking like pension funds, endowments, I was like that, okay, fine. So, so they are the people who allocate to outside managers. And there was a time, you know, you didn't last very long, there was a time when MLPs was a category. And they would look at us and they say, Well, wait a minute, you got all this other stuff in your portfolio? I thought you were an MLP. Manager. I said, I don't know, who told you that, you know, we're investing in non cyclical energy infrastructure. And in the universe of non cyclical energy infrastructure. MLPs, never were more than 25% of that universe. And so they say, Oh, well, you know, we're, we have an MLP mandate. I said, Okay. I mean, we've learned after a while, we used to, like, talk to these folks and have meetings with them. We learned early on that, like in the first 60 seconds, you just cut off the conversation, because otherwise you're wasting each other's time. And so, so we're performance oriented, not asset gathering oriented, and asset gathering money managers, they're out there lining up their strategies with categories, because that's how you get money. If you don't line up with their categories that they can't, they can give you money, large cap value, small cap growth, right. The third thing is what I mentioned before we start with the answer and work backwards. So the whole money management industry talks about alpha and beta. And it's like, okay, but that's really a backward looking measure, comparing a manager to an index. And it's to me it's comical when hedge funds, say, you know, I'm an absolute return manager, you know, we just generate alpha. Well, the irony of that comment is you can't calculate the Alpha without comparing their performance to an index and calculating the beta.
Robert Bryce 34:39
So let me let me interrupt you because explain alpha and beta, if you don't mind really quickly.
Jim Murchie 34:45
Yeah. So if you guys if you remember from you know, when you first learned algebra, y equals mx plus b, right? So you say the return of this fund can be explained by two factors. You know, if the market goes up and down, the fun goes up and down, but not One to One, a high beta firm would go up more than the market market was at 10%. A high beta portfolio would go up, say 15. And the same on the way down the question. He said, Well, okay, that's in the up and the down. What about over many market cycles? You say, Oh, well, actually, the markets made 9%. This fund has made 11. And so you say, oh, there's two percentage points of unexplained return. And so you say, well, that's alpha, okay, that's fine. But if you're running money, as opposed to allocating money to a manager, you say, Well, how do I generate alpha Wilson's total return is yield growth changing valuation, unless your portfolio has some combination of higher yield, higher growth, and more improvement in valuation over whatever time you want to measure, you're not going to beat the index. And so when we look at our portfolio, we have this slide in our marketing deck, we compare the yield the historic growth, and the valuation of our current portfolio with every sector in the s&p 500. So if if our fund were a sector, they would have the highest yield, it would have the second highest growth behind technology. And it would have the second highest PE after financials, which are always low, because they're celebrities imagine risky. And so again, so if you don't have a higher yield, and expectation of higher growth, and you know, some opportunity to have a recovery in valuation, maybe you say, Oh, no portfolio is fairly valued. You can say, Well, okay, that means I'm not going to make money on valuation, I'll make money on the, on the yield, and the growth. And if those two numbers are higher than the s&p will then kind of by definition, over time you'll you'll outperform, and vice versa. So So those are the three things that that make us different. We come from industry or niche. We are not asset gatherers, we're performance oriented. And we start with answer and work backwards. I tell folks, I said go to your money managers and ask them the following question of your historic performance and your expected returns in your current portfolio, break it down between yield growth change and valuation. And I promise you, not a single manager would have those numbers at their fingertips.
