SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1993 OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO
Commission File No. 1-935
MOUNTAIN FUEL SUPPLY COMPANY
(Exact name of registrant as specified in its charter)
State of Utah 87-0155877
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
180 East First South, P.O. Box 11368, Salt Lake City, Utah 84147
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (801)534-5555
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933:
Notes: Medium Term Notes, 7.19% to 8.43%,
due 2007 to 2023
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
State the aggregate market value of the voting stock held by
nonaffiliates of the registrant as of March 28, 1994: $0.
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of March 28, 1994:
9,189,626 shares of Common Stock, $2.50 par value. (All shares
are owned by Questar Corporation.)
<PAGE>
TABLE OF CONTENTS
Heading Page
PART I
Items 1.
and 2. BUSINESS AND PROPERTIES 1
General 1
Gas Distribution 1
Gas Supply 4
Competition and Growth 5
Regulation 7
Relationships with Affiliates 9
Employees 12
Environmental Matters 12
Research and Development 12
Item 3. LEGAL PROCEEDINGS 12
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 13
PART II
Item 5. MARKET FOR REGISTRANT'S EQUITY
AND RELATED STOCKHOLDER MATTERS 14
Item 6. SELECTED FINANCIAL DATA 14
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATION 15
Item 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA 19
Item 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE 19
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT 19
Item 11. EXECUTIVE COMPENSATION 21
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 26
Item 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS 28
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K 28
SIGNATURES 52
<PAGE>
FORM 10-K
ANNUAL REPORT, 1993
PART I
ITEMS 1. and 2. BUSINESS AND PROPERTIES
General
Mountain Fuel Supply Company (Mountain Fuel or the Company)
is a wholly owned subsidiary of Questar Corporation (Questar),
with headquarters in Salt Lake City, Utah, that distributes
natural gas to more than 550,000 sales and transportation
customers in Utah, southwestern Wyoming, and a small section in
southeastern Idaho. The Company, through a predecessor, began
distributing natural gas in 1929 when a pipeline was built to
transport natural gas from southwestern Wyoming to Salt Lake
City, Utah. Between 1929 and the present time, Mountain Fuel
gradually expanded the boundaries of its distribution system to
include over 90 percent of Utah's population and to capture a
market share of 85-95 percent for furnaces and water heaters.
Mountain Fuel, during the last five years, has accomplished
some significant objectives. It has expanded its service
territory into new areas outside the Wasatch Front area of Utah,
retained its industrial customers by adopting new transportation
rate structures, improved its operating efficiency and increased
the number of customers served per employee, minimized the need
for price increases, convinced many existing customers and
contractors to add natural gas appliances, and developed
marketing plans and refueling stations to support natural gas
vehicles. The Company has capitalized on its two primary
competitive advantages -- owning natural gas reserves and
offering a full range of services to customers. Utah's economic
strength and population growth also have been important factors
contributing to Mountain Fuel's overall success.
During 1993, Mountain Fuel added more than 18,000 customers,
assumed direct responsibility for its gas supply activities,
expanded its market share for natural gas dryers and ranges in
new construction, increased the number of natural gas refueling
stations, witnessed some industrial customers converting from
transportation to sales service, and received a favorable
regulatory order in a long-disputed gas cost proceeding.
The year, however, ended with a major disappointment when
the Public Service Commission of Utah (the PSCU) issued an order
that lowered the Company's return on equity and hampered its
ability to expand its customer base without more frequent
requests for rate relief. See "Regulation" for a full discussion
of the PSCU's order.
Gas Distribution
As of December 31, 1993, Mountain Fuel was serving 550,184
residential, commercial, and industrial customers, a 3.4 percent
increase from the 532,109 customers served as of the end of 1992.
(Customers are defined in terms of active meters.) Mountain Fuel
distributes gas to customers in the major populated area of Utah,
commonly referred to as the Wasatch Front, in which the Salt Lake
metropolitan area, Provo, Ogden, and Logan are located. It also
serves customers in eastern, central, and southwestern Utah with
Price, Roosevelt, Fillmore, Richfield, Cedar City, and St. George
as the primary cities. Approximately 96 percent of Mountain
Fuel's customers are in Utah. The Company also serves the
communities of Rock Springs, Green River, and Evanston in
southwestern Wyoming and the community of Preston in southeastern
Idaho. Mountain Fuel has been granted the necessary regulatory
approvals by the Public Service Commission of Utah (PSCU), the
Public Service Commission of Wyoming (PSCW), and the Public
Utilities Commission of Idaho (PUCI) to serve these areas. It
also has long-term franchises granted by communities and counties
within its service area.
Within the last six years, Mountain Fuel extended service
into portions of central and southwestern Utah, and a small
portion of southeastern Idaho (the area surrounding Preston).
The most recent leg of this expansion was made possible by the
construction of a new pipeline system--the Kern River system--
traversing Utah. Mountain Fuel, through taps on this line, is
able to supply natural gas to customers in communities located
near the line. The Company has a total of 25,955 customers in
its southern region.
The Company's customer growth in 1993 resulted from new
housing, the addition of new customers in central and
southwestern Utah, and conversions. The population of Mountain
Fuel's service area in Utah is growing faster than the national
average, and the Company expects to add 16,000 to 18,000
customers per year for the next several years.
Mountain Fuel's sales to residential and commercial
customers are seasonal, with a substantial portion of such sales
made during the heating season. The typical residential customer
in Utah (defined as a customer using 1,150 therms per year) uses
more than 75 percent of his total gas requirements in the coldest
six months of the year. The Company's revenue forecasts used to
set rates are based on normal temperatures. Consequently,
Mountain Fuel's revenues and resulting net income may be affected
by temperature patterns that are below or above normal. As
measured in degree days, temperatures in the Company's service
area were five percent colder than normal in 1993, after being
ten percent warmer than normal in 1992.
During 1993, Mountain Fuel sold 79,369,000 decatherms (Dth)
of natural gas to residential and commercial customers, compared
to 68,635,000 Dth in 1992. (A Dth is an amount of heat energy
equal to 10 therms or 1 million Btu. In the Company's system,
each thousand cubic feet (Mcf) of gas equals approximately 1.07
Dth.) The increase was attributable to colder than normal
weather and an expanded customer base. General service sales to
residential and commercial customers were responsible for 90
percent of Mountain Fuel's total revenues in 1993.
Mountain Fuel has designed its distribution system and
annual gas supply plan to handle peak-day demand requirements.
The Company periodically updates its peak-day demand, which is
the volume of gas that firm customers could use during extremely
cold weather. For the 1993-94 heating season, Mountain Fuel is
using a peak-day demand of approximately 809,000 Dth. Mountain
Fuel's management believes that the distribution system is
adequate to meet the demands of its firm customers.
Mountain Fuel's total industrial deliveries, including both
sales and transportation, continued to increase during 1993,
expanding from 56,959,000 Dth in 1992 to 59,619,000 Dth in 1993.
Sales to industrial users increased for the first time in several
years and expanded from 5,338,000 Dth in 1992 to 6,514,000 in
1993. The increase in total industrial deliveries reflects
Utah's economic revitalization and the strength of several major
industries as well as the success of the Company's marketing
efforts.
Mountain Fuel has been providing transportation service
since 1986; the volumes of gas transported have steadily
increased each year since then. The Company has worked
diligently to retain its transportation customers and to offer
them cost-based rates. Transportation service has been
attractive to customers that can buy volumes of gas directly from
producers and have such volumes transported at aggregate prices
lower than the Company's sales rates.
Under Mountain Fuel's current rate schedules, a typical
interruptible transportation customer pays block rates ranging
from $.12 to $.02 per Dth. Mountain Fuel receives a credit from
Questar Pipeline Company (Questar Pipeline) for transportation
customers who use the Company's released capacity and estimates
that this credit will be approximately $9 million in 1994.
On March 9, 1994, Mountain Fuel also requested regulatory
approval of a firm transportation rate schedule available to
industrial customers that transport or are obligated to pay for
the transportation of at least 120,000 Dth per year and that have
firm transportation service on an upstream pipeline. The Company
has reached an agreement in principle with Utah Power, the local
electric utility, to take advantage of this rate schedule once it
is approved.
Mountain Fuel's largest transportation customers, as
measured by revenue contributions, are the Geneva Steel plant in
Orem, Utah; the Kennecott copper processing operations, located
in Salt Lake County; Utah Power, an electric utility that uses
gas for an electric generating plant in Salt Lake City; and the
mineral extraction operations of Magnesium Corporation of America
in Tooele County west of Salt Lake.
In late 1993, 55 small industrial customers moved from
interruptible transportation to interruptible sales service on
Mountain Fuel's system. These customers pay rates based on the
Company's weighted average cost of purchased gas, which is
periodically lower for some customers than the cost of purchasing
volumes directly from producers and paying transportation rates.
Mountain Fuel's tariff permits industrial customers to make
annual elections for interruptible sales or transportation
service.
Mountain Fuel owns and operates distribution systems
throughout its Utah, Wyoming and Idaho service areas and has a
total of 16,946 miles of street mains, service lines, and
interconnecting pipelines. The Company also owns an office
building in downtown Salt Lake City, Utah; and is constructing a
new office building adjacent to a warehouse, garage, and
operations center in Salt Lake City, Utah. It also owns
operations centers, field offices, and service center facilities
throughout other parts of its service area. The mains and lines
are constructed pursuant to franchise agreements or rights-of-
way. The Company has fee title to the properties on which its
office building and operation and service centers are
constructed.
Gas Supply
Mountain Fuel owns natural gas producing properties in
Wyoming, Utah and Colorado that are operated by Wexpro. The
Company's investment in these properties is included in its rate
base. Mountain Fuel, as part of its 1993 general rate case,
received regulatory approval to reserve "cost-of-service" gas for
firm customers. Over the last three years, the Company has
satisfied 35-54 percent of its total system requirement with the
cost-of-service gas produced from such properties. (As defined,
cost-of-service gas includes related royalty gas.) The volumes
produced from such properties are transported for Mountain Fuel
by Questar Pipeline. See "Relationships with Affiliates."
During 1993, 47,120,000 Dth were delivered from such properties
compared to 33,883,000 Dth in 1992. Mountain Fuel estimates that
it had reserves of 428,238 million cubic feet (MMcf) as of year-
end 1993 compared to 399,611 MMcf as of year-end 1992. (These
reserve numbers do not include gas attributed to royalty interest
owners.) The average delivered cost associated with gas volumes
produced from Mountain Fuel's cost-of-service reserves was $1.76
per Dth in 1993, compared to $3.43 per Dth for volumes purchased
from other suppliers.
Some of the wells on Mountain Fuel's producing properties
qualify for special tax credits, commonly referred to as "Section
29" or "tight sands" tax credits. During 1993, Mountain Fuel, as
the party with the economic interest in the gas produced from
such wells, was able to reduce expense by $5.4 million as a
result of Section 29 tax credits. To qualify for the special tax
credits, production must flow from wells that meet specified
tight sands criteria and that commenced drilling prior to January
1, 1993. Only gas volumes produced prior to January 1, 2003,
qualify for the special tax credit. (Mountain Fuel reduced the
revenue deficiency in its general rate case by the Section 29 tax
credits that it expects to receive in 1994.)
As of September 1, 1993, Mountain Fuel became directly
responsible for its gas acquisition activities. Prior to that
date, the Company purchased its remaining gas supply requirements
from an affiliated pipeline, Questar Pipeline. Questar Pipeline
restructured its operations and discontinued making sales for
resale pursuant to the provisions of Order No. 636 issued by the
Federal Energy Regulatory Commission (the FERC). The FERC
authorized Questar Pipeline to transfer its gas supply contracts
and to allocate working gas storage capacity to Mountain Fuel.
To prepare for the transition, Mountain Fuel organized a gas
supply function in 1992. This group was fully staffed before the
actual transition date and is responsible for gas supply
planning, daily nomination and control of gas supplies, gas
acquisition, marketing of the Company's released capacity,
contract administration, physical measurement of purchased gas
volumes, and payments to suppliers.
Mountain Fuel has a balanced and diversified portfolio of
gas supply contracts with field producers located in the Rocky
Mountain states of Wyoming, Colorado, and Utah. The Company
purchases gas on the spot market and under longer-term contracts.
Mountain Fuel's gas acquisition objective is to obtain reliable,
diversified sources of gas supply at competitive prices. In the
Company's semi-annual purchased gas cost filing, Mountain Fuel
estimated that its average wellhead cost of field purchased gas
would be $1.93 per Dth for the first six months of 1994.
Although Mountain Fuel has contracts with take-or-pay provisions,
it currently has no material take-or-pay liabilities.
See "Regulation" for a discussion of regulatory actions
involving the Company's gas supply.
Competition and Growth
Mountain Fuel has historically enjoyed a favorable price
comparison with all energy sources used by residential and
commercial customers except coal and occasionally fuel oil. This
historic price advantage, together with the convenience and
handling advantages associated with natural gas, has permitted
the Company to retain 85-95 percent of the residential space
heating and water heating markets in its service area and to
distribute more energy, in terms of Btu content, than any other
energy supplier to residential and commercial markets in Utah.
These competitive advantages are responsible for the Company's
ability to attract residential users of alternate energy sources
to gas in its service areas in central and southwestern Utah even
though such users are required to pay higher rates than their
counterparts in the more populated areas of Utah.
Mountain Fuel, during 1993, continued to expand the size of
its customer base in new and existing service areas as Utah's
growth rate exceeded the national average. The Company is also
focusing marketing efforts to develop incremental load in
existing homes and new construction. Most households in Mountain
Fuel's service area already use natural gas for space heating and
water heating. The Company's market share for other appliances,
e.g., ranges and dryers, is less than 20 percent, which is
significantly lower than its 85-95 percent market share for
furnaces and water heaters. Mountain Fuel has marketing
campaigns to convince existing customers to take advantage of
natural gas's lower prices, favorable environmental qualities,
and greater efficiency by converting other appliances to natural
gas. The Company also has marketing campaigns to convince
contractors to install the necessary lines for gas fireplaces,
ranges, and dryers in new homes.
