Michael Crabb [00:00:57] Welcome to another episode of the Energy Impact Podcast. Our guest today is Mark Lewis from Lime Rock New Energy. Mark, welcome to the show.

Mark Lewis [00:01:06] Thank you, Michael. Great to be here.

Michael Crabb [00:01:09] Before we dig into all your great work at Lime Rock, tell us a little bit about you. Where are you from?

Mark Lewis [00:01:15] Yeah, I actually grew up in Western Canada, in Alberta, which is oil country, which in a circuitous route brought me to spending most of my career in the energy transition, actually. But out of college... I went to college in Canada. And out of college, I had an opportunity to go to Credit Suisse as an analyst and did that for a while.

Mark Lewis [00:01:39] And then, life takes you on a different path than you maybe always anticipated. I ended up going to business school at Northwestern and then worked in London for eight years, initially with CS, but then really got into the energy side of things with General Electric. I joined GE in London; I was in Brussels, and then I ended up in Connecticut, where I live now, through GE and ultimately running global business development at the power business at GE Power.

Michael Crabb [00:02:11] Amazing. Okay, great. Well, you gave me the elevator pitch as if we had 30 seconds, but I'm going to make you peel that back a little bit. Okay, so you went to undergrad and it sounds like maybe focused on finance. Was there something specific that pushed you that direction?

Mark Lewis [00:02:28] No, there was nothing specific. Actually, when I went to college, my original intention was actually to become an engineer, which in many ways has continued to be a passion of mine. I love the science side of things. I love the engineering side of what we do here at Lime Rock New Energy. But I decided that I ultimately wanted to get a business undergraduate degree at Western University, which I did. And that was what ultimately led me into joining Credit Suisse as an analyst. And I was part of their energy team when I was there.

Michael Crabb [00:03:02] Okay, and that's somewhat random, right? I mean, you were recruited for investment banking, but were you focused just on energy or were you looking at any of the verticals?

Mark Lewis [00:03:13] No, it was really in the energy team. It was in the energy group at the time and focused principally on M&A. Energy at that time... I'm dating myself a little bit now. It was really oil and gas and power. Renewable energy and things like that were, at that time, still very early stage and really not the commercial businesses that they are today.

Michael Crabb [00:03:38] And can you give us at least a decade or like what is that time? Are we shale patch yet?

Mark Lewis [00:03:46] No, it was before that. It was conventional oil and gas. My exposure and my real passion about what I'm doing today around the energy transition really began during my time at GE. I was there at a really interesting time when GE was just beginning its path towards lower carbon products and services. Jeff Immelt was the CEO then and had launched Ecomagination. So power business, obviously a big consumer of fossil fuels historically, was looking for ways to decarbonize it. And that was a big part of my focus while I was at the GE Power business. And helping to look at ways, how is going to help decarbonize the products and services that they're delivering, which was really, as I say, the genesis of my passion about what we're doing today.

Michael Crabb [00:04:42] Yeah, fascinating. Okay, well tell us more about that transition then. You're wheeling and dealing in the investment bank space. And what, GE picks up the phone and says, "Hey, we want to do this new thing?" Or you said, "Oh, I want to be an operator?" What was the impetus for that?

Mark Lewis [00:04:57] It was a combination of things. So, there was a managing director who I worked for at Credit Suisse who's still a very good friend today who had been recruited to become the Head of Business Development for GE just as Jeff Immelt had become CEO in 2001. And he reached out to me and said, "Look, I need somebody to help me set up some business development activities in Europe," because GE didn't have them at the time and I was based in London. And I was like, "That sounds great."

Mark Lewis [00:05:29] I'd been in the banking world for a few years at that point and the opportunity to go and do something more operationally focused, part of an operating company, and especially with a company like GE was really compelling. So, I jumped at the opportunity and it was an incredibly rewarding place to be. Despite sort of the travails that the company has undergone in subsequent years, it was really an amazing place to be.

Michael Crabb [00:05:56] Yeah, you were still in the heyday, so to speak. But that's a pretty big mandate, "Hey, Mark, come set up a European business." How did you go about that?

