Ep 40 | Jim Murchie | Who Benefits from the Growing Power Demands of AI, Reshoring, and EVs? | ROI Podcast

Electricity demand is poised to soar after decades of slow growth, driven by AI, reshoring, and EVs.  Jim Murchie, CEO and portfolio manager at Energy Income Partners, unpacks how natural gas, nuclear power, and renewables will fuel this surge, as utilities scramble to keep up.

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Episode Transcript

Ryan (00:07):
Hi, welcome to this episode of the First Trust ROI
podcast.
I'm Ryan Isakainen, etfstrategist at First Trust.
Today I'm joined by Jim Murchie, president, portfolio Manager,
ceo of Energy Income Partners.
Jim and I are going to talkabout some of the developments
in the energy sector.
There's a new administration,there's a surge of electricity

(00:28):
demand, growth coming fromartificial intelligence, a lot
of other sources, but there'sbeen some questions about
whether that growth is actuallygoing to materialize, especially
with some of the newinnovations that have been, or
the competitive forces comingout of China, deepseek and
others.
Jim and I are going to coverall of that on this episode of
the First Trust ROI podcast.

(00:49):
Thanks for joining us.
Well, jim, glad you were ableto.
We were able to arrange ourbusy schedules to do this.
Once again, thank you forcarving out some time for us.
It's an eventful week.
We're recording this on January30th and earlier this week
there was a pretty big sell-offin AI-related stocks, but also

(01:09):
the energy sector also.
You know, energy infrastructureanything that was that kind of
had a whiff of the AI trade soldoff.
So I want to start there.
I want to talk a little bitabout electricity demand,
especially its links to AI, andyou know kind of that narrative
that's been built.
So, as you think about this, Imean, I guess the good place to

(01:33):
start is is that link justifiedand what are some of the other
ways that you think of or someof the other drivers for that
demand growth for electricity?

Jim (01:42):
Yeah, so the link is definitely justified.
But the context is 20 years ofessentially no electricity
demand growth in the UnitedStates, and we saw demand growth
last year for electricity of 2%.
So the forecasts aboutelectricity demand growing again

(02:05):
are really no longer forecasts.
They're really sort of startingto happen, and we've been
training AI large languagemodels for years now, but what
everyone's talking about, ofcourse, is still in the planning
stages and probably not evenunder construction.
So the question is why did wehave flat electricity demand for
20 years?
And the answer is sort of youknow a few things.

(02:27):
The first is that you know thegrowth of electricity demand
after World War II was, ofcourse, population GDP and you
know industrializing the worldafter World War II and then.
But even in the residentialsector, I mean, you went from
houses with ice boxes to houseswith refrigerators, washers and

(02:49):
dryers, and then in the 70s and80s, air conditioning, and then
that all flattened out.
And then we had these energycrises and then we worked on
making all those machines moreefficient.
So you have that yellow stickernow when you go to shop for
appliances you didn't havebefore the energy crisis, and so
all of those efficiencies,including LED lights have now

(03:12):
kind of worked their way throughthe system and you're now
talking about maybe newappliances that are electric,
which would be electric cars,and electric heat pumps
replacing furnaces.
Now those trends are muchslower, but again it's a
reversal of trends thatcontributed.
The other big contributor is thefact that industrial production

(03:33):
and manufacturing in thiscountry is also essentially flat
for the last 20 years becauseof all of our offshoring.
Well, as we know now, when youlook at construction spending
again from US Census Bureau data, the amount of construction
spending for manufacturingplants has nearly tripled in the

(03:53):
last three years.
And of course, yes, that's thechips act, the bipartisan
infrastructure, but it's alsowhen you look at our imports
from China.
They're going down.
So there is already thisnascent reshoring.
And when you look at residentialand commercial demand, for the
last 20 years they were growingslowly, but they were offset by

(04:15):
the loss of electricity demandin industrial.
So now here we are and demandis already growing again.
And so the question is, how bigis AI as a part of that?
Well, it's certainly something,but it doesn't take away from
the fact that we're reshoringmanufacturing anyway.
We are doing moreelectrification in terms of
vehicles and heat pumps andthings like that.

(04:37):
And, yes, forecasts now are formaybe one and a half percent a
year growth all the way up tothree and a half.
And you don't get to the threeand a half without the big AI
demand.
But you don't need any of thatto have the one and a half
percent.

Ryan (04:54):
So do you think that it's?
You know, I guess there's maybethe potential for
overestimating the demand growthand underestimating where in
that spectrum do you think weare now?
I mean, are most peopleoverestimating how much growth
we're going to need or are theyunderestimating that?

Jim (05:11):
Well, I think maybe the near-term peak for estimates of
growth was a week ago, friday,and then come Monday morning,
people were questioning thoseassumptions.
At the end of the day, all ofus on Wall Street are not
experts in the amount ofcomputing power and therefore
electricity that's required forthese large language models and
this inferential software.

(05:32):
So I don't claim to be anexpert on that, but we are
students of all the sources ofdemand for electricity and sort
of why they've changed and thefact that even last year we've
already seen some growth for thefirst time in 20 years.

Ryan (05:48):
You talked about demand growth, and I think one of the
interesting aspects of that is,if there's demand growth, you've
got to actually increaseproduction, right?
That takes a long time, right?
I mean it's not like you snapyour fingers and all of a sudden
you've got production online.
You've got to actually add thatcapacity.

Jim (06:08):
Where is that capacity projected to come from at this
point?
Yeah, so you're right.
So the lead times on all thismachinery is a long time.
And forget the back order,which of course now is building
up, where you can put the orderin today and the machine won't
show up for three years.
And then of course you have toinstall it and build the
buildings and all that kind ofstuff.
So the lead times are prettylong.

(06:30):
But the data on the industry'splans are pretty transparent.
So whether you're a regulatedutility or an independent
merchant power producer, youkind of have to file every year
with the Department of Energyand that shows up in what's
known as the A60 report.
So we have a spreadsheet on ourcomputers of every single
utility scale power plant goingback to the 1920s when they

(06:53):
closed, what's currentlyoperating today and what the
five-year plan is to add newcapacity, by type, by location
and the ones that are currentlyoperating when they're going to
retire.
So when you look at thatfive-year plan, what you see is

(07:13):
that we're adding 170 gigawattsof wind and solar, we're adding
300, sorry, 30, 35 gigawatts ofnatural gas, and you say, well,
okay, we're not adding anynuclear because it's not really
under construction.
That takes eight years.
No one's going to build coalplants.
In fact they're shutting themdown.
So the plan is to shut 50gigawatts of coal.
So the net capacity additionsfor the next five or six years

(07:34):
is 150 gigawatts.
But when you do the math wait aminute 150, but we're building
170.
115% of net capacity additionsover the next five or six years
is wind and solar, and 100% ofthe incremental demand is
basically from the industrialand commercial sector that needs

(07:56):
power 24-7, 365.
So that's the setup.
100% of what we're adding iswind and solar, not a net basis,
and 100% of what we're needingand wind and solar are obviously
intermittent and 100% of whatwe need is 24-7 availability.