The Company believes that it must maintain a competitive
price advantage in order to retain its residential and commercial
customers and to build incremental load by convincing current
customers to convert additional appliances to natural gas.
Mountain Fuel's rates for general service customers in Utah
continue to be lower than they were ten years ago. Using rates
in effect as of January 1, 1994, the typical residential customer
in Utah would have an annual bill of $533.30, compared to an
annual bill of $607.07, using rates in effect as of January 1,
1985.
Historically, Mountain Fuel's competitive position has been
strengthened as a result of owning natural gas producing
properties and satisfying approximately 30-54 percent of its
system requirements with the cost-of-service gas produced from
such properties. Mountain Fuel has developed an annual gas
supply plan that provides for a judicious balance between cost-
of-service gas and purchased gas. Mountain Fuel believes that it
is important to continue owning gas reserves, producing them in a
manner that will serve the best short- and long-term interests of
its customers, and satisfying a significant portion of its supply
requirements with gas produced from such properties. The
Company, in its 1993 general rate case proceedings, obtained
regulatory authorization to reserve cost-of-service gas for firm
customers.
No other distributor markets natural gas sales service in
direct competition with the Company in its service area, but
marketing firms are arranging direct purchase contracts between
large users in the Company's service area and producers. With
the Kern River pipeline in place, Questar Pipeline's transmission
system is no longer the only pipeline transporting gas to or
through the more populated areas of Utah. Questar Pipeline's
transmission system is an "open-access" system on which
significant volumes of gas for unaffiliated customers are
transported. Mountain Fuel's sales rates are competitive when
compared to other energy sources, but are periodically higher
than the delivered price of spot-market gas volumes transported
through the Company's system to large customers, especially
during the shoulder and summer months when spot-market prices
generally decline.
The Kern River pipeline, which was built to transport gas
from southwestern Wyoming to Kern County, California, runs
through portions of the Company's service area and could provide
an alternative delivery source to Mountain Fuel's transportation
customers. As of the date of this report, Mountain Fuel has lost
no industrial load as a result of the Kern River line. The
existence of the Kern River pipeline, however, coupled with the
open-access status of Questar Pipeline's transmission system,
have changed the nature of market conditions for the Company.
Large industrial customers in Utah's Wasatch Front area could
acquire taps on the Kern River Pipeline and build private feeder
lines between the tap and their businesses. Mountain Fuel is
committed to responding to market conditions as they change.
The existence and location of the Kern River pipeline system
made it possible for the Company to extend service into a new
area in Utah and to develop a second source of supply for its
southern system. Mountain Fuel also plans to obtain a tap on
Kern River's line in the Wasatch Front area in order to obtain an
additional source of peak-day gas supply.
Within the last several years, the Company has increased its
activities to encourage the use of natural gas as a fuel in
automobiles, trucks, and buses. Mountain Fuel has expanded the
number of its service vehicles using natural gas and has helped
convert fleet vehicles owned by several state agencies,
municipalities, commercial businesses and others. Within the
next three months, Mountain Fuel will have a total of 30 natural
gas refueling stations within its service area; the majority of
these stations are open to the public. Vehicles using natural
gas emit less carbon monoxide and other harmful pollutants.
Consequently, the Company actively supports federal and state
legislation promoting the use of natural gas in vehicles such as
the provisions in the Energy Policy Act that provide tax
advantages for natural gas vehicles. Mountain Fuel is actively
promoting the environmental advantages of natural gas,
particularly in the portions of its service area that do not
satisfy the ambient air quality standards set by the federal
Environmental Protection Agency.
Although Mountain Fuel is a public utility and has no direct
competition from other distributors of natural gas sales for
residential and commercial customers, the Company competes with
other energy sources. Mountain Fuel continues to monitor its
competitive position, in terms of commodity costs and efficiency
of usage, with other energy sources on a short-term and long-term
basis. Utah Power in Utah and Pacific Power in Wyoming (both
part of PacifiCorp) are the primary electric utilities in the
Company's service area. Although their current rates for
residential space heating and water heating are more than twice
as high on a Btu basis as Mountain Fuel's rates for such service,
Utah Power and Pacific Power provide an ongoing source of
competition, especially as Mountain Fuel attempts to secure
incremental load.
Mountain Fuel has adopted innovative and cost-cutting
measures to deal with competitive pressures during the last
several years. One measure of improved efficiency is the number
of customers served per employee. In 1988, the Company's ratio
of customers to employees was 319 to 1; in 1993, the ratio was
371 to 1. The Company will continue to emphasize the need to
control costs and increase efficiency in order to remain
competitive. The Company will also monitor technological
developments in electrical as well as gas appliances. Mountain
Fuel believes that it can continue to respond to technological
advances in electrical appliances with aggressive marketing
campaigns, coordinated and proactive sales activities, innovative
ideas, and new gas appliance technology in order to meet
competitive pressures during the next several years.
Regulation
As a public utility, Mountain Fuel is subject to the
jurisdiction of the PSCU and PSCW. (The Company's customers in
Idaho are served under the provisions of its Utah tariff.
Pursuant to a special contract between the PUCI and the PSCU,
Mountain Fuel's Idaho customers are regulated by the PSCU.)
Mountain Fuel's natural gas sales and transportation services are
provided under rate schedules approved by the two regulatory
commissions.
Mountain Fuel filed general rate case applications with the
PSCW and the PSCU in the spring of 1993. In Wyoming, the Company
negotiated a stipulation that was approved by the PSCW on July
12, 1993. Under the terms of this stipulation, Mountain Fuel was
permitted to reflect an increase of $601,000 (compared to a
requested deficiency of $819,000) in its rates effective August
1, 1993, and was also permitted to later increase its rates by an
additional $120,000 per year to reflect higher tax rates and
costs associated with direct responsibility for gas supply. The
stipulation included a 10.4 percent return on rate base, but did
not specify an authorized return on equity.
The Company's Utah general rate case involved protracted
proceedings and hearings. Mountain Fuel was permitted to use a
historic test year ending October 1, 1993, and decreased its
revenue deficiency from $18.0 million in April of 1993 to $10.3
million in October of 1993, as actual test-year data replaced
forecast information. The Company originally requested a return
on equity of 12.5 percent, but lowered this request to 12.1
percent in response to lower interest rates.
On January 10, 1994, the PSCU issued an order authorizing a
return on equity of 11.0 percent and specified an annualized
decrease of $1.6 million in the Company's rates. The PSCU, in
its order, also approved stipulations on purchased gas,
gathering, transportation, working gas and storage costs; the
treatment of revenue credits generated by Mountain Fuel as a
result of temporarily releasing firm capacity of Questar
Pipeline's system; and the handling of working gas costs in the
Company's gas balancing account. As a result of this stipulation
on working gas costs, $2.1 million of costs reflected in Mountain
Fuel's general rate case application were added to its gas
balancing account. The PSCU, in its order, also required the
Company to recognize unbilled revenues for ratemaking purposes on
a five-year phase-in basis. The order does permit the Company to
accrue for postretirement welfare benefits (medical coverage and
life insurance).
The PSCU, on February 22, 1994, granted the Company's
petition for rehearing of its order with respect to the issues of
return on equity and unbilled revenues. It requested Mountain
Fuel and other interested parties to file additional testimony on
unbilled revenues and set a hearing date of April 18, 1994.
Mountain Fuel is concerned about the "regulatory lag"
consequences associated with adding 16,000-18,000 customers per
year when the PSCU insists on using a historic test-year and
refuses to adjust the test-year data for known future changes.
The Company believes that its risks of operating in a post-Order
No. 636 environment are greater than prior to the industry
restructuring and is convinced that the PSCU's order fails to
recognize the impact of such changes.
Mountain Fuel currently plans to file another general rate
case with the PSCU during late 1994 or early 1995. This plan may
change as a result of action taken by the PSCU on rehearing.
Both the PSCU and the PSCW have authorized the Company to
use a balancing account procedure for changes in the cost of
natural gas, including supplier non-gas costs, and to reflect
changes on a semi-annual basis. Mountain Fuel's latest semi-
annual balancing account applications were approved January 1,
1994. The Company's base rates for natural gas service in both
Utah and Wyoming were decreased as a result of an overall
decrease in the cost of gas and an adjustment to offset the
overcollection in its gas balancing account.
Mountain Fuel's gas costs and gas supply planning activities
have been the subject of regulatory scrutiny and proceedings.
One long-standing case was finally resolved in September of 1993
when the PSCU issued a full order, complete with findings of
fact, in the case involving allegations that the Company acted
imprudently in purchasing gas supplies from an affiliated
pipeline supplier and should refund approximately $80 million to
its customers. The PSCU concluded that Mountain Fuel did not act
imprudently, under the circumstances, when acquiring gas supplies
and denied claims that it should be required to make refunds.
Mountain Fuel is currently involved in regulatory
proceedings in which its costs associated with the settlement of
a gas imbalance problem at the Bruff Unit have been challenged.
A hearing will be held during May to consider the issue, which
involves approximately $1.2 million.
Mountain Fuel's responsibility for gas acquisition
activities involves inherent risks of regulatory scrutiny. In a
post-Order No. 636 environment, the PSCU and PSCW may become more
involved in questioning the prudence of the Company's gas supply
activities.
Under Utah law, Mountain Fuel must report its common stock
dividends to the PSCU and must allow at least 30 days between
declaring and paying dividends. The PSCU can investigate any
dividend declared by the Company to determine if payment of such
dividend would impair the Company's capital or service
obligations. The PSCW and the PUCI, but not the PSCU, have
jurisdiction to review the issuance of long-term securities by
the Company.
The Company has significant relationships with its
affiliates. The PSCU and PSCW have jurisdiction to examine these
relationships and the costs paid by the Company for services
rendered by or goods purchased from its affiliates. A settlement
agreement involving Mountain Fuel's cost-of-service gas and
defining certain contractual obligations between Mountain Fuel
and Wexpro is monitored by the Utah Division of Public Utilities.
The PSCU and PSCW have adopted regulations or issued orders
that affect the Company's business practices in such areas as
main extensions, credit and collection activities, and
termination of service standards.
Relationships with Affiliates
The Company has significant business relationships with
affiliated companies, particularly Questar Pipeline and Wexpro.
The following diagram shows the corporate structure of the
Company and its primary affiliates:
Questar Corporation
Mountain Fuel Supply Company
Questar Pipeline Company
Entrada Industries, Inc.
Wexpro Company
Celsius Energy Company
Universal Resources Corporation
Questar Service Corporation
Questar Development Corporation
The Company's relationships with its primary affiliates are
described below.
Questar Pipeline Company. Questar Pipeline owns a two-
pronged transmission system running from southwestern Wyoming
into Mountain Fuel's Utah service area. Between July of 1984 and
August of 1993, Questar Pipeline was the Company's primary
supplier of natural gas. Questar Pipeline assumed this
responsibility when Mountain Fuel transferred its interstate
transmission and storage facilities, operations, gas purchase
contracts and related sales and service obligations to Questar
Pipeline. Mountain Fuel has historically contracted for firm
sales volumes of natural gas and firm transportation services
from Questar Pipeline. Although the Company was not
contractually committed to take a minimum volume of gas from
Questar Pipeline under the sales service contract, it was
contractually committed to pay for demand costs attributable to
such sales service. Mountain Fuel paid monthly demand charges to
Questar Pipeline regardless of the volumes actually taken.
During the first eight months of 1993, the Company purchased
24,337,000 Dth from Questar Pipeline at an average price of $3.36
per Dth.
Questar Pipeline's gas purchase contracts were transferred
to Mountain Fuel effective September 1, 1993. Mountain Fuel also
acquired storage capacity at Clay Basin, Questar Pipeline's
largest storage reservoir, and Questar Pipeline's peaking storage
reservoirs.
Effective September 1, 1993, the Company converted its firm
capacity entitlements on Questar Pipeline's system to firm
transportation service and has reserved approximately 800,000 Dth
per day, or approximately 85 percent, of Questar Pipeline's total
transmission capacity. Mountain Fuel transports both its cost-
of-service gas and purchased gas on Questar Pipeline's
transmission system. It also releases its firm transportation
capacity on this system, pursuant to the FERC's capacity release
procedures, when it does not need such service for its sales
customers. Because Mountain Fuel has sufficient capacity on the
system to meet peak demand periods, it has unused capacity for
the balance of the year.
During 1993, Questar Pipeline transported 65,061,000 Dth of
gas for Mountain Fuel, including all of the cost-of-service gas
delivered during the year and the volumes of gas purchased by the
Company during the last four months of the year. Under Questar
Pipeline's "straight fixed-variable" rate schedules, Mountain
Fuel is obligated to pay demand charges for firm capacity,
regardless of the volumes actually transported. The Company will
pay approximately $49 million in demand charges to Questar
Pipeline in 1994. Questar Pipeline credits Mountain Fuel with
revenues it receives from transportation customers that use the
Company's released capacity. Mountain Fuel estimates that it
will receive approximately $9 million in revenue credits from
Questar Pipeline in 1994.
Questar Pipeline also provides the Company with gathering
services at rates determined by contract between the parties. A
new gathering agreement between Mountain Fuel and Questar
Pipeline has been filed with the FERC.
Wexpro Company. Wexpro operates certain properties owned by
Mountain Fuel. Under the terms of a settlement agreement, which
was approved by the PSCU and PSCW and upheld by the Utah Supreme
Court, Mountain Fuel owns gas produced from specified properties
that were productive as of August 1, 1981 (the effective date of
the settlement agreement). Such gas is reflected in rates at
cost-of-service prices based on rates of return established by
the settlement agreement. In addition, Wexpro conducts
development gas drilling for Mountain Fuel on specified
properties and is reimbursed for its costs plus a current rate of
return of 22.6 percent (adjusted annually using a specified
formula) on its net investment in such properties, adjusted for
working capital and deferred taxes, if the wells are successful.