Mark Lewis [00:06:09] The capital business at the time already had a business development team based in London, but the industrial businesses did not. So, the industrial businesses basically did all of their own finding of potential opportunities and just digging around through US-based teams. And there was a view that we really needed to have a European-based team to do that. So, I literally just set up a shop beside the capital folks at Clarges House in London and started recruiting people. And I was able to put together a really great team of about a dozen professionals and work very closely with each of our industrial businesses to help accelerate the growth of the business through inorganic growth and doing acquisitions and really growing the business that way and pushing GE much more aggressively into the European marketplace.

Michael Crabb [00:07:02] Awesome. Okay, what from there then?

Mark Lewis [00:07:07] So from there, I had an opportunity through some GE alum and through some Goldman Sachs alum to become an investor for the first time with a firm called Mission Point Capital Partners based in Norwalk, Connecticut. And quite honestly, I very reluctantly left GE. I loved being at that place, but I had some partners who were just phenomenally great partners. And it was an opportunity to do something really entrepreneurial, to be the fourth partner in a firm that was investing in... We didn't call it the energy transition then; it was Clean Tech, Clean Tech 1.0. But I was a veteran of that time frame and really built out a business.

Mark Lewis [00:07:48] Our focus was on what we called then products and services for a lower carbon economy. And made investments that ran the gamut from solar products, concentrating solar power, created and grew with some XG folks what became the largest independent wind O&M services provider in the country which was subsequently acquired by Vestas. A specialty gas business for solar cell manufacturing and semiconductor manufacturing more broadly, and a number of other businesses.

Mark Lewis [00:08:22] It was a really interesting time to be an investor. Everyone knows the story of Clean Tech 1.0, that it wasn't a particularly great investment period, but there were also a lot of incredibly successful businesses that came out of that time. And also a lot of valuable lessons that were learned as part of that. It was clearly a very different time to what we're doing today, but also incredibly rewarding. Many of the folks that I know from that time and relationships are still good friends and colleagues today.

Mark Lewis [00:08:54] But on a fast forward, it was pretty clear that there was not going to be an opportunity for anyone to raise another clean tech fund by about 2012. So, I had an opportunity to go back on the operating side. I became the CEO of essentially a startup energy services company called One Energy based out of Toronto. It started out as a rooftop solar developer developing 50 to 500 kilowatt systems in the Ontario market. We grew that very quickly and then added on energy efficiency services for C&I customers doing rooftop unit replacements, lighting upgrades, things like that for the C&I market. And then, expanded that further into energy retailing and grew that into an energy retailing business, again, principally for C&I customers in Ontario and four states in the Northeast US. And we had a great trajectory on that business and grew that for about five years.

Mark Lewis [00:09:57] And then, fast forwarding, one of my GE colleagues and a board member who worked together and was, until recently, was an advisory board member here at Lime Rock New Energy, Steve Specker, recruited me to become the Chief Business Officer of a business called TAE Technologies, which is one of the most prominent and so far, successful, fusion energy development companies as well when Steve was the CEO of that business. So, he and I worked together at TAE Technologies where I was helping to work with the investors the company already had, bring new investors to the table, etc.

Mark Lewis [00:10:36] Just as I had taken that role however, Mark McCall, who's my partner here at Lime Rock reached out to me about creating what subsequently became Lime Rock New Energy. At the time it was just an idea. Mark had just come back to Lime Rock; Lime Rock's a 25-year-old private equity firm. And Mark was one of the founders, but he had taken a two-year sabbatical to run the Loan Programs Office at the Department of Energy, the same program that Jigar Shah runs today. Mark ran that program for the last two years of the Obama administration when Ernie Moniz was the Secretary of Energy. I think he was expecting to spend an extra four years there but the election didn't quite work out that way. And as a presidential appointee, he found himself back at Lime Rock, but really had gotten a front row seat to what was happening in the energy transition at that time.

Mark Lewis [00:11:32] He reached out to me. We've known each other for 25 years and said, "Hey look, I'm thinking about this." Brought in a third party, Alex Mishkin, who worked with Mark at the DOE and they've known each other for a very long time as well. So, it was really putting together this team to create, in many ways, what we had wanted to achieve at Mission Point back in Clean Tech 1.0, but now with a much more mature industry. So, we officially launched our Fund 1 in 2019 and have continued to make investments ever since, and it's been wonderful.