Robert Bryce 37:16
Interesting. So let me let me shift gears here because we chatted the other day. And I wanted to follow up on some of the things we talked about, because oil and gas industry has been incredibly volatile. Right. And, you know, it was the darling of 2022. And then this, we're in the first quarter of 2023. And these companies are just getting slaughtered. I mean, the drop in prices has been unbelievable. And we talked about the this, this predilection among a lot of analysts to blame the Biden administration for higher oil prices, and that the Biden administration has been dealing, you know, they've been in and I've thought some of these things, I said, myself, Oh, well, they're anti oil and gas, and therefore, the oil prices are higher, because they're restricting investment and restricting drilling. You said, No, you said, in fact, the other day that this is, I'm paraphrasing, but you said that it was complete BS. And that the this was the the discipline that's being imposed on the industry has nothing to do with the Biden administration, but rather, this is your word that the shareholders have taken the credit card away. So what do you mean by that? I know in the shale revolution, that's kind of a well known number $300 billion in capital was destroyed, because all these CEOs, all these, all these companies, were just drilling because they could drill and they drilled it and then $300 billion in equity and cash of investor money was just evaporated. But now you say the credit card is taken away. And that's the reason why we have lower levels of investment in the upstream Is that am I? Am i Repeating what you've said correctly?
Jim Murchie 38:41
Yeah, exactly. Right. So you say, Well, what got the shareholders to do that? And, you know, if you graph out the return on capital employed for the, for the publicly traded companies, the large, you know, the large ones around the world, you know, BP, you know, including the Europeans and the Americans and that kind of thing. And you and they, you know, like Saudi Aramco is public, but you know, it's only public for a few years, we're talking, you know, companies that have been around 30 years and you graph out their return on capital employed, and it's dropped from about 10%. Granted, it's cyclical, because it's a cyclical business down to close to zero. You know, recently, obviously, not last year, because everything bounce back. But that trend is really sort of, you know, I guess it was kind of a frog in a hot water. Over 30 years, they kind of came down slowly and the frog didn't jump out of the water. But I think you correctly pointed out the shale revolution triggered this capital spending boom, were in a rare instance, the companies actually spent more than they made. So if you look like one of the highest correlations, as an analyst is the capital spending of the oil and gas industry versus trailing 12 cash flows, it's like a 95% correlation. But that correlation broke down during the shale revolution because they spent more than they made because why because invest isn't like wait a minute, this is a structurally lower cost thing that you guys have figured out here. And while oil demand is only growing 1% a year you guys are stealing share. So you can understand the investment thesis of why people would give them more money than they were currently generating for themselves. The trouble was the execution. And they got very sloppy. And when I was an analyst, and Bernstein, I always say, look, companies do their best projects first and their worst projects last. So the more money they spend, the lower their average returns. It's tautological. And so when you see what happened with engine number one, who was the activist investor that went after Exxon, owning a sum total of three, one hundreds of 1% of their stock, and Exxon has 12, board members, and four of them come up for renewal, I guess, every two or three years. And engine number one went against management and one on three of the four. And this sent shockwaves through the industry, were this tiny and you know, and people said, oh, you know, this was ESG and woke environmentalism. And it's not because environmentalists divest of oil and gas companies, they don't own them. So the owners of Exxon that voted along with engine number one, were tired of those low returns. And so that is why the industry is being so capital disciplined. And it actually if you measure it, the way we measure it is kind of different than other people. You look at capital spending, minus depreciation, depletion and amortization. So now you have the net growth capital. And if you divide it by your capital base, you get the capital growth rate, which in the last 30 years has ranged between 2% and 12%, during the shale boom, but since 2016, has been a negative number. And so from a historical perspective, the underspending in the industry today is historic. And so you say, you know, so I, I think I wrote a LinkedIn post. And I said, you know, here we are coming up to in late August, everyone's complaining about, you know, the oil industry not spending enough money, whose fault is it is it Biden's fault is the environmental false? And I said, No, it's mine blame me and all the other shareholders who have taken the credit card away. And and I will follow up on our responsibility to make the system reliable, that's policies responsibility.
Robert Bryce 42:21
Right. Well, so you say there's it? Well, first question. So there's historic underinvestment, so is that I know, you don't, you're not necessarily tied to energy prices. But if we're under investing in the upstream under investing in drilling, which I've heard many times in the last few months, does that mean that prices are going to be what does that mean? Is that an end a bullish indicator for oil and gas prices in the future?