Under the terms of the settlement agreement, the costs of
unsuccessful wells are borne by Wexpro. The settlement agreement
also permits Mountain Fuel to share income from hydrocarbon
liquids produced from certain properties operated by Wexpro after
Wexpro recovers its expenses and a specified rate of return. The
income received by Mountain Fuel from Wexpro is used to reduce
natural gas costs to its customers.
During 1993, Wexpro, in response to demands from other
working interest owners, maintained active drilling programs in
southwestern Wyoming. During 1993, 64,135 MMcf in proved
developed reserves were added to Mountain Fuel's net reserves as
a result of drilling activities and estimate revisions. The
additional reserves more than offset production.
Other Affiliates. Other significant affiliates of Mountain
Fuel include Questar Service Corporation (Questar Service),
Questar Development Corporation (Questar Development), Celsius
Energy Company (Celsius), and Universal Resources Corporation
(Universal Resources). Questar Service provides data processing
and telecommunication services for the Company and other
affiliates. It owns and operates a network of microwave
facilities, all of which are located in Mountain Fuel's service
area or near Questar Pipeline's transmission system. Services
are priced to recover operating expenses and a return on
investment. Questar Service personnel are currently assisting
Mountain Fuel in a major project to develop new customer
information systems.
Questar Development, through a subsidiary, owns downtown
parking lots in Salt Lake used by the Company's employees.
Questar Development is also a one-third owner of FuelMaker
Corporation, a Canadian corporation that designs, manufactures,
and markets small compressors to be used when refueling natural
gas vehicles in residences or at remote locations. Mountain Fuel
is using or monitoring 80 FuelMaker compressors.
Celsius conducts oil and gas exploration and related
development activities in the Rocky Mountain area. Universal
Resources conducts oil and gas exploration and related
development activities primarily in the Midcontinent region
outside the Company's service area. It also markets gas volumes,
including the majority of volumes produced by Celsius, and is
responsible for some of the contracts providing gas to the
Company's transportation customers. During 1993, Mountain Fuel
purchased approximately 2,500,000 Dth of natural gas from
Universal Resources and Celsius.
Entrada Industries, Inc. (Entrada), is a wholly owned
subsidiary of Questar and is the direct parent of Celsius and
Wexpro. While Mountain Fuel and Entrada are subject to common
control by Questar, there is no direct control of Entrada by the
Company or of the Company by Entrada. See "Legal Proceedings."
Questar, Mountain Fuel's parent, provides certain
administrative services, e.g., personnel, legal, public
relations, financial, tax, and audit, to the Company and other
members of the consolidated group. Questar also sponsors the
qualified and welfare plans in which the Company's employees
participate. Mountain Fuel is responsible for a proportionate
share of the costs associated with these services and benefit
plans.
Employees
As of December 31, 1993, the Company had 1,506 employees.
None of these employees is represented under collective
bargaining agreements. Mountain Fuel participates in Questar's
comprehensive employee benefit plans and pays the share of costs
attributable to its employees covered by such plans. Employee
relations are generally deemed to be satisfactory.
Environmental Matters
The Company is subject to the National Environmental Policy
Act and other federal and state legislation regulating the
environmental aspects of its operations. Although Mountain Fuel
does not believe that environmental protection laws and
regulations will have any material effect on its competitive
position, it does believe that such provisions have added and
will continue to add to the Company's expenditures and annual
maintenance and operating expenses. See "Legal Proceedings" for
a discussion of litigation concerning liability for contamination
on property owned by a former subsidiary of the Company.
Mountain Fuel has an obligation to treat waste water and
monitor the effectiveness of an underground slurry wall that was
constructed in 1988 at its north operations center in Salt Lake
City, Utah. The slurry wall was built to contain contaminants
from an abandoned coal gasification plant that operated on the
site from 1907 to 1929.
As previously noted, Mountain Fuel is emphasizing the
environmental advantages of natural gas. Several industrial
customers have converted to natural gas or plan to increase their
use of natural gas in order to lower emissions. The Company's
marketing campaigns feature the clean-burning characteristics of
natural gas fireplaces. Natural gas vehicles are also being
encouraged on the basis of environmental considerations.
Research and Development
The Company conducts studies of gas conversion equipment,
gas piping, and engines using natural gas and has funded
demonstration projects using such equipment. The total dollar
amount spent by the Company on research activities is not
material.
ITEM 3. LEGAL PROCEEDINGS
There are various legal and regulatory proceedings pending
against the Company and its affiliates. While it is not feasible
to predict or determine the outcome of these proceedings, the
Company's management believes that the outcome will not have a
material adverse effect on the Company's financial position.
Mountain Fuel, as a result of acquiring Questar Pipeline's
gas purchase contracts, is responsible for any judgment rendered
against Questar Pipeline in a lawsuit that was tried before a
jury. The jury awarded an independent producer compensatory
damages of approximately $6,100,000 and punitive damages of
$200,000 on his claims involving take-or-pay, tax reimbursement,
contract breach, and tortious interference with a contract. A
judgment will not be entered until the parties have an
opportunity to determine appropriate volumes and Questar Pipeline
can submit motions for judgment notwithstanding the verdict. The
producer's counterclaims originally exceeded $57,000,000, but
were reduced to less than $10,000,000, when the presiding judge
dismissed with prejudice some of the claims prior to the jury
trial. Mountain Fuel expects that any amounts arising from the
breach of contract claims will be included in its gas balancing
account and recovered in its rates for natural gas sales service.
As a result of its former ownership of Entrada and Wasatch
Chemical Company, Mountain Fuel has been named as a "potentially
responsible party" for contaminants located on property owned by
Entrada in Salt Lake City, Utah. Questar and Entrada have also
been named as potentially responsible parties. (Entrada and the
Company are both direct, wholly owned subsidiaries of Questar;
prior to October 2, 1984, Mountain Fuel was the parent of
Entrada.) The property, known as the Wasatch Chemical property,
was the location of chemical operations conducted by Entrada's
Wasatch Chemical division, which ceased operation in 1978. A
portion of the property is included on the national priorities
list, commonly known as the "Superfund" list.
In September of 1992, a consent order governing clean-up
activities was formally entered by the federal district court
judge presiding over the underlying litigation involving the
property. This consent order was agreed to by Questar, Entrada,
the Company, the Utah Department of Health and the Environmental
Protection Agency.
Entrada has obtained approval for a specific design using an
in situ vitrification procedure to clean up the Wasatch Chemical
property and expects the in situ process to begin prior to year-
end. The clean-up procedure may take as long as three years.
Entrada has accounted for all costs spent on the
environmental claims and has also accounted for all settlement
proceeds, accruals and insurance claims. It has received cash
settlements, which together with accruals and insurance
receivables, should be sufficient for future clean-up costs.
Mountain Fuel has consistently maintained that Entrada
should be responsible for any liability imposed on the Questar
group as a result of actions involving Wasatch Chemical. The
Company has not paid any and does not expect to pay any costs
associated with the clean-up activities for the property.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1993, Mountain Fuel did not
submit any matters to a vote of security holders.
PART II
ITEM 5. MARKET FOR REGISTRANT'S EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's outstanding shares of common stock, $2.50 par value, are
owned by Questar. Information concerning the dividends paid on such stock
and the ability to pay dividends is reported in the Statements of Common
Shareholder's Equity and the Notes to Financial Statements included in Item
8.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31, 1993
1993 1992 1991 1990 1989
(In Thousands)
<S> <C> <C> <C> <C> <C>
Revenues $402,391 $373,047 $416,759 $364,747 $366,279
Operating expenses
Natural gas purchases 230,139 218,123 253,111 216,396 218,248
Other expenses 125,743 110,527 108,761 103,339 101,280
Total operating expenses 355,882 328,650 361,872 319,735 319,528
Operating income $46,509 $44,397 $54,887 $45,012 $46,751
Net income $25,069 $23,395 $25,074 $21,713 $21,956
Cash dividends paid on common stock 18,000 18,000 19,000 18,000 20,000
Total assets 581,027 490,614 452,139 447,486 424,371
Capital expenditures 50,658 55,721 36,984 28,809 29,640
Capitalization
Long-term debt $158,000 $150,126 $148,953 $148,872 $148,791
Redeemable cumulative preferred
stock 7,525 8,726 9,955 11,155 12,396
Common shareholder's equity 182,200 175,826 171,231 166,061 163,353
$347,725 $334,678 $330,139 $326,088 $324,540
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Following is a summary of revenues and operating information for the
Company's operations:
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992 1991
(Dollars In Thousands)
<S> <C> <C> <C>
REVENUES
Residential and commercial sales $360,210 $330,920 $368,266
Industrial sales 21,678 19,878 25,496
Industrial transportation 5,898 6,252 5,375
Other 14,605 15,997 17,622
Total revenues 402,391 373,047 416,759
Natural gas purchases 230,139 218,123 253,111
Gross margin $172,252 $154,924 $163,648
OPERATING STATISTICS
Natural gas volumes (in Mdth)
Residential and commercial sales 79,369 68,635 76,324
Industrial deliveries
Sales 6,514 5,338 7,263
Transportation 53,105 51,621 45,977
Total industrial 59,619 56,959 53,240
Total deliveries 138,988 125,594 129,564
Natural gas revenue (per dth)
Residential and commercial $4.54 $4.82 $4.83
Industrial sales 3.33 3.72 3.51
Transportation for industrial
customers 0.11 0.12 0.12
Natural gas purchase price
(per dth) $2.52 $2.83 $2.80
Heating degree days (normal 5,803) 6,073 5,235 6,084
Number of customers at end of
period 550,184 532,109 515,825
</TABLE>
Natural gas volumes sold to residential and commercial customers increased
16% in 1993 following a 10% decrease in 1992. Temperatures were 5% colder
than normal in 1993 and 10% warmer than normal in 1992. The number of
customers increased 3.4% in 1993 and 3.2% in 1992 because of expanding
population and construction in Mountain Fuel's service area.
Natural gas deliveries to industrial customers increased 5% in 1993 and 7%
in 1992, due to increased usage by metals, mining and petroleum customers.
These customers are using more natural gas because of expanded operations
and environmental concerns. The Company's industrial customers have not
switched to residual fuel oil with the decline in oil prices because gas
prices have been competitive and sufficient fuel oil is not readily
available.
Mountain Fuel assumed the responsibility for purchasing its own gas
supplies on September 1, 1993, when Questar Pipeline began operating in
accordance with FERC Order No. 636. Questar Pipeline transferred its gas
purchase contracts to Mountain Fuel. The majority of these contracts are
priced using a current natural gas market value. Mountain Fuel also
acquired an inventory of working gas to meet customer requirements.
Mountain Fuel has reserved transportation capacity on Questar Pipeline's
system of approximately 800,000 decatherms per day and pays an annual
demand charge of approximately $49 million for this reservation. Mountain
Fuel releases excess capacity to its industrial transportation or other
customers and receives a credit from Questar Pipeline for the
released-capacity revenues and a portion of Questar Pipeline's
interruptible-transportation revenues.
Mountain Fuel reached a settlement of its Wyoming general rate case in July
1993, with the new rates effective August 1, 1993. The settlement approved
an annualized increase in rates of $721,000, including recovery of costs
attributable to FERC Order No. 636 and higher federal income tax rates.
In April 1993, Mountain Fuel filed a general rate case with the Public
Service Commission of Utah (PSCU). The original rate increase request was
revised to $10.3 million based on September 30, 1993 results and included a
12.1% rate of return on equity. Hearings on the case were held in November
1993 and a rate order was received in January 1994. The PSCU rate order
granted Mountain Fuel a $1.6 million decrease in general rates and a $2.1
million increase in costs allowed through the purchased-gas adjustment
account for a net increase in rates of $500,000. The PSCU allowed a return
on equity of 11%, required Mountain Fuel to reduce rates over a five-year
period for unbilled revenues, and disallowed rate coverage for certain
incentive compensation and advertising costs. Mountain Fuel requested a
rehearing of the PSCU order for the allowed return on equity and the
treatment of unbilled revenues, and the PSCU granted a rehearing on these
issues.
Natural gas purchases increased 6% in 1993 and decreased 14% in 1992.
These changes were consistent with changes in volumes sold to residential
and commercial customers, which were primarily weather related.
Operating and maintenance expenses increased 16% in 1993 and decreased 1%
in 1992. The 1993 increase was due to more customers, expanded service
territory, a reduction in the percentage of labor costs capitalized, and
recording of postretirement medical and life insurance benefits on an
accrual basis. The 1992 decrease was due to increased percentage of labor
costs capitalized as a result of the system expansion projects which offset
increased costs from a larger natural gas distribution service territory
and inflation. Depreciation and amortization expense increased 12% in 1993
and 8% in 1992 due to capital expenditure programs and higher natural gas
production.
The Company adopted the provisions of SFAS No. 106 on Employer's Accounting
for Postretirement Benefits Other than Pensions effective January 1, 1993.
This statement requires the Company to expense the costs of postretirement
benefits, principally health-care benefits, over the service life of
employees using an accrual method. Questar is amortizing the transition
obligation over a 20-year period. Total cost of postretirement benefits
other than pensions under SFAS No. 106 was $3,350,000 in 1993 compared with
the costs based on cash payments to retirees totaling $876,000 in 1992 and
$464,000 in 1991.
The impact of SFAS No. 106 on the Company's future net income will be
mitigated by recovery of these costs from customers. Both the PSCU and the
PSCW allowed Mountain Fuel to recover future SFAS No. 106 costs in the 1993
rate cases if the amounts are funded in an external trust.
The Financial Accounting Standards Board (FASB) has issued SFAS No. 112,
Accounting for Postemployment Benefits. This statement requires the
Company to recognize the liability for postemployment benefits when
employees become eligible for such benefits. Postemployment benefits are
paid to former employees after employment has been terminated but before
retirement benefits are paid. The Company's principal liability under SFAS
No. 112 is a long-term disability program. The Company is required to
adopt SFAS No. 112 in the first quarter of 1994 and recognize a cumulative
effect of a change in accounting method amounting to approximately
$1,538,000. The Company may offset this amount with a regulatory asset
depending on expected regulatory treatment and recovery of costs from
customers. The effect on ongoing net income is not expected to be
significant.
