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, 1995
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 45360, Salt Lake City, Utah 84145-360
(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 2024
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 22, 1996: $0.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of March 22, 1996: 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....................................
General.................................................
Gas Distribution........................................
Gas Supply..............................................
Competition, Growth and Unbundling......................
Regulation and Deregulation.............................
Relationships with Affiliates...........................
Employees.................................................
Environmental Matters.....................................
Research and Development..................................
Item 3. LEGAL PROCEEDINGS............................................
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS.............................................
PART II
Item 5. MARKET FOR REGISTRANT'S EQUITY
AND RELATED STOCKHOLDER MATTERS..............................
Item 6. SELECTED FINANCIAL DATA......................................
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATION....................................................
Item 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA...........................................
Item 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.........................................
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT............................................
Item 11. EXECUTIVE COMPENSATION.......................................
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT........................................
Item 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.................................................
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K......................................
SIGNATURES
<PAGE>
FORM 10-K
ANNUAL REPORT, 1995
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 592,700 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.
During 1995, Mountain Fuel added over 20,500 customers while it
consolidated its operations, reduced labor costs, and improved its
customer service ratings. Mountain Fuel has traditionally capitalized
on two competitive advantages, owning natural gas reserves and offering a
full-range of services to customers at reasonable prices. The Company
intends to maintain its competitive position in its traditional service
area and to take advantage of opportunities created by the unbundling of
retail distribution activities in other areas.
Gas Distribution
As of December 31, 1995, Mountain Fuel was serving 592,738
residential, commercial, and industrial customers, a 3.6 percent
increase from the 572,174 customers served as of the end of 1994.
(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.
Mountain Fuel added almost 20,600 customers in 1995, almost
equalling its record growth of 22,000 customers in 1994. Most of the
customer growth was attributable to new housing, although the Company
continues to add customers in its traditional and new service areas that
are converting to natural gas. The population of Mountain Fuel's
service area in Utah continues to grow faster than the national
average. The Company expects to add 19,000-20,000 customers in 1996 and
to add 15,000-18,000 customers per year for the remainder of the
century.
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 115 decatherms (Dth) 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 13 percent warmer than normal in 1995, after being 9
percent warmer than normal in 1994. (See "Regulation" for a discussion
of the Company's "weather normalization adjustment" approved during 1995
that will ameliorate the effect of temperature variations.)
During 1995, Mountain Fuel sold 73,950 thousand decatherms (Mdth)
of natural gas to residential and commercial customers, compared to
74,233 Mdth in 1994. (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 effect of 1995's
warmer weather was almost completely offset by an expanded customer
base. General service sales to residential and commercial customers
were responsible for 87 percent of Mountain Fuel's total revenues in
1995.
Mountain Fuel has designed its distribution system and annual gas
supply plan to handle design-day demand requirements. The Company
periodically updates its design-day demand, which is the volume of gas
that firm customers could use during extremely cold weather. For the
1995-96 heating season, Mountain Fuel is using a design-day demand of
851,906 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 1995, expanding from
60,264 Mdth in 1994 to 68,779 Mdth in 1995. Sales to industrial users
increased for the third consecutive year and expanded from 8,882 Mdth in
1994 to 9,210 Mdth in 1995. The increase in total industrial deliveries
reflects Utah's economic prosperity and the strength of several major
industries as well as the success of the Company's marketing efforts.
The Company's industrial sales increased as some smaller
industrial customers continued to move from interruptible transportation
to interruptible sales service on Mountain Fuel's system. The majority
of these interruptible sales service 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. The Company also has
an interruptible sales rate utilizing a dedicated gas portfolio.
Mountain Fuel's tariff permits industrial customers to make annual
elections for interruptible sales or transportation service.
Mountain Fuel has been providing transportation service since
1986. 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 demand cost credits from
Questar Pipeline Company (Questar Pipeline) for transportation customers
who use the Company's released capacity. These credits totaled
approximately $13.0 million for the 12-month period ending August 31,
1995.
Mountain Fuel's largest transportation customers, as measured by
revenue contributions, are the Geneva Steel plant in Orem, Utah; Utah
Power, an electric utility that uses gas for an electric generating
plant in Salt Lake City; the Kennecott copper processing operations,
located in Salt Lake County; and the mineral extraction operations of
Magnesium Corporation of America in Tooele County west of Salt Lake.
Some transportation customers significantly reduced their volumes during
late-1995 when the spot prices for electricity were lower than the cost
of electricity generated by using natural gas.
Mountain Fuel owns and operates distribution systems throughout
its Utah, Wyoming and Idaho service areas and has a total of 18,027
miles of street mains, service lines, and interconnecting pipelines.
The Company owns an office building adjacent to its warehouse, garage,
and operations center in Salt Lake City, Utah. Mountain Fuel, during
1995, closed two large operation centers in Sandy and Layton, Utah, and
two smaller offices in Brigham City and Tooele, Utah. The Company
continues to own field offices and service center facilities in 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 Company (Wexpro) and uses
the gas produced from these properties for its base-load demand. 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 sales
customers. During 1995, approximately 64 percent of the Company's total
system requirement was satisfied with cost-of-service gas produced from
over 550 wells in more than 40 fields. (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 1995, 53,476 Mdth of storage
gas were delivered from such properties, compared to 44,413 Mdth in
1994. Mountain Fuel estimates that it had reserves of 389,440 million
cubic feet (MMcf) of natural gas as of year-end 1995 compared to 416,312
MMcf as of year-end 1994. (These reserve numbers do not include gas
attributed to royalty interest owners. Reserve numbers are typically
reported in volumetric units, such as MMcf, that don't reflect heating
values.) The average wellhead cost associated with gas volumes produced
from Mountain Fuel's cost-of-service reserves was $1.25 per Dth in 1995.
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 1995, Mountain Fuel, as the party with the
economic interest in the gas produced from such wells, earned $4.4
million in 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 stores up to 12.5 billion cubic feet of gas at Clay
Basin, a base-load storage facility owned and operated by Questar
Pipeline. Company-owned gas is stored at Clay Basin during the summer
and withdrawn during the heating season.
The Company has been directly responsible for its gas acquisition
activities since September 1, 1993. Mountain Fuel has a balanced and
diversified portfolio of approximately 45 gas supply contracts with more
than 35 suppliers located in the Rocky Mountain states of Wyoming,
Colorado, and Utah. The Company purchases gas on the spot market and
under contracts, primarily during the heating season. Mountain Fuel's
gas purchase contracts have market-based provisions and are either of
short-duration or renewable on an annual basis upon agreement of the
parties. Mountain Fuel's gas acquisition objective is to obtain
reliable, diversified sources of gas supply at competitive prices. In
the Company's last semi-annual purchased gas cost filing, it estimated
that its 1996 average wellhead cost of field purchased gas would be
$1.34 per Dth. Although Mountain Fuel has contracts with take-or-pay
provisions, it currently has no material take-or-pay liabilities.
Competition, Growth, and Unbundling
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 temporarily required to pay higher rates than their
counterparts in the more populated areas of Utah. (The first group of
these customers will begin paying standard rates in 1997.)
Mountain Fuel, during 1995, 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 plans to extend service to
Ogden Valley, an area east of Ogden, Utah, during 1996. 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 secondary appliances, e.g., ranges and
dryers, has historically been 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. Mountain Fuel estimates that
approximately 40 percent of the new homes constructed in its service
area during 1995 included piping for gas fireplaces and approximately
40-50 percent of such homes had piping for gas dryers or ranges. As a
result of its contacts with appliance dealers, the Company receives
information about the sales of gas appliances and has been pleased with
the growth of sales for fireplaces, ranges and dryers.
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 secondary appliances to natural gas. Mountain Fuel's rates
for general service customers in Utah continue to be lower now than they
were 10-11 years ago. Using rates in effect as of January 1, 1996, the
typical residential customer in Utah would have an annual bill of
$490.42, 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 as much as approximately 64 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. The
Company 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. Mountain
Fuel reserves cost-of-service gas for firm sales 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. These customers can take
advantage of the open-access status of either Questar Pipeline's or Kern
River's open-access pipelines and can use the existence of the Kern
River line to obtain discounted transportation charges. 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 its system to large customers.
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 can provide an alternative delivery
source to 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 can acquire taps on
Kern River's system or can take delivery of gas through a new tap that
Mountain Fuel obtained in 1994. This Hunter Park tap in Salt Lake
County enables the Company to obtain delivery of additional peak-day
supplies to meet increasing demand. The existence and location of the
Kern River pipeline system also made it possible for the Company to
extend service into new areas in rural Utah and to develop a second
source of supply for its central and southern Utah system.
