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Vol. 13, No. 48 Week of November 30, 2008
Providing coverage of Alaska and northern Canada's oil and gas industry

AK-WA Connection 2008: Renewable energy fuels AP&T in Alaska

Washington-based company carves niche as electricity, telecommunications services provider in Southeast and Interior communities

Rose Ragsdale

For Alaska-Washington Connection

No company better exemplifies the dynamic business connection between Alaska and Washington than Alaska Power & Telephone.

The Port Townsend, Wash.-based energy and communications utility company provides reliable and affordable power and telecommunications services to more than 33 remote Alaska communities from Metlakatla to Bettles.

In seasonally harsh and challenging environments throughout eastern Alaska,

AP&T has forged an aggressive approach to service delivery marked by employee dedication and a flair for cutting-edge innovation.

Bringing cleaner power and modern digital, fiber and wireless communications to remote and rugged areas is a challenge to which AP&T’s 115 Alaska employees routinely rise.

More than a utility

But the 51-year-old company is more than an operator of small-town utility systems in rural Alaska. During the past 13 years AP&T has updated, linked and modernized a widely scattered infrastructure, emerging as a technology leader recognized nationwide. Not only does this utility deliver its services with great reliability, it does so with ever-increasing efficiency and environmental awareness.

“We’ve been able to shift over 70 percent of our power generation from a carbon-based footprint in the past 13 years to renewable energy sources, and we’re continuing to pursue more opportunities for renewable energy,” said AP&T’s President and CEO Robert Grimm.

The strategy has propelled AP&T to the frontlines in the struggle to employ new types of hydroelectricity facilities and leading-edge alternative energy research. At a time when Alaska’s congressional delegation is calling for increased investment by the private sector in development of renewable energy resources, AP&T is well ahead of the curve.

“We (Alaskans) literally have more (energy) potential than all the rest of the country put together,” Sen. Ted Stevens, R-Alaska, told reporters recently. “We have enormous amounts of each form of potential energy.”

The folks at AP&T figured this out in 1995 when they built the 4.5-megawatt Black Bear Lake Hydro Project on Prince of Wales Island 15 miles northeast of Klawock. This plant was lauded in 2006 by the Low Impact Hydropower Institute when it became the first hydro project in Alaska to earn the institute’s coveted certification. The Goat Lake hydro project seven miles north of Skagway became the second such facility in the state to be certified by the institute in 2007. The projects also ranked 22nd and 26th, respectively, nationwide in earning the designations. Certification addressed issues such as river flow, water quality, fish passage, watershed health, endangered species protection and recreational use and access.

Improving hydropower services

Company initiatives include at least seven hydropower projects and eight more such projects are still in planning stages. One of AP&T’s newest ventures is an in-stream hydrokinetic river turbine project currently under construction for placement in the Yukon River near Eagle. The Denali Commission is assisting AP&T with a grant of $1.6 million for the project.

Though the river turbine can only operate during the long Alaska summer when the Yukon is ice free, it will help stabilize long-term power costs for customers in Eagle and the nearby Native village of Eagle River, Grimm said.

Recent power costs for many rural Alaska customers dependent upon electricity generated with conventional carbon-based fuels have exceeded 50 cents per kilowatt-hour, about five times the 9-12 cents/KWh that consumers in urban areas such as Anchorage and Seattle pay, he said.

“That’s why development of sustainable clean technologies coupled with Alaska’s power cost equalization program is so important,” he said. The PCE program currently provides a state-funded subsidy to help offset the high cost of rural electricity in Alaska.

The Denali Commission also granted $900,000 to help AP&T complete construction of its Kasidaya Creek Hydro Project, which will generate about 12 million kilowatt-hours, or 12 gigawatt-hours, annually — enough electricity to power 1,100 Alaska homes for a full year.

The Kasidaya Project should be completed by year’s end, making it the company’s seventh hydro project, Grimm said.

One of the most significant benefits of this project is that AP&T will be able to “bank” or reserve water at AP&T’s nearby Goat Lake Hydro facility. AP&T holds regulatory permits that allow the company to use alpine lakes for hydro production until the water in those lakes decreases to specific levels.

