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ERC/ER/2/1/ORPOWER4. INC. INV
REPORT
ON ORPOWER 4 INC. TO
THE ETHICS AND ANTI CORRUPTION
COMMISSION (EACC)
April, 2017
NAIROBI.
ERC/ER/2/1/ORPOWER4. INC. INV
(A) Introduction
1. This report details the investigations carried by the Commission on alleged malpractice
by OrPower 4 Inc. The investigations were carried between 14th February, 2017 to 31st
March 2017. The investigation team visited OrPower 4 Inc. and KPLC’s offices and
through interviews of the Senior Management and inspections at both OrPower4Inc.,
Business Strategy Department of KPLC and the National Control Centre (NCC) in
Dandora. Analysis of documents sought by the Commissions that could relate to the
malpractice reported was also done.
2. On the 1st December 2016, ERC received a letter ref. EACC.6/16/1Vl. LIV(15)- 62599
from EACC alleging malpractice by management of Orpower 4 Inc. in relation to power
purchase transactions with KPLC.
3. EACC intimated that it had received information from anonymous sources who where
alleging that Orpower 4 Inc. had over the past years been misreporting its capacity to
KPLC resulting in overpayment contrary to the provisions of Power Purchase
Agreement (PPA) signed by both parties. It was also alleged that the Company forced
its operators to report altered daily meter readings and report fictitious shut down to
KPLC. In addition, it is alleged that the Company paid its employees bonuses
amounting to KShs. 75,000 each to “buy” their silence on the scam. It was alleged that
the Human Resources Manager had threatened to have any staff deemed to have
breached the “secrecy” of business with termination.
4. On 18th January 2017, ERC wrote to KPLC and sought information on Orpower 4 Inc.’s
capacity test results for all its power plants.
5. On 25th of January 2017, KPLC provided three years capacity test results for Orpower 4
Inc. plants and attached a copy of the PPA extract for Correction Curve on ambient
temperature. A demonstration on the same on an excel worksheets was also provides
The information provided by KPLC was preliminary to facilitate investigation.
ERC/ER/2/1/ORPOWER4. INC. INV
6. On 31st January 2017, the Ag. Director General, appointed five officers from Economic
Regulation, Electricity and Legal Departments to undertake the requisite investigations
on the allegations leveled against Orpower 4 Inc.
(B). Orpower 4 Inc.
7. OrPower 4 Inc. is a company incorporated under the laws of Cayman Islands, with its
registered office in the Grand Cayman, Cayman Islands, and an office at 6225 Neil Road
Reno, Nevada USA. Its local branch is located off Moi South Lake Road, Hell’s Gate
National Park, P.O Box 1566-20117, Naivasha, Kenya. OrPower 4 Inc. is an Independent
Power Producer (IPP) that generates electricity from geothermal and currently owns
and operates four plants at Olkaria III and had contracted with KPLC for sale and
purchase of a total of 139MW. The plants are composed of: Plant 1 –OEC1 5.4MW,
OEC2 5.4MW, OEC3 3.75MW, OEC4 15.2MW, OEC5 15.2MW and OEC6 15.2MW; Plant
2 –OEC21 15.2MW, OEC22 15.2MW, OEC23 15.2MW, Plant 3 –OEC31 15.2MW, OEC32
7.5MW and Plant 4- OEC41 15.2MW, OEC42 15.2MW.
(C). Analysis and Findings
8. On 14th February 2017, ERC officers visited Orpower 4 Inc. offices and the plants in
Olkaria, Naivasha. The ERC’s officers held a meeting with Orpower’s officers. ERC had
prior to the meeting developed a matrix of the issues that needed to be verified with
Orpower 4 in order to establish the validity of the claims against Orpower. These issues
listed in the matrix below were considered critical in establishing the authenticity
allegations against Orpower. Additional information after the visit was sort from
Orpower and received through E-mails. On 15th March 2017, ERC officers visited
Kenya Power’s National Control Center to seek more details relevant to the power
purchase transactional process between the two parties. The information sought
substantially related to the metering reading process, monitoring of Orpower’s plants
ERC/ER/2/1/ORPOWER4. INC. INV
performance and the billing process. The table below summarizes the findings and the
Commissions remarks against each item.