Michael Crabb [00:12:11] That is a wild trajectory. From solar, 50 to 500 kV, to fusion, to private equity. Yeah, that's awesome. Maybe before we get to Lime Rock, I do want to make sure we can really dig into that... What was it like going from basically rooftop solar slash energy service provider to something like fusion?

Mark Lewis [00:12:45] It's very different, obviously. You're dealing with something which is you're building something every day. The team at TAE Technologies, it's a phenomenal team that is really advancing the science around fusion technology. And that's clearly one of low0carbon solutions that the world really needs to see commercialized. So, intellectually it's obviously a different thing. You're going from walking around Home Depot roofs building solar projects to looking at this massive fusion reactor device that is running experiments multiple times a day, but incredibly intellectually rewarding with some of the smartest people who I've ever worked with.

Michael Crabb [00:13:31] Yeah, sure. Fascinating. So then, you're just kind of getting there, and you get a call from another mentor who says, "Hey, come do this thing." So yeah, walk us through the evolution then of Lime Rock New Energy in one more cut of detail leading up to fundraising and thinking about that book of opportunities.

Mark Lewis [00:13:53] Yeah, when Mark reached out to me about it... We had actually started together as first year associates. We both had a very, very brief tenure at Lehman Brothers. That was how we knew each other, but we had stayed in touch over the years. And Mark has been in the private equity business pretty much since then. And when he reached out to me... To your point, I had only been at TAE Technologies a relatively short amount of time at that time. What we were really trying to do and address for climate when I was at Mission Point was bring capital as a key catalyst to help drive change and help address climate and the climate crisis that we're all dealing with. And unfortunately, it's going to get worse before it gets better, likely.

Mark Lewis [00:14:42] So to me, that was really compelling because I very much enjoyed being an investor in Clean Tech 1.0 because you had the combination of being able to work with great entrepreneurs, being able to deploy that capital that's really making a difference in helping to accelerate these businesses that are helping to decarbonize our economy, but conversely, being very close to the operational side of things as well, which I also have a deep passion for. So, you get an opportunity to work with these great entrepreneurs. You're learning from them, they're learning from you. And just really incredibly rewarding work.

Mark Lewis [00:15:19] And when Mark called me about the opportunity to take another run at it and said, "Look, times are different today." Because quite honestly, there was some hesitation as well. Like, "I did that once and we know how Clean Tech 1.0 played out." But I also knew that the need and the urgency is even greater today and there was an opportunity to really do some great work here at Lime Rock New Energy. And that was really for me the driver and the impetus to do this.

Mark Lewis [00:15:51] And it was really an exciting opportunity to be able to put together the team that we put together to go out and talk to investors about how we're planning and how we are driving impact in our businesses, because that's a big part of... We are financially motivated investors, but we also care deeply about the impact that our companies that we invest in are also delivering. So, combining those two elements was really compelling to me and ultimately why I made the decision I did to help launch Lime Rock New Energy.

Michael Crabb [00:16:23] Yeah, "it's different this time" can be the most dangerous words in the English language, right?

Mark Lewis [00:16:29] That is true. That is very true.

Michael Crabb [00:16:34] But I think your points are spot on. You lived through the last time. And I think it's relatively unique to have the operating and investing experience that you do. The breadth that I sort of commented on previously makes you uniquely positioned to assess, I think, some of the pattern matching and some of the themes you're trying to understand at the stage of some of these businesses. Maybe walk through how you established your specific thesis for Lime Rock and how that evolved or maybe didn't. Maybe it was proven out as you've raised the fund and have started investing.

Mark Lewis [00:17:12] Really, the focus was... There was a lot of discussion around the strategy at the launch when Mark and Alex and I were really talking about what are we going to do? The conversation was around... You could do venture. There was definitely a growing number of people pursuing the venture space. Equally, you could do infrastructure. We had a view that infrastructure was a space that, frankly, already had a lot of capital in it and returns had been driven down and the efficiency of that market was pretty clear. But most importantly, did we actually have the depth and the skill sets to really address either ends of those markets? And the answer we felt was the right spot for us is around growth equity.

Mark Lewis [00:18:02] Having been an entrepreneur myself and Mark and Alex having been investors, both experienced investors and investors in growth equity, we had the right skill sets to address that part of the market. And we also, frankly, felt that was the least-served part of the market and the most underserved part of the market from a capital availability standpoint and a gap in the market that we would actually be able to fill effectively. And I think that's very much borne out to be the case to date. So, that was the genesis of the strategy.