With this banking strategy, the utility can hold in reserve more water in lakes that are likely to freeze over during cold weather, and release it in a more measured fashion.

“Without banked water, we are forced to use diesel-based energy until the weather warms enough to refill lake levels so hydro production can resume,” AP&T said in its 2007 annual report.

The utility is maximizing the benefits of hydroelectric projects by selling renewable energy credits associated with its Goat Lake and South Fork hydropower projects. The South Fork project also qualified to receive a production tax credit for renewable energy for each kilowatt-hour for 10 years.

AP&T also recently embarked on arguably its most ambitious hydropower generation project yet. The company notified the Federal Energy Regulatory Commission in March of a plan to partner with others to build a 75-megawatt hydroelectric project in the Soule River and on 1,112-acres of U.S. Forest Service land about 10 miles southeast of Hyder. Designed to be a peaking facility, it would generate up to 270 GWh per year, more than 20 times the size of AP&T’s next-largest hydro project to date.

But unlike its other hydro projects, AP&T is designing the Soule River project with the potential to provide electricity via transport through British Columbia to West Coast energy markets.

It would not be the first time that AP&T has ventured outside the United States to serve customers. The utility also invested in the 12-MW Pasabien hydroelectric project in Guatemala, a venture in which it owns a 25 percent interest through HydroWest.

Other power sources on horizon

In addition to hydro power, AP&T has been studying generation of wind power with two test towers in Delta for two years. Working in partnership with Anchorage-based Lapp Resources Inc., the company has identified seven promising Interior sites, including Delta where it has collected wind data.

AP&T is now courting venture capital funds for prospective investment in a wind farm project at Delta, Grimm said.

In addition to investigating the possibility of adding facilities that generate sustainable hydroelectric power at Yerrick Creek in Tok, AP&T also partnered with Caterpillar Inc. through NC Machinery Inc. in a pilot program designed to minimize diesel generation emissions and maximize fuel efficiency at its Tok power plant. The latest developmental version of the Cat C175 generator was installed at the Tok plant in 2007.

The utility also has looked at considering other alternative energy sources, including solar power as the technology continues to mature.

Grimm said AP&T’s manager of the Eagle power plant has added solar panels on his own home to augment his personal power supply and the Village of Eagle River recently built a community center equipped with a tracking array of solar panels. So, a solar power project, while not at the top of the utility’s current project list, is not off the table if it is found to be economically feasible.

Bottom-line benefits

AP&T’s success in improving its energy profile is also paying off with bottom-line benefits.

After emerging from a year-long reorganization in 2003, the utility reported profits for a fifth consecutive year in 2007, though income fell 15 percent due to high energy costs to $3 million from $3.56 million a year earlier. Revenue, however, climbed 3.1 percent to $37.6 million, though costs jumped 7 percent to $29.52 million.

AP&T’s electric power operations generated $17.5 million in revenue in 2007, up 2.3 percent for the previous year mainly due to a 2.7 percent increase in kilowatt-hour sales. Crediting its transformation from a fossil fuel-dependent company to one that relies on renewable energy, AP&T said it produced more than 53 million kilowatt-hours of hydroelectric power in 2007.

“Based on the year-end cost of diesel ($2.50 per gallon), it would have cost nearly $5.8 million more to generate the same amount of power had we not embraced renewable energy technologies,” the company said in its 2007 annual report.

But Grimm points out that AP&T is “not just a power company.”

“It is a rarity in industry to be both a power and telephone utility,” he said. “Employee ownership has created an internal culture that is not only highly attuned to the day-to-day operation, but one that is much more nimble in its ability to capitalize on emerging opportunities and technology than some of our competitors.”

New microwave network nears completion

The utility company posted $14.3 million for telecommunications revenue in 2007, up slightly from 2006 results, minus a one-time payment of $300,000 in intrastate access revenues from the Alaska Exchange Carriers Association.

AP&T said its telecommunications operating expenses jumped 5.8 percent in 2007 to $12.5 million due mainly to costs association with interconnecting telephone exchanges and depreciating facilities.