(08:17):
And so that's the setup andthat's kind of what has gotten
the capital markets interestedin how we're going to square
that circle.

Ryan (08:26):
Right.
And then you hear dealsannounced like Constellation's
deal to sell power to Microsoftby restarting the nuclear plant,
Three Mile Island, the nuclearreactor and some other notable
nuclear-related deals.
Yeah, Is that kind of thedirection that we're going?
You said there's not anythingin those spreadsheets about new

(08:48):
nuclear power.

Jim (08:49):
Yeah.
So it's gotten attention forreally good reason Because,
again, regardless of what themath turns out to be, the amount
of electricity required by whatthey call the hyperscalers, but
let's call it big tech issignificant, and they have two
requirements of this commodity.

(09:11):
So you mostly think ofcommodity, as every commodity is
the same, whether it's anelectron or an ingridium of
aluminum, and all that mattersis price.
But at the end of the day, thatcommodity is used in a product
or a system and performancematters.
So the performance that mattersto big tech is two things 24-7
availability and zero carbon.
Remember, they've made zerocarbon commitments to their

(09:33):
shareholders and their customers.
And so, in the move towardselectrifying the world's energy
system in order to reducepollution of all kinds and of
course the environmentalistswant that mostly to be carbon
you say, geez, wouldn't it benice if we had an always

(09:54):
available zero carbon source ofelectricity?
Oh, wait, a minute, we do.
It's called nuclear power andwe invented it 80 years ago.
And you say, well, what's theproblem?
And you say, well, the problemis it's really expensive.
The last nuclear power plantbuilt in Georgia, which came on
stream about a year ago after 10years under construction, two
and a half times over budget isgoing to need 15 to 20 cents a

(10:18):
kilowatt hour to pay off.
Now, put that in context thewholesale price of electricity
in the United States is $0.05 akilowatt hour.
Okay, so the deals that havegotten everyone's attention is
that Microsoft is payingConstellation a premium over
that $0.05, like 2x.
And the other deal that goteveryone's attention, which is

(10:40):
almost two years old now, wasAmazon building a data center
next to a nuclear power plantoperated by a company called
Talon in Berwick, pa.
It's called the SusquehannaNuclear Power Plant, and they
were willing to pay a premium.
We say, okay, that'sinteresting.
We now have sort of a wholesalemarket sort of coach.
Everybody gets to fly coach buta few people get to fly first

(11:00):
class.
They get food, they get theboard first.
It's the same flight but theperformance is a little bit
better.
And so that willingness to payby a very large purchaser of
electricity has gotteneverybody's attention in general
and on nuclear in particular.
But the thing with nuclear thatpeople have to remember is that

(11:20):
while the new plants need 15, 20cents a kilowatt hour to get a
return on investment for theowner existing nuclear power
plants, that capital is sunk,and for three and a half cents a
kilowatt hour they areprofitable at a five cent number
.
And so now everyone, all theinvestors, looked around and
said, well, who owns theexisting nuclear power?

(11:43):
And those are the stocks thatwent up the most.
The thing is, the differencebetween the Microsoft deal with
Constellation is that it'saffect extra capacity.
It's a power plant that wasshut down five or six years ago
and so they're adding capacityto the system.
They're adding zero carbonreliable power to the system.

(12:06):
In the case of Susquehanna andAmazon, they were taking an
existing power plant simply fortheir own needs.
So that means that on themargin everybody else's
reliability goes down if they'retaking the most reliable system
plant for themselves.
And that is why the FederalEnergy Regulatory Commission has

(12:28):
put a stop on that deal for thetime being.
And so that kind of has throwna wrench into how people, how
investors, are deciding whatpremium they're going to pay for
existing nuclear.
But as you suggest, I mean evensome of the new what I would.
They're almost venture capital,but they came public through
the you know, the SPAC bubblewhere all this stuff was coming

(12:50):
public.
But these are really venturecapital.
I'm not sure they kind ofbelong in the public markets.
For you know, for john q,investor um, but those have
gotten, those have gotten a bidum as well.
But again, it takes years tobuild these things, eight to ten
years, and right now they'renot economic if they're simply
going to sell to the wholesalemarket okay.

Ryan (13:12):
So you've got.
You've got the intermittentrenewal, uh renewables, you know
the wind and solar um, so thatcan't supply that 24-7, 365
demand on the one hand.
And then on the other hand,you've got nuclear, which would
be great, but it takes a while,right, I mean?
And we're racing to competewith China.
We want to build and scale upthe data centers and, you know,

(13:35):
add new manufacturing capacity,and where does that leave us?

Jim (13:40):
So it leaves us in delaying some of the closures of
existing coal plants, delayingsome of the closures of existing
natural gas plants andaccelerating, from that
five-year plan, natural gasconstruction.
Wind and solar are alreadybeing built as fast as they can,
so forget that.
They're intermittent.
Those are the ones that arespread all across the

(14:03):
countryside, right, they are theleast energy dense source of
electric power, and that meansthe more space you need, the
more permits you get, the morenimbyism you get and the more
new power transmission that youneed.
And that's hard to permitbecause think about all the
property that you have to get aright of way across, and it's
not just federal permitting,it's local permitting.

(14:25):
And so wind and solar are goingas fast as they can and no one's
going to build a new coal plant.
It might delay the closing ofan existing one Nuclear they're
working on but it takes time.
That leaves you with naturalgas, and so that, to us, is how
you're going to meet thisincremental demand for the next
five, six, seven years.
It's really kind of you gothrough that spreadsheet, as

(14:48):
we've been through a hundredtimes, you can't come up with an
answer.
And so now you're starting tosee deals done with big tech and
natural gas.

Ryan (15:00):
So are you kind of alluding to?
There was the big announcementthat Meta made that they're
going to spend like $10 billionon a data center in Louisiana.