Table 2: Matrix of Identified Issues under Investigation and Findings
Item Description Comments from Utilities ERC’s Remarks
1 Plant or KPLC outages
logging procedure
OrPower -Documented in the log
book.
• A common 11kv Bus bar
for machine in-feeds is
used.
.
• There is need to involve
KPLC in switching on
11kv system.
Kenya Power-Outages of 220kv
systems granted to Ketraco /
KPLC, Local permits issued by
Plant staff for 11kv systems.
2 Operating Capacity Curtailment done at times.
Contracted capacity 139MW
Parasitic loads take
approximately 19.85MW.
Total installed capacity
approximately 158.85MW.
• Plant uses corrected factor
to get the contracted
capacity.
• Availabilities above 100%
recorded at times.
3 Role of plant operators
in Capacity
declarations and
energy meter readings
communication to
National Control
Center(NCC)
Or-power- Energy Meter reading
communicated to NCC three
times a day, Declarations
communicated for a certain
period unless changes occur.
Contracted capacity higher than
actual.
Kenya Power- Frozen data taken
for end month readings. Meter
memory can store 12months
data.
• Capacity declared higher
than actual due to use of
correction factor.
• Method of capacity
correction calculation
agreed in the PPA
• KPLC staff not available
for midnight readings.
• Verification by both
parties quite necessary.
4 Communication
records
OrPower- No voice recording
done.
Local Permits used for MV & LV
electrical works and other
related plant jobs.
KPLC- Radio recording used to
be done in earlier days.
• Radio recording is critical
for communication in
power plants for
evidence, safety etc.
• KPLC relies on frozen
data midnight readings to
avoid night travelling in
the park.
5
Effect of Ambience in
the Contracted
Capacity
OrPower- The correction factor
has always been used by the
Plant for computing the
contracted capacity which is
most times higher than actual.
Kenya Power-Plant capacity
availability higher than 100 and
recorded.
• No technical reason given
why the correction factor
is used.
• Correction factor
overstated the contracted
Capacity.
6 Accuracy of the
Ambient Temperature
Or power-Calibration
instruments done.
• Location of the
instrument is under the
ERC/ER/2/1/ORPOWER4. INC. INV
thermometer One thermometer provided per
plant.
Data transmitted to HMI in the
plant control room.
Kenya Power- Relies on the data
communicated on phone/and
mail.
cooling tower base. There
is likehood of indicating
temperature readings
lower than actual.
•
7. Plants maintenance
programme
Orpower-The planned
Programme is executed as much
as possible.
Kenya Power – Planned
maintenance delayed at times
due to system constraints.
• Implementation of the
programme limited to the
agreed maintenance
hours as much as
possible.
8 Invoicing of Kenya
Power
Or-power-Target availability 96%
Corrected capacity.
Kenya Power-Energy purchase team
handle the invoices and data
reconciliation on regular basis.
• Overstated capacity used.
9 Kenya Power SCADA
System
OrPower- SCADA (System
Communication Data Acquisition) is
active up to Olkaria line isolator.
Kenya Power- There are a number
of Stations besides OrPower where
NCC is unable to view the plant HV.
KP relies on word of mouth by
operators on plant status. Only
220kv isolator facing OrPower at
Olkaria 2 is monitored at National
Control Centre.
• SCADA system does not
communicate to NCC the
status of the plants and
NCC relies on the
information given by the
operators. This leads to
challenges in accurate
reporting.
9. On 27th March 2017, ERC wrote to Kenya Power seeking more information on the
computation related to the application of the ambience correction factor. Kenya Power
replied to the Commission letter on the 7th of April 2017. They provided a response on
the issues sought by the Commission and real time information on how the correction
factor formula is used. From the information provided, the formula is applied correctly
as outlined in the PPA. Actual commissioning and testing data was used to demonstrate
the use of the formula. The higher the correction factor, the lower the capacity declared,
as the two are inversely proportional.