Within the last several years, the Company has increased its
activities to encourage the use of natural gas as a fuel in automobiles,
trucks, buses, and forklifts. 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. There are nearly 1,800 natural gas vehicles in
the Company's service territory and there are a total of 86 natural gas
refueling stations within the Company's service area, including 23 that
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. 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 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. PacifiCorp (using the name
Utah Power in Utah) is the primary electric utility in the Company's
service area. Although its 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, PacifiCorp provides an ongoing source of
competition.
Mountain Fuel has adopted innovative and productivity-enhancing
measures to deal with competitive pressures during the last several
years. One measure of improved efficiency is the number of customers
served per employee. This ratio has improved from 388 customers per
employee for 1994 to 423 customers per employee for 1995. Mountain Fuel
intends to increase this ratio to greater than 440 customers per
employee in 1996.
The significant improvement in this ratio resulted from the
Company's 1995 consolidation activities. Mountain Fuel closed four
offices and reduced the size of six additional offices as it
consolidated customer service functions such as dispatching, telephone
service and engineering. The productivity of service technicians was
increased as new computer technology and paging equipment eliminated the
need for them to personally obtain service orders from a central
location.
The Company's workforce decreased from 1,486 employees at year-end
1994 to 1,373 employees at year-end 1995. A special retirement program
was accepted by 109 of the 169 eligible employees and became effective
April 30, 1995.
Mountain Fuel and all local distribution companies are faced with
the challenges and opportunities posed by the unbundling and
restructuring of traditional utility services. As a local distribution
company, Mountain Fuel owns and controls the lines through which gas is
delivered, is the only supplier of natural gas to residential customers,
measures the consumption of gas used by its customers, and bills for
consumption and related services. The services provided by Mountain
Fuel are packaged and priced as a "bundle." Most "unbundling"
discussions focus on extending to residential and commercial customers
the same choices provided to industrial customers, i.e., allowing them
to separate the commodity supply from the transportation service.
Mountain Fuel has been reviewing the opportunities associated with
unbundling. The Company believes that it is well-positioned to succeed
in a competitive environment. It has extensive gas-supply and marketing
experience that may allow the Company to secure and manage gas supplies
for groups of customers and sophisticated customer information systems
that may allow it to perform billing and dispatch services for other
companies. Mountain Fuel is an efficient natural gas company, a
statement that is supported by such statistics as an operating and
maintenance expense of $158 per customer, a customer to employee ratio
of 423 to 1, and an overall customer satisfaction rating of 91.3
percent. In addition, the Company's operating efficiency is buttressed
by owning the reserves to meet over 60 percent of its current demand.
Mountain Fuel intends to maintain its competitive position within its
own service area and to take advantage of opportunities in new markets.
Regulation and Deregulation
Mountain Fuel and all retail distribution companies have been
subject to governmental regulation, as a substitute for competition.
Other regulated industries; airline, trucking, telecommunication,
financial service and interstate pipeline, have been and are being
deregulated, and competitive market forces are forcing these industries
to place more emphasis on operating efficiency. The substitution of
competition for regulation will cause Mountain Fuel and other
distribution companies to review their costs and levels of service.
The PSCW asked Mountain Fuel and other Wyoming gas utilities to
review the unbundling of transportation and commodity services. One
Wyoming utility, KN Energy, Inc., recently obtained regulatory approval
to unbundle sales service to a portion of its Wyoming customers.
Mountain Fuel was involved in the regulatory proceedings involving KN
Energy and is currently reviewing the advisability of offering unbundled
services in Wyoming.
The PSCU recently opened an informal docket to review the
restructuring of electric utility services, but has not taken a similar
action with gas utilities.
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.
During 1995, Mountain Fuel filed and settled a general rate case
in Utah. Under the terms of the settlement, which was the Company's
first Utah general rate case settlement in more than a decade and which
became effective September 1, 1995, Mountain Fuel's approved revenue
deficiency was $3.7 million, compared to the requested revenue
deficiency of $11.4 million. Approximately $2 million of the $3.7
million will be recovered through new premise charges, with the
remaining $1.7 million recovered through a change in the method for
crediting revenues collected when the Company "releases" pipeline
capacity. The settlement agreement also permitted Mountain Fuel to
incorporate a weather normalization mechanism on a phased-in basis.
During the 1995-96 heating season, the mechanism is being used with the
Company's commercial customers and equal payment residential customers,
or approximately 40-45 percent of its general service load. The
mechanism adjusts the non-gas cost portion of a customer's monthly bill
as the actual degree days in the billing cycle are warmer or colder than
normal. Mountain Fuel can apply the mechanism to the remainder of its
residential customers as early as the fall of 1996, but these customers
can choose, on an individual basis, to opt-out of the program.
The settlement did not specify an authorized return on equity, but
increased Mountain Fuel's allowed return on rate base from 10.08 percent
to a range of 10.22 to 10.34 percent. As a result of the PSCU's use of
an historic test year, Mountain Fuel was also permitted to retain the
cost savings associated with reducing its labor force and consolidating
its operations. These cost savings amounted to approximately $3.5
million in 1995 and will amount to about $5 million on an annualized
basis in 1996.
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 become effective January 1, 1996. 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
also received regulatory approval in both states to implement a one-time
credit on its customers' February 1996 gas bills to return a portion of
the overcollected balance.
Mountain Fuel's Utah pass-through application was approved on an
interim basis. In connection with the application, the Utah Division of
Public Utilities has raised issues about the continued propriety of
treating gathering costs as pass-through costs and about the
reasonableness of such costs. The Company believes that its gathering
costs are reasonable. The Committee of Consumer Services has requested
additional information concerning a gas imbalance and may decide to
raise the issue in the proceedings.
Mountain Fuel does not expect to file a general rate case
application with the PSCU or PSCW in 1996. It did not file a general
rate case application with the PSCW in 1995. Under a 1993 order issued
by the PSCW, the Company is allowed to earn a return on rate base of
10.4 percent.
Mountain Fuel's responsibility for gas acquisition activities
involves inherent risks of regulatory scrutiny. In the past, the
Company has been involved in regulatory proceedings in which the
prudence of its gas supply activities has been challenged, but Mountain
Fuel has successfully defended its activities and has not incurred any
significant disallowance of gas costs.
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
Questar Energy Services, Inc.
Universal Resources Corporation
Entrada Industries Inc.
Wexpro Company
Celsius Energy Company
Mountain Fuel Supply Company
Questar InfoComm Inc.
Questar Pipeline Company
Questar Gas Management Company
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. Questar Pipeline's historic function as the
Company's supplier ended September 1, 1993, when Questar Pipeline's gas
purchase contracts were transferred to Mountain Fuel and when the
Company converted its firm capacity entitlements to firm transportation
service. Mountain Fuel has reserved about 800,000 Dth per day or
approximately 79 percent of Questar Pipeline's total transmission
capacity.
Mountain Fuel transports both cost-of-service gas and purchased
gas on Questar Pipeline's transmission system. (The Company also
transports gas volumes on the transmission systems owned by Northwest
Pipeline Company and Colorado Interstate Gas Company. Mountain Fuel
purchases "city gate" gas supplies from transportation customers on Kern
River's system.) The Company releases its firm transportation capacity,
pursuant to capacity release procedures adopted by the Federal Energy
Regulatory Commission (FERC), 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 the 12-month period ending August 31, 1995, Mountain Fuel
released an average of 632,867 Dth per day. When the released capacity
is coupled with the Company's average sales volume of 270,337 Dth during
this same period, Mountain Fuel "used" approximately 72 percent of its
reserved capacity on Questar Pipeline's system.
During 1995, Questar Pipeline transported 79,872 Mdth of gas for
Mountain Fuel, compared to 75,941 Mdth in 1994. 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 paid approximately $49.4
million in demand charges to Questar Pipeline in 1995 for firm
transportation capacity and "no notice" transportation. Questar
Pipeline also credits Mountain Fuel with revenues it receives from
transportation customers that use the Company's released capacity.
During the 12-month period ending August 31, 1995, Mountain Fuel
received $13.0 million in revenue credits from Questar Pipeline.
Mountain Fuel purchases storage capacity at Clay Basin, a large
base-load storage facility operated by Questar Pipeline, and also has
peaking storage capacity at three additional storage reservoirs owned by
Questar Pipeline. The Company paid Questar Pipeline $13.5 million in
demand charges during 1995 in connection with storage services.
Prior to March 1, 1996, Questar Pipeline provided the Company with
gathering services under a gathering agreement that became effective on
September 1, 1993, when the FERC approved a joint settlement filed by
the parties. Questar Pipeline gathered 31,691 Mdth for Mountain Fuel
during 1995, compared to 32,098 Mdth in 1994. This agreement was
transferred to Questar Gas Management as of March 1, 1996. Under the
terms of the agreement, Questar Gas Management will gather gas volumes
produced from cost-of-service properties for the life of such
properties. The Company's obligation to use Questar Gas Management to
gather purchased gas terminates in 1997.