Jim Murchie 42:44
All else equal, it's bullish if you're not spending enough money, one of the things, the reason you got to subtract depreciation is because folks outside the oil industry don't appreciate that when you stopped drilling oil and gas production globally goes down between six and 8% a year at least if we stopped drilling tomorrow, and we had this meat and we met again, in 365 days, you would see the world's production capacity would have declined by at least 6%. It's not like a factory where if you keep it staffed and keep it maintained, it cranks out widgets every day. These are natural reservoirs in the ground, you're draining as fast as you can without damaging the reservoir rock. And so you need constant drilling. So we've seen studies that say, look, the industry needs to spend about $600 billion a year just to maintain production. So you say okay, if the decline rates 6%, that's about $100 billion per percentage point. So if you want to grow, as oil demand is still growing, the IEA just came out and said, you know, 2023 is going to be the new high watermark for oil demand. Every percentage point you grow, you got to hit $100 billion. And the industry is only spending about 450 500. So your the industry is way under where it needs to spend to maintain you say well, why are we running out and you say, well, because you have a cushion. You have spare capacity, and that spare capacity cushion is narrowing.
Robert Bryce 44:09
So the engine number one thing that we you just returned about I thought was interesting because I ran into a guy who works for engine number one and Dallas at the SMU conference. I was I was did moderated a discussion with Mark Nelson at that conference, and I happened to just sit next to the guy at lunch and he said essentially the very same thing that you said because the narrative about engine number one has been Oh yeah, it's these you know, these leftist environmentalists. This guy was like, No, I was I forgot what these are Goldman Sachs or somewhere else. He said hell no. He said, this is about corporate governance. And we wanted to put people interested in shareholder return on the on the board. These were all board members that were all captive to Exxon and they weren't really independent. And so and you know, from looked at it lately, but Exxon's prices the share prices recovered quite quite well and it looks like engine number one is going to make a lot of money on the D But the way that that story was covered in the media was does not match with how you just been been narrating it back.
Jim Murchie 45:07
Yeah, yeah, that's right. I mean, I only have a voice when folks like you, you know, invite me on a podcast. But I mean, the Wall Street Journal would never publish an op ed for me, because, you know, I'm kind of right down the middle. And here's the mechanics and it's boring. And people are asleep by the time I finished explaining it. So
Robert Bryce 45:24
if only they knew how charming you are, I'm sure they would. But you
Jim Murchie 45:27
can understand why the other stories make it to the papers, because they're they, you know, they attract eyeballs, and they're easy to read. So,
Robert Bryce 45:33
so but this under investment, though, you're saying is just simply a function of shareholders saying No, dammit, we want our money back. It has nothing to do with these other issues around ESG maybe? Or is ESG playing a role here? I've heard, particularly for the cold market, that companies are seeing capital go away because of ESG. So you're not? Are you? Are you saying that? That's not really the factor? It's more about the availability of capital from investors?
