Federico R. Lopez

The years 2013 and 2014 clearly exposed the vulnerability of our operations to the “new normal” of climate change. The Philippines is ranked globally as among the most susceptible to such extreme weather events, and it’s fundamental that we embark on measures that create a more robust and a more resilient First Gen in the coming years.

“Future-­‐proofing”
At our geothermal subsidiary -­‐-­‐ Energy Development Corporation (EDC), we recognize that the most vulnerable of our structures are our cooling towers and control rooms. We have since begun exploring innovative and resourceful designs for these — as well as for our other plant facilities —uprating them to withstand more intense rainfall and higher wind speeds of up to 300kph. The planned upgrades are already underway for these facilities, making them more robust and more resilient in the years to come.

Also, given that our geothermal plants are situated in the most rugged landscapes, we’ve spent the last eight years identifying and addressing close to 150 critical geohazard-­‐prone areas within our concession sites. By end 2014, we’ve completed all the mitigating measures necessary to ensure the safety of our people and our structures. But we remain vigilant to new geohazard threats posed by natural calamities.

In addition to the many innovative engineering solutions that we’ve already begun tapping, we are also building stronger emergency preparedness and response capabilities within the company by hiring some of the best full-­‐time dedicated emergency teams in the country. They are strategically being deployed throughout our various sites across the country — ready and capable to respond rapidly in case of emergency, and also to act as a resource in training our partner communities and local governments in disaster preparedness. We believe that, aside from being force-­‐multipliers in times of crisis, all these activities will also increase the bonds of partnership and trust we have with our local communities.

Managing Risks
In July 2014, Typhoon Glenda caused heavy flooding in the First Gas Sta. Rita and San Lorenzo plants, halting operations for two days. The typhoon also caused damage when a wayward barge owned by a third party came loose from Balayan Bay during the storm and slammed onto our fuel jetty in Batangas. Although both incidents had no material effect on our operations at the time, the damage to the jetty severely constrained liquid fuel deliveries for six months until repairs were completed in January 2015.

In many ways, managing the risks that emanate from the “new normal” is key to keeping our operations humming and our cash flows steady. Although we have been sufficiently protected by insurance in many of these instances, we must proactively manage our risks and prepare for contingencies so that we remain ahead of the curve and keep insurance and interruption costs down.

We have thus embarked on a “strategic spares” program — at EDC, we have begun stocking up on critical plant equipment onsite and in safe locations. At First Gas, we closely monitor the condition of our transformers, but we also have a spare 318-­‐megavolt amperes (MVA) transformer ready within the First Gen Batangas complex that can be put to use at moment’s notice should there be a failure again of one of the transformers as happened with Units 40 and 60 these last two years.

Energizing the Future
Despite some snags these past two years, First Gen continues the upward trajectory of its bottomline. For 2014, net income attributable to Parent is USD193.2 million — up significantly by more than 63.6% over the previous year, the highest in our 15-­‐year history! We expect this, albeit more steady, rise to continue as we strengthen our earnings base with the solid execution of our new and existing projects.

The next few years should see First Gen capitalizing on its strengths to power the company and our nation’s energy needs. Our natural gas platform should see a firm strengthening as we complete our 97-­‐ MW Avion open-­‐cycle plant within the third quarter 2015, and the 414-­‐MW San Gabriel combined-­‐cycle plant within the second quarter of 2016, to serve mid-­‐merit requirements of the Luzon grid. These gas-­‐fired additions to our Santa Rita and San Lorenzo plants will form the basis for the development of a Liquefied Natural Gas (LNG) import terminal in Batangas, with enough demand to underpin its economic viability.

In the geothermal space, EDC will continue to optimize its steam and power resources locally, but we’re also eyeing exciting prospects in Latin America, which present major sources of growth potential for our geothermal business.

In Chile, for instance, we will be conducting our first major international drilling campaign in October 2015. We have laid the groundwork for this three-­‐well campaign by putting together an experienced project team to execute the drilling program, beginning with the completion of the necessary civil works and infrastructure, as well as the installation of surface casings in each of the target wells. All of our studies point towards a viable geothermal resource, and we are optimistic that we can execute our plan to put up our very first overseas geothermal power plant.

Meanwhile, in Peru, we have finished our surface exploration surveys and are in the process of developing our most promising concessions there.

We also continue to be on the lookout for other geothermal opportunities in the Asia-­‐Pacific region.

Locally, First Gen, through EDC, will continue to build up its portfolio of solar and wind energy projects, as opportunities arise in the country’s Feed-­‐in-­‐Tariff (FiT) regime. We believe that closely participating in these emergent technologies will not only allow us to contribute to the future from an environmental standpoint, but will also enable us to stay technologically-­‐agile and augment our corporate capabilities for the years ahead.

In energizing the future, we will continue to work with the best alternatives that combine both the environmental and the economic needs of our consumers, our communities, and our stakeholders. First Gen is determined to see a nation “Powered by Good.”