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 22.03 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.
Wexpro only conducts drilling activities in response to the needs
of Mountain Fuel or the demands from other working interest owners. The
significant decrease in Rocky Mountain wellhead prices resulted in the
near cessation of Wexpro's drilling activities. Only 9,760 MMcf in
proved development reserves were added to Mountain Fuel's net reserves
in 1995, compared to 36,632 MMcf in production.
Other Affiliates. Other significant affiliates of Mountain Fuel
include Questar InfoComm, Inc., Questar Development Corporation
(Questar Development), Celsius Energy Company (Celsius), and Universal
Resources Corporation (Universal Resources). Questar InfoComm 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 InfoComm
personnel have assisted Mountain Fuel with the development of new
customer information systems that facilitated the Company's
consolidation of customer service activities.
Mountain Fuel leases some space in an office building located in
Salt Lake City, that is owned by Interstate Land Corporation (a
subsidiary of Questar Development). Mountain Fuel expects to continue
leasing space in this building, which is currently being enlarged and
remodeled.
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.
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, 1995, the Company had 1,373 employees, compared
to 1,486 at year-end 1994. A special early retirement offer was
accepted by 109 employees (of 169 eligible employees) in the spring of
1995. None of these employees was replaced. Mountain Fuel's employees
are nonunion employees who are not 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 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 1908 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 that
involve 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 in 1994. 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 has not been entered because
the presiding judge has still not issued a decision concerning the
competing forms of judgment entered by the opposing parties. 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. Under
existing PSCU rulings, any payments resulting from this judgment will be
included in Mountain Fuel's 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 (the EPA).
During 1995, Entrada completed soil remediation activities on the
property, using an in situ vitrification procedure. It is continuing to
conduct ground water remediation activities.
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.
Mountain Fuel recently settled a lawsuit in which Utah Power
claimed that the Company was responsible for contamination located on
property that is next to Mountain Fuel's operations center in Salt Lake
City. The operations center was the site of an abandoned coal
gasification plant.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1995, 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.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993 1992 1991
(In Thousands)
<S> <C> <C> <C> <C> <C>
Revenues $362,769 $378,260 $402,391 $373,047 $416,759
Operating expenses
Natural gas purchases 190,606 210,507 230,139 218,123 253,111
Other expenses 128,441 128,432 125,743 110,527 108,761
Total operating expenses 319,047 338,939 355,882 328,650 361,872
Operating income $43,722 $39,321 $46,509 $44,397 $54,887
Net income $23,668 $23,352 $25,069 $23,395 $25,074
Cash dividends paid on common stock 20,000 19,500 18,000 18,000 19,000
Total assets 600,261 590,275 581,027 490,614 452,139
Capital expenditures 51,413 53,816 50,658 55,721 36,984
Capitalization
Long-term debt $175,000 $175,000 $158,000 $150,126 $148,953
Redeemable cumulative preferred
stock 4,957 6,324 7,525 8,726 9,955
Common shareholder's equity 208,645 205,461 182,200 175,826 171,231
$388,602 $386,785 $347,725 $334,678 $330,139
</TABLE>
<PAGE>
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,
1995 1994 1993
(Dollars In Thousands)
<S> <C> <C> <C>
OPERATING INCOME
Revenues
Residential and commercial sales $315,458 $329,576 $360,210
Industrial sales 22,479 24,395 21,678
Industrial transportation 6,127 5,665 5,898
Other 18,705 18,624 14,605
Total revenues 362,769 378,260 402,391
Operating expenses
Natural gas purchases 190,606 210,507 230,139
Operating and maintenance 93,384 94,094 92,486
Depreciation and amortization 25,469 24,749 23,244
Other taxes 9,588 9,589 10,013
Total expenses 319,047 338,939 355,882
Operating income $43,722 $39,321 $46,509
OPERATING STATISTICS
Natural gas volumes (in Mdth)
Residential and commercial sales 73,950 74,233 79,369
Industrial deliveries
Sales 9,210 8,882 6,514
Transportation 59,569 51,382 53,105
Total industrial 68,779 60,264 59,619
Total deliveries 142,729 134,497 138,988
Natural gas revenue (per dth)
Residential and commercial $4.27 $4.44 $4.54
Industrial sales 2.44 2.75 3.33
Transportation for industrial
customers 0.10 0.11 0.11
Natural gas purchase price (per dth) $2.16 $2.40 $2.52
Heating degree days (normal 5,801) 5,047 5,290 6,073
Colder (warmer) than normal (13%) (9%) 5%
Number of customers at end of period 592,738 572,174 550,184
</TABLE>
Revenues, net of gas costs, increased $4,410,000 in 1995 when
compared with 1994 after decreasing $4,499,000 in 1994 when
compared with 1993. The positive influences derived from a
general rate case settlement, a 3.6% increase in the number of
customers, an increase in transportation volumes for
industrial customers and productivity improvement measures
offset the effect of temperatures that were 5% warmer than
were experienced in 1994.
On August 11, 1995, the Public Service Commission of Utah (PSCU)
approved a settlement of Mountain Fuel's general rate case
filed April 13, 1995. Mountain Fuel received a $3.7 million
increase in revenues. The settlement allowed the Company to
implement a weather normalization adjustment, provided about
$2 million in additional revenues through a new-premises fee
and added about $1.7 million from sharing capacity-release
revenues. The settlement did not specify an authorized return
on equity, but Mountain Fuel's allowed return on rate base
increased from 10.08% to between 10.22% and 10.34%. A
weather-normalization adjustment applied to about 40% of
Mountain Fuel's weather sensitive volumes for the last quarter
of 1995 and reduced the net income effect caused by
warmer-than-normal temperatures by about $1.3 million.
Mountain Fuel pays for firm-transportation capacity and sells
unused firm-transportation capacity as capacity-release
service. Under the rate settlement, Mountain Fuel is allowed
to credit 20% of capacity-release revenues, which amounted to
$676,000 in 1995, to earnings.
Natural gas deliveries to residential and commercial customers
were largely unchanged in 1995 when compared with 1994. Both
years experienced warmer-than-normal temperatures and a near
4% increase in the number of customers. Sales volumes
dropped 6% in 1994 after increasing 16% in 1993 due to 1994
being 13% warmer than 1993. The number of customers increased
by 3.6% in 1995, 4.0% in 1994 and 3.4% in 1993.
Gas deliveries to industrial customers increased by 14% in
1995 and 1% in 1994. Mountain Fuel's service area has
experienced strong economic growth for several successive
years. The Company has benefitted from a higher gas demand
for expanded operations and environmental reasons.
Mountain Fuel closed four regional offices and reduced
functions at six other offices in an effort to consolidate and
restructure operations. In addition, the Company's offer of
early retirement was accepted by 109 employees effective April
30, 1995. The cost reductions associated with these changes
averaged $400,000 per month or about $3.2 million for 1995.
The early retirement program did not cause a material increase
in pension expense. Mountain Fuel is depending on its
investment in customer information system technology to
provide increased efficiency in serving customers. Mountain
Fuel's customers satisfaction rating continued to increase
reaching a record 91.3% in 1995.
Starting 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
reporting period. The impact of these accruals on the income
statement has been deferred and is being recognized at the
rate of $2,011,000 per year over a five-year period beginning
in 1994, in accordance with a PSCU rate order. This rate
order also reduces customer rates by $2,011,000 per year over
the same five-year period. In addition in 1994, Mountain Fuel
recorded other income of $5,589,000 for a one-time reduction
in gas costs associated with these unbilled revenues. This
transaction added about $3.5 million to net income in 1994.
Natural gas purchases decreased 4% in 1995 when compared with
1994 primarily due to lower prices for natural gas. Natural
gas purchases decreased 9% in 1994 when compared with 1993
largely the result of a reduction in volumes sold.
Operating and maintenance expenses decreased 1% in 1995
primarily because of productivity improvement measures
implemented in 1995. Operating and maintenance expenses were
2% higher in 1994 when compared to 1993 because of the costs
associated with more customers and an expanded service
territory. Depreciation and amortization expense increased 3%
in 1995 and 6% in 1994 as a result of capital expenditures.
The effective income tax rate was 24.6% in 1995, 25.3% in 1994
and 23.5% in 1993 primarily due to income tax credits
received from production of gas from certain properties. These
credits amounted to $4,376,000 in 1995, $4,670,000 in 1994 and
$5,463,000 in 1993.
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 in 1994. The jury awarded an independent producer
compensatory damages of approximately $6.1 million and
punitive damages of $200,000 on his claims. The producer's
counterclaims originally exceeded $57 million, but were
reduced to less than $10 million, when the presiding judge
dismissed with prejudice some of the claims prior to the jury
trial. Under existing PSCU rulings, any payments resulting
from this judgment will be included in Mountain Fuel's gas
balancing account an recovered in its rates for natural gas
service.