The effective income tax rate was 23.5% in 1993, 24.2% in 1992 and 39.4% in
1991. The 1993 and 1992 rates were reduced by tight-sands gas production
on Mountain Fuel-owned gas reserves amounting to $5,463,000 in 1993 and
$4,281,000 in 1992. The 1993 federal income tax rate increased to 35%.
The effect on the higher tax rate on deferred income taxes was recorded as
income taxes recoverable from customers because the Company has adopted
procedures with its regulatory commissions to include under-provided
deferred taxes in customer rates on a systematic basis.
Mountain Fuel is responsible for a judgment in a lawsuit involving the
Company, Questar Pipeline and a gas producer. In March 1994, a jury awarded
the gas producer damages of approximately $6.3 million on claims involving
take-or-pay, tax reimbursement and breach of contract. Mountain Fuel
expects that substantially all of the judgment will be included in its gas
balancing account and recovered through customer rates. The judgment is
not expected to have a significant impact on the Company's results of
operations, financial position or liquidity.
LIQUIDITY AND CAPITAL RESOURCES
The majority of the Company's cash needs for capital expenditures and
dividend payments has been met with cash from operations. Net cash from
operating activities was $37,139,000 in 1993, $50,600,000 in 1992 and
$54,655,000 in 1991. Inventories increased by $20,869,000 in 1993,
primarily for gas stored underground. Changes in the purchased-gas
adjustment account provided cash of $4,686,000 in 1993, $4,586,000 in 1992
and $16,662,000 in 1991.
Following is a summary of capital expenditures for 1993, and a forecast of
1994 expenditures.
<TABLE>
<CAPTION>
1994
Estimated 1993
(In Thousands)
<S> <C> <C>
New-customer service equipment $16,700 $16,749
Distribution system 8,900 9,295
Buildings 8,900 10,993
Computer software and hardware 6,400 4,702
General and other 10,500 8,919
$51,400 $50,658
</TABLE>
Mountain Fuel's number of customers increased 18,075 during 1993 and 16,284
in 1992 due to population growth and building construction activity in its
service area. The 1994 capital expenditures anticipate a similar level of
customer growth.
The Company funded 1993 capital expenditures with cash provided from
operations and borrowings under short-term credit lines. The 1994 capital
expenditures are expected to be financed with cash provided from
operations, borrowings under Mountain Fuel's medium-term note program,
equity investment from Questar and short-term credit arrangements.
The Company has a short-term line-of-credit arrangement with a bank under
which it may borrow up to $500,000, below the prime interest rate. The
arrangements are renewable on an annual basis. At December 31, 1993, no
amounts were borrowed under this arrangement. Questar loans funds to the
Company under a short-term borrowing arrangement. Outstanding short-term
notes payable to Questar totaled $57,800,000 and had an interest rate of
3.59% at December 31, 1993.
During 1993, Mountain Fuel issued $91,000,000 of 15-year and 30-year
medium-term notes at interest rates of 7.19% to 8.28%. Proceeds from these
notes and $16,000,000 remaining from the 1992 issuances were used to redeem
Mountain Fuel's $100,000,000 9 3/8% debentures and pay the associated
refinancing costs. At December 31, 1993, Mountain Fuel had a registration
statement filed with the Securities and Exchange Commission to issue an
additional $17,000,000 of medium-term notes.
The Company typically has negative net working capital at the end of the
year because of short-term borrowings. These borrowings are seasonal and
generally peak at the end of December because of cold-weather gas
purchases.
The assumption of gas-purchase contracts and the gas-supply purchase
activity resulted in several changes to Mountain Fuel's working capital.
Mountain Fuel acquired an inventory of gas stored underground to meet
customer requirements. Accounts payable to unaffiliated parties increased
while accounts payable to affiliates decreased because of direct purchases
from gas producers.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's financial statements are included in Part IV,
Item 14, herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Mountain Fuel has not changed its independent auditors or
had any disagreements with them concerning accounting matters and
financial statement disclosures within the last 24 months.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the Company's directors and executive
officers is located in the following chart:
Business Experience and Positions Held
Name Age With the Company and Affiliates
Robert H.
Bischoff 72 Director, May 1982; Director, Questar,
May 1984; Chairman of Board, Key Bank of
Utah (commercial bank), through December
31, 1993; Director, Deseret News
Publishing Company; Trustee,
Intermountain Health Care, Inc. (through
April 1994).
M. E. Benefield 54 Vice President, Gas Supply, May 1992;
Vice President, Planning and Corporate
Development, Questar (March 1989 to May
1992.)
R. D. Cash 51 Director, May 1977; Chairman of the
Board, May 1985; Director, President and
Chief Executive Officer, Questar, May
1984; Chairman of the Board, Questar, May
1985. Director, Zions First National
Bank and Zions Bancorporation; Trustee,
Southern Utah University.
W. F. Edwards 48 Vice President and Chief Financial
Officer, May 1984; Senior Vice President
and Chief Financial Officer, Questar,
February 1989; Vice President and Chief
Financial Officer, Questar, May 1984 to
February 1989.
Susan Glasmann 46 Vice President, Marketing, February 1994;
General Manager, Marketing, April 1991 to
February 1994; Manager, Corporate
Communications, Questar, October 1989 to
April 1991.
Robert E. Kadlec 60 Director, March 1987; Director, Questar,
March 1987; President and Chief Executive
Officer, BC Gas Inc. (Vancouver, British
Columbia); Director, BC Gas Inc., Trans
Mountain Pipe Line Company Ltd., Bank of
Montreal, and British Pacific Properties
Ltd. and affiliated companies.
B. Z. Kastler 73 Director, May 1969; Senior Director,
Questar, May 1991; Director, Questar, May
1984 to May 1991; Consultant, January
1984 to December 1988; Chairman of the
Board, May 1976 to May 1985.
Dixie L. Leavitt 64 Director, May 1987; Director, Questar,
May 1987; Chairman of the Board, Leavitt
Group Agency Association (a group of
approximately 42 separate insurance
agencies); Director, Zions First National
Bank.
Gary G. Michael 53 Director, February 1994; Director,
Questar, February 1994; Chairman and
Chief Executive Officer, Albertson's;
Director, Albertson's and member of Board
of Directors of the Federal Reserve Bank
of San Francisco.
D. N. Rose 49 President and Chief Executive Officer,
October 1984; Director, May 1984;
Director, Questar, May 1984; Director,
Key Bank of Utah; Trustee, Westminster
College.
G. H. Robinson 43 Vice President and Controller, April
1991; Vice President, Marketing, March
1985 to April 1991.
Roy W. Simmons 78 Director, May 1968; Senior Director,
Questar, May 1992; Director, Questar, May
1984 to May 1992; Chairman, Zions
Bancorporation (commercial bank holding
company) and Chairman, Zions First
National Bank (commercial bank); Chief
Executive Officer, Zions First National
Bank to January 1989; Chief Executive
Officer, Zions Bancorporation to January
1991; Director, Beneficial Life Insurance
Company and Ellison Ranching Company.
S. C. Yeager 46 Vice President, Customer Service, April
1991; Vice President, Retail Operations,
March 1985 to April 1991.
Except as otherwise indicated, the executive officers and
directors have held the principal occupations described above for
more than the past five years. There are no family relationships
among the directors and executive officers of the Company.
Directors of the Company are elected to serve three-year terms.
Executive officers of the Company serve at the pleasure of the
Board of Directors.
ITEM 11. EXECUTIVE COMPENSATION
The following Summary Compensation Table lists annual and
long-term compensation earned by Mr. D. N. Rose, the Company's
President and Chief Executive Officer, and the other four most
highly compensated officers during 1991, 1992, and 1993:
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long-Term Compensation
Name and Base Restricted All Other
Principal Position Year Salary($) Bonus($)1 Stock Awards($)2 Options(#)3 Compensation($)4
<S> <C> <C> <C> <C> <C> <C>
D. N. Rose 1993 $200,417 $68,048 38,525 19,000 18,786
President and Chief 1992 190,833 56,279 31,358 19,000 17,002
Executive Officer 1991 180,700 56,440 - 12,000 14,955
R. D. Cash 5 1993 128,835 58,159 32,504 30,000 16,722
Chairman of the 1992 123,338 50,402 29,317 30,000 15,265
Board 1991 116,003 42,387 - 18,000 13,404
M. E. Benefield 6 1993 134,050 35,548 17,136 9,000 8,743
Vice President, 1992 98,153 22,998 17,412 8,500 6,649
Gas Supply
G. H. Robinson 1993 127,533 28,822 16,223 9,000 8,107
Vice President and 1992 121,667 25,228 12,878 8,500 6,794
Controller 1991 115,467 24,276 - 8,000 6,224
S. C. Yeager 1993 127,533 28,822 16,223 9,000 8,031
Vice President, 1992 121,667 23,728 12,878 9,000 6,794
Customer Service 1991 115,467 24,276 - 8,000 6,224
</TABLE>
1/Amounts listed under this heading for 1993 include
payments made in 1994 on 1993 target bonuses established under
the Company's Annual Management Incentive Plan and cash payments
made in 1993 on 1990 and 1991 target bonuses under such plan.
They include the Company's portion of the amounts paid to Mr.
Cash under Questar's Annual Management Incentive Plan for the
same years and the Company's portion of the amounts paid to Mr.
Benefield in 1992 as well as the payments made in 1993 and 1994
by the Company. Bonus payments reported for prior years are
handled in a similar fashion.
2/Amounts under this heading include the value (as of the
grant date) of any restricted shares of Questar's common stock
used in 1993 and 1994, in lieu of cash, as partial payment of
bonuses earned under the Company's 1992 and 1993 Annual
Management Incentive Plans and the Company's allocated portion of
the value of restricted shares granted to Mr. Cash under
Questar's 1992 and 1993 Annual Management Incentive Plans. All
shares of restricted stock vest in two equal, annual installments
with the first installment occurring on the first anniversary of
the grant date. Dividends are paid on the restricted shares at
the same rate dividends are paid on other shares of Questar's
common stock. As of year-end 1993, Messrs. Rose, Cash,
Benefield, Robinson and Yeager owned 1,086; 2,891; 603; 446; and
446 shares of restricted stock, respectively.
3/Mountain Fuel's executive officers are granted
nonqualified stock options to purchase shares of Questar's common
stock under Questar's Long-Term Stock Incentive Plan.
4/Amounts listed under this heading include employer
matching and nonmatching contributions to the Employee Stock
Purchase Plan, matching "contributions" to the Deferred Share
Plan, and directors' fees. The figures opposite Mr. Rose's name
include $12,228 in contributions to the Employee Stock Purchase
Plan for 1993, $10,499 for 1992 and $10,000 for 1991. They also
include directors' fees amounting to $5,200 for 1993, $5,600 for
1992, and $4,600 for 1991 and matching "contributions" to the
Deferred Share Plan of $1,358 for 1993, $903 for 1992, and $355
for 1991. The figures opposite Mr. Cash's name include the
Company's allocated portion of the matching and nonmatching
contributions to the Employee Stock Purchase Plan of $5,124 for
1993, $4,511 for 1992, and $4,365 for 1991. They also include
directors' fees amounting to $5,200 for 1993, $5,600 for 1992,
and $4,600 for 1991 and the Company's allocated portion of
"contributions" to the Deferred Share Plan of $6,399 for 1993,
$5,154 for 1992, and $4,439 for 1991. The figures opposite the
names of Messrs. Benefield, Robinson, and Yeager include the
matching and nonmatching contributions made by the Company to the
Employee Stock Purchase Plan for their respective accounts.
5/Mr. Cash also serves as an executive officer of Questar
and other affiliated companies. The base salary shown for Mr.
Cash is the combination of the amount directly paid by the
Company and the amount allocated to the Company.
6/Mr. Benefield did not become an executive officer of the
Company until May 19, 1992. The base salary information reported
for him in 1992 includes the amount that the Company paid
directly and the amount allocated to the Company when Mr.
Benefield served as an officer of Questar.
The following table lists information concerning the
nonqualified stock options to purchase shares of Questar's common
stock that were granted to Mountain Fuel's five highest paid
officers during 1993 under Questar's Long-Term Stock Incentive
Plan. No stock appreciation rights were granted during 1992.
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
% of Total
Options Granted
Options to Employee in Exercise or Expiration Grant Date
Name Granted #1 Last Fiscal Year Base Price ($)Date Value ($) 2
<S> <C> <C> <C> <C> <C>
D. N. Rose 19,000 4.9 28.875 2/09/2003 79,610
R. D. Cash 30,000 7.8 28.875 2/09/2003 125,700
M. E. Benefield 9,000 2.3 28.875 2/09/2003 37,710
G. H. Robinson 9,000 2.3 28.875 2/09/2003 37,710
S. C. Yeager 9,000 2.4 28.875 2/09/2003 37,710
</TABLE>
1/These nonqualified stock options vest in four annual,
equal installments, with the first installment exercisable as of
August 8, 1993. Participants can use cash or previously-owned
shares as consideration for option shares. Participants can also
elect to use newly-acquired shares to satisfy the minimum tax
withholding obligation or previously-owned shares to satisfy
either the minimum tax withholding obligation or maximum tax
payment obligation. Options expire when a participant terminates
his employment, unless termination is caused by an approved
retirement, death, or disability. Options can be exercised for
three months following a participant's approved retirement and 12
months following a participant's death or disability.
2/When calculating the present value of options granted in
1993, Questar used the Black-Scholes option pricing model.
Questar assumed a volatility of .179, a risk free interest rate
of 6.26 percent, a dividend yield of 5.00 percent and assumed
that the shares would be exercised evenly throughout the four-
year vesting schedule.