Jim (15:08):
Yeah, in the middle of nowhere in Louisiana.
Now, some people would say thatLouisiana is already in the
middle of nowhere, but this isin the middle of nowhere in
Louisiana and I think this is areally important deal and

(15:32):
investors should be payingattention to this.
Energy is going to build 2.2gigawatts of power with three
sort of 750 megawatt natural gasunits and it's going to cost

(15:54):
upwards of $3 billion to do that.
To give you an idea of and thisis for the $10 billion data
center for Meta, but to put that2.2 gigawatts in context, it's
17% of Louisiana demand today.
That's how big this one datacenter is.
And you say, well, okay, Ithought big tech wanted zero
carbon.
It's like, well, they'rethrowing in some solar panels,

(16:15):
some batteries and some carboncapture to kind of burnish their
zero carbon bona fides.
But at the end of the day,these guys need power.
They're running a business, andyou say so.
Why did they go to Louisiana?
Why did they go to a verticallyintegrated utility?
People have this perception ofutilities as run by a bunch of
sort of you know, you know, dyedin the wool, old state

(16:36):
management that you know doesn'tknow how to use a cell phone
and that kind of stuff and it'sjust not the case.
The vertically integratedutilities actually have an
advantage here.
First of all, they own all thewires in the state, all the
transmission they own Inside ofa state.
When you want to build a newwire, the state gives you the
right of eminent domain.
Interstate power transmissionunder the Federal Power Act of

(16:59):
1920 did not grant right ofeminent domain.
If you're building aninterstate power transmission
line you got to go out and getthe land yourself.
The second thing is that, beinga big utility, entergy is
already a big customer ofSiemens and GE, vernova and that
kind of stuff.
So they're farther up thewaiting list on getting power

(17:20):
demand.
The other thing that Louisianais it's a business-friendly
state.
They already have sort of aspecial tariff for large
industrial customers.
They obviously don't have aproblem with natural gas the way
New England and California does, because oil and gas is the
home team in Louisiana Sure.
Oil and gas is the home team inLouisiana Sure and you know you
have a—and so if you need tobuild a new pipeline to these

(17:44):
new power plants, then Entergycan write a 20-year contract,
because the pipeline companiesaren't going to build a pipeline
without that 20-year contractand the merchant power guys
don't really have the balancesheets or the shareholders
willing for them to get into a20-year commitment shareholders
willing for them to get into a20-year commitment.
And so when you look at whatMeta's looking for, they're
looking for speed and one-stopshopping in a state that has
natural gas availability, thathas a business-friendly

(18:07):
environment, that has aregulatory structure, has a
vertically integrated utility,that operates on a cost-plus
monopoly model, and it'sbasically everything they're
looking for.
And if there's so much more inthat package for them than a
single independent powerproducer operating in a state
that may not be as friendly tonatural gas as Louisiana is, so

(18:31):
with that cost plus model.

Ryan (18:34):
You know, are the normal consumers that energy is, as a
utility, supplying power to.
Are they the ones that end uppaying for this deal with Meta,
or does Meta have sort of acarve out?
Or do they pay more?
Is it distributed?

Jim (18:48):
No See, I think that's what's making this deal.
Have the other states sit upand take notice.
And so this isn't the exactarithmetic.
But think about a 17% increasein demand for electricity in
your state and that some portionof the electricity costs that
everybody pays to bring intotheir house is a fixed cost.
Those fixed costs are now beingdivided by 17% more kilowatt

(19:13):
hours.
Now, that's not exactly themath, but that is directionally
the math, and so the other thingthat Meta did was they signed a
15-year contract.
So, in spite of the fact that avertically integrated utility
is a cost plus model, they saidif anything happens to our plans
like, let's say, this deep seekthing said, we need a third
less power than we thought.

(19:34):
They're still on the hook for15 years for all the capacity of
those three generators, whichis going to give the utility
full cost recovery.
And so it's very friendly toeveryone else.
Go back two years when Talonsays I'm going to take this one
and a half gigawatt nuclearpower plant in Berwick, pa,

(19:56):
that's 24-7 availability andzero carbon, and I'm going to
take it off the grid and use itfor myself, and everyone else is
saying wait a minute.
Not only are you making the gridless stable, but the people who
use that electricity used topay $140 million a year in
transmission fees and we'regoing to lose that revenue.
Now everyone's bill is going togo up and the reliability is

(20:18):
going to go down.
So you can see why the FederalEnergy Regulatory Commission
stepped in and said they kind ofhit the red stop button.
They said you know what?
This is all happening too fast.
We don't want to set the wrongprecedent, but we're not seeing
how this is good for everybodyelse.
The Louisiana deal is good foreverybody else and it's good for
the utility whose stock pricejumped on this, because now

(20:42):
their earnings growth rate isgoing to go up, because that's
they get.
Remember, they get an allowedrate of return on invested
capital.
So the more invested capitalthey have, the faster their
earnings grow.

Ryan (20:53):
So you invest a lot in assets that are high quality
assets focused on transmittinghydrocarbons, whether it's or
electrons, or electrons, right.
So natural gas pipelines how dothey play into everything we're
talking about?

Jim (21:10):
Yeah.
So they started getting a bidrecently too and they sold off
very hard on Monday because theinvestors have sort of figured
this out for some of thosecompanies.
But there's no question thatthere is more pipe capacity that
is needed for this additionalinvestment in natural gas power
generation.
And when we start moving out ofthe world of electrons and in

(21:34):
the world to pipelines, we arenow sort of in the conventional
oil and gas neighborhood and, aswe talked about in our last
podcast, that is a neighborhoodrun by companies that are on a
very short leash with theirshareholders with respect to
capital spending.
And the reason they're on ashort leash is because they

(21:56):
wasted so much capital duringthe shale boom and they drove
their returns down pretty closeto zero.
Now the pipelines did muchbetter.
They're on a short leash isbecause they wasted so much
capital during the shale boomand they drove their returns
down pretty close to zero.
Now the pipelines did muchbetter because they're long-term
contracts, they're regulatedmonopolies or natural monopolies
.
But that shareholder culture ofdon't spend a dollar without my
approval because the last 10years you weren't getting good

(22:17):
enough returns is as much a partof the pipeline industry as it
is the oil and gas industry andso when you look at capital
spending for pipelines, it hasdramatically lagged the growth
in natural gas demand andproduction in the United States
and major systems.
The biggest natural gas systemin the United States and the

(22:38):
second biggest in the worldbehind Gazprom, is the
Transcontinental Natural GasSystem owned by Williams.
It runs from Texas andLouisiana all the way up to the
New York City gate and that maintrunk line is sold out.
So the only way they can sellmore gas is to build laterals in
the Carolinas and places likethat for these new natural
gas-fired power plants forindustry.

(23:00):
Some of those are auto plantsthey're not all data centers and
that allows them to grow theirearnings even though their main
asset is sold out.
And when you look at thereturns they're getting on those
projects, they are twice whatthey were 10 years ago.

Ryan (23:17):
So that added demand.