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of, that becomes effective for the
Company January 1, 1996. Statement No. 121 requires the
Company to review for impairment, assets that are held and
used whenever events or changes in circumstances indicate that
an asset's carrying value may not be recoverable. If
impairment is indicated, the Company must reduce the carrying
value of the asset in question. The Company will adopt
Statement No. 121 in 1996 and does not expect a significant
effect to either operating results or financial position.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
Net cash provided from operating activities increased 107% in
1995. Net cash provided from operating activities was
$68,546,000 in 1995, $33,143,000 in 1994 and $37,139,000 in
1993. The increase in 1995 was largely due to the collection
of accounts receivable and lower gas purchase costs.
Investing Activities
Following is a summary of capital expenditures for 1995 and
1994, and a forecast of 1996 expenditures.
<TABLE>
<CAPTION>
1996
Estimated 1995 1994
(In Thousands)
<S> <C> <C> <C>
New-customer service equipment $27,700 $24,950 $22,343
Distribution system 11,300 9,981 7,085
Buildings 1,500 3,473 7,193
Computer software and hardware 6,600 5,121 5,849
General and other 7,900 7,888 11,346
$55,000 $51,413 $53,816
</TABLE>
Mountain Fuel's capital spending is primarily in response to a
rapid increase in the number of customers, amounting to 20,564
in 1995, 21,990 in 1994 and 18,075 in 1993 due to population
growth and construction activity in its service area.
Mountain Fuel extended its system by 559 miles of main, feeder
and service lines in 1995.
Mountain Fuel transferred a building with a net book value of
$8,915,000 to an affiliate in the third quarter of 1994.
Financing Activities
The Company funded 1995 capital expenditures and cash
dividends with cash provided from operations and borrowings
from Questar. Forecasted 1996 capital expenditures of $55
million are expected to be financed with cash provided from
operations and borrowings from Questar.
The Company has a short-term line-of-credit arrangement with a
bank under which it may borrow up to $500,000. The line has
interest rates generally below the prime interest rate and is
renewable on an annual basis. No amount was borrowed under
this arrangement at either December 31, 1995 or 1994. Questar
loans funds to the Company under a short-term borrowing
arrangement. Outstanding short-term notes payable to Questar
totaled $56,100,000 with an interest rate of 6.01% at December
31, 1995 and $53,500,000 with an interest rate of 6.11% at
December 31, 1994.
Mountain Fuel has a capital structure of 45% long-term debt,
1% preferred stock and 54% common equity. Moody's and Standard
and Poor's have rated Mountain Fuel's long-term debt A-1 and A+.
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
M. E. Benefield 56 Vice President, Gas Supply, May 1992; Vice
President, Planning and Corporate Development,
Questar (March 1989 to May 1992.)
R. D. Cash 53 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,
Associated Electric and Gas Insurance Services
Limited, and a member of the Board of
Directors of the Federal Reserve Bank (Salt
Lake branch) of San Francisco; Trustee,
Southern Utah University.
Susan Glasmann 48 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 62 Director, March 1987; Director, Questar, March
1987; President and Chief Executive Officer,
BC Gas Inc. (Vancouver, British Columbia) to
December 1995; founder of Kadlec Holdings
(investment and consulting firm); Director, BC
Gas Inc., Trans Mountain Pipe Line Company
Ltd., British Pacific Properties Ltd., and
International Forest Products Limited, and
Advisory Director, Andersen Consulting.
Dixie L. Leavitt 66 Director, May 1987; Director, Questar, May
1987; founder and Chairman of the Board,
Leavitt Group Agency Association (a group of
approximately 54 separate insurance agencies);
President and Chairman of entities engaged in
dairy, cattle, agriculture, and real estate
operations in Utah and southern Nevada;
Director, Zions First National Bank.
Gary G. Michael 55 Director, February 1994; Director, Questar,
February 1994; Chairman and Chief Executive
Officer, Albertson's; Director, Albertson's
and of the Federal Reserve Bank of San
Francisco.
S. E. Parks 44 Vice President, Treasurer and Chief Financial
Officer, Mountain Fuel and Questar, February
1996; Treasurer, Questar and Mountain Fuel,
May 1984.
D. N. Rose 51 President and Chief Executive Officer, October
1984; Director, May 1984; Executive Vice
President, Questar, February 1996; Director,
Questar, May 1984; Director, Key Bank of Utah;
Trustee, Westminster College.
G. H. Robinson 45 Vice President and Controller, April 1991;
Vice President, Marketing, March 1985 to April
1991.
S. C. Yeager 48 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 1993, 1994, and 1995:
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
Name and Restricted All
Other Base Stock Other
Principal Year Salary($)1 Bonus($)2 Awards($)3 Options(#) 4 Compensation($) 5
<S> <C> <C> <C> <C> <C> <C>
D. N. Rose 1995 235,167 27,852 27,808 19,000 29,064
President and Chief 1994 209,500 36,061 36,053 19,000 21,713
Executive Officer 1993 200,417 38,572 38,525 19,000 18,786
R. D. Cash 6 1995 138,597 9,682 9,670 30,000 21,516
Chairman of the 1994 138,337 38,770 38,767 30,000 17,467
Board 1993 128,835 37,406 37,406 30,000 14,946
M. E. Benefield 1995 145,483 11,567 11,533 9,000 10,384
Vice President, 1994 139,500 15,862 15,850 9,000 9,888
Gas Supply 1993 134,050 20,163 17,136 9,000 8,743
G. H. Robinson 1995 140,000 12,081 11,029 9,000 9,882
Vice President and 1994 133,083 15,114 15,084 9,000 9,118
Controller 1993 127,533 16,223 16,223 9,000 8,107
S. C. Yeager 1995 140,000 14,081 11,029 9,000 12,459
Vice President, 1994 133,083 15,114 15,084 9,000 9,118
Customer Service 1993 127,533 16,223 16,223 9,000 8,031
</TABLE>
1/ Base salary amounts listed for Messrs. Robinson and Yeager for
1995 include lump-sum merit payouts that were received in lieu of base
salary increases.
2/ Amounts listed under this heading are cash payments earned and
discretionary bonuses awarded under the Annual Management Incentive
Plans (AMIP) for the Company and Questar (for Mr. Cash). The amounts
listed for Mr. Cash are the amounts allocated to Mountain Fuel.
3/ Amounts under this heading include the value (as of the grant
date) of any restricted shares of Questar's common stock used in 1994,
1995 and 1996, in lieu of cash, as partial payment of bonuses earned
under the Company's AMIP and the Company's allocated portion of the
value of restricted shares granted to Mr. Cash under Questar's AMIP.
All shares of restricted stock vest in two equal, annual installments
occurring on the first business day in February of the first and second
years following 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 1995, Mr. Rose had 1,928 shares of
restricted stock having a market value of $64,558; Mr. Cash had 4,683
shares worth $156,881; Mr. Benefield had 851 shares worth $28,509;
Messrs. Robinson and Yeager each had 808 shares worth $27,608.
4/ Mountain Fuel's executive officers are granted stock options to
purchase shares of Questar's common stock under Questar's Long-Term
Stock Incentive Plan.
5/ Amounts listed under this heading include employer matching and
nonmatching contributions, matching contributions to the Deferred Share
Plan, and directors' fees paid by the Company, and, for 1995 only,
vacation buy-back pay. The figure opposite Mr. Rose's name for 1995
include $8,795 in contributions to the Employee Investment Plan, $8,853
in matching contributions to the Deferred Share Plan, $6,800 in
director's fees, and $4,616 for unused vacation. The 1995 figure for
Mr. Cash includes the Company's allocated portion of contributions to
the Employee Investment Plan of $3,882, $6,800 in directors' fees paid
by the Company, and the Company's allocated portion of contributions to
the Deferred Share Plan of $10,834. The 1995 figure listed for Mr.
Benefield includes $8,795 in contributions to the Employee Investment
Plan and $1,589 in matching contributions to the Deferred Share Plan.
The 1995 figure for Mr. Robinson includes $8,795 in contributions to the
Employee Investment Plan and $1,087 in matching contributions to the
Deferred Share Plan. The 1995 figure for Mr. Yeager includes $8,795 in
contributions to the Employee Investment Plan, $1,087 in matching
contributions to the Deferred Share Plan and $2,577 for unused vacation.
6/ Mr. Cash also serves as an executive officer of Questar and
other affiliated companies. The base salary shown for Mr. Cash is the
combination of the amount directly paid by the Company and the amount
allocated to the Company.