Mark Lewis [00:18:38] And then, as energy investors and deep in the energy space, we wanted to focus on three big areas which are around power and grids, because we can build all the renewable energy you want, but if you don't have a grid to move those electrons to where they need to be, it's not going to address the problem. So grid modernization, buildout of grids. Not from an asset perspective, but from those picks-and-shovel types of businesses that are helping to address those challenges. Companies that are serving the renewable energy and storage ecosystem, and we have a number of investments in that space.

Mark Lewis [00:19:16] The second area is around energy efficiency for industry in the built environment. It's a bit of a cliche, but it's true that the cheapest electron is one that's never consumed. So, that's an area we spend a lot of focus on. And the third area has been around the decarbonization of transportation, because we see that as a major driver as well of decarbonizing our entire economy. So, those are the three areas that we decided to focus on. We've focused on that from day one. We've never wavered from that particular focus, and it's served us well.

Michael Crabb [00:19:52] And is it fair to describe it as really a service-oriented... You're not mining for gold, you're doing the picks and shovels. You're sort of enabling infrastructure and businesses around the transition?

Mark Lewis [00:20:04] Yeah, our focus is on both product and service businesses, so it can be products as well. We have an investment, for example, in a company called Aperia Technologies, which has a tire auto inflation technology that helps reduce fuel consumption and tire wear in Class 7 and 8 trucks. And for big fleets, that is their number one and two costs; fuel and tires. And there's a huge decarbonization impact as a result of reducing the use of both of those things. So, that is a combination of product and service because there's also a SaaS offering that goes along with that technology. But we also have pure service companies like Electric Power Engineers, which is a consulting engineering business entirely focused on renewable energy storage, grid modernization, grid cybersecurity.

Mark Lewis [00:20:53] So, it's a mix, but what I would say is common across all of them is they are corporates, they're not projects. We're not project investors; we're not looking to invest in first-of-a-kind. We're looking for those businesses that have products and services that customers are buying today but need capital to continue to accelerate the growth. And that might be international expansion, that might be manufacturing expansion; it could be any number of reasons. But how do we help those businesses address the climate even more quickly than they already are?

Michael Crabb [00:21:25] Got it, got it. Yeah, definitely in that industrial service... I mean, the GE experience and it was One Energy experience, right? You clearly have familiarity with that customer set, or at least a good chunk of it. Maybe talk a little bit on how you incorporate sustainability in your underwriting tools. People have different lenses. Obviously, you want to do well and do good, all those fun catchphrases. But give us a little detail behind that part of your process.

Mark Lewis [00:21:55] We view... ESG and impact is absolutely central to how we look to underwrite companies. We start out with every potential investment by asking two very simple questions, which is, "Do we believe this company has a net positive environmental impact?" Net is an important part of that. And then, "Can we measure it?" Because if you can't measure it, we can't quantify it. And the ability to quantify things and measure it over time and importantly, drive improvement in and over time, to us, is absolutely critical. So, we do a lot of work around measuring the impact that our companies have.

Mark Lewis [00:22:39] Our core impact metric is around avoided GHG emissions and CO2 emissions, specifically. And that's the one that is common across all of our companies. But we also measure how are we doing on a DEI basis? Are we improving the diversity of our workforces over time? And not just at the workforce level, also at the management team and even at the board level where we're looking to continually improve our metrics in those regards. What are we doing on job creation? What are we doing on job satisfaction?

Mark Lewis [00:23:11] I was recently asked, "If somebody said to you that ESG is just kind of this woke positioning and it's not really real, what's your response to that?" And my response was, "Look, we view ESG as a source of alpha. We see ESG as a risk reduction, risk management. It's got nothing to do with virtue signaling. This has everything to do with making better investments." And a great example is employee satisfaction and employee turnover, which is one of the things we measure in our companies.