Jim (23:18):
They're able to satisfy that by building more Building,
more yeah, and so, yeah, so thatcapital spending will get
20-year contracts.
And again, who is going to beable to sign those 20-year
contracts?
Vertically integrated utilities, because they can pass that
cost and obligation along to allthe rate payers.
I mean, that's why we that's,you know, one of the reasons we
have.
You know, we have that model.

Ryan (23:40):
You know you've.
You've made a reallyinteresting set of points when
we've talked in the past aboutthe difference between those
vertically integrated utilitiesand some of the merchant power
utilities.
Can you maybe break that down alittle bit for us, like, what's
the difference between thosetwo?

Jim (23:57):
Yeah.
So you have to kind of go backand look at the history of how
we ended up here and again.
When you look at the utilityspace, it's less than 3% of the
S&P 500.
It's two-thirds owned by retailinvestors.
So the average institutionalportfolio manager has less than
1% of utilities.
So the subtleties that we'regoing to talk about is lost on
99% of them.

(24:17):
The folks that know the storyI'm about to tell you can count
on two hands and they'rebasically the research analysts
in the world of utilities.
But, as some of the listers mayknow, I mean research in
general in the world of energyhas been slashed in the last
five to 10 years.
But anyway, if you go back tothe beginning of the utility
industry, at the beginning ofthe 20th century, we were

(24:49):
starting to build natural gaspipelines and electric power
lines and the model that wechose really grew out of all the
problems with railroads in the1800s.
And you say what were theproblems with the railroads?
Well, a railroad is a naturalmonopoly, just like poles and
wires and pipes, and if you haveone guy build one rail too many
between Pittsburgh andCleveland, all the rail
operators go bankrupt.
So we had massive financialdistress as a result, horrible

(25:12):
safety problems, all kinds offinancial shenanigans, and that
brought forth the very firstregulatory agency in the United
States, the Interstate CommerceCommission.
And the very first regulator inrailroads was actually Charles
Francis Adams, the greatgrandson of John Adams from
Massachusetts, and he made thisobservation that the rail lines
with the lowest cost were theones with the least competition.

(25:35):
Because you have to think ofcost, not just an operating cost
but the debt and equityfinancing on building the
railroad, and so if you had toomany rails, you had too much
cost and not enough volumes.
That's just another way ofdescribing a natural monopoly.
So when we got to the turn ofthe 20th century we decided to
try legal monopolies, and thatway you only have one set of

(25:56):
poles and wires running down thestreet, and so you avoid the
duplication of capital, and youyou basically run a cost plus
model, so that that monopolistcan't charge what he wants.
You give someone a monopoly,you got to get two things in
return you got to get anobligation to serve, because

(26:16):
customers don't have anotherchoice, and you have to limit
what they can earn on theirinvestment because you've
granted them a monopoly, and sothat takes the form of a cost
plus revenue model.
So you had your operating costs, your interest on debt, and
you're allowed to return onequity and that's your revenue.
It's literally upside down fromevery other business, and so
that's how the business startedoff in the early 1900s and was

(26:39):
cruising along fine until we gotto the 1970s and 80s.
We're building out these nuclearpower plants.
We talk about what they cost.
We had massive cost overruns.
We're talking 5x.
Well, in a cost plus system,those costs are passed along to
everyone.
Industry is now looking at whatthey're paying for electricity.
The wholesale price ofelectricity back then was six
cents a kilowatt hour.
Looking at what they're payingfor electricity, the wholesale
price of electricity back thenwas six cents a kilowatt hour.

(27:00):
When I was at BP in the early80s, my team was running
economics on making ourelectricity, which we could do
for three cents a kilowatt hour.
Well, every industry was doingthe same math and regulators
realized what was going tohappen.
Big industry would get off.
The fixed costs would be borneby a fewer and fewer and fewer
number of customers.
This was a negative feedbackloop.
We had to deregulate theelectric power portion of that

(27:21):
vertically integrated model andwe kept where the poles and
wires of course really are anatural monopoly Generation,
isn't?
So that's when we startedhaving independent power
producers.
Now some states decided thatthey didn't want their customers
paying a highly volatile changein electricity price.
Because you look at anycommodity natural gas, oil, pork

(27:42):
bellies, gold, aluminum, copperthey cycle like crazy.
They wanted to protect theircustomers from that, so they
allowed their verticallyintegrated utilities to keep
their power generation in thatcost plus model.
So today we have twoside-by-side systems.
We have deregulated markets inevery state, but it's the state
that decides whether or not theutility is allowed to have the

(28:04):
power gen in a cost-plus model.
And so today 50% of USelectricity is generated by a
cost-plus vertically integratedutility and 50% is generated by
merchant power producers,generated by merchant power
producers.
And so a merchant powerproducer if he can sell
electrons for more than theycost and make a profit, that's

(28:26):
the only requirement on him.
Just like if you deliveraluminum to London Metal
Exchange, they don't say well,to do business here you have to
come every Wednesday at 11o'clock and sell us this amount
of aluminum.
That would be silly.
That's not a deregulated market.
So one of the questions peopleget we went through the supply
plan for the next five years andpeople say, well, wait a minute
, if we need 24-7 electricity,why the hell is all the

(28:50):
incremental supply coming fromintermittent wind and solar?
And the answer is becausethey're merchant producers and
if they can sell their power ona 25-year contract at, say, four
and a half cents or five cents,and it's costing them three
even without subsidies, this isthe misunderstood part.
We are subsidizing these things, but in some areas the wind is
so strong and the sun is sobright that with these subsidies

(29:12):
they can sell electricity forzero and still get a
cash-on-cash return.
Take away all the the subsidiesand there is still a big swath
of the South for solar panelsand a big swath of the center of
the US where our wind corridoris from basically Minnesota down
through Iowa to Oklahoma, thepanhandle of Texas, where they
can sell electricity for threeor four cents a kilowatt hour

(29:35):
and make a 10% cash on cashreturn.
You say, well, but it's notreliable.
It's like that's not theirproblem.
That's what a deregulatedmarket is, and so that's what
people have a hard timeunderstanding.
And people say, well, why didwe deregulate?
Well, that's $0.06 a kilowatthour back in the early 1980s is
still $0.06 a kilowatt hour.
So adjusted for inflation, it'sdown 70%.

(30:02):
So by that measure,deregulation was an overwhelming
success and was absolutely theright thing to do.
But if the public wants reliablepower, then some combination of
their desire for that andregulators' desire to give them
what they want, or politicianswe have to figure out how to get
reliable power withoutdestroying the efficiency of a
competitive market.
And, as I say to people, if youthink that's easy to do, then

(30:23):
you haven't worked the problem.
Because every time you step inwith a constraint on the free
market because that's what thepublic wants, you're going to
lose a little bit of efficiency.
And the public may say I'm finewith that, I just don't want
the lights to go out.
That is a tradeoff that thepolitical process is designed to
do.
But that's why we have thishybrid system today, and it's

(30:44):
just like Winston Churchill saidabout democracy it's the worst
system, except for all theothers.