The following table lists information concerning the stock options
to purchase shares of Questar's common stock that were granted to
Mountain Fuel's five highest paid officers during 1995 under Questar's
Long-Term Stock Incentive Plan. No stock appreciation rights were
granted during 1995.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
% of Total
Options Granted
Options to Employee in Exercise or Expiration Grant Date
Name Granted #1/ Last Fiscal Year Base Price ($) Date Value ($)2/
<S> <C> <C> <C> <C> <C>
D. N. Rose 19,000 5.0 27.375 2/14/2005 134,710
R. D. Cash 30,000 7.8 27.375 2/14/2005 212,700
M. E. Benefield 9,000 2.3 27.375 2/14/2005 63,810
G. H. Robinson 9,000 2.3 27.375 2/14/2005 63,810
S. C. Yeager 9,000 2.3 27.375 2/14/2005 63,810
</TABLE>
1/ These stock options vest in four annual, equal installments,
with the first installment exercisable as of August 14, 1995.
Participants can use cash or previously-owned shares as consideration
for option shares. Options expire when a participant terminates his
employment, unless termination is caused by an approved retirement,
death, or disability. Options can be exercised for three months
following a participant's approved retirement and 12 months following a
participant's death or disability.
2/ When calculating the present value of options as of the date
granted (February 14, 1995), Questar used the Black-Scholes option
pricing model. Questar assumed a volatility of 20.81 percent, a risk
free interest rate of 7.7 percent, a dividend yield of 4.16 percent and
a vesting discount of 5.7 percent. The real value of the listed options
depends upon the actual performance of Questar stock. There can be no
assurance that the values shown in this table will be achieved.
The following table lists information concerning the options to
purchase shares of Questar's common stock that were exercised by the
officers named above during 1995 and the total options and their value
held by each at year-end 1995:
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Options/SAR Values
<TABLE>
<CAPTION>
Value of Unexercisable
Shares Number of Unexercisable in-the-Money
Acquired Value Options/SARs at Year-End Options/SARs at Year-End
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
D. N. Rose 17,450 195,342 28,500 28,500 114,000 128,250
R. D. Cash 0 0 69,373 45,000 518,175 202,500
M. E. Benefield 0 0 15,500 13,500 102,563 60,750
G. H. Robinson 0 0 15,500 13,500 102,563 60,750
S. C. Yeager 0 0 20,250 13,500 147,656 60,750
</TABLE>
1/ 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.
2/ Stock appreciation rights (SARs) have not been granted since
February of 1989. At year-end 1995, there were no SARs outstanding.
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, 1995, and, if
necessary, the Supplemental Executive Retirement Plan (the SERP). The
benefits shown are based on earnings and years of service reaching
normal retirement age of 65 in 1995 and do not include Social Security
benefits. Benefits under the Retirement Plan are not reduced or offset
by Social Security benefits.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
Highest Consecutive Years of Service
Three-Year Average
Annual Compensation 15 20 25 30 35
<S> <C> <C> <C> <C> <C>
$150,000 $40,417 $53,890 $67,362 $71,112 $74,862
175,000 47,542 63,390 79,237 83,612 87,987
200,000 54,667 72,890 91,112 96,112 101,112
225,000 61,792 82,390 102,987 108,612 114,237
250,000 68,917 91,890 114,862 112,112 127,362
275,000 76,042 101,390 126,737 133,612 140,487
300,000 83,167 110,890 138,612 146,112 153,612
</TABLE>
Questar's Retirement Plan 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 at age 62.
Federal tax laws impose limits on the amount of annual
compensation that can be used when calculating benefits under qualified
plans and on the amount of benefits that can be paid from such plans.
The SERP, a nonqualified plan, was adopted in 1987 to compensate
officers who are affected by these limits; it provides for retirement
benefits equal to the difference between the benefits payable under the
qualified Retirement Plan and the benefits that would be payable absent
such limits. All of the officers listed in the table earn annual
compensation in excess of the current cap of $150,000 and all of them
have vested benefits under the SERP.
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, 1995, is
as follows: $283,605 for Mr. Rose; $174,552 for Mr. Benefield; $162,750
for Mr. Robinson; and $162,250 for Mr. Yeager. (No figure is given for
Mr. Cash because his final average earnings for purposes of the
Retirement Plan and SERP would include compensation paid by the
Company's affiliates.) (Mr. Benefield was eligible to participate in
the early retirement program offered by the Company in the spring of
1995. As an eligible participant, he is eligible to receive the higher
of his frozen benefit as of April 30, 1995, or his benefit earned under
the Retirement Plan and SERP, when he does retire.) The officer's base
salary, cash bonus payments, and value of restricted stock (paid in lieu
of cash) reported in the Summary Compensation Table would be included in
the calculation of the officer's final average earnings. The amounts
reported in the Summary Compensation Table are somewhat different than
the final average earnings because the latter figures include cash
payments when made, not when earned, and the value of restricted stock
when granted, not distributed. Dividends on the restricted shares are
also included in the officer's final average earnings, but are not
reported in the table. The years of credited service for the
individuals listed in the compensation table are: 20 years for Mr.
Cash; 27 years for Mr. Rose; 18 years for Mr. Benefield; 22 years for
Mr. Robinson; and 20 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, 1995, are as follows:
Mr. Rose, $21,503; Mr. Benefield, $13,968 and Messrs. Robinson and
Yeager, $13,154. (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
from 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 originally adopted in 1983 by Mountain Fuel and was assumed by
Questar as of October 2, 1984. The 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: $525,200 to Mr. Rose; $305,400 to Mr. Benefield; and
$279,400 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 of Questar 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 15
percent or more of Questar's outstanding shares of common stock.
Directors' Fees
All directors receive an annual fee of $4,800 payable in 12
monthly installments and fees of $500 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 1995, 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, 1995, 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 4,072,485 10.0
N.A., 79 South Main Street Trustee for
Salt Lake City, Utah 84111 Company Employee
Benefit Plans
and Bank1
1/ Of this total, First Security beneficially owns 3,971,820 shares
in its role as trustee of employee benefit plans sponsored by Questar.
Participating employees control the voting of such shares.
The following table sets forth information, as of March 1, 1996,
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:
Shares Owned Percent of
Name of Beneficial Owner Beneficially Outstanding Shares1
Directors
Robert H. Bischoff 3,279 *
R. D. Cash2,3,4,5,6 223,211 .55%
W. Whitley Hawkins7 7,370 *
Robert E. Kadlec7,8 14,750 *
Dixie L. Leavitt6,7 18,863 *
Gary G. Michael7 3,400 *
D. N. Rose2,3,4 65,886 .16%
Named Executive Officers
M. E. Benefield2,3,4 33,977 *1
G. H. Robinson2,3,4 30,339 *1
S. C. Yeager2,3,4 30,655 *1
All directors and executive503,645 1.2%1
officers (12 individuals)9
1/ 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.
2/ 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, 1995, is as follows
for the named officers: Mr. Benefield, 4,631; Mr. Cash, 29,550; Mr.
Robinson, 7,747; Mr. Rose, 15,814; and Mr. Yeager, 8,551.
3/ 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, 1996, is as follows: Mr.
Benefield, 15,500; Mr. Cash, 69,373; Mr. Robinson, 15,500; Mr. Rose,
28,500; and Mr. Yeager, 13,500.
4/ The Company's executive officers acquired restricted shares of
Questar's common stock in partial payment of bonuses earned in the 1994
and 1995 bonus plans. The number of restricted shares beneficially
owned by each of the named officers as of March 1, 1996, is as follows:
Mr. Benefield, 632; Mr. Cash, 2,327; Mr. Robinson, 603; Mr. Rose, 1,485;
and Mr. Yeager, 603.
5/ 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 42,596
shares of Questar's common stock. As the Chairman, Mr. Cash has voting
control for such shares, but disclaims any beneficial ownership of them.
6/ Of the total shares reported for Mr. Cash, 3,270 shares are
owned jointly with his wife and 4,899 are controlled by him as custodian
for his son. Messrs. Leavitt and Yeager own their shares of record with
their respective wives.
7/ Messrs. Hawkins, Kadlec, Leavitt, and Michael, as nonemployee
voting directors of Questar, have been granted nonqualified stock
options to purchase shares of Questar's common stock as follows: Mr.
Hawkins, 7,150 shares; Mr. Kadlec, 11,150 shares; Mr. Leavitt, 7,000
shares, and Mr. Michael, 2,100 shares. These shares are included in the
numbers listed opposite their respective names.
8/ Mr. Kadlec's wife owns 200 shares of common stock. Mr. Kadlec
has voting control and investment control over such shares. Such shares
are included in the shares listed opposite his name.
9/ The total number of shares reported for this group includes
vested options to purchase 207,648 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.
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 InfoComm, 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 H 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 identified in the List of Financial Statements
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 13, 1996.
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.)
10.10.1 Mountain Fuel Supply Company Deferred Compensation Plan for
Directors as amended and restated effective February 13,
1996.