The following table lists information concerning the
nonqualified stock options to purchase shares of Questar's common
stock that were exercised by the officers named above during 1993
and the total options and their value held by each at year-end
1993:
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Options/SAR Values
Number of Unexercised Value of Unexercised, in-the-Money
Shares Options/SARs at Year-End Options/SARs at Year-End
Acquired Value (#) 1 ($) 2
or Exercised Realized
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
D. N. Rose 28,853 412,551 12,700 23,750 125,925 185,844
R. D. Cash 30,883 552,630 16,873 37,500 156,301 293,438
M. E. Benefield 4,375 54,656 0 11,000 0 84,688
G. H. Robinson 5,440 72,076 0 11,000 0 84,688
S. C. Yeager 10,683 147,374 4,500 11,250 39,375 88,031
</TABLE>
1/Stock appreciation rights (SARs) have not been granted
since February of 1989. At year-end 1993, there were no SARs
outstanding.
2/The "value" is calculated by subtracting the fair market
value of the shares purchased on the date of exercise minus the
option price. The value is equal to the amount of ordinary
income recognized by each officer. The current value of the
shares may be higher or lower than the aggregate value reported
in the table.
Retirement Plan
Company employees (including executive officers) participate
in the employee benefit plans of Questar. The Company has agreed
to pay its share of the costs associated with the plans that are
described below. Questar maintains a noncontributory Retirement
Plan that is funded actuarially and does not involve specific
contributions for any one individual. The following table lists
the estimated annual benefits payable under the Retirement Plan
as of December 31, 1993, and, if necessary, the Supplemental
Executive Retirement Plan (described below). The benefits shown
are based on earnings and years of service reaching normal
retirement age of 65 in 1993 and do not include Social Security
benefits. Benefits under the Retirement Plan are not reduced or
offset by Social Security benefits.
<TABLE>
<CAPTION>
PENSION PLAN TABLE
Highest Consecutive Years of Service
Three-Year Average
Annual Compensation 15 20 25 30 35
<S> <C> <C> <C> <C> <C>
$125,000 $33,718 $44,957 $56,196 $59,321 $62,446
150,000 40,843 54,457 68,071 71,821 75,571
175,000 47,968 63,957 79,946 84,321 88,696
200,000 55,093 73,457 91,821 96,821 101,821
225,000 62,218 82,957 103,696 109,321 114,946
250,000 69,343 92,457 115,571 121,821 128,071
300,000 83,593 111,457 139,321 146,821 154,321
</TABLE>
Questar's Retirement Plan, as of January 1, 1989, has a
"step rate/excess" benefit formula. The formula provides for a
basic benefit that is calculated by multiplying the employee's
final average earnings by a specified base benefit factor and by
subsequently multiplying such sum by the employee's years of
service (up to a maximum of 25). This basic benefit is increased
for each year of service in excess of 25 and is reduced for
retirement prior to age 62. Employees also receive a
supplemental benefit calculated by multiplying the difference
between the employee's final average earnings and his "covered
compensation" by a supplemental factor that varies by age. (The
term covered compensation refers to the 35-year average Social
Security wage base tied to year of an employee's birth.)
Employees who retire prior to age 62 also receive a temporary
supplement that is tied to years of service until they are
eligible to receive Social Security benefits.
The "final average earnings" (average annual earnings for
the last three years) for purposes of calculating retirement
benefits for the executive officers named above in the table as
of December 31, 1993, is as follows: $247,024 for Mr. Rose;
$157,253 for Mr. Benefield; $146,629 for Mr. Robinson; and
$146,129 for Mr. Yeager. (No figure is given for Mr. Cash
because his final average earnings for purposes of the Retirement
Plan would include compensation paid by the Company's
affiliates.) The years of credited service for the individuals
listed in the compensation table are: 18 years for Mr. Cash; 25
years for Mr. Rose; 16 years for Mr. Benefield; 20 years for Mr.
Robinson; and 18 years for Mr. Yeager.
The Company also participates in Questar's Executive
Incentive Retirement Plan (the EIRP). Under the terms of this
nonqualified plan, a participant will receive monthly payments
upon retirement until death equal to 10 percent of the highest
average monthly compensation (excluding incentive compensation)
paid to the officer during any period of 36 consecutive months of
employment. The plan also provides for a family benefit in the
event of the death of an officer. Although not required to do
so, Questar and its affiliates have purchased life insurance on
the life of each participant, with Questar named as owner and
beneficiary. The covered officers have no rights under or to
such insurance policies. All of the Company's officers listed in
the compensation table have been nominated to participate in the
plan, have satisfied the 15 years of service requirement and have
a vested right to receive benefits under the EIRP. The annual
benefits payable to the named officers under this plan as of
December 31, 1993, are as follows: Mr. Rose, $19,065; Mr.
Benefield, $12,823; and Messrs. Robinson and Yeager, $12,155.
(No figure is given for Mr. Cash because his compensation for
purposes of calculating benefits under the EIRP would include
compensation paid by the Company's affiliates.)
Any benefits payable under the SERP are offset against
payments for the EIRP. Consequently, an officer would not
receive any benefits for the SERP unless his benefit under the
EIRP was less than the difference between what he could be paid
under Questar's Retirement Plan at the date of retirement and
what he had earned under such plan absent federal tax
limitations. Given this relationship between the two
nonqualified plans, the amounts listed in the table above do not
include benefits payable under the EIRP.
Executive Severance Compensation Plan
Questar has an Executive Severance Compensation Plan that
covers the Company's executive officers. Under this plan,
participants, following a change in control of Questar, are
eligible to receive compensation equal to up to two years' salary
and miscellaneous benefits upon a voluntary or involuntary
termination of their employment, provided that they have
continued working or agree to continue working for six months
following a potential change in control of Questar. This plan
was adopted in 1983 by Mountain Fuel, was assumed by Questar as
of October 2, 1984, and was amended and restated effective
January 1, 1986. The amended plan also contains a provision that
limits compensation and benefits payable under the plan to
amounts that can be deducted under Section 280G of the Internal
Revenue Code of 1986.
The dollar amounts payable to the Company's executive
officers (based on current salaries paid by the Company) in the
event of termination of employment following a change in control
of Questar are as follows: $422,000 to Mr.Rose; $280,800 to Mr.
Benefield; and $268,000 each to Messrs. Yeager and Robinson.
(The amount payable to Mr. Cash is not given since such amount is
based on each officer's total salary.) The Company's executive
officers would also receive certain supplemental retirement
benefits, welfare benefits, and cash bonuses.
Under the plan, a change in control is defined to include
any change in control required to be reported under Item 6(e) of
Schedule 14A of the Securities Exchange Act of 1934, as amended.
A change in control is also deemed to occur once any person
becomes the beneficial owner, directly or indirectly, of
securities representing 20 percent or more of Questar's
outstanding shares of common stock.
Directors' Fees
All directors receive an annual fee of $3,600 payable in 12
monthly installments and fees of $400 for each meeting of the
Board of Directors that they attend.
The Company has a Deferred Compensation Plan for Directors
under which directors can elect to defer all or any portion of
the fees received for service as directors until their retirement
from such service and can choose to have the deferred amounts
earn interest as if invested in long-term certificates of deposit
or be accounted for with "phantom shares" of Questar's common
stock. Upon retirement, the phantom shares of stock are
"converted" to their fair market cash equivalent. During 1993,
several directors of the Company chose to defer receipt of all or
a portion of the compensation earned by them for their service.
(Any shares of phantom stock credited to directors are not
included in the number of shares listed opposite their names
below.)
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The Company is a direct, wholly owned subsidiary of Questar.
The following table sets forth information, as of December 31,
1993, with respect to each person known or believed by Questar to
be the beneficial owner of 5 percent or more of its common stock:
Shares and
Name and Nature of
Address of Beneficial Percent
Beneficial Owner Ownership of Class
First Security Bank of Utah 4,169,225 10.38
N.A., 79 South Main Street Trustee for
Salt Lake City, Utah 84111 Company Employee
Benefit Plans
and Bank 1
The Equitable Companies
Incorporated 2,493,225 6.21
787 Seventh Avenue Parent Holding
New York, New York 10019 Company for Insurance
Company and Investment
Advisor Subsidiaries 2
1/Of this total, First Security beneficially owns 4,077,906
shares in its role as trustee of employee benefit plans sponsored
by Questar or a subsidiary of Questar. Participating employees
control the voting of 4,071,927 shares.
2/In an initial Schedule 13G dated as of December 31, 1993,
and filed on behalf of a group, The Equitable Companies
Incorporated reported sole voting power for 2,337,325 shares,
shared voting power for 117,700 shares and sole dispositive power
for 2,493,225 shares.
The following table sets forth information, as of March 1,
1994, concerning the shares of Questar's common stock
beneficially owned by each of the Company's named executive
officers and directors and by the Company's executive officers
and directors as a group:
<TABLE>
<CAPTION>
Shares Owned Percent of
Name of Beneficial Owner Beneficially Outstanding Shares
<S> <C> <C>
M. E. Benefield 1,2,3 23,709 * 4
Robert H. Bischoff 5 12,056 * 4
R. D. Cash 1,2,3,6,7 162,576 .40%
W. Whitley Hawkins 5 3,720 * 4
Robert E. Kadlec 5 14,450 * 4
B. Z. Kastler 7 2,000 * 4
Dixie L. Leavitt 5,7 14,887 * 4
Gary G. Michael 500 * 4
G. H. Robinson 1,3 15,967 * 4
D. N. Rose 1,2,3 47,493 .12%
Roy W. Simmons 14,800 * 4
S. C. Yeager 19,707 * 4
All directors and
executive 396,012 .98% 4
officers as a group
(14 persons including
those listed above) 8
</TABLE>
1/The Company's executive officers own shares through their
participation in Questar's Employee Investment Plan. The number
of shares owned through this plan as of December 31, 1993, is as
follows for the named officers: Mr. Benefield, 3,722 shares; Mr.
Cash, 26,318 shares; Mr. Robinson, 6,234 shares; Mr. Rose, 13,990
shares; and Mr. Yeager, 6,829 shares.
2/The Company's executive officers have been granted
nonqualified stock options under Questar's Stock Option Plan and
Long-Term Stock Incentive Plan. The number of shares listed
opposite the named officers attributable to vested options as of
March 1, 1994, is as follows: Mr. Cash, 16,873 shares; Mr. Rose,
12,700 shares; and Mr. Yeager, 4,500 shares.
3/The Company's executive officers acquired restricted shares
of Questar's common stock in partial payment of bonuses earned in
the 1993 bonus plans. The number of restricted shares
beneficially owned by each of the named officers as of March 1,
1994, is as follows: Mr. Benefield, 845 shares; Mr. Cash, 4,279
shares; Mr. Robinson, 738 shares; Mr. Rose, 1,766 shares; and Mr.
Yeager, 738 shares.
4/Unless otherwise listed, the percentage of shares owned is
less than .1 percent. The percentages of beneficial ownership
have been calculated in accordance with Rule 13d-3(d)(1) under
the Securities Exchange Act of 1934, as amended.
5/Messrs. Bischoff, Hawkins, Kadlec, and Leavitt, as
nonemployee voting directors of Questar, have been granted
nonqualified stock options to purchase shares of Questar's common
stock as follows: Mr. Bischoff, 5,200 shares; Mr. Hawkins, 3,500
shares; Mr. Kadlec, 12,650 shares; and Mr. Leavitt, 9,100 shares.
These shares are included in the numbers listed opposite their
respective names.
6/Mr. Cash is the Chairman of the Board of Trustees of the
Questar Corporation Educational Foundation and the Questar
Corporation Arts Foundation, two nonprofit corporations that own
an aggregate of 39,282 shares of Questar's common stock. As the
Chairman, Mr. Cash has voting control for such shares, but
disclaims any beneficial ownership of them.
7/Of the total shares reported for Mr. Cash, 3,270 shares are
owned jointly with his wife and 4,549 are controlled by him as
custodian for his son. Messrs. Leavitt and Yeager own their
shares of record with their respective wives.
8/The total number of shares reported for this group includes
vested options to purchase 102,648 shares of Questar's common
stock.
Committee Interlocks and Insider Participation
The Company itself has no formal "Compensation Committee."
Questar's Board of Directors has a Management Performance
Committee that makes recommendations to the Company's Board of
Directors concerning base salary and bonus payments. (Questar's
Board approves all stock options.) Messrs. Cash and Rose, as
directors and officers of the Company, are formally excused from
all discussions by the Company's Board involving their
compensation. Mr. Kastler, a retired employee and officer, is a
director of the Company and does participate in these
discussions.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There are no relationships or transactions involving the
Company's directors and executive officers.
As described above, there are significant business
relationships between the Company and its affiliates,
particularly Wexpro and Questar Pipeline. Questar, the Company's
parent, also provides certain administrative services, e.g.,
personnel, legal, public relations, financial, tax, and audit to
the Company and other members of the consolidated group. The
costs of performing such services are allocated to the Company.
Questar Service, another affiliate, provides data processing and
communication services for the Company; the charges for such
services are based on cost of service plus a specified return on
assets.
See Note I to the financial statements for additional
information concerning transactions between the Company and its
affiliates.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a)(1)(2) Financial Statements and Financial Statement
Schedules. The financial statements and schedules identified in
the List of Financial Statements and Financial Statement
Schedules are filed as part of this report.
(3) Exhibits. The following is a list of exhibits required
to be filed as a part of this report in Item 14(c).
Exhibit No. Exhibit
3.1.* Restated Consolidated Articles of Incorporation dated
August 15, 1980. (Exhibit No. 4(a) to Registration
Statement No. 2-70087, filed December 1, 1980.)
3.2.* Certificate of Amendment to Restated Consolidated
Articles of Incorporation dated May 13, 1982. (Exhibit
No. 3(b) to Form 10-K Annual Report for 1982.)
3.3.* Certificate of Amendment to Restated Consolidated
Articles of Incorporation dated May 10, 1983.