Ryan (30:50):
Right, there's a new administration.
We're past inauguration day andthe Trump administration has
already pretty quickly began toissue a lot of executive orders
and try to do a lot of differentthings.
How does that impact the energysector just kind of broadly, in
your view?

Jim (31:08):
Yeah.
So you know, the executiveorders are something people
ought to read just one or two ofjust to get a feel for how
they're written.
And they've evolved from hisfirst administration and the
Biden's administration, becausein those first executive orders
every paragraph would start offwith the phrase to the extent
allowed by existing legislationand federal agency rules.

(31:30):
We're going to do blah, blah,blah, blah, blah, and so,
effectively, the context peoplehave to put these executive
orders in is the context of howthe government works.
And so the way the governmentworks is Congress passes the
laws, congress funds those lawsand the executive branch
executes those laws.

(31:50):
It's not called the executivebranch because the president is
the CEO.
It's called the executivebranch because it exists to
execute congressional intent.
So we have over 400 federalagencies in the United States
Now.
After the ConstitutionalConvention in 1787, we had zero,

(32:10):
but it's grown to over 400.
And every single one of thoseagencies was created by and is
funded by Congress, not theexecutive branch.
And why do those agencies exist?
They exist to interpret,administer and enforce
congressional intent in thatlegislation and they have to
follow strict rules.
So when there's new legislation, rules have to be promulgated,

(32:34):
basically interpreting thatlegislation to the real world
where businesses and people aregoing to have to work with the
language in that legislation.
To the real world wherebusinesses and people are going
to have to work with thelanguage in that legislation.
They can't simply just writethose rules.
They have to hold publichearings and then they draft the
rules and they issue those andit's called a notice of proposed
rulemaking and then peoplecomment on that and it goes back
and forth and back and forth.
Because oh, that's abureaucracy.

(32:54):
I think it's the most open andtransparent democracy on the
face of the planet.
Everybody gets to weigh in.
We ourselves have submittedexpert testimony in two open
hearings for the federal energy.
Anybody can do that.
It's not like you need alicense, and so those processes
and procedures define how thoseagencies can change their rules.
So when a new president comes inand says we're going to do this

(33:16):
, this and this not so fast,okay, because the agency can't
change its rules without holdinghearings, now that doesn't stop
presidents, this one or anyother, and so if somebody
doesn't like the change in therule, then they sue and say you
haven't followed theAdministrative Procedures Act of
1946 because you didn't holdhearings on this, and it grinds

(33:37):
the whole thing down.
You didn't hold hearings onthis and it grinds the whole
thing down.
But the president's power, Ithink and this is the irony of
it actually comes into play,because there are over 400
federal agencies and there'sjust not enough watchdogs and so
they can sort of issue rulingsand issue sort of policy
statements, and all thoseagencies start working a little

(33:57):
bit differently.
And, yes, there will belawsuits, but they sometimes
take years.
So you saw like some of thejudges issued injunctions, like
when he said you know, we're notgoing to like fund any of these
things, and the judge says, no,you can't do that, that's
Congress Right, you know.
And then they rescinded thatright and they rescinded it
temporarily, but it's going tobe adjudicated in the courts.
And then Biden you in thecourts and then Biden forgave

(34:24):
all that student loan and peoplesaid it's the Congress, the
executive spends the money, itdoesn't authorize the money, and
so that's the context peoplehave to put this stuff in.
But when you look at theexecutive orders for this
administration, they're muchmore surgical in their drafting.
Yes, there are policystatements, so there are three
that relate to energy.
One is unleashing Americanenergy, the other one is
unleashing the extraordinarynatural resource potential of

(34:47):
Alaska and the third one isdeclaring an energy emergency.
So those are the three thatrelate directly to energy, and
what's interesting about thatone is that it actually
references two pieces oflegislation which have given the
executive branch extraordinarypowers.
The first one is the EmergencyPowers Act, and they say it's
1976, is the current one, but itwas actually enabled all the

(35:11):
way back during Woodrow Wilson'sadministration, prior to the US
getting involved in World War I, because our ships were getting
sunk by submarines, and so heneeded executive powers to
implement rules so that thatdidn't happen.
And that legislation has beenmodified, and the last
modification was 1976.
It gives the president, certainpowers there are still.

(35:32):
I think in the history of it itwas like 40 or 50 emergencies
for specific things have beendeclared since Woodrow Wilson,
and 20 of them are actuallystill active, and the oldest one
is from 1979, and it relates tothe confiscations of Iran's
financial assets in the UnitedStates.
It is still current.
Wow, okay, it's a longemergency.

(35:52):
It's a long emergency, but noone's objecting to that.
So let's put all of that detailin context, because clearly it's
the policy of thisadministration to encourage
energy production of all kindsoil, gas, coal, electricity
generation, which is convertingone energy form to another.
You have to say, ok, whatimpact is that going to have on

(36:13):
the industry?
And when you read the orders,they are in effect attempting to
relieve constraints on theindustry right, permitting and
things like that.
But to believe that that'sgoing to have an actual impact
on supply, you have to believethat those things are the
constraints.
And, as it turns out, they'renot.
So, as we said on our lastpodcast from about a year ago,

(36:33):
the real constraint on the oiland gas industry is actually the
capital spending theirshareholders are allowing them
to do, and capital spending gotcut 50% in the oil and gas
industry during the Trumpadministration.
Nothing to do with Trump.
It happened to do with thecycle of shale.
It just so happened that thathappened between 2016 and 2020.
And so when you look at theamount of drilling permits, for

(36:57):
example, that Biden issuedversus, you know, versus Trump,
they were about the same.
But what is interesting, you goback and look at the offshore
acreage that was put up forlease by the Trump
administration and Trump won2016 to 2020.
Or 2017 to 2021.
Versus Obama, it was two and ahalf X.

(37:18):
So Obama made available roughly60 million acres a year and
Trump bumped that to like 150.
And then you go back and lookyou say, well, okay, how many
acres did the industry actuallybid on?
And the answer is less than 3million in every year.
And it didn't change underTrump because they have their
capital budgets and that kind ofstuff.
So the other thing is that, yes,the federal government has

(37:40):
control over federal lands, butonly 10 to 15 percent, depending
on how you measure it, beforeor after royalties, etc.
Only 10 to 15 percent of US oiland gas production is on
federal lands.
So it only affects that and if,for some reason, so forget the
story I just told about offshoreleasing.
Imagine it was a constraint andit's not.
And the industry spends moremoney in federal lands.