Mark Lewis [00:23:46] We're a participant in the ESG Data Convergence Initiative, where hundreds of GPs and LPs provide information on all of these different metrics on their portfolio companies. And our port co's pretty consistently across the board outperform those broader metrics, the sector metrics and the broader entire pool of metrics, because that's something we're really focused on. We dot not because, again, we're trying virtue signaling. We do it because lower employee turnover means less money spent on recruiting. It's less disruption to the business. It means higher employee satisfaction and, ultimately, higher customer satisfaction. So, we look at all of these things as ways to both communicate to ourselves, "Are we actually delivering the impact we thought we would deliver in these businesses?" Communicate that to our limited partners who entrust us with their capital. But also importantly, probably most importantly, communicate it to the company. "How are you doing versus what you said you would do? And how do we work together to continually improve on all of those aspects?"

Michael Crabb [00:24:58] Yeah, that makes a lot of sense. And I'm pleased that you went there, because I do agree. Thinking about it primarily as, well, the dual-edged sword of risk mitigation and opportunity seeking, right? Like, let's let capital markets drive what they do best, which is a set of incentives and penalties that drive behavior. And yeah, we all agree that it's better that it works that way. But the core reason is to make the business better and that makes everyone's lives better. I don't know why I'm rearticulating your point because you articulated it better than I could, but it is nice to not have that debate with someone that it's not about just, like, fuzzy feeling good about each other.

Michael Crabb [00:25:43] Maybe, what's your view on these rating systems? You mentioned one that you're involved in. I mean, I have some bias that we're creating this whole sort of secondary market that's not going to have a clear winner and doesn't actually help. Like, if we've got a hundred firms having a hundred different proprietary ways of measuring all of these things, what really are we wasting time on? So, maybe talk a little bit about how you guys set up your rubrics. What's proprietary, what's from third-parties? Talk about that a little bit.

Mark Lewis [00:26:17] Our approach is really... We developed our original approach with a firm called Bridgespan Group, which you may be familiar with. They do a lot of work around impact for both profit and nonprofit sectors. And a number of firms in addition to ourselves, investment firms, have used Bridgespan to help them develop those models. We've refined that approach over time and we're still very close partners with Bridgespan, but we've really focused now as we think about our core metric being that avoided GHG emissions. Because you have two sides of your balance sheet. You have the asset side which is those avoided emissions, but people tend to focus mostly on the Scope 1, 2, and 3 emissions, which I consider to be the liability side of the balance sheet. But if you're going to understand the net, you need to be able to measure both sides of that.

Mark Lewis [00:27:15] We actually developed an approach internally which is a a play off of the work that we had done with Bridgespan called Carbon Enterprise Value. And the very simple concept behind Carbon Enterprise Value... And actually, this whitepaper is available on our website. We've made it publicly available to everybody because we're hoping that others see the logic that we applied, which is if you think about the cash flows, the revenues and the cash flows in a business and you're discounting that at a certain discount rate in a financial model, that is representative of the risk that you see of the realization of those potential future revenues and cash flows. And you're choosing a discount rate based on the stage that your company's at. For us, just as a proxy, a 20% discount rate as a growth equity investor equates to roughly a two-and-a-half times multiple of invested capital after roughly a five-year timeframe. That's just an example, but it would be a different set of metrics for an infrastructure investor versus a venture investor.

Mark Lewis [00:28:20] But as a growth equity investor, what we wanted to do was be able to provide our LPs with a common-sized way of thinking about what is the avoided emissions as a result of the use of the products or services in our portfolio companies. So, if you believe that you should be discounting, in this example, the future revenue of this business by 20% or the future cash flows of the business by 20%, it would stand to hold that the riskiness of those future avoided carbon emissions through their use of that product or service is equally risky because the correlation between products and revenue is, generally speaking, quite high. That's the general concept behind Carbon Enterprise Value. You apply the terminal multiple or a perpetuity growth rate to the final year of your forecast and you discount that back and it gives you what we call Carbon Enterprise Value. So, if you think about a Financial Enterprise Value, this is analogous in that it's the Carbon Enterprise Value. You can also look at that on an annual basis and look at it on a cumulative basis.

Mark Lewis [00:29:26] And the other part of this approach that we really like is if you think about the cumulative impact of carbon emissions in the atmosphere over time, it's clear that carbon emissions today are more damaging and hence more valuable to abate or avoid today than they are 15 years from now. And a DCF handles that logic perfectly because cash flows 15 years from now are far less valuable than cash flows today. And we've gotten really good response from this approach.