Jim Murchie 45:58
Yeah, it's, it's, it's overwhelmingly the shareholders. But the other stuff matters, too. It's just it's tough to, it's tough to, you know, identify, you know, percentages. But let's think about let's talk about coal, for example, before ESG became this popular investment trend. Power companies, you know, have a choice, you know, do they make, do they make power from coal, or you know, or natural gas or nuclear renewable sector, they have this whole quit, and they they, for years, now, they have not started new coal plants. And the reason is that, you know, there has been, there has been pushed back against coal plants for a long time. I mean, I've read stuff from the 1700s, in England, from country gentleman who went to London, and said, it would take two weeks after they got back to their home in the countryside to recover, you know, from their sickness from breathing all that stuff, right. I recently ran into someone who moved to Indianapolis for the first time and came and and has asked me he's never had asthma before he goes to a doctor, and he says, oh, yeah, that happens. He says, What do you mean, this happens? The people my age? He says, Yeah, he's I said, he said, what's the deal? He says, there's five coal plants within 100 miles of here. So it's still so you know, whether it's mercury or nitrous oxide, sulfur dioxide, coal emissions, if they're unabated are not pleasant to be downwind of and that's been true for hundreds of years, it's got nothing to do with ESG. And so when you think about a power company, trying to, you know, get their allowed rate of return from a politically appointed entity called the Public Utility Commission, you know, putting up a plant that's going to create a people who come to your rate hearings, objecting with, you know, with, you know, somebody, a picture of someone or someone who actually is suffering from emphysema is not going to go down well with with the utility commission. And so people have, you know, the companies say, look, let's just not do that, wait, let's talk about the XL, the Keystone XL Pipeline. Trans Canada, which is the sponsor of that project, has a new CEO and their CEO for years, there's a guy named Russ Girling, one of the best CEOs in the pipeline industry, and he's retired now. But every time we met with Ross, we'd say, cancel the project. And he says, well know that, you know, the numbers are good, it's accreted earnings. In a sense, I know what the spreadsheet says, I just don't think you're gonna get it built. And I don't want to, I don't want to be a distraction for you. And our capital, we're, you know, it just, I think this is a lightning rod for folks. And I think it's never gonna get built. If you're, if you're an environmental group, or an advocacy group, or just a land use, you know, advocacy group, this is this is a lightning rod pipeline that allows them to raise donations. And so you're just fighting the wrong battle here just canceled the project. As a shareholder, I'm telling you to cancel it, because I just don't think you're gonna get a bill and I think it's gonna cost me money. And so that's not ESG. That's just sort of the reality of what the public is going to let you do.
Robert Bryce 48:57
Let's talk about that. Because that's, that's one of the other things we chatted about the other day, and it goes back to this discussion of natural monopolies. And one of the issues that I follow closely, which is land use conflicts, and I've been reporting on this now for years, which the wind companies don't like, and you know, they don't like me very much. That's okay. I'm okay with that. The so but we're seeing the same battles over solar, we're seeing the same battles over high voltage transmission lines. So one of the the, the questions I wrote down here, there's a lot of talk is what I exactly what I wrote a lot of talk about the need to build more high voltage transmission lines to accommodate renewables. Is that going to happen?
Jim Murchie 49:34
Yeah, I don't think it's going to happen when people talk about doubling the transmission system. You know, I'm, I'm 65 and really healthy. I'm not going to live to see that. And the reason is because of how hard it is to cite these things. And that's because of our governance and policy over the years. Remember, we're a confederation of states. And so you know, like some other countries, you know, in the world that grew up as a as a coal selection of local power centers that decided to get together and form a larger nation, those local power centers retained their sovereignty. And the idea that you can put in a policy at the federal level that's going to run roughshod over that simply ignores the legal and political structure that we all agreed to when we set this place up. You know, the founding fathers set this place up to have different power centers that fight with each other all the time, not just three branches of government. But the difference between the federal and the states, you know, the Federalist system that we have, so I don't see that changing. And if you, you know,
Robert Bryce 50:39