ERC/ER/2/1/ORPOWER4. INC. INV
“On whether there was capacity misreporting by Orpower4 Inc. resulting
to overpayment”
10.On the issue on whether Orpower 4 Inc. had over the past years been misreporting its
capacity to KPLC resulting in overpayment contrary to the provisions of Power
Purchase Agreement (PPA) signed by both parties, an analysis of actual energy sales
and energy balance has been done. The energy balance, which is a forecast of energy
based on the PPA, is in some cases lower than the actual energy purchases. This is not
however due to misreporting of the capacity at the plant; rather it has to do with
procurement where in some instances they have brought in extra capacity ahead of
time. The recent increase was in response to government’s call to increase capacity
under the project 5000MW+. Figure 1 below shows actual energy purchased from
Orpower4 Inc plants. Vs the energy balance.
Figure 1: Actual Energy Purchased Vs Energy Balance for Orpower4 Inc. in GWh (2004-2016)
11.Further information is provided in Figure 2 below to demonstrate the relationship
between KPLC revenues verses the total Energy generated. It is evident from the graph
that both revenues and total energy generated have been increasing.
0
200
400
600
800
1,000
1,200
GWh
Actual Energy Purchased Vs Energy Balance for Orpower4 Inc.
GWh (2011-2016)
Energy Balance Actual Energy Purchased
ERC/ER/2/1/ORPOWER4. INC. INV
Figure 2: KPLC Electricity Sales Vs System Total Energy Purchased 2004-2016
(E). Conclusions
12. Following the investigations and thorough analysis of information gathered it was
established that there were no evidence of fictitious shutdowns as had been alleged. The
shutdowns which had been recorded were in accordance with the requirements of
applicable Power Purchase Agreement.
13.The following miscellaneous gaps were identified in the data collection and
communication process:-
(i) The lack of real time data capture at NCC for this power plant leaves NCC to
accept data communicated verbally or through E-mail. This could lead to
erroneous data for the invoice inputs.
(ii) It is difficult for NCC to know with certainty when the Unit at OrPower has
been fully or partially offloaded due to the lack of a suitable data acquisition
and control system for the 11kv systems. In case this was to happen, the
consequence would be challenges of operating the interconnected system and
0
2,000
4,000
6,000
8,000
10,000
12,000
0
20,000
40,000
60,000
80,000
100,000
120,000
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
GWh
KShsMillions
Years
KPLC Electricity Revenues Vs System Total Energy Generated 2014-
2016
Electricity Revenues(KShs. Millions) System Total (GWh)
ERC/ER/2/1/ORPOWER4. INC. INV
the possibility of the Orpower4 Plant to disregard some critical instructions
from the NCC.
(iii) Location of the temperature measurement instrument under the cooling
towers could transmit incorrect ambient temperature i.e. the surrounding
natural temperature in the plant location areas vis avi the one under the
cooling towers, leading to errors in capacity conversion. However, this
shortcoming would not put any due disadvantage to Kenya Power. However,
the corrected capacity would be reduced hence the need to relocate the sensor
to an ideal location.
14.Based on the investigation undertaken by the Committee, there does not seem to be
evidence of overstating of the capacity due to the temperature correction factor. The
team was agreeable with the facts gathered from Kenya Power and OrPower 4Inc
power plant.
15.ERC in fulfilling its regulatory role undertakes continuous monitoring of all its licenses
in both electricity and petroleum sub sectors to ensure that the interests of consumers
and investors are protected.
Signed by:
...................................................................... Date.............................
Robert Mahenia, Manager Legal Affairs
(Secretary)
..................................................................... Date.............................