Mark Lewis [00:30:00] And again, it wasn't intended to be a proprietary approach because to your point, Michael, the world doesn't need another way to measure, another measuring rubric to add to the hundreds of others. But where we consistently were not comfortable was, "Is this really representative of the impact that the dollars that we're putting to work are having?" So, this is our view, our approach to measuring that so that our LPs can look at it on a common-sized basis. As I say, we've gotten very good response from limited partners. We've gotten very good response from other GPs and from academics. And this was the result of work over about a year and a half on the team here to really think through how do we make this as rigorous as possible, map out those impact pathways and apply that model?

Mark Lewis [00:30:53] The other metrics, I think, are pretty straightforward in terms of job creation. What are your DEI metrics? And I think the last thing I'd just say is the other thing we do in our Annual Impact Report is we also share what the target was for that year. Did we do better or did we do worse? Because I think one of the real legitimate criticisms of a lot of impact reporting is it's like, "Here's a number." "Is that good? Is that bad? I'm not sure. It's a number." So we'd say, "Here's what we thought we were going to do. Here's what we actually did. Is it better or worse? And where do we have work to do?" Because that's important, we think, for our LPs to understand. It's important for us to understand. It's important for our companies to understand.

Michael Crabb [00:31:34] Got it, got it. Yeah, that makes sense. And thanks for walking through the discount rate logic because I was going to ask about that. But I do forget if it's a service0based business, then revenue's probably closely tied to the direct impact and the risk to those revenues probably should be, on the carbon side, evaluated in the same way.

Michael Crabb [00:31:54] Have you started for your LP reporting because you've now monetized this Carbon Enterprise Value in the same way that you could calculate just a normal financial enterprise value... Do you have two sets, like your purely financial returns, but do you also report your Combined Enterprise Value? Is that somewhere where you're going or starting to do?

Mark Lewis [00:32:19] Yeah, our 2022 Annual Impact Report was the first year that we reported our Carbon Enterprise Value as well. And one of the things... We're constantly looking for ways to improve and grow how we communicate the impact these businesses have. One of the concepts that's been raised... We haven't rolled it out yet, but we're likely to do it for the 2023's Impact Report is also...

Mark Lewis [00:32:45] As you look to exit businesses over time, clearly you measure how much financial value was created. You're hopefully creating a multiple of invested capital over your whole period. What's the multiple of carbon value that we created over time? The business has become more impactful over time because it's growing. It's selling more products or services. So, if you went in and had a Carbon Enterprise Value of "X" on day one, hopefully it's two and a half or three "X" when you exit. And we also think that's an interesting metric to talk to our limited partners about to help them think about, again, what's the impact. Not just the financial impact, but what's the real climate impact that these companies are delivering?

Michael Crabb [00:33:34] Right. Yeah, it makes a lot of sense. Maybe let's zoom back out then to the fund and fund performance. And obviously, you can't share some of these details, but how many investments have you made? How many are still active and what's on the horizon as you look forward the next couple of years?

Mark Lewis [00:33:52] We've made five investments to date in Fund 1 and continue to actively look at a number of things right now. Three of those investments are still active today. We've exited two. We had one investment, an early investment we made right in the teeth of COVID, a business called Qmerit, which is a Level 2 charger installation platform. And their customers are all eight automotive companies, all the EV manufacturers. So, it runs the gamut from Jaguar, Land Rover, all the Volkswagen brands, Rivian. Kind of go down the list, but anybody who's got an EV manufacturing business works with Qmerit because their customers, you and me, when we go to buy an EV we also need a Level 2 charger in our home or our small business. And auto manufacturers don't have electrical technicians; they're not interested in being in that business, so they need somebody to help them get those chargers into the homes of their ultimate customers, the ultimate purchasers of those EVs.

Mark Lewis [00:34:55] That was an investment that we made in October of 2020. We had a very strong thesis around that particular investment that EV adoption was going to be even faster than some of the bullish forecasts that were out there said was going to happen. And in fact, that's exactly what happened. We backed just a terrific management team who has really done a phenomenal job. The CEO is named Tracy Price and Tracy has done this a number of times before. We had a lot of confidence in his ability to grow this business. And we ultimately exited that business after only 14 months.