(Included in Exhibit No. 4.1. to Registration Statement
No. 2-84713, filed June 23, 1983.)
3.4.* Certificate of Amendment to Restated Consolidated
Articles of Incorporation dated August 16, 1983.
(Exhibit No. 3(a) to Form 8 Report amending the
Company's Form 10-Q Report for Quarter Ended September
30, 1983.)
3.5.* Certificate of Amendment to Restated Consolidated
Articles of Incorporation dated October 26, 1984.
(Exhibit No. 3.5. to Form 10-K Annual Report for 1984.)
3.6.* Certificate of Amendment to Restated Consolidated
Articles of Incorporation dated May 13, 1985. (Exhibit
No. 3.1. to Form 10-Q Report for Quarter Ended June 30,
1985.)
3.7.* Articles of Amendment to Restated Consolidated Articles
of Incorporation dated February 10, 1988. (Exhibit No.
3.7. to Form 10-K Annual Report for 1987.)
3.8.* Bylaws (as amended effective August 11, 1992).
(Exhibit No. 3.8. to Form 10-K Annual Report for 1992.)
4.* Indenture dated as of May 1, 1992, between the Company
and Citibank, as trustee, for the Company's Debt
Securities. (Exhibit No. 4. to Form 10-Q Report for
Quarter Ended June 30, 1992.)
10.1.* Stipulations and Agreement, dated October 14, 1981,
executed by Mountain Fuel Supply Company; Wexpro
Company; the Utah Department of Business Regulations,
Division of Public Utilities; the Utah Committee of
Consumer Services; and the staff of the Public Service
Commission of Wyoming. (Exhibit No. 10(a) to Form 10-K
Annual Report for 1981.)
10.7.* Data Processing Services Agreement effective July 1,
1985, between Questar Service Corporation and Mountain
Fuel Supply Company. (Exhibit 10.7. to Form 10-K
Annual Report for 1988.)
10.8.*1 Mountain Fuel Supply Company Annual Management
Incentive Plan as amended and restated effective
February 11, 1992. (Exhibit No. 10.8. to Form 10-K
Annual Report for 1991.)
10.9.*1 Mountain Fuel Supply Company Window Period Supplemental
Executive Retirement Plan effective January 24, 1991.
(Exhibit No. 10.9. to Form 10-K Annual Report for
1990.)
12. Statement of Ratio of Earnings to Fixed Charges.
24. Consent of Independent Auditors.
25. Power of Attorney.
*Exhibits so marked have been filed with the Securities and
Exchange Commission as part of the referenced filing and are
incorporated herein by reference.
1 Exhibits so marked are management contracts or compensation
plans or arrangements.
(b) Mountain Fuel did not file any Current Reports on Form 8-
K during the last quarter of 1993.
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 8. ITEM 14 (a) (1) and (2), (c) and (d)
LIST OF FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1993
MOUNTAIN FUEL SUPPLY COMPANY
SALT LAKE CITY, UTAH
<PAGE>
FORM 10-K--ITEM 14 (a) (1) and (2)
MOUNTAIN FUEL SUPPLY COMPANY
LIST OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
The following financial statements of Mountain Fuel Supply Company are
included in Item 8:
Statements of income -- Years ended December 31, 1993, 1992 and 1991
Balance sheets -- December 31, 1993 and 1992
Statements of common shareholder's equity -- Years ended December 31,
1993, 1992 and 1991
Statements of cash flows -- Years ended December 31, 1993, 1992 and 1991
Notes to financial statements
The following financial statement schedules of Mountain Fuel Supply
Company are included in Item 14(d):
Schedule II -- Amounts receivable from related parties and underwriters,
promoters, and employees other than related parties
Schedule V -- Property, plant and equipment
Schedule VI -- Accumulated depreciation, depletion and amortization of
property, plant and equipment
Schedule X -- Supplementary income statement information
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore
have been omitted.
<PAGE>
Report of Independent Auditors
Board of Directors
Mountain Fuel Supply Company
We have audited the accompanying balance sheets of Mountain
Fuel Supply Company as of December 31, 1993 and 1992, and
the related statements of income, common shareholder's
equity, and cash flows for each of the three years in the
period ended December 31, 1993. Our audits also included
the financial statement schedules listed in the Index at
Item 14(a). These financial statements and schedules are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of Mountain Fuel Supply Company at December 31,
1993 and 1992, and the results of its operations and its
cash flows for each of the three years in the period ended
December 31, 1993, in conformity with generally accepted
accounting principles. Also, in our opinion, the related
financial statement schedules, when considered in relation
to the basic financial statements taken as a whole, present
fairly in all material respects the information set forth
therein.
As discussed in Note H to the financial statements, in 1993
Mountain Fuel Supply changed its method of accounting for
postretirement benefits other than pensions.
ERNST & YOUNG
Salt Lake City, Utah
February 11, 1993
<PAGE>
MOUNTAIN FUEL SUPPLY COMPANY
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992 1991
(In Thousands)
<S> <C> <C> <C>
REVENUES - Note I $402,391 $373,047 $416,759
OPERATING EXPENSES
Natural gas purchases
From affiliates - Note I 174,401 210,911 226,531
From unaffiliated parties 55,738 7,212 26,580
Total natural gas purchases 230,139 218,123 253,111
Operating and maintenance -
Note I 92,486 79,975 80,824
Depreciation and amortization 23,244 20,713 19,231
Other taxes 10,013 9,839 8,706
TOTAL OPERATING EXPENSES 355,882 328,650 361,872
OPERATING INCOME 46,509 44,397 54,887
INTEREST AND OTHER INCOME 1,692 1,703 1,625
DEBT EXPENSE (15,423) (15,254) (15,163)
INCOME BEFORE INCOME TAXES 32,778 30,846 41,349
INCOME TAXES - Note F 7,709 7,451 16,275
NET INCOME $25,069 $23,395 $25,074
</TABLE>
See notes to financial statements.
<PAGE>
MOUNTAIN FUEL SUPPLY COMPANY
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
1993 1992
(In Thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and short-term investments -
Notes B and E $2,312 $3,962
Accounts receivable 52,540 40,962
Unbilled gas accounts receivable - Note G 27,313
Accounts receivable from affiliates 1,815 331
Recoverable federal income taxes 520
Inventories, at lower of average cost or
market
Materials and supplies 3,733 3,103
Gas stored underground 20,239
Total inventories 23,972 3,103
Prepaid expenses and deposits 4,739 5,075
TOTAL CURRENT ASSETS 112,691 53,953
PROPERTY, PLANT AND EQUIPMENT
Production - Note J 98,076 99,795
Distribution 511,105 484,216
General 83,995 72,154
Construction in progress 16,924 11,502
710,100 667,667
Less allowances for depreciation and
amortization 267,314 249,056
NET PROPERTY, PLANT AND EQUIPMENT 442,786 418,611
OTHER ASSETS
Income taxes recoverable from customers -
Note F 11,576 10,874
Unamortized costs of reacquired debt 11,077 4,074
Other 2,897 3,102
TOTAL OTHER ASSETS 25,550 18,050
$581,027 $490,614
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY
December 31,
1993 1992
(In Thousands)
<S> <C> <C>
CURRENT LIABILITIES
Notes payable to Questar - Notes C and E $57,800 $18,900
Accounts payable and accrued expenses
Accounts payable 27,207 7,522
Accounts payable to affiliates 19,010 33,343
Federal income taxes payable 1,186
Other taxes 5,684 4,429
Accrued interest 3,377 2,970
Other 8,284 4,630
Total accounts payable and accrued
expenses 64,748 52,894
Purchased-gas adjustments 25,727 7,941
Current portion of long-term debt 16,000
TOTAL CURRENT LIABILITIES 148,275 95,735
LONG-TERM DEBT - Notes C and E 158,000 150,126
OTHER LIABILITIES
Unbilled gas revenues - Note G 26,489
Other 674 19
TOTAL OTHER LIABILITIES 27,163 19
DEFERRED INVESTMENT TAX CREDITS 7,941 8,353
DEFERRED INCOME TAXES - Note F 49,923 51,829
COMMITMENTS AND CONTINGENCIES - Note G
REDEEMABLE CUMULATIVE PREFERRED STOCK
- Notes D and E 7,525 8,726
COMMON SHAREHOLDER'S EQUITY
Common stock - par value $2.50 per share;
authorized 50,000,000 shares; issued and
outstanding 9,189,626 shares 22,974 22,974
Additional paid-in capital 21,875 21,875
Retained earnings 137,351 130,977
TOTAL COMMON SHAREHOLDER'S EQUITY 182,200 175,826
$581,027 $490,614
</TABLE>
See notes to financial statements.
<PAGE>
MOUNTAIN FUEL SUPPLY COMPANY
STATEMENTS OF COMMON SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained
Stock Capital Earnings
(In Thousands)
<S> <C> <C> <C>
Balances at January 1, 1991 $22,974 $21,875 $121,212
1991 net income 25,074
Payment of dividends
Preferred stock (904)
Common stock (19,000)
Balances at December 31, 1991 22,974 21,875 126,382
1992 net income 23,395
Payment of dividends
Preferred stock (800)
Common stock (18,000)
Balances at December 31, 1992 22,974 21,875 130,977
1993 net income 25,069
Payment of dividends
Preferred stock (695)
Common stock (18,000)
Balances at December 31, 1993 $22,974 $21,875 $137,351
</TABLE>
See notes to financial statements.
<PAGE>
MOUNTAIN FUEL SUPPLY COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992 1991
(In Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $25,069 $23,395 $25,074
Depreciation and amortization 25,492 22,922 21,340
Deferred income taxes (1,906) 2,973 (1,077)
Deferred investment tax credits (412) (453) (491)
48,243 48,837 44,846
Changes in operating assets and
liabilities
Accounts receivable 38 5,045 (1,262)
Federal income taxes 1,706 525 (1,285)
Inventories (20,869) 903 (417)
Prepaid expenses and deposits 336 (888) 69
Purchased-gas adjustments 4,686 4,586 16,662
Accounts payable and accrued
expenses 10,668 (5,581) (4,938)
Other (7,669) (2,827) 980
Net cash provided from
operating activities 37,139 50,600 54,655
INVESTING ACTIVITIES
Capital expenditures (50,658) (55,721) (36,984)
Proceeds from (cash used in)
disposition and transfer of
property, plant and equipment 991 915 (404)
Cash used in investing
activities (49,667) (54,806) (37,388)
FINANCING ACTIVITIES
Redemption of preferred stock (1,201) (1,229) (1,200)
Issuance of long-term debt 91,000 67,000
Redemption of long-term debt (99,126) (49,827)
Change in notes payable to
Questar 38,900 5,900 4,000
Payment of dividends (18,695) (18,800) (19,904)
Cash provided from (used in)
financing activities 10,878 3,044 (17,104)
Change in cash and short-term
investments (1,650) (1,162) 163
Beginning cash and short-term
investments 3,962 5,124 4,961
Ending cash and short-term
investments $2,312 $3,962 $5,124
NONCASH TRANSACTION
Recording of unbilled revenues $27,313
</TABLE>
See notes to financial statements.
<PAGE>
MOUNTAIN FUEL SUPPLY COMPANY
NOTES TO FINANCIAL STATEMENTS
Note A - Summary of Accounting Policies
Mountain Fuel Supply Company (the Company or Mountain Fuel) is a
wholly-owned subsidiary of Questar Corporation (Questar).
Business and Regulation: The Company's business consists of natural gas
distribution operations for industrial, residential and commercial
customers. Mountain Fuel is regulated by the Public Service Commission of
Utah (PSCU) and the Public Service Commission of Wyoming (PSCW). These
regulatory agencies establish rates for the sale and transportation of
natural gas. The regulatory agencies also regulate, among other things,
the extension and enlargement or abandonment of jurisdictional natural gas
facilities. Regulation is intended to permit the recovery, through rates,
of the cost of service including, a rate of return on investment.
The financial statements are presented in accordance with regulatory
requirements. Methods of allocating costs to time periods, in order to
match revenues and expenses, may differ from those of nonregulated
businesses because of cost allocation methods used in establishing rates.
Purchased-Gas Adjustments: The Company accounts for purchased-gas costs
in accordance with procedures authorized by the PSCU and PSCW whereby
purchased-gas costs that are different from those provided for in the
present rates are accumulated and recovered or credited through future
rate changes.
Credit Risk: The Company's primary market area is the Rocky Mountain
region of the United States. The Company's exposure to credit risk may be
impacted by the concentration of customers in this region due to changes
in economic or other conditions. The Company's customers include
individuals and numerous industries that may be impacted differently by
changing conditions. The Company believes that it has adequately reserved
for potential credit-related losses.
Property, Plant and Equipment: Property, plant and equipment are stated
at cost. The provision for depreciation and amortization is based upon
rates which will amortize costs of assets over their estimated useful
lives. The costs of natural gas distribution property, plant and
equipment, excluding gas wells, are amortized using the straight-line
method. The costs of gas wells were amortized using the unit-of-production
method at $.18 per Mcf of natural gas production during 1993.
Historically, the Company used the successful efforts method to account
for costs incurred for exploration and development of gas reserves;
however, the Company has not incurred any such costs during the last three
years.
Income Taxes: On January 1, 1992, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 109. The deferred tax balance
at December 31, 1993, represents the temporary differences between book
and taxable income multiplied by the effective tax rates. These temporary
differences relate primarily to depreciation, unbilled revenues and
purchased-gas adjustments. The Company uses the deferral method to
account for investment tax credits as required by regulatory commissions.
See Note F.
Reacquisition of Debt: Gains and losses on the reacquisition of debt are
deferred and amortized as debt expense over the life of the replacement
debt in order to match regulatory treatment.
Allowance for Funds Used During Construction: The Company capitalizes the
cost of capital during the construction period of plant and equipment
using a method required by regulatory authorities. This amounted to
$528,000 in 1993, $588,000 in 1992 and $527,000 in 1991.