(38:01):
They're just going to spendless money somewhere else
because they're not going tochange their capital budget as a
result.
And then when you get toelectricity, we've been through
the numbers on demand exceedingsupply and you say, well, what
can the federal government do tohelp that?
And I'm not sure they can,because all of those mechanisms
that we just described werehappening at the state level.
We talked about the Meta,entergy deal and that is all

(38:26):
within the state of Louisiana.
And that's really the point ofthe story is that because it's
all in one state, louisiana andEntergy can give Meta what it
wants.
The federal government has ahard time doing that.
They just don't havejurisdiction.
You say, well, they havejurisdiction on everything
interstate.
And you say that's right.
So if power transmission,interstate power transmission,

(38:47):
you know, is a constraint, thenpermitting reform would help
that.
But again, under the FederalPower Act of 1920, if you get a
permit under, you know, underthe Federal Power Act for an
interstate power transmissionline, it still doesn't come with
them in a domain.
Only the states can providethat and, at the end of the day,
the reason we need so much newtransmission is because of wind

(39:10):
and solar.
Remember, you can locate thesenatural gas plants and, in the
future, new nuclear power plantsright where the wires already
exist.
In fact, there's been a studydone on the existing coal plants
, not only the current ones thatwill close someday, but the
ones that are already closed,and like three quarters of them
are actually OK for a nuclearpower plant, and so you just use

(39:32):
all the infrastructure that'salready there.
So the funny thing about thisis the one thing the federal
government can do on theelectricity side is improve
permitting for transmission,which primarily helps the wind
and solar, which, of course,this administration is against
because the other administrationwas for it.

Ryan (39:48):
So it sounds like a lot of it's just politics.
It's really good theater.

Jim (39:53):
I remember when Trump was doing all these executive orders
in his first administration.
I remember saying to people Isaid this is good theater and
you watch.
Whoever the next president is,they're going to do the exact
same thing.
And sure enough, biden did itin for oil and gas.

(40:19):
The general perception of thefolks in the investment
community that I talk to is thatit is a constraint, that the
industry is being held back andwe will have more drilling.
And the fact of the matter isthat it's not the case.
They say well, the industrysays it is.
The industry associations saythat, but they are least common
denominator mouthpieces andthey're always talking about how
government is the problem,because, God forbid they should

(40:40):
ever admit their own mistakes.
I mean, it wasn't thegovernment drove their returns
on capital from 10% to zero.
It was them.
But if they can blame someoneelse, they're going to do it,
and so, of course, that's thenarrative.
But when you talk to individualcompanies in one-on-one meetings
and say, okay, mr CEO, are yougoing to raise your capital
spending, and he's likeabsolutely not.

(41:05):
And I'm running 14 rigs,there's no more rigs available.
I'm going to keep the 14 I haveand I'm not going to outbid the
other guy just to get to 15 or16, because it's just going to
run the price up because they'renot available.
I'm going to stick at 14 rigs.
And of course all theshareholders are like damn
straight you are, because I'd belooking to change out the board
if the answer to that questionwas anything other than what you
said.
So there's a big differencebetween what the industry
associations say and what thepoliticians say versus what's

(41:28):
actually going on on the ground.

Ryan (41:30):
So this is kind of maybe a side topic, but all the capex
that the energy sector did forthat long period of time and
they basically, you know to yourpoint now they have much more
discipline because they'reforced to Are there any
similarities when you look at,like, the amount of CapEx that's
been done by or that's plannedto be done and has been done by

(41:50):
the technology sector?
And some of these, you know,they're spending a ton, I know,
and they're only raising theirCapEx.

Jim (41:57):
We had that conversation in the research group yesterday.
Yeah, and I mean so for someonewho works in commodity
businesses right, that arecapital intensive, capital
discipline is everything.
And so there's this report thatI wrote when I was an analyst
at Bernstein in the early 90s.
That ricocheted around theindustry and got to other
industries and it was justsomething I noticed which is

(42:20):
burned in my mind, that whileExxon was always the most
expensive company in my coverage, they also had the best
earnings growth, the bestreturns on capital.
And I said they actuallythey're so frugal on capital.
You know they give back like40% of their cashflow and share

(42:42):
buybacks.
Why is it they grow more?
And I said, well, let me lookat what their return, their
return on capital, is.
Like you know, 10, 11%.
It's interesting.
I wonder what the othercompanies are.
Oh, this company spends a lotof money.
Their return on capital isthree.
And I said, okay, so I do allthe companies.
I look at the capital spendingas a percentage of cash flow
versus the return on capitalemployed.
And it was a scatterplot and itwas an 85% correlation going

(43:04):
from southwest to northeast andit was an inverse relationship
the less capital you spent as apercentage of cash flow, the
higher your returns.
No-transcript these things.

(43:44):
And then they have to cool thewhole thing down because they
get so hot and it needs all thispower and all of a sudden
they're going from basicallycode in a computer to physical
machines that you're crammingelectricity through, spending
$25, $35 billion, and you justwonder is that going to create
growth or they all have to do itto maintain market share?

(44:05):
So now you don't think of it asgrowth spending.
You think of it as sustainingcapital and the returns.
Now, I'm not a tech expert, butI have seen this play out in
the capital-intensive industriesthat I've been investing in my
whole career and that questionis….

Ryan (44:22):
And technology's never really been that
capital-intensive industry.
No, it's all human beings.

Jim (44:26):
I mean, it's sort of like do you capitalize?
Brian Westbury tells this greatstory.
He says you see, capitalspending and US industry goes
down.
He says but think about howwe've shifted to a bunch of
millennials sitting arounddeveloping an app.
He says but think about howwe've shifted to a bunch of
millennials sitting arounddeveloping an app.
He says I don't know whatcapital spending it takes to
develop app.
He says it's a case of Red Bulland 14 pizzas.
And it's a great line becauseit's human beings sitting at a

(44:49):
keyboard who are just incrediblygood at what they do.
It's not concrete and steel andbulldozers and stuff like that
is what you need to create themachines that we all use.
They are making the machines weuse smarter, but it's the
machines that have the lowerreturns on capital.
And so who knows?
But there's no question.

