2019 Integrated Report
Federico R. Lopez
Chairman and Chief Executive Officer
As I write this message for our very first Integrated Report, the whole world is in varying stages of lockdown from the COVID-19 pandemic. With the prospect of a vaccine not yet in sight, we’re all still in a dangerous “dance” with the virus—simultaneously avoiding it, yet trying to regain some of the normalcy of our past lives that now feel like a world away. Prescient voices warned of this possibility. We all assumed that dystopian events like this only happen in movies and sci-fi novels and most of us dismissed the probability of it even occurring in our lifetimes. We convinced ourselves that modern technology and medicine will always come to the rescue. So we went on with our lives.
What is overwhelming us today in this pandemic is but a sneak preview of the geologic-scale changes that will result from an unabated climate crisis. These changes are already evident in record-breaking temperatures and natural catastrophes hitting the planet every year now. Early this year, a record-high temperature of 20.75 degrees Celsius was set in the Antarctic. At the time of this writing, the Arctic also broke historic records with a high temperature of 38 degrees Celsius. The incessant rise in the world’s carbon emissions has put us on a trajectory of a global temperature rise of between 3.7 to 4.8 degrees Celsius by 2100. That’s an unlivable planet!
Today, we have a narrowing window left to keep warming within the desired 1.5 degrees Celsius agreed to in Paris under COP 21, or watch it run away from us irreversibly. The upcoming decade of the 2020s will critically determine whether we succeed or not. To succeed, humanity needs to reduce carbon dioxide emissions by 6 percent every year until we achieve net zero emissions in 2050. For perspective, the lockdowns and passenger transport restrictions resulting from the pandemic are expected to bring emissions down this year by about 8 percent; which means we need a COVID-scale catastrophe every year until 2050 just to achieve the 1.5 degree Celsius target! How did we get into this existential crisis?
The natural, social, and political forces being unleashed in the coming decade will likely make it the most challenging and most disruptive business has ever seen. The COVID-19 pandemic is but a mere “fire-drill” for what’s coming and demonstrates the scale at which things need to change. We are living in a time of great paradigm shifts, and businesses that seek to thrive in this era must be able to reimagine and redesign themselves for this new world.
In this kind of a world,
There is an urgency for all of us to go beyond incremental sustainability and transform into regenerative forces that align our profit engines with the need for a better world and a safer planet.
This year we crystallized our mission at FPH and our group of companies and that is: “To forge collaborative pathways for a decarbonized and regenerative future.” It’s a deliberately high bar and we’re nothing short of humbled by it. But we expect this short phrase to be the beacon that guides us through this turbulent decade and beyond. We’ve also put into words our purpose and chosen path, etching out the role we see for ourselves in the coming years with greater clarity. The ideas and principles behind our words are not new. We’ve been living and breathing most of those principles the last decade. At times we felt we may have been getting ahead of ourselves and where our investors wanted us to be. But even back then, just like today, we’ve always been playing for the long term, reading the tea leaves, and conscientiously transforming ourselves into what the world needs us to be.
I hope you enjoy reading our recrafted mission and purpose as much as we did rewriting them. More importantly, I hope you’re encouraged to come along with us on what will be a rewarding and purposeful journey.
Federico R. Lopez
Chairman and Chief Executive Officer
Richard B. Tantoco
2019, while still in the very recent past, seems like an eon ago. Lest we forget, allow me to recall a breakthrough year for the company during which we recorded a number of firsts:
- Our highest Recurring Net Income Attributable of PhP11.6 Billion, despite resource constraints.
- Geothermal generation hit a high of 7.9TWh, up 9% vs the average of the previous 5 years.
- Planned outage rate was down to 2% through scheduled outage optimization efforts that focused on the most assiduous planning and execution (vs the average of 2.2% of the previous 5 years).
- Forced outage rate was 7.3%, down from the 10.7% average of the past 5 years. It is nowhere near where it should be but still, we celebrate the 32% improvement
- Leyte plants reported a full year of normalized operations for the second year in a row. Negros and BacMan geothermal plants reported higher revenues driven by the higher Wholesale Electricity Spot Market prices.