Dr. John M. Mutua, Manager Planning Research and Policy Analysis
(Chairman)
ERC/ER/2/1/ORPOWER4. INC. INV
(F). Annexes
I. Letter from EACC to ERC on Orpower4 Inc. Investigation
II. Email Communication from ERC to Kenya Power
III. Email Communication from Kenya Power to ERC
IV. Internal Memo from DG Appointing a Committee
V. ERC Letter to Orpower4 Inc. on Plant Visit
VI. ERC Letter Ref: to Kenya Power on National Control Visit
VII. ERC Letter Ref: to Kenya Power on Correction Factor
VIII. Orpower4 Inc. Letter and Submitted Documents
IX. Documents submitted by KPLC

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Kenya EAAC OrPower Report

  • 1. ERC/ER/2/1/ORPOWER4. INC. INV REPORT ON ORPOWER 4 INC. TO THE ETHICS AND ANTI CORRUPTION COMMISSION (EACC) April, 2017 NAIROBI.
  • 2. ERC/ER/2/1/ORPOWER4. INC. INV (A) Introduction 1. This report details the investigations carried by the Commission on alleged malpractice by OrPower 4 Inc. The investigations were carried between 14th February, 2017 to 31st March 2017. The investigation team visited OrPower 4 Inc. and KPLC’s offices and through interviews of the Senior Management and inspections at both OrPower4Inc., Business Strategy Department of KPLC and the National Control Centre (NCC) in Dandora. Analysis of documents sought by the Commissions that could relate to the malpractice reported was also done. 2. On the 1st December 2016, ERC received a letter ref. EACC.6/16/1Vl. LIV(15)- 62599 from EACC alleging malpractice by management of Orpower 4 Inc. in relation to power purchase transactions with KPLC. 3. EACC intimated that it had received information from anonymous sources who where alleging that Orpower 4 Inc. had over the past years been misreporting its capacity to KPLC resulting in overpayment contrary to the provisions of Power Purchase Agreement (PPA) signed by both parties. It was also alleged that the Company forced its operators to report altered daily meter readings and report fictitious shut down to KPLC. In addition, it is alleged that the Company paid its employees bonuses amounting to KShs. 75,000 each to “buy” their silence on the scam. It was alleged that the Human Resources Manager had threatened to have any staff deemed to have breached the “secrecy” of business with termination. 4. On 18th January 2017, ERC wrote to KPLC and sought information on Orpower 4 Inc.’s capacity test results for all its power plants. 5. On 25th of January 2017, KPLC provided three years capacity test results for Orpower 4 Inc. plants and attached a copy of the PPA extract for Correction Curve on ambient temperature. A demonstration on the same on an excel worksheets was also provides The information provided by KPLC was preliminary to facilitate investigation.
  • 3. ERC/ER/2/1/ORPOWER4. INC. INV 6. On 31st January 2017, the Ag. Director General, appointed five officers from Economic Regulation, Electricity and Legal Departments to undertake the requisite investigations on the allegations leveled against Orpower 4 Inc. (B). Orpower 4 Inc. 7. OrPower 4 Inc. is a company incorporated under the laws of Cayman Islands, with its registered office in the Grand Cayman, Cayman Islands, and an office at 6225 Neil Road Reno, Nevada USA. Its local branch is located off Moi South Lake Road, Hell’s Gate National Park, P.O Box 1566-20117, Naivasha, Kenya. OrPower 4 Inc. is an Independent Power Producer (IPP) that generates electricity from geothermal and currently owns and operates four plants at Olkaria III and had contracted with KPLC for sale and purchase of a total of 139MW. The plants are composed of: Plant 1 –OEC1 5.4MW, OEC2 5.4MW, OEC3 3.75MW, OEC4 15.2MW, OEC5 15.2MW and OEC6 15.2MW; Plant 2 –OEC21 15.2MW, OEC22 15.2MW, OEC23 15.2MW, Plant 3 –OEC31 15.2MW, OEC32 7.5MW and Plant 4- OEC41 15.2MW, OEC42 15.2MW. (C). Analysis and Findings 8. On 14th February 2017, ERC officers visited Orpower 4 Inc. offices and the plants in Olkaria, Naivasha. The ERC’s officers held a meeting with Orpower’s officers. ERC had prior to the meeting developed a matrix of the issues that needed to be verified with Orpower 4 in order to establish the validity of the claims against Orpower. These issues listed in the matrix below were considered critical in establishing the authenticity allegations against Orpower. Additional information after the visit was sort from Orpower and received through E-mails. On 15th March 2017, ERC officers visited Kenya Power’s National Control Center to seek more details relevant to the power purchase transactional process between the two parties. The information sought substantially related to the metering reading process, monitoring of Orpower’s plants