Mark Lewis [00:35:32] We also have a grid modernization company called Smart Wires, which we recently exited or bought out of that by one of the existing shareholders. And then, our three active investments today, our most recent one is a business called Power TakeOff. Super excited about this business. Power TakeOff delivers energy efficiency services to small and medium businesses and their customer is the utility. And they will work with a number of large investor-owned utilities and co-ops across the country. They get the smartmeter data, they AMI meter data from the utility. They mine that data to identify anomalies and load profiles by a meter and go, "Well, this looks like a bank, but why is the load profile exactly the same seven days a week when we know that bank is closed on a Sunday?"

Mark Lewis [00:36:27] So, they'll do an outreach to that bank, that particular branch or to the branch manager and say, "We can help save you "X" percent on average." It's about 18% savings for the customer. And work with them to... Basically, its behaviorally-based changes. It's largely adjusting the BMS, the building management system in the building to adjust both the HVAC system, the RTUs on the building, as well as the lighting and just change scheduling, largely. And it's extremely effective and they're able to identify these savings very effectively because they've been working for more than a decade to refine the AI and ML tools that they use, the algorithms they use to identify these. And the utilities love it because it's measured and verified savings. They know what the baseline was before the changes were implemented. They know what the baseline is after the changes are implemented and they can see very clearly what the energy savings are in those businesses.

Mark Lewis [00:37:27] It's also got a really great part of the business where some of their customers, the utility customer, will ask them to specifically target historically underserved communities. So, they're able to go into communities where energy poverty is an issue and help address that particular problem in those specific communities. So, really encouraging and a really exciting part of that. So, that's our most recent investment.

Mark Lewis [00:37:52] The one prior to that is the Aperia business that I mentioned earlier, the tire and auto information technology for Class 7 and 8 trucks. And then the other active investment we have is Electric Power Engineers, which is the consulting engineering business I mentioned earlier, which is just a terrific business and just continues to go from strength to strength. Really terrific team there.

Michael Crabb [00:38:19] That's quite a blend of stuff. On the Power TakeOff, what's the utility incentive to reduce customer bills? Is there some shared savings there, like reporting metrics for them? What's their incentive on that?

Mark Lewis [00:38:35] For a big part of the country... For about half the states in the country, there's something called an Energy Efficiency Resource Standard. So, they're actually required by the PUC to reduce their baseline consumption over the prior year. So, it's adjusted for load growth and new homes and businesses, etc., and expected load growth, but they are required in about, as I say, half the states to deliver somewhere... It varies by state, but it could be as low as a quarter or a half a percent to as much as two percent over the prior year's baseline.

Mark Lewis [00:39:09] And those programs are funded on the bill. So, the ratepayers are paying those programs anyway. It's very similar to rebate programs that utilities will run that you're probably familiar with. They'll give you $500 to change your hot water heater to a heat pump hot water heater, for example. Generally speaking, I'm generalizing... But generally speaking, it's all that same pot of money that these programs are funded from and those generally are coming from on-bill riders. So, if you look at the 15 lines of charges on your utility bill, one of those lines probably has a fraction of a penny per kilowatt hour that goes into a pot that funds these programs.

Mark Lewis [00:39:49] And that's sort of the beauty of what Power TakeOff does because you go to the end customer, to that small and medium business, and say, "You're paying for it anyway. It's part of your bill. And we can deliver the service and will help you save 20% of your energy consumption and we're not going to charge you anything to do it." And the utilities see the value in it not only just from a regulatory perspective, but also it's becoming increasingly important from a demand management and a load management perspective.

Mark Lewis [00:40:17] If you think about the places across the country... We just saw this last summer, Texas, California, etc., where demand was very much bumping up against the edges of the reserve margins on generation. Being able to manage that load down and at least slow load growth is an important part of their operational goals as well.

Michael Crabb [00:40:44] Yeah, can I take us on a quick tangent on that point specifically? Because much earlier in the conversation you talked about the Lime Rock strategy and focusing on this growth equity. But yeah, it feels to me like that is the core, what you just articulated. Supply and demand fundamentals are turning from one or two decades of energy abundance to a period of energy scarcity, right? Like, our supply demand fundamentals are not good. And there seems to be...

Michael Crabb [00:41:13] And I understand why this is. It's much easier to underwrite a service based, recurring revenue based business than it is a project development led business. But it feels like that's really the big gap and where there's big step changes in our carbon intensity, right? Was that ever a consideration for you? And or, do you have any perceptions or perspectives on that part of the market given your access on the services side like Electric Power Engineers, Smart Wires, some of these other businesses.