I don't either Jim, I think that this is one of the great falsehoods that's being promoted as Oh, well, there's no well the line is there's no energy transition without transit, no energy transition without transmissions mesh, but the idea that there's going to be some massive build out of high voltage transmission, it's it hasn't happened, there's no example that they can provide a successful project that's been, you know, that is more than a few 100 miles and building it on an interstate basis is damn near impossible, and so very hard,
Jim Murchie 51:06
right. So, so we have so there's three pieces of energy infrastructure from a legal interstate from a legal perspective. So oil pipelines are governed by the by the Commerce Department, because originally, they fell under the Interstate Commerce Act, which was for railroads, because before we had pipelines, we shipped oil by rail, then we had natural gas pipelines, which is governed by the Natural Gas Act, I think it's 1928. And then we have the Federal Power Act. So of the three, it you know, interstate infrastructure, only natural gas has the right of eminent domain. So if you get a certificate from the Federal Energy Regulatory Commission approving a pipeline, that gives you the power of eminent domain, that is not true of oil pipelines, and it's not true of power lines. So within the state, the state regulatory, regulated utility has the right of eminent domain, but that's within the state, there's no crossing of state lines with a right of eminent domain to condemn for either an oil pipeline or a power transmission line. And
Robert Bryce 52:09
I didn't realize that that was the case for oil, I knew it was the case for power lines, I didn't realize that was the truth for Wells,
Jim Murchie 52:16
within Texas within the state, if you get a certificate from the Texas Railroad Commission, then that certificate comes with a right of eminent domain. And actually under Texas Railroad website, they say, you know, we don't have the right to condemn your land and sunlight well, not directly. But as soon as you as soon as you grant oil company, you know, a or Oil Company B that certificate they have the right of eminent domain. So right within the state you see it but interstate now
Robert Bryce 52:41
we'll see when that ver and that then that goes to the heart of this issue of whether the the ability to expand this critical infrastructure, then good relates directly back to those things that you just relayed out there that without that power of eminent domain for high voltage power lines or for oil pipelines, then the well I put it this way that the grid we have and are the grids we have whether it's pipelines, oil and gas pipelines or power lines, that the grids we have, or the grids we're going to have is that that's how I see it.
Jim Murchie 53:13
No, I think that's right. I mean, forecasting, you know, something that's never happened before is always is always risky. As Yogi Berra said, making predictions is difficult, especially about the future. So, but I will say, though, I had a discussion recently with someone who's familiar with, sort of, it's not an artificial intelligence company, but it's sort of a data analytics and failure prediction. Business. And what they found in analyzing some of these power transmission systems inside these utilities is that you have a few choke points that are massively overused, but a large part of the remaining system is only 20 or 30%. utilized. Right, so let's go back to that moral hazard I was talking about for utilities, where they're rewarded for putting steel on the ground, because we have this old regulatory system put in place at the turn of the 20th century where we were still in emerging market, trying to convince the world we'd be a reliable supplier of manufactured goods, you know, like steel, rebar, and things like that. That incentivizes the putting on the ground of dumb steel, because the more expensive it is, the more the utility can grow their rate base and therefore their earnings, there isn't an incentive there to put in software, because software doesn't cost very much and it wouldn't add to the rate base. So if you change the regulatory structure, so that it's value based as opposed to cost based, then what you'll see is the existing transmission system will end up probably having more capacity than people think it does. Doesn't mean you don't need new Why don't you look you have a solar a solar farm and someplace there's no wire you have to string a wire to it. Right. But, you know, at the end of the day, the difficulty with wind and solar even though they are now the cheap without subsidies, they are the cheapest form of new electric Did it you know, get full cost economics on your project. So in the Sunbelt, and in the wind belt, it's the cheapest electricity, it's intermittent. But again, that was not a requirement of our deregulated markets. But it's not energy dense. Right. And so the less energy dense your source of electricity, the more wires you need. Right? So that's why when you look at the bipartisan infrastructure bill, and you look at the IRA, what you see is a real shift in the types of energy that are being encouraged here. It really is an all of the above approach much different than the last 15 years.
Robert Bryce 55:39
Yeah. Well, it will. Okay. And that's true. But is this positive?