10.11.* Gas Gathering Agreement between Mountain Fuel Supply Company
and Questar Pipeline Company effective September 1, 1993.
25. Power of Attorney.
27. Financial Data Schedule.
_______________________
*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 1995.
<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
YEAR ENDED DECEMBER 31, 1995
<PAGE>
MOUNTAIN FUEL SUPPLY COMPANY
SALT LAKE CITY, UTAH
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, 1995, 1994 and
1993
Balance sheets -- December 31, 1995 and 1994
Statements of common shareholder's equity -- Years ended December
31, 1995, 1994 and 1993
Statements of cash flows -- Years ended December 31, 1995, 1994 and
1993
Notes to financial statements
Financial statement 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 balance sheets of Mountain Fuel Supply Company
as of December 31, 1995 and 1994, 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, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements 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, 1995 and 1994, and the
results of its operations and its cash flows for each of the three
years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
As discussed in Note G to the financial statements, Mountain Fuel
Supply Company changed its method of accounting for postemployment
benefits in 1994.
ERNST & YOUNG LLP
Salt Lake City, Utah
February 9, 1996
<PAGE>
MOUNTAIN FUEL SUPPLY COMPANY
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
REVENUES - Note H $362,769 $378,260 $402,391
OPERATING EXPENSES
Natural gas purchases
From affiliates - Note H 129,781 132,889 174,401
From unaffiliated parties 60,825 77,618 55,738
Total natural gas purchases 190,606 210,507 230,139
Operating and maintenance - Note H 93,384 94,094 92,486
Depreciation and amortization 25,469 24,749 23,244
Other taxes 9,588 9,589 10,013
TOTAL OPERATING EXPENSES 319,047 338,939 355,882
OPERATING INCOME 43,722 39,321 46,509
INTEREST AND OTHER INCOME 4,232 7,820 1,692
DEBT EXPENSE (16,580) (15,886) (15,423)
INCOME BEFORE INCOME TAXES 31,374 31,255 32,778
INCOME TAXES - Note E 7,706 7,903 7,709
NET INCOME $23,668 $23,352 $25,069
</TABLE>
See notes to financial statements.
<PAGE>
MOUNTAIN FUEL SUPPLY COMPANY
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
1995 1994
(In Thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and short-term investments - Note D $1,466 $2,529
Accounts receivable 36,864 47,146
Unbilled gas accounts receivable -
Note F 25,149 26,456
Accounts receivable from affiliates 1,658 618
Federal income taxes receivable 3,971
Inventories, at lower of average
cost or market
Gas stored underground 16,310 21,439
Materials and supplies 4,605 3,502
Total inventories 20,915 24,941
Prepaid expenses and deposits 3,843 4,279
TOTAL CURRENT ASSETS 93,866 105,969
PROPERTY, PLANT AND EQUIPMENT
Production - Note H 97,870 97,380
Distribution 587,128 551,461
General 79,871 75,153
Construction in progress 19,597 15,951
784,466 739,945
Less allowances for depreciation
and amortization 302,619 280,162
NET PROPERTY, PLANT AND EQUIPMENT 481,847 459,783
OTHER ASSETS
Income taxes recoverable from
customers - Note E 8,214 10,578
Unamortized costs of reacquired debt 10,090 10,584
Other 6,244 3,361
TOTAL OTHER ASSETS 24,548 24,523
$600,261 $590,275
</TABLE>
<PAGE>
LIABILITIES AND SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
December 31,
1995 1994
(In Thousands)
<S> <C> <C>
CURRENT LIABILITIES
Notes payable to Questar - Notes B and D $56,100 $53,500
Accounts payable and accrued expenses
Accounts payable 21,794 22,566
Accounts payable to affiliates 16,283 11,677
Customer refund - Note F 11,886
Federal income taxes payable 1,649
Other taxes 4,762 36
Accrued interest 3,676 3,730
Other 3,399 9,412
Total accounts payable and
accrued expenses 61,800 49,070
Purchased-gas adjustments 9,182 17,071
TOTAL CURRENT LIABILITIES 127,082 119,641
LONG-TERM DEBT - Notes B and D 175,000 175,000
OTHER LIABILITIES
Unbilled gas revenues - Note F 15,541 20,721
Other 488 562
TOTAL OTHER LIABILITIES 16,029 21,283
DEFERRED INVESTMENT TAX CREDITS 7,157 7,541
DEFERRED INCOME TAXES - Note E 61,391 55,025
COMMITMENTS AND CONTINGENCIES - Note F
REDEEMABLE CUMULATIVE PREFERRED STOCK
- Notes C and D 4,957 6,324
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 41,875 41,875
Retained earnings 143,796 140,612
TOTAL COMMON SHAREHOLDER'S EQUITY 208,645 205,461
$600,261 $590,275
</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, 1993 $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
Capital contribution 20,000
1994 net income 23,352
Payment of dividends
Preferred stock (591)
Common stock (19,500)
Balances at December 31, 1994 22,974 41,875 140,612
1995 net income 23,668
Payment of dividends
Preferred stock (483)
Common stock (20,000)
Redemption cost (1)
Balances at December 31, 1995 $22,974 $41,875 $143,796
</TABLE>
See notes to financial statements.
<PAGE>
MOUNTAIN FUEL SUPPLY COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
(In Thousand)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $23,668 $23,352 $25,069
Depreciation and amortization 28,295 27,337 25,492
Deferred income taxes 6,366 5,102 (1,906)
Deferred investment tax credits (384) (400) (412)
57,945 55,391 48,243
Changes in operating assets and liabilities
Accounts receivable 10,549 7,448 38
Inventories 4,026 (969) (20,869)
Prepaid expenses and deposits (722) 460 336
Accounts payable and accrued expenses 14,379 (16,141) 10,668
Federal income taxes (5,620) 463 1,706
Purchased-gas adjustments (7,889) (8,656) 4,686
Other (4,122) (4,853) (7,669)
NET CASH PROVIDED FROM
OPERATING ACTIVITIES 68,546 33,143 37,139
INVESTING ACTIVITIES
Capital expenditures (51,413) (53,816) (50,658)
Proceeds from disposition and transfer
of property, plant and equipment 1,054 9,482 991
CASH USED IN INVESTING
ACTIVITIES (50,359) (44,334) (49,667)
FINANCING ACTIVITIES
Capital contribution 20,000
Redemption of preferred stock (1,367) (1,201) (1,201)
Issuance of long-term debt 17,000 91,000
Redemption of long-term debt (99,126)
Change in notes payable to Questar 2,600 (4,300) 38,900
Payment of dividends (20,483) (20,091) (18,695)
CASH PROVIDED FROM (USED IN)
FINANCING ACTIVITIES (19,250) 11,408 10,878
Change in cash and short-term
investments (1,063) 217 (1,650)
Beginning cash and short-term investments 2,529 2,312 3,962
ENDING CASH AND SHORT-TERM
INVESTMENTS $1,466 $2,529 $2,312
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 residential, commercial and
industrial customers. Mountain Fuel is regulated by the Public
Service Commission of Utah (PSCU) and the Public Service Commission
of Wyoming (PSCW). While Mountain Fuel also serves a small area of
southeastern Idaho, the Idaho Public Service Commission has
deferred to the PSCU for rate oversight of this area. 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.
Use of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
amounts of assets and liabilities and disclosure of contingent
liabilities reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Revenue Recognition: Revenues are recognized in the period that
services are provided or products are delivered. Mountain Fuel
accrues gas distribution revenues for gas delivered to residential
and commercial customers but not billed at the end of the
accounting period. Mountain Fuel periodically collects revenues
subject to possible refund pending final orders from regulatory
agencies. In these situations the Company establishes reserves for
revenues collected subject to refund.
Purchased-Gas Adjustments: Mountain Fuel 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.
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 ranging from 3% to 33% per year and
averaging 3.9% in 1995. The costs of gas wells were amortized using
the units-of-production method at $.17 per Mcf of natural gas
production during 1995. In March 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards
No.121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of. The Company will adopt
Statement No. 121 in 1996 and does not expect a significant effect
to either operating results or financial postion.
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 affected differently by changing conditions. Management
believes that its credit-review procedures, loss reserves and
customer deposits have adequately provided for usual and customary
credit-related losses. The carrying amount of trade receivables
approximates fair value.
Income Taxes: Mountain Fuel 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. Mountain Fuel uses the deferral method to account
for investment tax credits as required by regulatory commissions.
The Company's operations are consolidated with those of Questar and
its subsidiaries for income tax purposes. The income tax
arrangement between Mountain Fuel 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. Mountain Fuel also receives payment 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.
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 $391,000 in 1995, $397,000 in 1994
and $528,000 in 1993.
Cash and Short-Term Investments: Short-term investments consist
principally of Euro-time deposits and repurchase agreements with
maturities of three months or less.