Mark Lewis [00:41:49] I think that forms a significant part of our entire investment thesis. We're going through a significant transition. The whole name of what we're doing, the energy transition, we're going through this transition from a largely fossil-based generation system to one that is more flexible, more distributed, renewable based, energy efficiency based. There's no smooth transition; there's going to be bumps in the road. But what's clear is that if we're going to be serious about addressing climate and reducing carbon emissions, all of these tools are in the toolbox to be used and we have to figure out how to effectively deploy them.

Mark Lewis [00:42:31] And our approach is, "Yes, please. All of the above. Let's figure out how to use all of those tools." And that's why we love the Electric Power Engineers business, because they're a key enabler to getting new renewable energy interconnected to the grid. They're a key enabler to getting the grid modernized and helping to build that out. We like Power TakeOff a lot because they're the guys who are helping to reduce that demand. Because if you're a utility, you have two ways to serve your customers and meet demand. You can either build more power lines, build more generation and just deliver more power, or you can find ways to intelligently help your consumers reduce their consumption. And our view is all of those things are needed to ultimately have the energy transition that we want to see.

Michael Crabb [00:43:22] Yeah, it makes a lot of sense. Okay, well, I took you down some rabbit holes in there. So as we think about wrapping up, what are two main themes that you're looking at over the next three to five years.

Mark Lewis [00:43:42] We've got a lot of focus on continuing to find those kinds of businesses and those entrepreneurs that are driving energy efficiency. Energy efficiency for us, we think is a really underserved market today. Power TakeOff was one of those unique businesses that we just felt was so differentiated in the market, serving a very specific need, but most importantly was a very clearly defined and easy to measure metric with just tremendous growth that really fit our sweet spot of where we like to deploy capital. We continue to look for those opportunities. So, energy efficiency, thematically, is a big area. Really, all three of our areas, but energy efficiency is one.

Mark Lewis [00:44:33] Around power and grids, it's clear that solar in particular is going to continue up and to the right in a meaningful way. That is now the number one source of new generation in many parts of the world and here in the US. So, we continue to look for opportunities to address that.

Mark Lewis [00:44:50] And then, the third area around the decarbonization of transportation, where our approach is not to take binary technology bets. We're unlikely to invest in battery chemistries, for example, where you could be leapfrogged the next day. I'm super encouraged that a lot of people are taking those risks and are actually driving the world forward in that way, but that's just not part of our mandate to do that. So, we'll continue to look for those opportunities like the Qmerits of the world where you can have that material impact on electrifying the transportation system but more from a service, or potentially, like Aperia, from a product side as well where it is a really differentiated thing. So, we like all of those areas. I know that's not very defined because they're the three areas that we focus on.

Mark Lewis [00:45:42] Areas where we are more reluctant to look hard today which I think are interesting but still early stage would be things like hydrogen where there's a lot of talk and a lot of money, frankly, including from the IRA around hydrogen, but still a long way to go to see market development and ultimately, who the winners and losers in that marketplace will be. So, all things we keep an eye on. But wherever we're deploying capital, we're hoping and expecting that it's going to be helping to drive decarbonization of the economy.

Michael Crabb [00:46:21] Incredible. Yeah, we need a whole other episode to talk about hydrogen. And I have some strong views there as well, but we'll save that for another day. Last question. Anything we didn't talk about that we should?

Mark Lewis [00:46:35] I don't think so. We covered a lot of ground. That was a great conversation. What I would say is we continue to be incredibly encouraged by the entrepreneurship that we see, the businesses that we work with, the innovation that's happening. I've been around this now for 20 years and I've never seen the, forgive the pun, but the energy of the whole space and watching the developments that are happening and how excited people are about things. So, it keeps me optimistic and excited about doing this job every day because I really do think that we're on the right path. It could always go faster; it needs to go faster, but we've got to get there. There's no doubt in my mind that we've got to get there, and I think we will.

Michael Crabb [00:47:26] Great. Well, thanks so much for coming on, Mark. I'll let you get on with speeding up that transition.

Mark Lewis [00:47:33] All right. Thanks, Michael. Appreciate it.