Note B - Cash and Short-Term Investments
Short-term investments at December 31, 1993 and 1992, valued at cost
(approximates market), amounted to $1,379,000 and $4,336,000,
respectively. Short-term investments consisted of Euro-time deposits and
repurchase agreements with maturities of three months or less.
Note C - Debt
The Company has a short-term line-of-credit arrangement with a bank under
which it may borrow up to $500,000, below the prime interest rate. The
arrangements are renewable on an annual basis. At December 31, 1993, no
amounts were borrowed under this arrangement. Questar loans funds to the
Company under a short-term borrowing arrangement. Outstanding short-term
notes payable to Questar totaled $57,800,000 and had an interest rate of
3.59% at December 31, 1993.
The details of long-term debt at December 31, were as follows:
<TABLE>
<CAPTION>
1993 1992
(In Thousands)
<S> <C> <C>
Medium-term notes 7.19% to 8.43%,
due 2007 to 2023 $158,000 $67,000
9 3/8% debentures due 2016 100,000
Total long-term debt outstanding 158,000 167,000
Less current portion 16,000
Less unamortized debt discount 874
$158,000 $150,126
</TABLE>
During 1993, Mountain Fuel issued $91,000,000 of 15-year and 30-year
medium-term notes at interest rates of 7.19% to 8.28%. Proceeds from
these notes and $16,000,000 remaining from the 1992 issuances were used to
redeem Mountain Fuel's $100,000,000 9 3/8% debentures and pay the
associated refinancing costs. At December 31, 1993, Mountain Fuel had a
registration statement filed with the Securities and Exchange Commission
to issue an additional $17,000,000 of medium-term notes.
There are no maturities of long-term debt for the five years following
December 31, 1993 nor long-term debt provisions restricting the payment of
dividends. Cash paid for interest was $14,698,000 in 1993, $15,970,000 in
1992 and $14,969,000 in 1991.
Note D - Redeemable Cumulative Preferred Stock
The Company has authorized 4,000,000 shares of nonvoting redeemable
cumulative preferred stock with no par value. The two current outstanding
issues of stock have a stated and redemption value of $100 per share.
<TABLE>
<CAPTION>
$8.625 Serie 8% Series
(In Thousands)
<S> <C> <C>
Balance at January 1, 1991 $6,000 $5,155
1991 redemption of stock (1,200)
1992 redemption of stock (1,200) (29)
1993 redemption of stock (1,200) (1)
Balance at December 31, 1993 $2,400 $5,125
</TABLE>
Redemption requirements for the five years following December 31, 1993,
are as follows:
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
1994 $600
1995 685
1996 780
1997 780
1998 180
</TABLE>
Note E - Estimated Fair Values of Financial Instruments
The carrying amounts and estimated fair values of the Company's financial
instruments were as follows:
<TABLE>
<CAPTION>
December 31, 1993 December 31, 1992
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
(In Thousands)
<S> <C> <C> <C> <C>
Financial assets
Cash and short-term investments $2,312 $2,312 $3,962 $3,962
Financial liabilities
Short-term loans 57,800 57,800 18,900 18,900
Long-term-debt 158,000 175,825 166,126 172,701
Redeemable cumulative preferred
stock 7,525 7,654 8,726 8,857
</TABLE>
The Company used the following methods and assumptions in estimating fair
values: (1) Cash and short-term investments - the carrying amount
approximates fair value; (2) Short-term loans - the carrying amount
approximates fair value; (3) Long-term debt - the fair value of the
medium-term notes is based on the discounted present value of cash flows
using the Company's current borrowing rates; (4) Redeemable cumulative
preferred stock - the fair value is based on the discounted present value
of cash flows using current preferred stock rates.
Note F - Income Taxes
The Company's operations are consolidated with those of Questar and its
subsidiaries for income tax purposes. The income tax arrangement between
the Company and Questar provides that amounts paid to or received from
Questar are substantially the same as would be paid or received by the
Company if it filed a separate return except that the Company is paid for
tax benefits used in the consolidated tax return even if such benefits
would not have been usable had the Company filed a separate return.
Effective January 1, 1992, the Company changed its method of accounting
for income taxes from the deferred method to the liability method required
by SFAS No. 109, Accounting for Income Taxes. The Company did not restate
prior years' financial statements. The application of the new rules did
not have a significant impact on the 1992 net income.
The Company records cumulative increases in deferred taxes as income taxes
recoverable from customers. The Company has adopted procedures with its
regulatory commissions to include under-provided deferred taxes in
customer rates on a systematic basis. The amount of income taxes
recoverable from customers was higher in 1993 due to an increase in the
federal income tax rate.
The components of income taxes were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992 1991
(In Thousands)
<S> <C> <C> <C>
Federal
Current $9,301 $4,037 $15,616
Deferred (2,739) 2,581 (899)
State
Current 1,428 894 2,227
Deferred 131 392 (178)
Deferred investment tax credits (412) (453) (491)
$7,709 $7,451 $16,275
</TABLE>
The difference between income tax expense and the tax computed by applying
the statutory federal income tax rate to income before income taxes is
explained as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992 1991
(In Thousands)
<S> <C> <C> <C>
Income before income taxes $32,778 $30,846 $41,349
Federal income taxes at statutory
rate $11,472 $10,488 $14,059
State income taxes, net of
federal income tax benefit 1,059 849 1,253
Tight-sands gas production
credits (5,463) (4,281)
Investment tax credits (412) (453) (491)
Deferred taxes related to
regulated assets for which
deferred taxes were not
provided in prior years 921 921 921
Other 132 (73) 533
Income tax expense $7,709 $7,451 $16,275
</TABLE>
Significant components of the Company's deferred tax liabilities and
assets were as follows:
<TABLE>
<CAPTION>
December 31,
1993 1992
(In Thousands)
<S> <C> <C>
Deferred tax liabilities
Property, plant and equipment $67,530 $62,820
Unamortized debt reacquisition
costs 4,211 1,532
Pension costs 1,242 1,501
Income taxes recoverable from
customers 4,428 4,056
Other 3,347 66
Total deferred tax liabilities 80,758 69,975
Deferred tax assets
Purchased-gas adjustments 11,477 2,962
Unbilled revenues 9,780 10,312
Deferred investment tax credits 3,274 3,116
Alternative minimum tax and
production credit carryovers 4,035
Other 2,269 1,756
Total deferred tax assets 30,835 18,146
Net deferred tax liabilities $49,923 $51,829
</TABLE>
The Company recorded a deferred tax asset of $4,035,000 for alternative
minimum tax paid and production credits recognized but not yet realized on
the tax return. The Company expects to realize this deferred tax asset
within the next several years.
Cash paid for income taxes was $8,631,000 in 1993, $6,805,000 in 1992 and
$18,072,000 in 1991.
Note G - Rate Matters, Litigation and Commitments
On September 1, 1993, Questar Pipeline began operating in compliance with
Federal Energy Regulatory Commission (FERC) Order No. 636. The order
unbundled the sale-for-resale service from the transportation, gathering
and storage services provided by natural gas pipelines. Questar Pipeline
eliminated its merchant function. That activity was assumed by Mountain
Fuel along with the gas-purchase contracts. In its order approving
Questar Pipeline's Order No. 636 implementation plan, the FERC accepted
Questar Pipeline's plan for the assignment of gas-purchase contracts to
Mountain Fuel.
Mountain Fuel filed a general rate case for its Utah operations in April
1993. The revised amount of deficiency requested in the case was $10.3
million, including a 12.1% return on equity. In January 1994, the PSCU
issued a rate order granting Mountain Fuel a $1.6 million decrease in
general rates and a $2.1 million increase in costs allowed through the
purchase-gas adjustment account for a net increase in rates of $500,000.
The PSCU allowed a return on equity of 11%, required Mountain Fuel to
reduce rates over a five-year period for unbilled revenues, and disallowed
rate coverage for certain incentive compensation and advertising costs.
Mountain Fuel requested a rehearing of the PSCU order for the allowed
return on equity and the treatment of unbilled revenues and the PSCU
granted a rehearing on these issues.
In 1993, Mountain Fuel began accruing gas distribution revenues for gas
delivered to residential and commercial customers but not billed at the
end of the year. The impact of these accruals on the income statement has
been deferred in accordance with a rate order received from the PSCU. This
rate order reduces customer rates by $2,011,000 per year over the
five-year period from 1994 through 1998. Mountain Fuel will recognize the
unbilled revenues and the associated gas costs over this same five-year
period to offset the reduction in rates.
In July 1993, the PSCW issued an order in Mountain Fuel's general rate
case for Wyoming operations. The order approved a stipulation that had
been negotiated by the Company and the PSCW's staff which allowed for an
increase in general rates of $721,000 including recovery of costs
attributable to FERC Order No. 636 and higher federal income tax rates.
Many of Mountain Fuel's gas-purchase contracts include take-or-pay
provisions that obligate it, on an annual basis, to take delivery of at
least a specified percentage of volumes producible from wells or pay for
such volumes. The contracts allow for the subsequent delivery of the gas
within a specified period. Other gas-purchase contracts include provisions
that obligate Mountain Fuel to schedule a specific volume for delivery on
a daily or monthly basis. All gas-purchase contracts were transferred from
Questar Pipeline to Mountain Fuel in 1993.
Purchases of natural gas under gas-purchase contracts subsequent to the
transfer of contracts from Questar Pipeline in September 1993 totalled
$38,529,000. Following is a summary of projected purchase commitments
under gas-purchase contracts with terms of one year or more. Prices under
these contracts are based on the current market price. These commitments
will change as a result of future negotiations with sellers.
<TABLE>
<CAPTION>
(In Millions)
<S> <C>
1994 $25.4
1995 11.2
1996 9.3
1997 8.4
1998 0.9
</TABLE>
The Company has received notice that it may be partially liable in several
environmental clean-up actions on sites that involve numerous other
parties. Management believes that the Company's responsibility for
remediation will be minor and that any potential liability will not be
significant to the results of operations or its financial position.
Mountain Fuel is responsible for a judgment in a lawsuit involving the
Company, Questar Pipeline and a gas producer. In March 1994, a jury
awarded the gas producer damages of approximately $6.3 million on claims
involving take-or-pay, tax reimbursement and breach of contract. Mountain
Fuel expects that substantially all of the judgment will be included in
its gas balancing account and recovered through customer rates. The
judgment is not expected to have a significant impact on the Company's
results of operations, financial position or liquidity.
There are various legal proceedings against the Company. While it is not
currently possible to predict or determine the outcome of these
proceedings, it is the opinion of management that the outcome will not
have a material adverse effect on the Company's results of operations,
financial position or liquidity.
Note H - Employee Benefits
Substantially all Company employees are covered by Questar's defined
benefit pension plan. Benefits are generally based on years of service and
the employee's 36-month period of highest earnings during the ten years
preceding retirement. It is Questar's policy to make contributions to the
plan at least sufficient to meet the minimum funding requirements of
applicable laws and regulations. Plan assets consist principally of equity
securities and corporate and U.S. government debt obligations. Pension
cost was $3,251,000 in 1993, $2,991,000 in 1992 and $2,835,000 in 1991.
The Company's portion of plan assets and benefit obligations is not
determinable because the plan assets are not segregated or restricted to
meet the Company's pension obligations. If the Company were to withdraw
from the pension plan, the pension obligation for the Company's employees
would be retained by the pension plan. At December 31, 1993, Questar's
fair value of plan assets exceeded the accumulated benefit obligation.
The Company participates in Questar's Employee Investment Plan, which
allows the majority of employees to purchase Questar stock or other
investments with payroll deductions. The Company makes contributions to
the plan of approximately 75% of the employee's purchases. The Company's
expense and contribution to the plan was $1,167,000 in 1993, $1,194,000 in
1992 and $1,405,000 in 1991.
The Company participates in a Questar program that pays a portion of the
health-care costs and all the life insurance costs for retired employees.
Effective January 1, 1992, this program was changed for employees retiring
after January 1, 1993, to link the health-care benefit to years of service
and to limit the Company's monthly health-care contribution per individual
to 170% of the 1992 contribution. Questar's policy is to fund amounts
allowable for tax deduction under the Internal Revenue Code. Plan assets
consist of equity securities, corporate and U.S. government debt
obligation, and insurance company general accounts.
The Company adopted the provisions of SFAS No. 106 on Employer's
Accounting for Postretirement Benefits Other than Pensions effective
January 1, 1993. This statement requires the Company to expense the costs
of postretirement benefits, principally health-care benefits, over the
service life of employees using an accrual method. Questar is amortizing
the transition obligation over a 20-year period. Total cost of
postretirement benefits other than pensions under SFAS No. 106 was
$3,350,000 in 1993 compared with the costs based on cash payments to
retirees totaling $876,000 in 1992 and $464,000 in 1991.
The impact of SFAS No. 106 on the Company's future net income will be
mitigated by recovery of these costs from customers. Both the PSCU and
the PSCW allowed Mountain Fuel to recover future SFAS No. 106 costs in the
1993 rate cases if the amounts are funded in an external trust.
The Company's portion of plan assets and benefit obligations related to
postretirement medical and life insurance benefits is not determinable
because the plan assets are not segregated or restricted to meet the
Company's obligations.
The Financial Accounting Standards Board (FASB) has issued SFAS No. 112,
Accounting for Postemployment Benefits. This statement requires the
Company to recognize the liability for postemployment benefits when
employees become eligible for such benefits. Postemployment benefits are
paid to former employees after employment has been terminated but before
retirement benefits are paid. The Company's principal liability under
SFAS No. 112 is a long-term disability program. The Company is required
to adopt SFAS No. 112 in the first quarter of 1994 and recognize a
cumulative effect of a change in accounting method amounting to
approximately $1,538,000. The Company may offset this amount with a
regulatory asset depending on expected regulatory treatment and recovery
of costs from customers. The effect on ongoing net income is not expected
to be significant.
Note I - Related Party Transactions
The Company receives a portion of Wexpro's income from oil operations
after recovery of Wexpro's operating expenses and a return on investment.