In 1989, AP&T’s telephone operations completed conversion from analog to digital equipment. The company also added cellular phone service in 1997 with the purchase of the assets of Communications Unlimited and rolled out Wi-Fi in 2005, a service especially popular with summer visitors to tourism-oriented communities in Southeast Alaska.

AP&T is anticipating Anchorage-based GCI Inc. entering the Wrangell and Petersburg markets with competing voice services in 2009.

AP&T, meanwhile, is closing in on completion of its new Southeast Alaska Microwave Network, an ambitious project to connect Southeast Alaska communities from Skagway to Metlakatla with a modern telecommunications link. The southernmost portion of the network, from Ketchikan to Wrangell, came on line last year.

The remaining mountaintop microwave radio installations in the network are expected to be completed this fall.

Michael Garrett, executive vice president and chief operating officer of AP&T’s telecom division, said the new network will help to alleviate increasing congestion on the 30-year-old AT&T fiber optic line on which it currently purchases bandwidth for the use of its customers. It also will enable AP&T to create a new revenue stream through the sale of bandwidth to other companies and provide the opportunity to market broadband services outside its traditional service areas.

“The $10 million Southeast Alaska Terrestrial Microwave Project will give us our own internal bandwidth infrastructure, reduce our transmission costs and give us the ability to provide a better quality Internet experience to our customers,” he said.

Attracting and retaining workers offers challenge

Grimm said one of AP&T’s biggest recent challenges has been attracting and retaining high-quality personnel in Alaska.

“When you serve a lot of remote communities, you’ll find an ample number of fellows with the technical skills looking for their next great life adventure to come work for you. And they really like it.

“But conversely you’ll also find that their wives may not always share their enthusiasm. After a couple of years of no Wal-Mart or McDonald’s, they are ready to leave,” he observed.

AP&T is addressing this problem in several ways, including offering a competitive wage and benefit package. “In today’s volatile economy you have to balance what you’d like, with what you can afford to have,” Grimm said. “We believe our employee ownership has allowed us to achieve our goals in that regard.”

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AP&T touts history of entrepreneurship

The story of how AP&T acquired its unusual business model actually began two years before Alaska statehood in 1957. Last year, the company celebrated its 50th anniversary.

AP&T got its start when Arthur Garrett sold out his utility interests in the Pacific Northwest and seeing opportunity in the Last Frontier, joined Marguerite Garrett and Hector Munn in founding the company in 1957 with the purchase of the power generation and telephone systems in Skagway.

At first, the fledgling utility focused on improving services, installing new power switchgear and a new telephone switch in 1958.

But soon, its attention broadened, and it built a power generation system in Tok in 1960 and acquired power and telephone systems in Craig in 1962. Once operations were established up north, Garrett, who held dual citizenship in the United States and New Zealand, moved back to Port Townsend, Wash. and determined it was from there that he would administrate the operation.

Expansion continued through the 1960s, 1970s and 1980s as the company either purchased or built power and/or telephone systems or expanded service, bringing into the fold the communities of Hydaburg, Dot Lake, Craig, Tetlin, Klawock, Hollis, Dry Creek, Naukati, Whale Pass, Meyers Chuck, Mentasta Lake, Coffman Cove, Northway, South Thorne Bay, Hyder, Kasaan, Ketchikan, Edna Bay, Sitka, Wrangell, Petersburg, Juneau, Haines, Healy Lake, Alcan Border Station, Northway, Northway Village, Chisana, Slana, Chistochina, Tanacross, Evansville, Jim River Camp, Alatna and Allakaket as well as Skagway, Bettles, and Metlakatla.

From time to time, the company has been criticized for its corporate site being in Washington, Grimm said. But AP&T’s relationships that tie its Alaska communities to Washington State have continued to grow.

The work of a core staff of 29 in the Puget Sound region enhances that growth with such benefits as more efficient purchasing and shipping of goods from the region’s nearby commercial transportation hub at the Port of Tacoma.

AP&T’s ties also extend to ocean shippers Alaska Marine Lines and Boyer Alaska Barge Lines and to air freight specialist Alaska Airlines.