- As a result of all these operational improvements, our EBITDA grew by 15% vs the prior 5-year average.
- We also registered an overall employee engagement score of 91%—our highest score ever—despite conducting the survey a mere 60 days after the most significant reorganization we’ve ever done. Our employees are truly our partners, and these results indicate that they are willing to go the extra mile to support EDC. There is a rational, emotional, and behavioral attachment to the company.
- We stood unscathed and quickly recovered from a series of earthquakes in Mindanao, including one with a 6.5 magnitude, and strong typhoons Tisoy and Ursula, thanks to our resiliency investments. Our Natural Catastrophe Risk Mitigation Program has enabled us to plan for key risks and implement cost effective solutions that protect assets that have the highest value at risk.
- Our BINHI forest restoration program continued to take root, as we were selected by the International Union for Conservation of Nature (IUCN) to be their only local partner in the Philippines. The IUCN’s secretariat, Botanic Gardens Conservation International (BGCI), the world’s largest plant conservation network, selected EDC to be part of the Global Tree Assessment program to help update the status of 800 Philippine endemic tree species. To date, EDC has assessed 200 species and IUCN has updated and published 89 species in their Red List.
- We have now shifted to integrated reporting following the framework developed by the International Integrated Reporting Council (IIRC). This is our way of leveling up by holding ourselves accountable in terms of our performance vs targets and is on top of the GRI Standards for sustainability reporting, which we have been doing for ten years. The shift to IIRC demands that we measure outcomes in order to assess the value that we contribute to the ecosystem and to society as we strive towards a regenerative future.
Crisis that has made safety and survival the key thrusts of the company, the country, and the world.
We now live in quite dystopian times, characterized by the most unprecedented disruption in generations. We now live in what is frequently alluded to as “VUCA” times.
After the collapse of the Soviet Union in 1991, war colleges in the United States coined the term “VUCA” to describe a world where the “enemy of the future” would be dispersed and hard to identify. In the war games held in the top military schools in the United States, future leaders were taught to prepare for a Volatile, Uncertain, Complex, and Ambiguous (VUCA) world, one where the enemy can strike quickly, lethally, and at scale.
I am guessing that when VUCA was being described at that time, the main focus of attention were terrorist cells or anyone capable of inflicting damage militarily. I suspect no one really coined the term VUCA for a virus—propagated by a careless touch from an unwashed hands, a cough, or a sneeze—which is now the cause of a global crisis, an economic depression, and very significant unemployment.
If today’s world has indeed proved to be VUCA, there is also its antithesis, called VUCA Prime. It talks about the duty of management to craft a VISION, make sure there is UNDERSTANDING, with no less than absolute CLARITY in the organization in order for a company to execute in an AGILE manner.
I am glad that your company, despite living in a VUCA world, has continued to thrive using the VUCA Prime principles lived out by our employees and management team.
Allow me to discuss what I mean—
At the early days of the crisis, prior to any government-initiated lockdowns, we activated our Crisis Management Committee (CMC). We agreed, then laid down our priorities clearly and in this order:
- Keep our people safe.
- Keep our assets running and protect our fuel source.
- Engage and help our communities.
Very crucially, having learned from many crises in the past, we agreed to “split our brains” with one part of EDC focused on the near-term crisis and another focused solely on long-term thinking. Those involved in the long-term thinking would be spared from the daily calls of the CMC that ran into the late nights and devoured weekends. For the long-term thinking part of EDC, we set aside our Strategy and Commercial team as well as our Transformation and Program Management Office (PMO).
The CMC, in the span of a week, morphed into a hub-and-spoke structure where a clear delineation of responsibilities was made: the CMC would lead at the organization level, and at each site our leaders were to form their own Incident Management Teams (IMTs) to deal exclusively with local issues. At the sites, the IMTs would have to manage 937 employees as we rapidly shifted to shelter in place protocols and interface with our communities composed of 52 primary barangays (and some parts of our secondary barangays) with around 25,000 households.