Note B - Debt
The Company has a short-term line-of-credit arrangement with a bank
under which it may borrow up to $500,000. The line has interest
rates generally below the prime interest rate and is renewable on
an annual basis. No amount was borrowed under this arrangement at
either December 31, 1995 or 1994. Questar loans funds to the
Company under a short-term borrowing arrangement. Outstanding
short-term notes payable to Questar totaled $56,100,000 with an
interest rate of 6.01% at December 31, 1995 and $53,500,000 with an
interest rate of 6.11% at December 31, 1994.
Mountain Fuel's long-term debt consists of medium-term notes with
interest rates ranging from 7.19% to 8.43%, due 2007 to 2024.
There are no maturities of long-term debt for the five years
following December 31, 1995 and no long-term debt provisions
restricting the payment of dividends. Cash paid for interest was
$16,458,000 in 1995, $15,290,000 in 1994 and $14,698,000 in 1993.
Note C - Redeemable Cumulative Preferred Stock
Mountain Fuel has authorized 4,000,000 shares of nonvoting
redeemable cumulative preferred stock with no par value, but a
stated and redemption value of $100 per share. During 1995, the
remaining shares of the $8.625 series were fully redeemed.
<TABLE>
<CAPTION>
8% Series $8.625 Series
(In Thousands)
<S> <C> <C>
Balance at January 1, 1993 $5,126 $3,600
1993 redemption of stock (1) (1,200)
1994 redemption of stock (1) (1,200)
1995 redemption of stock (167) (1,200)
Balance at December 31, 1995 $4,957 -
</TABLE>
Redemption requirements for the five years following
December 31, 1995, are as follows:
(In Thousands)
1996 $97
1997 180
1998 180
1999 180
2000 180
Note D - Financial Instruments
The carrying amounts and estimated fair values of the Company's
financial instruments were as follows:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
(In Thousands)
<S> <C> <C> <C> <C>
Financial assets
Cash and short-term investments $1,466 $1,466 $2,529 $2,529
Financial liabilities
Short-term loans 56,100 56,100 53,500 53,500
Long-term debt 175,000 184,577 175,000 163,952
Redeemable cumulative preferred stock 4,957 5,006 6,324 6,377
</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. Fair value is calculated at a point
in time and does not represent what the Company would pay to retire
the debt securities.
Note E - Income Taxes
The components of income taxes were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
Federal
Current ($294) $2,717 $9,301
Deferred 7,099 4,527 (2,739)
State
Current 302 484 1,428
Deferred 983 575 131
Deferred investment tax credits (384) (400) (412)
$7,706 $7,903 $7,709
</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,
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
Income before income taxes $31,374 $31,255 $32,778
Federal income taxes at statutory rate $10,981 $10,939 $11,472
State income taxes, net of federal income
tax benefit 1,179 890 1,059
Tight-sands gas production credits (4,376) (4,670) (5,463)
Investment tax credits (384) (400) (412)
Reduction in deferred income tax rate (571)
Deferred taxes related to regulated assets
for which deferred taxes were not
provided in prior years 921 921 921
Other (44) 223 132
Income tax expense $7,706 $7,903 $7,709
Effective income tax rate 24.6% 25.3% 23.5%
</TABLE>
Significant components of the Company's deferred tax liabilities
and assets were as follows:
<TABLE>
<CAPTION>
December 31,
1995 1994
(In Thousands)
<S> <C> <C>
Deferred tax liabilities
Property, plant and equipment $73,200 $70,496
Unamortized debt reacquisition costs 3,859 4,022
Income taxes recoverable from customers 3,368 3,430
Pension costs 1,291 360
Other 893 3,023
Total deferred tax liabilities 82,611 81,331
Deferred tax assets
Purchased-gas adjustments 3,489 8,486
Alternative minimum tax and production
credit carryovers 6,562 5,701
Unbilled revenues 5,905 7,574
Deferred investment tax credits 2,720 2,874
Other 2,544 1,671
Total deferred tax assets 21,220 26,306
Net deferred tax liabilities $61,391 $55,025
</TABLE>
Cash paid for income taxes was $7,333,000 in 1995, $6,404,000 in
1994 and $8,631,000 in 1993.
Note F - Rate Matters, Litigation and Commitments
On August 11, 1995, the PSCU approved a settlement of Mountain
Fuel's general rate case filed April 13, 1995. Mountain Fuel
received a $3.7 million increase in revenues. The settlement, which
became effective September 1, allowed the Company to implement a
weather normalization adjustment, provided about $2 million in
additional revenues through a new-premises fee and added about $1.7
million from sharing capacity-release revenues. The settlement did
not specify an authorized return on equity, but Mountain Fuel's
allowed return on rate base increased from 10.08% to between 10.22%
and 10.34%.
In December 1995, Mountain Fuel requested approval from the PSCU to
make a lump sum refund of gas costs to Utah customers. The PSCU
agreed with the procedure and the refund appeared as a credit on
customers' February 1996 gas bills. A surplus of gas costs
collected in 1995 led to the refund. The lump-sum refund was
chosen as a mechanism to more quickly credit customers' accounts.
Normally, amortization of either over-or under-collected gas costs
requires about 12 months.
Mountain Fuel's Utah gas cost pass-through application was approved
on an interim basis effective January 1, 1996. In connection with
the application, the Utah Division of Public Utilities has raised
issues about continuing to treat gathering costs as pass-through
costs and about the reasonableness of such costs. The Company
believes that its gathering costs are reasonable. The Committee of
Consumer Services has requested additional information concerning a
gas imbalance and may decide to raise the issue in the proceedings.
In 1993, Mountain Fuel began accruing 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 and is being recognized at the rate of $2,011,000 per
year over a five-year period beginning in 1994 in accordance with a
rate order received from the PSCU. This rate order also reduces
customer rates by $2,011,000 per year over the same five-year
period. In addition, Mountain Fuel recorded other income of
$5,589,000 for a one-time reduction of gas costs associated with
these unbilled revenues. This transaction resulted in additional
net income of about $3.5 million in 1994.
Each year, Mountain Fuel purchases significant quantities of
natural gas under numerous gas- purchase contracts with varying
terms and conditions. Purchases under these agreements totalled
$44,892,000 in 1995, $73,682,000 in 1994 and $85,909,000 in 1993.
Some of the agreements have terms that obligate Mountain Fuel to
purchase specific quantities on a periodic basis into the future,
while a few contracts have take-or-pay provisions that obligate
Mountain Fuel to take delivery of a minimum amount of gas on an
annual basis.
Projected natural gas purchase commitments for the
next five years are reported in the table below.
These commitments are based upon current market
conditions. Future changes will occur as a result of
negotiations with suppliers and changes in market
conditions.
(In Millions)
1996 $17.0
1997 2.0
1998 2.0
1999 2.1
2000 2.2
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 its results of operations,
financial position or liquidity.
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
in 1994. The jury awarded an independent producer compensatory
damages of approximately $6.1 million and punitive damages of
$200,000 on his claims. The producer's counterclaims originally
exceeded $57 million, but were reduced to less than $10 million,
when the presiding judge dismissed with prejudice some of the
claims prior to the jury trial. Under existing PSCU rulings, any
payments resulting from this judgment will be included in Mountain
Fuel's gas balancing account an recovered in its rates for natural
gas service.
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 G - Employee Benefits
Pension Plan: 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 $3,352,000 in 1995, $2,962,000 in 1994 and
$3,251,000 in 1993.
Mountain Fuel'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, 1995, Questar's fair value of plan
assets exceeded the accumulated benefit obligation.
Postretirement Benefits Other Than Pensions: The Company pays a
portion of the health-care costs and all the life insurance costs
for employees who retired prior to January 1, 1993. The plan 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. Employees hired after December 31, 1996, will not
qualify for benefits under this plan. The Company'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 obligations, and insurance company general
accounts. The Company is amortizing the transition obligation over
a 20-year period. Total costs of postretirement benefits other
than pensions were $3,183,000 in 1995, $3,584,000 in 1994 and
$3,350,000 in 1993. Both the PSCU and the PSCW allowed Mountain
Fuel to recover future costs 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.
Postemployment Benefits: The Company recognizes the net present
value of the liability for postemployment benefits, such as
long-term disability benefits and health care and life insurance
costs, 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 accrues both current and future costs. The PSCU
and the PSCW have allowed Mountain Fuel to recover postemployment
costs through December 31, 1994 in future rates. At December 31,
1995, the Company had a $935,000 regulatory asset that it is
amortizing over the next nine years.
Employee Investment Plan: The Company participates in Questar's
Employee Investment Plan (ESOP), which allows eligible employees to
purchase Questar Corporation common stock or other investments
through payroll deduction. The Company makes contributions of
Questar Corporation common stock to the ESOP of approximately 75%
of the employees' purchases and contributes an additional $200 of
common stock in the name of each eligible employee. The Company's
expense and contribution to the plan was $1,622,000 in 1995,
$1,542,000 in 1994 and $1,435,000 in 1993.