  • 4. ERC/ER/2/1/ORPOWER4. INC. INV performance and the billing process. The table below summarizes the findings and the Commissions remarks against each item. Table 2: Matrix of Identified Issues under Investigation and Findings Item Description Comments from Utilities ERC’s Remarks 1 Plant or KPLC outages logging procedure OrPower -Documented in the log book. • A common 11kv Bus bar for machine in-feeds is used. . • There is need to involve KPLC in switching on 11kv system. Kenya Power-Outages of 220kv systems granted to Ketraco / KPLC, Local permits issued by Plant staff for 11kv systems. 2 Operating Capacity Curtailment done at times. Contracted capacity 139MW Parasitic loads take approximately 19.85MW. Total installed capacity approximately 158.85MW. • Plant uses corrected factor to get the contracted capacity. • Availabilities above 100% recorded at times. 3 Role of plant operators in Capacity declarations and energy meter readings communication to National Control Center(NCC) Or-power- Energy Meter reading communicated to NCC three times a day, Declarations communicated for a certain period unless changes occur. Contracted capacity higher than actual. Kenya Power- Frozen data taken for end month readings. Meter memory can store 12months data. • Capacity declared higher than actual due to use of correction factor. • Method of capacity correction calculation agreed in the PPA • KPLC staff not available for midnight readings. • Verification by both parties quite necessary. 4 Communication records OrPower- No voice recording done. Local Permits used for MV & LV electrical works and other related plant jobs. KPLC- Radio recording used to be done in earlier days. • Radio recording is critical for communication in power plants for evidence, safety etc. • KPLC relies on frozen data midnight readings to avoid night travelling in the park. 5 Effect of Ambience in the Contracted Capacity OrPower- The correction factor has always been used by the Plant for computing the contracted capacity which is most times higher than actual. Kenya Power-Plant capacity availability higher than 100 and recorded. • No technical reason given why the correction factor is used. • Correction factor overstated the contracted Capacity. 6 Accuracy of the Ambient Temperature Or power-Calibration instruments done. • Location of the instrument is under the
  • 5. ERC/ER/2/1/ORPOWER4. INC. INV thermometer One thermometer provided per plant. Data transmitted to HMI in the plant control room. Kenya Power- Relies on the data communicated on phone/and mail. cooling tower base. There is likehood of indicating temperature readings lower than actual. • 7. Plants maintenance programme Orpower-The planned Programme is executed as much as possible. Kenya Power – Planned maintenance delayed at times due to system constraints. • Implementation of the programme limited to the agreed maintenance hours as much as possible. 8 Invoicing of Kenya Power Or-power-Target availability 96% Corrected capacity. Kenya Power-Energy purchase team handle the invoices and data reconciliation on regular basis. • Overstated capacity used. 9 Kenya Power SCADA System OrPower- SCADA (System Communication Data Acquisition) is active up to Olkaria line isolator. Kenya Power- There are a number of Stations besides OrPower where NCC is unable to view the plant HV. KP relies on word of mouth by operators on plant status. Only 220kv isolator facing OrPower at Olkaria 2 is monitored at National Control Centre. • SCADA system does not communicate to NCC the status of the plants and NCC relies on the information given by the operators. This leads to challenges in accurate reporting. 9. On 27th March 2017, ERC wrote to Kenya Power seeking more information on the computation related to the application of the ambience correction factor. Kenya Power replied to the Commission letter on the 7th of April 2017. They provided a response on the issues sought by the Commission and real time information on how the correction factor formula is used. From the information provided, the formula is applied correctly as outlined in the PPA. Actual commissioning and testing data was used to demonstrate the use of the formula. The higher the correction factor, the lower the capacity declared, as the two are inversely proportional.