(45:13):
But being in a capital-int, youknow I always get nervous when
capital spending goes up and yousay, well, but it's going up in
these regulated utilities, it'slike, yes, but that's the one
place where they get a cost plusmodel.
And you know, one of the andagain the same, in effect, the
same with the gas pipelines andone of the things that I think

(45:37):
probably a frustration for someinvestors is that our industry
is so siloed in terms of itsexpertise, just like every other
.
I mean, think about all thespecialists we now have in
medicine.
Right, I mean specializationswithin specializations.
The same is true on Wall Street, and so you've got fund
managers out there that areexperts in utilities and you

(45:57):
have fund managers that areexperts in pipelines.
I mean they're really retreadedMLP funds.
Basically, they say, well, no,it's not about MLPs, it's about
pipelines.
It's like well, it is now thatthe MLP thing didn't work out
too well for you.
When you have this industryresponding to this demand
through some combination ofelectricity and natural gas, you

(46:17):
see that having the ability toinvest across the space is an
advantage for us.
One of the things we didn'tmention, which is similar in
vein to the Meta Entergy deal,was when Exxon had their annual
analyst meeting last month.
They announced that they'regoing to get into the
electricity business.
Of course, chevron copied them,and so I wrote a little blog on

(46:39):
LinkedIn called the ExxonElectric Company, and people
were saying this doesn't makeany sense, they should stick to
their knitting.
I was going to say look, Ibelieve that all these companies
should stick to their knitting.
But what is their knitting?
It's getting natural gas out ofthe ground, processing it,

(47:02):
shipping it through a pipeline,running it through rotating
equipment.
That's, you know thecompressors that spin, you know
anything that spins.
That's a valve or a compressoror whatever is called rotating
equipment.
Oil industry operates more thanthat than anybody, and they
generate five megawatts of powerfor their own use anyway across
all their facilities.
So they actually know how torun electric power plants.
So I actually think this isright within their area of
expertise.
But, more importantly, they'reoffering a vertically integrated
solution, the same way Entergyis Now.

(47:24):
Entergy doesn't produce naturalgas.
That's the only thing that theydon't do.
I mean, they don't do thepipelines either.
So Exxon is saying we can buildwires, and we haven't done that
before.
And you say, well, we'llcontract it out, but that's the
only thing we don't do.
So you see this convergence ofa vertically integrated solution
, so that you're competitive inattracting these capital dollars

(47:46):
that you're asking about.

Ryan (47:48):
What about the renewable side of you know we talked a
little bit about wind and solarand their subsidies going away.
Is that going to have a bigimpact, do you think, at some
point, on the deployment ofthose by those merchant power
producers?

Jim (48:03):
I think it will.
I think what it does is it putsregulatory uncertainty in it,
right.
So remember, the onshore stuffis very low cost, the offshore
stuff is not Okay.
So we have a couple of sort ofoffshore projects One is sort of
offshore Virginia, and thoseseem to be coming in sort of on

(48:23):
budget because they did a goodjob of acquiring the acreage
before it got expensive andacquiring the financing and all
that kind of stuff.
In New England not so much.
In New England, those windfarms were going to initially
sell electricity for about sevenor eight cents a kilowatt hour.
Right, not quite the five centsof the wholesale market, but

(48:43):
New England's a little moreexpensive anyway, because it's
so far from everything that itwasn't that uncompetitive Go
through COVID, go through supplychain things and that seven,
eight cents became 15.
And now people are backing awayand the renewable developers
said look, I can't honor the oldcontract, I'm going to have to
pay the penalty to get out of it.
Well, the only reason thatthose numbers are still 15 cents

(49:06):
is because there's investmenttax credits and the investment
tax credits come in 10percentage point bundles.
The first 10 percentage pointis domestic sourcing.
The second one is fair laborpricing.
The third one might be adisadvantaged community.
Whatever, if you get all ofthem, you can get a 50%
investment tax credit.
So that's what they're tryingto do in New England.

(49:28):
They're trying to pancake everyone of those things, check
every one of those boxes.
Well, with a new administrationthat doesn't like offshore wind,
it's going to be much harder toget all five of those 10
percentage points.
So they're going to become evenmore stressed.
And you got to remember therenewable developers who build
those things are already underfinancial stress.

(49:49):
They already have theirshareholders breathing down
their neck saying look, I don'tcare what the growth is, if it's
not profitable, I'm notinterested.
And you've had cost overruns inNew England.
Get the heck out of there.
And so that has been happeningalready for the last two years.
You now put it in unfriendlyadministration and I think it
throws even more uncertainty inthe minds of the shareholders

(50:12):
that are funding thoseoperations.
So when you get to onshore thoseoperations, so when you get to
onshore, the recent data showsthat even big tech is spending
less.
So 35% of all the onshore windand solar there's no offshore
solar of utility scale in thelast 10 years has actually been
funded by big tech.
Remember, they have zero carbonand of course they have 24-7.

(50:35):
But they have big energy groupsthat are trading electricity
and swapping the intermittentfor firm and that kind of stuff
and that's a big operation.
It's a desk with a whole bunchof people.
I meet the head of the energygroup at all big tech at the
Aspen Institute twice a year.
These people know the energymarkets, they're very
sophisticated, spending on thatis going down and their interest

(50:58):
in nuclear is going way up andthe nuclear thing, and so we get
a lot of questions on thenuclear thing from investors,
and one in particular I kind of.
I really it really tickles mebecause it shows that investors
really are willing to belong-term sometimes.
And so the question takes theform of you know, we have some

(51:20):
grandchildren of our wealthyinvestors.
I know nuclear is a long wayaway, but there are some stocks
we can put in junior's portfoliothat in 20 or 30 years will be
like Apple is today.
You look back and say whydidn't I buy it at a dollar a
share?
And our response to that isthey're publicly traded but

(51:41):
they're still venture capital.
We talked about what the costsare, but people ask, you know,
wait a minute, but don't youthink nuclear has a future?
And the answer, my short answerto that is absolutely.
But nuclear has three problems,and those three problems, in
order probably of importance interms of why nuclear power has

(52:04):
not grown in the US, is cost.
We talked about the cost, youknow 15 to 20 cents a kilowatt
hour.
When the wholesale price isfive, the risk of a meltdown.
Everyone has Chernobyl, threeMile Island and Fukushima right
back of their mind, and if youcan get past those two things,
you still have all the waste.
And so when you look now, longterm, we're not talking about

(52:24):
the existing nuclear powerplants.
We're saying you know what isthe investment case for these
companies?
The investment case is thattheir technologies are designed
to address some or all of eachof those three problems.
And so when people say, yeah,small modular reactors, advanced
reactors right, isn't that thesame thing?
It's like no, so let's takethem one at a time.

(52:45):
The small modular reactors is aresponse to the cost.
So we have today 94 nuclearpower plants operating on
roughly 50 locations, becausemost of them, there's two
sitting there.
In the last 10 years we'veclosed about 10 to 15, of which
one of those is Three MileIsland, right, and there's a

(53:07):
couple more.
They're talking aboutrestarting.
So at our peak we've had, say,100 power plants operating plus
or minus 50 different uniquedesigns.
Now we're all the sametechnology, but they're all a
little different size.
This is what the French did,right, they built the same unit.
I think it's about 300megawatts.
They wanted 900 megawatts, theyjust put three of them.
They wanted 1,200.
They put four.