This amount, which is included in revenues, was $1,028,000 in 1993,
$3,389,000 in 1992 and $4,190,000 in 1991.
The Company paid Wexpro for the operation of Company-owned gas properties.
These costs are included in natural gas purchases and amounted to
$49,595,000 in 1993, $43,324,000 in 1992 and $33,783,000 in 1991.
The Company purchased gas from Questar Pipeline amounting to $81,813,000
in 1993, $135,779,000 in 1992 and $174,359,000 in 1991. The Company did
not purchase gas from Questar Pipeline subsequent to September 1, 1993
when Questar Pipeline began operating in accordance with FERC Order No.
636. Also included in natural gas purchases are amounts paid to Questar
Pipeline for the transportation and gathering of Company-owned gas and
purchased gas. These costs were $38,862,000 in 1993, $31,808,000 in 1992
and $18,389,000 in 1991. The Company paid $4,131,000 to Questar Pipeline
for storage services subsequent to the implementation of FERC Order No.
636.
Mountain Fuel has reserved transportation capacity on Questar Pipeline's
system of approximately 800,000 decatherms per day and pays an annual
demand charge of approximately $49 million for this reservation. Mountain
Fuel releases excess capacity to its industrial transportation or other
customers and receives a credit from Questar Pipeline for the
released-capacity revenues and a portion of Questar Pipeline's
interruptible-transportation revenues.
Questar Service Corporation is an affiliated company that provides data
processing and communication services to Mountain Fuel. The Company paid
Questar Service $14,847,000 in 1993, $12,437,000 in 1992 and $11,530,000
in 1991.
Questar charges the Company for certain administrative functions amounting
to $5,609,000 in 1993, $5,517,000 in 1992 and $5,597,000 in 1991. These
costs are included in operating and maintenance expenses and are allocated
based on each affiliated company's proportional share of revenues;
property, plant and equipment; and labor costs. Management believes that
the allocation method is reasonable.
Note J - Oil and Gas Producing Activities (Unaudited)
The following information discusses the Company's oil and gas producing
activities. All of the properties are cost-of-service properties with the
return on investment established by state regulatory agencies. The Company
has not incurred any costs for oil and gas producing activities for the
three years ended December 31, 1993. Wexpro develops and produces gas
reserves owned by the Company. See Note I for the amounts paid by the
Company to Wexpro.
Estimated Quantities of Proved Oil and Gas Reserves: The following
estimates were made by Questar's reservoir engineers. Reserve estimates
are based on a complex and highly interpretive process which is subject to
continuous revision as additional production and development drilling
information becomes available. The quantities are based on existing
economic and operating conditions using current prices and operating
costs. All oil and gas reserves reported are located in the United States.
The Company does not have any long-term supply contracts with foreign
governments or reserves of equity investees. No estimates are available
for proved undeveloped reserves that may exist.
<TABLE>
<CAPTION>
Natural Gas Oil
(In Million (In Thousands
Cubic Feet) of Barrels)
<S> <C> <C>
Proved Developed Reserves
Balance at January 1, 1991 375,300 858
Revisions of estimates 2,604 64
Extensions and discoveries 29,519 2
Production (27,652) (110)
Balance at December 31, 1991 379,771 814
Revisions of estimates 5,891 68
Extensions and discoveries 43,682 5
Sale of reserves in place (34)
Production (29,699) (100)
Balance at December 31, 1992 399,611 787
Revisions of estimates (1,158) 57
Extensions and discoveries 65,293 9
Production (35,508) (81)
Balance at December 31, 1993 428,238 772
</TABLE>
<PAGE>
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND
UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
MOUNTAIN FUEL SUPPLY COMPANY
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
Balance at
Balance at Deductions - End of
Beginning Amount Period --
Name of Debtor of Period Additions Collected Current
(In Thousands)
<S> <C> <C> <C> <C>
December 31, 1993
Notes receivable from
Questar Corporation - $183,300 $183,300 -
December 31, 1992
Notes receivable from
Questar Corporation - 201,800 201,800 -
December 31, 1991
Notes receivable from
Questar Corporation - 153,300 153,300 -
</TABLE>
<PAGE>
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
MOUNTAIN FUEL SUPPLY COMPANY
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E COL. F
Balance at Other Balance at
Beginning Additions Changes- End of
Classification of Period At Cost Retirements Add (Deduct) Period
Note A
(In Thousands)
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1993
UTILITY PLANT
Production $99,795 $1,719 $98,076
Distribution 484,216 $29,569 2,633 ($47) 511,105
General 72,154 15,667 4,026 200 83,995
CONSTRUCTION IN PROGRESS 11,502 5,422 16,924
TOTAL PROPERTY, PLANT
AND EQUIPMENT $667,667 $50,658 $8,378 $153 $710,100
Year Ended December 31, 1992
UTILITY PLANT
Production $99,833 $38 $99,795
Distribution 444,459 $41,071 1,313 ($1) 484,216
General 62,490 12,355 2,738 47 72,154
CONSTRUCTION IN PROGRESS 9,207 2,295 11,502
TOTAL PROPERTY, PLANT
AND EQUIPMENT $615,989 $55,721 $4,089 $46 $667,667
Year Ended December 31, 1991
UTILITY PLANT
Production $103,139 $3,281 ($25) $99,833
Distribution 428,266 $23,641 1,821 (5,627) 444,459
General 47,247 8,621 2,373 8,995 62,490
CONSTRUCTION IN PROGRESS 4,485 4,722 9,207
TOTAL PROPERTY, PLANT
AND EQUIPMENT $583,137 $36,984 $7,475 $3,343 $615,989
</TABLE>
NOTE A - Other changes consist of transfers to or from affiliated
companies.
NOTE B - The annual provisions for depreciation have been computed
using the straight-line method at 3% to 33 1/3% per year (average of
3.9% in 1993).
<PAGE>
SCHEDULE V I- ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
MOUNTAIN FUEL SUPPLY COMPANY
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E COL. F
Additions
Balance at Charged to Other Balance at
Beginning Costs and Changes- End of
Classification of Period Expenses Retirements Add (Deduct) Period
Note A
(In Thousands)
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1993
UTILITY PLANT $249,056 $25,492 $7,329 $95 $267,314
Year Ended December 31, 1992
UTILITY PLANT $229,262 $22,922 $3,149 $21 $249,056
Year Ended December 31, 1991
UTILITY PLANT $212,458 $21,340 $6,768 $2,232 $229,262
</TABLE>
NOTE A - Other changes consist of transfers to or from affiliated
companies.
NOTE B - The annual provisions for depreciation have been computed
using the straight-line method at 3% to 33 1\3% per year (average of
3.8% in 1993).
<PAGE>
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
MOUNTAIN FUEL SUPPLY COMPANY
<TABLE>
<CAPTION>
COL. A COL. B
Item Charged to Costs and Expenses
(In Thousands)
Year Ended December 31,
1993 1992 1991
<S> <C> <C> <C>
Maintenance and repairs $6,463 $6,111 $6,371
Real estate and personal property taxes 6,186 6,091 4,945
Royalties 12,503 7,852 7,752
</TABLE>
The Company has no depreciation and amortization of intangibles assets.
Amounts for advertising costs are not presented as such amounts are less
than 1% of total revenues.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on the 28th day of March, 1994.
MOUNTAIN FUEL SUPPLY COMPANY
(Registrant)
By /s/ D. N. Rose
D. N. Rose
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the date indicated.
/s/ D. N. Rose President and Chief Executive
D. N. Rose Officer; Director (Principal
Executive Officer)
/s/ W. F. Edwards Vice President and Chief Financial
W. F. Edwards Officer (Principal Financial
Officer)
/s/ G. H. Robinson Vice President and Controller
G. H. Robinson (Principal Accounting Officer)
*Robert H. Bischoff Director
*R. D. Cash Chairman of the Board
*W. Whitley Hawkins Director
*Robert E. Kadlec Director
*B. Z. Kastler Director
*Dixie L. Leavitt Director
*Gary G. Michael Director
*D. N. Rose Director
*Roy W. Simmons Director
March 28, 1994 *By /s/ D. N. Rose
Date D. N. Rose, Attorney in
Fact
<PAGE>
EXHIBIT INDEX
Sequential Exhibit
Page
Number Number Exhibit
3.1.* Restated Consolidated Articles of
Incorporation dated August 15, 1980.
(Exhibit No. 4(a) to Registration
Statement No. 2-70087, filed December 1,
1980.)
3.2.* Certificate of Amendment to Restated
Consolidated Articles of Incorporation
dated May 13, 1982. (Exhibit No. 3(b) to
Form 10-K Annual Report for 1982.)
3.3.* Certificate of Amendment to Restated
Consolidated Articles of Incorporation
dated May 10, 1983. (Included in Exhibit
No. 4.1. to Registration Statement No. 2-
84713, filed June 23, 1983.)
3.4.* Certificate of Amendment to Restated
Consolidated Articles of Incorporation
dated August 16, 1983. (Exhibit No. 3(a)
to Form 8 Report amending the Company's
Form 10-Q Report for Quarter Ended
September 30, 1983.)
3.5.* Certificate of Amendment to Restated
Consolidated Articles of Incorporation
dated October 26, 1984. (Exhibit No. 3.5.
to Form 10-K Annual Report for 1984.)
3.6.* Certificate of Amendment to Restated
Consolidated Articles of Incorporation
dated May 13, 1985. (Exhibit No. 3.1. to
Form 10-Q Report for Quarter Ended June
30, 1985.)
3.7.* Articles of Amendment to Restated
Consolidated Articles of Incorporation
dated February 10, 1988. (Exhibit No.
3.7. to Form 10-K Annual Report for 1987.)
3.8.* Bylaws (as amended effective August 11,
1992). (Exhibit No. 3.8. to Form 10-K
Annual Report for 1992.)
4.* Indenture dated as of May 1, 1992, between
the Company and Citibank, as trustee, for
the Company's Debt Securities. (Exhibit
No. 4. to Form 10-Q Report for Quarter
Ended June 30, 1992.)
10.1.* Stipulations and Agreement, dated October
14, 1981, executed by Mountain Fuel Supply
Company; Wexpro Company; the Utah
Department of Business Regulations,
Division of Public Utilities; the Utah
Committee of Consumer Services; and the
staff of the Public Service Commission of
Wyoming. (Exhibit No. 10(a) to Form 10-K
Annual Report for 1981.)
10.7.* Data Processing Services Agreement
effective July 1, 1985, between Questar
Service Corporation and Mountain Fuel
Supply Company. (Exhibit 10.7. to Form
10-K Annual Report for 1988.)
10.8.* 1 Mountain Fuel Supply Company Annual
Management Incentive Plan as amended and
restated effective February 11, 1992.
(Exhibit No. 10.8. to Form 10-K Annual
Report for 1991.)
10.9.* 1 Mountain Fuel Supply Company Window Period
Supplemental Executive Retirement Plan
effective January 24, 1991. (Exhibit No.
10.9. to Form 10-K Annual Report for
1990.)
12. Statement of Ratio of Earnings to Fixed
Charges.
24. Consent of Independent Auditors.
25. Power of Attorney.
* Exhibits so marked have been filed with the Securities and
Exchange Commission as part of the referenced filing and are
incorporated herein by reference.
1 Exhibits so marked are management contracts or
compensation plans or arrangements.
Exhibit 12.
MOUNTAIN FUEL SUPPLY COMPANY
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992 1991
(Dollars in Thousands)
<S> <C> <C> <C>
EARNINGS
Income before income taxes $32,778 $30,846 $41,349
Plus debt expense 15,423 15,254 15,163
Plus allowance for
borrowed funds used
during construction 228 246 191
Plus interest portion of rental
expense 126 83 98
$48,555 $46,429 $56,801
FIXED CHARGES
Debt expense $15,423 $15,254 $15,163
Plus allowance for
borrowed funds used
during construction 228 246 191
Plus interest portion of rental
expense 126 83 98
$15,777 $15,583 $15,452
RATIO OF EARNINGS TO
FIXED CHARGES 3.08 2.98 3.68
</TABLE>
Exhibit 24.
Consent of Independent Auditors
We consent to the incorporation by reference in the
Registration Statement (Form S-3, No. 33-55866) of Mountain
Fuel Supply Company and in the related Prospectus of our
report dated February 11, 1994, with respect to the
financial statements and schedules of Mountain Fuel Supply
Company included in this Annual Report (Form 10-K) for the
year ended December 31, 1993.
ERNST & YOUNG
Salt Lake City, Utah
March 24, 1994
POWER OF ATTORNEY
We, the undersigned directors of Mountain Fuel Supply
Company, hereby severally constitute D. N. Rose and W. F.
Edwards, and each of them acting alone, our true and lawful
attorneys, with full power to them and each of them to sign for
us, and in our names in the capacities indicated below, the
Annual Report on Form 10-K for 1993 and any and all amendments to
be filed with the Securities and Exchange Commission by Mountain
Fuel Supply Company, hereby ratifying and confirming our
signatures as they may be signed by the attorneys appointed
herein to the Annual Report on Form 10-K for 1993 and any and all
amendments to such Report.
Witness our hands on the respective dates set forth below.
Signature Title Date
/s/ R. D. Cash Chairman of the Board 2-8-94
R. D. Cash
/s/ D. N. Rose President & Chief 2-8-94
D. N. Rose Executive Officer
/s/ R. H. Bischoff Director 2-8-94
R. H. Bischoff
/s/ W. W. Hawkins Director 2-8-94
W. W. Hawkins
/s/ R. E. Kadlec Director 2-8-94
R. E. Kadlec
/s/ B. Z. Kastler Director 2-8-94
B. Z. Kastler
/s/ Dixie L. Leavitt Director 2-8-94
Dixie L. Leavitt
/s/ Gary G. Michael Director 2-8-94
Gary G. Michael
/s/ Roy W. Simmons Director 2-8-94
Roy W. Simmons