  • 6. ERC/ER/2/1/ORPOWER4. INC. INV “On whether there was capacity misreporting by Orpower4 Inc. resulting to overpayment” 10.On the issue on whether Orpower 4 Inc. had over the past years been misreporting its capacity to KPLC resulting in overpayment contrary to the provisions of Power Purchase Agreement (PPA) signed by both parties, an analysis of actual energy sales and energy balance has been done. The energy balance, which is a forecast of energy based on the PPA, is in some cases lower than the actual energy purchases. This is not however due to misreporting of the capacity at the plant; rather it has to do with procurement where in some instances they have brought in extra capacity ahead of time. The recent increase was in response to government’s call to increase capacity under the project 5000MW+. Figure 1 below shows actual energy purchased from Orpower4 Inc plants. Vs the energy balance. Figure 1: Actual Energy Purchased Vs Energy Balance for Orpower4 Inc. in GWh (2004-2016) 11.Further information is provided in Figure 2 below to demonstrate the relationship between KPLC revenues verses the total Energy generated. It is evident from the graph that both revenues and total energy generated have been increasing. 0 200 400 600 800 1,000 1,200 GWh Actual Energy Purchased Vs Energy Balance for Orpower4 Inc. GWh (2011-2016) Energy Balance Actual Energy Purchased
  • 7. ERC/ER/2/1/ORPOWER4. INC. INV Figure 2: KPLC Electricity Sales Vs System Total Energy Purchased 2004-2016 (E). Conclusions 12. Following the investigations and thorough analysis of information gathered it was established that there were no evidence of fictitious shutdowns as had been alleged. The shutdowns which had been recorded were in accordance with the requirements of applicable Power Purchase Agreement. 13.The following miscellaneous gaps were identified in the data collection and communication process:- (i) The lack of real time data capture at NCC for this power plant leaves NCC to accept data communicated verbally or through E-mail. This could lead to erroneous data for the invoice inputs. (ii) It is difficult for NCC to know with certainty when the Unit at OrPower has been fully or partially offloaded due to the lack of a suitable data acquisition and control system for the 11kv systems. In case this was to happen, the consequence would be challenges of operating the interconnected system and 0 2,000 4,000 6,000 8,000 10,000 12,000 0 20,000 40,000 60,000 80,000 100,000 120,000 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 GWh KShsMillions Years KPLC Electricity Revenues Vs System Total Energy Generated 2014- 2016 Electricity Revenues(KShs. Millions) System Total (GWh)
  • 8. ERC/ER/2/1/ORPOWER4. INC. INV the possibility of the Orpower4 Plant to disregard some critical instructions from the NCC. (iii) Location of the temperature measurement instrument under the cooling towers could transmit incorrect ambient temperature i.e. the surrounding natural temperature in the plant location areas vis avi the one under the cooling towers, leading to errors in capacity conversion. However, this shortcoming would not put any due disadvantage to Kenya Power. However, the corrected capacity would be reduced hence the need to relocate the sensor to an ideal location. 14.Based on the investigation undertaken by the Committee, there does not seem to be evidence of overstating of the capacity due to the temperature correction factor. The team was agreeable with the facts gathered from Kenya Power and OrPower 4Inc power plant. 15.ERC in fulfilling its regulatory role undertakes continuous monitoring of all its licenses in both electricity and petroleum sub sectors to ensure that the interests of consumers and investors are protected. Signed by: ...................................................................... Date............................. Robert Mahenia, Manager Legal Affairs (Secretary) ..................................................................... Date............................. Dr. John M. Mutua, Manager Planning Research and Policy Analysis (Chairman)
  • 9. ERC/ER/2/1/ORPOWER4. INC. INV (F). Annexes I. Letter from EACC to ERC on Orpower4 Inc. Investigation II. Email Communication from ERC to Kenya Power III. Email Communication from Kenya Power to ERC IV. Internal Memo from DG Appointing a Committee V. ERC Letter to Orpower4 Inc. on Plant Visit VI. ERC Letter Ref: to Kenya Power on National Control Visit VII. ERC Letter Ref: to Kenya Power on Correction Factor VIII. Orpower4 Inc. Letter and Submitted Documents IX. Documents submitted by KPLC