Jim Murchie 55:45
Yeah, I think it is, I, you know, I, again, a lot of the questions we get from our financial advisors, because again, they you know, they're reading the papers, that's, that's where they see this, their clients read an article generally, and ask them a question and then come back to us. And, you know, the, the narrative around these things is always biased. It depends on whether you're reading the New York Times, or The Wall Street Journal, if you're watching MSNBC, or watching Fox News. And so each of those guys give like a partial truth, half truth. And what, what I like to explain to people is that, you know, let's start with a result, which is the US has the cleanest, lowest cost, most reliable energy system in the world. How did it get there? And it's like, I think it's because you have this constant debate between the federal policies and local interests. You have this constant battling between interest groups and Congress. And so some people will say, you know, that's compromise, or it's lawn rolling. And you know, that's, that's not, you know, you know, what the policy was meant to do is like, Look, all I'm telling you is, I'm looking at the legislation, and the oil guys got their carbon sequestration tax credit increased, the nuclear guys got their production tax, and to keep existing nuclear power plants running, which is zero carbon. Okay, we have now we've split the money now between renewable electricity and clean electricity. So you don't have to be renewable anymore. You don't have to be wind and solar to get this subsidy, you just have to be zero carbon. And there's zero carbon technologies out there. One of which, you know, is a natural gas turbine, you know, that burns pure oxygen. And so the effluent is pure carbon dioxide. So it's simple to capture, and it's economic. And so the result that we you see, I think, is caused by this, this constant fighting that you're seeing on the news. It's like, you know, I'm sorry that you had to see the sausage being made. What is the best sausage in the world? So that's what it takes to make the best sausage in the world. It's this constant fighting and dickering. It's like listening to fighter girls fight over a toy. But the results? You can't argue with the results.
Robert Bryce 57:58
Yeah, that's interesting. Well, I agree the US is incredibly well positioned. Now, visa vie the rest of the world, particularly when it comes to energy. So we've been talking about an hour now. So let me want to wrap because I know you have another engagement. Just a couple more things. What about you mentioned nuclear, and it got some favors in the IRA? And it did? Is it investable.
Jim Murchie 58:19
The way they've been doing it historically, is not where each project is not completely unique. But it's a new project, it's slightly different size, etc. And there is there's actually a lot of literature on this about sort of the the problem with big projects. Because when you go through the learning curve of that, the next big project is different. And you can't apply what you've learned, you really need to make the same widget over and over and over again, which is why France's nuclear power program plan strategy, whatever, they they built the same thing, just cookie cutter, they just you know, they want a bigger plan, they put down three of the smaller ones, right? And the US is like, well, that's inefficient, I have three, I'm going to build you one that's one size. Well, in theory, that's true. But in practice, the execution favors the repeatability of smaller ones. So small modular reactors, when I've done a lot of reading on the one that will be first to market. It's called the company is it's still private, it came public through it through a smashing new scale. And it's being done at the Idaho National Lab. And I read actually a peer reviewed paper, a scrubbing their cost estimates. And what's different about what they're doing is every piece of equipment that they're using, exists for some other purpose, right. So think MacGyver here, right? You're taking paperclips and bubblegum stuff that were made for something else. And you were making a nuclear power plant out of it so that you get the benefit of what's known as rights law, where the more of a widget you make, the cheaper it becomes because your learning curve can be applied to the next one. So I think there's There's a lot of there's, for me, but you know, having been an investor and seeing where things go wrong. When you look at what this company did, they addressed what the problems were they analyze history, they said, here's why it's bad. And we're going to come up with a new way without its conventional technology, just eliminating the mistakes of these. Basically, site constructed, these things are so small, they're gonna fit on the back of a truck. Right.
Robert Bryce 1:00:28
So the last couple of questions then, Jim, because we're right at an hour questions, I always ask my guests, what are you reading? What books are on the top of your list?