(53:27):
They wanted 600.
They put two.
That's why nuclear power is 80%of their electricity.
So the small modular reactor issimply trying to get less
construction in the field andmore in a factory.
So I was invested with aprivate equity guy building a
hotel in Los Angeles that wasmanufactured.

(53:48):
Each hotel room was built in afactory and put on the back of a
truck.
And you say, what does thatmean?
It's like well, it's arectangle.
Okay, the window is in, theframing is all there, the carpet
is in, the drywall is in, thewallpaper is in the toilet,
everything.
The beds are in there, thelinens are sitting on the bed.
You stack these things together, you put on the siding.

(54:10):
Literally, the housekeeper goesin and makes the bed.
Everything is made in thefactory that's.
Compare that to a custom homein Beverly Hills.
That's 25,000 square feet,where it's tough to get the
permits.
The neighbors don't want it tohappen and it takes 10 years for
the guy to build it and it's50% over cost.
That's an infield nuclearreactor and the hotel room is a

(54:32):
small modular reactor.
So that's what it's meant for.
It takes advantage of theadoption curve, what's known as
Wright's Law, and the more youmake, the cheaper it gets.
So now we get to the meltdownthing, and meltdowns have
happened.
I mean, it's a scary thing,right.
And the meltdown happensbecause the way you moderate
that reaction fails, probablybecause of some pump I mean

(54:56):
something that's ahundred-year-old technology
fails and so the reaction startsrunning out of control.
And because what everybody usesis water and the thing is at
300 plus degrees centigrade andwater at that temperature is
steam and it needs to be water,it's got to be under pressure.
So your valves are failing, thething is getting hotter and

(55:16):
boom, it explodes.
Not like gasoline explodes, itexplodes because of the pressure
of this.
And so other technologies outthere are using a moderator.
That is not water, it is moltensalt and it's not at pressure.
So that's another technologythat addresses the meltdown

(55:37):
issue.
And then finally, you get to thenuclear waste.
So one of the things I've beento a couple of nuclear
conferences and all the nuclearguys love to quote this
statistic they call the nuclearwaste in the last 70 years
around the world.
And you put it in one spot itwould be the size of a football
field, four stories high,basically your average parking
garage.
And he says what other energysource can claim that about

(56:00):
their emissions of any kindright Now?
Having said that, we generatethat waste because all the
nuclear power plants in theworld, effectively, are running
a similar technology where theytake uranium and they enrich it
to 5%.

(56:20):
So what does that mean?
So naturally occurring uraniumhas two isotopes uranium-238 and
uranium-235, which isseven-tenths of a percent.
So when you hear aboutenrichment, what is Iran doing?
They're spinning thesecentrifuges.
What they're doing is they'reconcentrating the uranium to get
more uranium-235.
Trading the uranium to get moreuranium-235.

(56:43):
That is the unstable isotope.
So the bomb we dropped in Japanin August of 1945 was 95%
uranium-235.
In a power plant it only needsto be 5% and so it gets used up.
So you got to take out thewhole thing and you say, well,
what's the problem?
It's used up.
And it's like, no, there's allthese neutrons kind of flying
around and they create theseisotopes of uranium and other
atoms in there that areradioactive, that are going to

(57:05):
last for 10,000 years.
And you say, well, what do wedo about that?
Well, there's another way to runa nuclear reaction, where you
don't moderate the speed of theneutrons.
You let them fly all over theplace and they actually create
as much fuel as they consume.
So that's why they're calledfast breeder reactors.
They are fast neutron reactors,not slow neutron reactors.

(57:27):
And you say, well, where doesthat technology stand?
It's like, well, there'sactually one commercial plant in
France.
It's not operating today,no-transcript.

(58:03):
And that's why we don't havefast breeder reactors, because
the world signed this nuclearnon-proliferation treaty,
because everyone's generatingthis weapons-grade plutonium.
The waste from a slow neutronreactor is toxic but it's not
explosive.
And so if you can have a smallmodular reactor that is not

(58:27):
under pressure, that is usingfast neutrons to consume the
fuel and recycle the bad stuffto extinction, you've solved
each of the three problems ofnuclear.
So that's why, when you go to anuclear conference and you
learn all this stuff, you say,wow, these guys really have got
this figured out.
And you say, well, if they'vealready built one in France,
what's the problem?

(58:47):
It's cost right.
They built it because they hada waste problem.
And even if that wasn'teconomic, the system as a whole
was economic.
And so it's now not justscience, it's engineering.
Can you engineer a machinethat's working all the time, not
breaking down and is costeffective, so it can be
competitive in these deregulatedelectricity markets?

Ryan (59:11):
So at conferences like that, I would imagine they do.
But do they discuss any of thenewer sort of like the fusion
technology?
Yeah, fusion gets in there too.

Jim (59:21):
Yeah, my favorite comment about that is that's always
going to be the energy source ofthe future.
But one of the things you readis they say that the challenge
is getting more energy out ofthat reaction that you put into
it.
Well, if you've ever seen afilm of a hydrogen bomb going
off, that isn't the problem.
You can get way more energy outthan you put in.
You just have to have acontrolled reaction, Right.

(59:42):
So remember, we talked abouthow you control a fission
reaction by moderating thoseneutrons, keeping the
temperature right and all thatkind of stuff.
That's the problem is gettingthis thing hot enough literally
the same temperature as thesurface of the sun and
controlling that temperature sothe reaction doesn't run away.
And so, again, I don't like tobet against engineers and

(01:00:04):
scientists, it's just a questionof time.
And there are these otherthings where the technology is
sound.
They have been built before.
Granted, the only commercialone for the fast neutron reactor
was in France.
But the new technologies thatBill Gates is behind and some of

(01:00:24):
these others Sam Altman isbehind, these are valid
technologies that have improvedin the laboratory for decades,
and the trick is now theengineering part of that where
you can make these thingscommercial, and so it is very
difficult not to be optimisticabout the brainpower that exists
on this planet, much less inthis country, to be able to

(01:00:47):
solve this problem.
I think it's just a question oftime.

Ryan (01:00:52):
Well, that's a good point.
It's a question of time and weI'm looking down at the clock
have talked for over an hour.

Jim (01:00:56):
I'm out of time.

Ryan (01:00:57):
We are out of time, but I could talk for another hour.
This is, as always, veryinteresting stuff, so thank you
for carving out some time andjoining us on the podcast once
again, and thanks to all of youwho have joined us once again
for this episode of the FirstTrust ROI Podcast.
We will see you next time.