Against all uncertainties, and as the transition to remote work started, we laid down crystal clear prioritization for the company and communicated the following to everyone:“If your projects and tasks do not align with the new priorities of the day, throttle down now and do this fast.” “If you identify any gaps in what we are doing, speak up and make sure we all know and address it.” “Are we all clear?” and “Any help needed?” were questions asked each day, consistent with Agile principles and practice.
In less than three weeks, a total of 30 new Agile squads formed. The main difference between just getting tasks done and doing so with squads is that the squads form organically and dissolve when tasks are done. The squad members do not need to ask permission from their bosses to participate. The squads are also almost always multidisciplinary, which results in neural networks being built across many individuals in the organization. So, in the midst of an intense and life-threatening crisis, our squad-centered setup built relationships and trust.
Quite crucially, we in the ManCom discussed and agreed to consistently convey to our teams: “You know what our priorities are; so go and decide on your own and don’t worry—we have your backs.”
To cite one example, two weeks into the crisis, we asked our site Community Partners Teams to check on the assistance that had been provided to our communities. The amount mentioned was too modest to make a dent in the needs of our communities given the rapidly accelerating unemployment then. So, a simple agreement was reached: go and help in a much more meaningful way and realign our budgets to do so. A month later, the total assistance given was 40 times of the first 2 weeks. The team decided the amounts and mode of giving on their own, having worked with the local government units and community leaders.
In the midst of the strictest government lockdown protocol in early May, we pivoted yet again from a policy of no project work at sites, to maximizing the work while there was no local transmission occurring. We flicked the ‘on button’ for critical work to ramp up given the lockdown exemptions granted to the energy industry. Our teams were given just 3 days to identify the top projects that would reduce risk and boost revenues. Another squad formed to develop a COVID-19 Risk Assessment Framework to develop return-to-work protocols for all the projects.
From the many experts that have spoken in webinars, one of the common themes that has come up has been this:
And for this, I am grateful.
Thank you to our solid, talented, and united senior management team, to our PMO, CMC, IMTs, and Risk Management Team for leading the rest of our company to a healthy position.
To all our other teams, thank you so much for your relentless and selfless service:
- For ensuring that we went into this crisis with a significant buffer, and for even growing it in the last months
- For rapidly moving our teams to a safer on-site housing facility and for executing our many projects quickly and safely
- For spreading the Agile Culture and for going out of your comfort zone by working with multidisciplinary teams to come up with the best minimum viable products
- For partnering with our communities and with the local government. The assistance given—such as the office container vans that now serve as hospital extensions for our local communities, food for the indigenous people and the persons with disabilities, the RT-PCR testing centers in our sites, and all other forms of help in kind—these have gone a long way in helping us fulfill our duties to our communities and our country
- For having so much heart and agility. Our employees know that ManCom and the Lopez group care. From the repurposing of our benefits, to the many talks on health, to the webinars on homeschooling, to vaccinations against flu and pneumonia, all these have gone a long way to ensure the wellness and well-being of all our employees, which is much needed now
- For keeping all our employees informed and engaged. The social media posts, quick E-news, health bulletins, and Agile updates, which amount to over 218 messages sent through various channels, have ensured that we stand united in purpose and direction
- For keeping our logistics humming and for partnering with so many to help our employees cope with the way of work today
- For leading with such grace under pressure to ensure our employees’ health and safety
- And finally, for being our very own frontliners—our employees, from those who are working on-site in shifts to ensure the continuous operations and maintenance of our plants, to those on work from home, who keep our company thriving.
These actions reflect the unwavering commitment of our employees to keep our power plants running in order to ensure the continuous supply of electricity to all our customers.
For being able to thrive in these VUCA times, we are truly blessed and grateful.
Our journey continues, looking at ways to further pivot to create higher value for all stakeholders and improve the way we work for the greater benefit of the environment and the communities we serve.
To our shareholders, our board members, our employees, our suppliers, contractors and other partners, and to our communities: thank you for another year of your trust and partnership. I enjoin everyone to continue supporting us as we push for a decarbonized and regenerative future.
Maraming salamat po.
Richard B. Tantoco
Our 2019 Integrated Report
Our Integrated Report tells the story of our efforts to achieve our business objectives, hand-in-hand with our sustainability aspirations.