Jim Murchie 1:00:35
Well, so I'm getting about four or five books at one time, but I'll tell you about the ones that I've finished recently, that, you know, come to the, to the whole, the whole environmental issue. I've read probably 10 books on global warming and things like that, and you know, a bunch of peer reviewed papers. But there's two I think your listeners would enjoy. One is written by a guy named Michael Shellenberger called Apocalypse never. Yeah, Michael Shellenberger ran for governor. He's a 60s radical. And he's got some really great data in there about weather patterns and things like that, and just sort of like trying to calm down the climate alarmists he doesn't, he doesn't think, you know that spewing greenhouse gases into the atmosphere isn't a risk, he just wants for people to take a breath. Yeah, the other one is written by a guy named James Hansen, who ran the Goddard Space Center for 40 years. He's not a climate scientist anymore. But he was probably the most brilliant climate scientists in the world. And he's a great writer, because he is describing to the reader sort of the difference between the greenhouse effect, which is why the earth is warmer than the moon and cooler than Venus. It's our atmosphere and how it blocks infrared radiation back into space. He tells you what the feedback mechanisms are in the climate systems and how complex they are. And that's the difference between the sort of the greenhouse effect which is not in dispute, and the result of putting more and more greenhouse gas emissions in the atmosphere. And its impact on the climate. And it's a fascinating sort of education on all these feedback loops, some of which mitigate the warming of the planet. Others, if they run out of control are really frightening. And I
Robert Bryce 1:02:19
think you want to remember that title, Jim. It's called storms
Jim Murchie 1:02:23
of our grandchildren by James Hansen. Ha Sen. Yeah. So I think those are great. I think they're easy reads. Even though the one is a climate scientist, the other one isn't. But they're, they're, they're, they're really balanced because people would say, oh, James Hansen, he thinks the world's gonna melt. And Robert Shellenberger is like a 60s radical. Who doesn't think the world's gonna melt? Quite Yeah, yeah.
Robert Bryce 1:02:45
And I had Shellenberger on the podcast. But yeah, Hansen's book is interesting. Yeah. So last thing, then. So what, you know, we've talked about a lot of things here. And we've covered this, you know, a number of topics here for over, you know, an hour. So there are a lot of challenges in the US what gives you hope. So,
Jim Murchie 1:03:04
you know, I'm, I'm an optimist. I, you know, there's, there's a story I tell I was in Hong Kong once and I met with Hong Kong Power and Light, which is one of the Li Ka Shing groups, a company and the crushing is wealthiest guy in Asia, he's pretty much responsible for Hong Kong's, you know, business success in Hong Kong is slowing. And so they started investing outside of Hong Kong. And I asked the guy, what are your guidelines for investing outside of Hong Kong? And he says, Well, first I want to regulated businesses was smooth government. Okay, that's good. I'm there. He says the other is we only invest in English speaking countries with British common law. And I'm thinking that's interesting. Why is that? And it's like, well, because if you study common law versus other legal systems, even civil law, it really is conducive to protecting contracts and protecting property. And so when I'm asked, you know, people about you know, being optimistic, I say, look, be optimistic that you live in an English speaking country with British common law separated from the rest of the world by the to the world's two largest oceans protected by the largest military in human history. That is something to be optimistic about. And you see, but Oh, but it's, you know, the politics is so bipolar. And it's just so nasty. And it's like, read a little history, I'm not sure it's any more nasty now than it was in the 1800s of the 1900s. And from my view, that nastiness prevents any one group from getting too much power, which is when when you look at the history of the world, that's when things start heading south. So all of that bickering within this, you know, within this country separated from the rest of the world by these two oceans, is actually I think, the one thing that we should sort of continue to encourage as soon as the debate is shut down, that's when we that's when we should start to worry.
Robert Bryce 1:04:52
Well, I think that's a good place to stop. My guest has been Jim Mirchi, my old friend now from some now 1520 years ago, he is the CEO of energy income partners. You can find out more about him at E IP investments.com. Jim, thanks for coming on the power hungry podcasts been a lot of fun,
Jim Murchie 1:05:09
Robert, it was great fun. I hope we can do it again. Yeah. And all you out there in
Robert Bryce 1:05:13
podcast land. Tune in for the next episode of the power hungry podcast until then. See you later
Transcribed by https://otter.ai