Note H - Related Party Transactions
Wexpro, an affiliated company, operates certain properties owned by
Mountain Fuel under the terms of the Wexpro Settlement Agreement.
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 $3,400,000 in 1995, $3,391,000 in 1994 and $1,028,000 in 1993.
The Company paid Wexpro for the operation of Company-owned gas
properties. These costs are included in natural gas purchases and
amounted to $59,831,000 in 1995, $57,870,000 in 1994 and
$49,595,000 in 1993.
Mountain Fuel purchased gas from Questar Pipeline amounting to
$81,813,000 in 1993. 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, storage and gathering of
Company-owned gas and purchased gas. These costs were $69,950,000
in 1995, $70,945,000 in 1994 and $38,862,000 in 1993.
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 $49.4 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 InfoComm Inc. is an affiliated company that provides data
processing and communication services to Mountain Fuel. The
Company paid Questar InfoComm $15,781,000 in 1995, $15,996,000 in
1994 and $14,847,000 in 1993.
Questar charges Mountain Fuel for certain administrative functions
amounting to $5,283,000 in 1995, $5,814,000 in 1994 and $5,609,000
in 1993. These costs are included in operating and maintenance
expenses and are allocated based on each affiliated company's
proportional share of revenues less gas costs; property, plant and
equipment; and labor costs. Management believes that the allocation
method is reasonable.
The Company received interest income from affiliated companies of
$10,000 in 1995, $225,000 in 1994 and $327,000 in 1993. The
Company had debt expense to affiliated companies of $1,273,000 in
1995, $134,000 in 1994, and $21,000 in 1993.
Note I - 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. Mountain Fuel has not incurred any costs for
oil and gas producing activities for the three years ended December
31, 1995. Wexpro develops and produces gas reserves owned by the
Company. See Note I for the amounts paid by Mountain Fuel 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. Mountain Fuel 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, 1993 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
Revisions of estimates (576) 13
Extensions and discoveries 26,085 (13)
Production (37,435) (65)
Balance at December 31, 1994 416,312 707
Revisions of estimates (831) 10
Extensions and discoveries 10,591 2
Production (36,632) (57)
Balance at December 31, 1995 389,440 662
</TABLE>
<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 27th day of March, 1996.
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/ S. E. Parks Vice President, Treasurer and Chief
S. E. Parks Financial 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
*Dixie L. Leavitt Director
*Gary G. Michael Director
*D. N. Rose Director
March 27, 1996 *By /s/ D. N. Rose
Date D. N. Rose, Attorney in Fact
<PAGE>
EXHIBIT INDEX
Exhibit
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 13, 1996.
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.)
10.10.1 Mountain Fuel Supply Company Deferred Compensation Plan for
Directors as amended and restated effective February 13,
1996.
10.11.* Gas Gathering Agreement between Mountain Fuel Supply Company
and Questar Pipeline Company effective September 1, 1993.
25. Power of Attorney.
27. Financial Data Schedule.
_______________________
*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.
MOUNTAIN FUEL SUPPLY COMPANY
ANNUAL MANAGEMENT INCENTIVE PLAN
(As amended and restated effective
February 13, 1996)
Paragraph 1. Name. The name of this Plan is the Mountain
Fuel Supply Company Annual Management Incentive Plan (the Plan).
Paragraph 2. Purpose. The purpose of the Plan is to provide
an incentive to officers and key employees of Mountain Fuel Supply
Company (the Company) for the accomplishment of major organizational and
individual objectives designed to further the efficiency, profitability,
and growth of the Company.
Paragraph 3. Administration. The Management Performance
Committee (Committee) of the Board of Directors of Questar Corporation
(Questar) shall have full power and authority to interpret and
administer the Plan. Such Committee shall consist of no less than three
disinterested members of the Board of Directors. Recommendations made
by the Committee shall be reviewed by the Company's Board of Directors.
Paragraph 4. Participation. Within 60 days after the
beginning of each year, the Committee shall nominate Participants from
the officers and key employees for such year. The Committee shall also
establish a target bonus for the year for each Participant expressed as
a percentage of base salary or specified portion of base salary.
Participants shall be notified of their selection and their target bonus
as soon as practicable.
Paragraph 5. Determination of Performance Objectives.
Within 60 days after the beginning of each year, the Committee shall
establish target, minimum, and maximum performance objectives for the
Company and for its affiliates and shall determine the
manner in which the target bonus is allocated among the performance
objectives. The Committee shall also recommend a dollar maximum for
payments to Participants for any Plan year. The Board of Directors
shall take action concerning the recommended dollar maximum within 60
days after the beginning of the Plan year. Participants shall be
notified of the performance objectives as soon as practicable once such
objectives have been established.
Paragraph 6. Determination and Distribution of Awards. As
soon as practicable, but in no event more than 90 days after the close
of each year during which the Plan is in effect, the Committee shall
compute incentive awards for eligible participants in such amounts as
the members deem fair and equitable, giving consideration to the degree
to which the Participant's performance has contributed to the
performance of the Company and its affiliated companies and using the
target bonuses and performance objectives previously specified.
Aggregate awards calculated under the Plan shall not exceed the maximum
limits approved by the Board of Directors for the year involved. To be
eligible to receive a payment, the Participant must be actively employed
by the Company or an affiliate as of the date of distribution except as
provided in Paragraph 8.
Amounts shall be paid (less appropriate withholding taxes and
FICA deductions) according to the following schedule:
Award Distribution Schedule
Percent of
Award Date
Initial Award 75% As soon as possible after initial
award is (First Year of determined
Participation)
25 One year after initial award is
determined
100%
Subsequent Awards 50% As soon as possible after award is
determined
25 One year after award is determined
25 Two years after award is
determined
100%
Paragraph 7. Restricted Stock in Lieu of Cash. For 1992 and
subsequent years, participants who have a target bonus of $10,000 or
higher shall be paid all deferred portions of such bonus with restricted
shares of Questar's common stock under Questar's Long-Term Stock
Incentive Plan. Such stock shall be granted to the participant when the
initial award is determined, but shall vest free of restrictions
according to the schedule specified above in Paragraph 6.
Paragraph 8. Termination of Employment.
(a) In the event a Participant ceases to be an employee
during a year by reason of death, disability or approved retirement, an
award, if any, determined in accordance with Paragraph 6 for the year of
such event, shall be reduced to reflect partial participation by
multiplying the award by a fraction equal to the months of participation
during the applicable year through the date of termination rounded up to
whole months divided by 12.
For the purpose of this Plan, approved retirement shall mean
any termination of service on or after age 60, or, with approval of the
Board of Directors, early retirement under Questar's qualified
retirement plan. For the purpose of this Plan, disability shall mean
any termination of service that results in payments under Questar's
long-term disability plan. The entire amount of any award that is
determined after the death of a Participant shall be paid in accordance
with the terms of Paragraph 11.
In the event of termination of employment due to disability
or approved retirement, a Participant shall be paid the undistributed
portion of any prior awards in his final paycheck or in accordance with
the terms of elections to voluntarily defer receipt of awards earned
prior to February 12, 1991, or deferred under the terms of Questar's
Deferred Compensation Plan. In the event of termination due to
disability or approved retirement, any shares of common stock previously
credited to a Participant shall be distributed free of restrictions
during the last month of employment. The current market value (defined
as the closing price for the stock on the New York Stock Exchange on the
date in question) of such shares shall be included in the Participant's
final paycheck. Such Participant shall be paid the full amount of any
award (adjusted for partial participation) declared subsequent to the
date of such termination within 30 days of the date of declaration. Any
partial payments shall be made in cash.
(b) In the event a Participant ceases to be an employee
during a year by reason of a change in control, he shall be entitled to
receive all amounts deferred by him prior to February 12, 1991, and all
undistributed portions for prior Plan years. He shall also be entitled
to an award for the year of such event as if he had been an employee
throughout such year. The entire amount of any award for such year
shall be paid in a lump sum within 60 days after the end of the year in
question. Such amounts shall be paid in cash.
For the purpose of this Plan, a "change in control" shall be
deemed to have occurred if (i) any "Acquiring Person" (as that term is
used in the Rights Agreement dated February 13, 1996, between Questar
and Chemical Mellon Shareholder Services, L.L.C. ("Rights Agreement"))
is or becomes the beneficial owner (as such term is used in Rule 13d-3
under the Securities Exchange Act of 1934) of securities of Questar
representing 15 percent or more of the combined voting power of Questar,
or (ii) the stockholders of Questar approve (A) a plan of merger or
consolidation of Questar (unless, immediately following consummation of
such merger or consolidation, the persons who held Questar's voting
securities immediately prior to consummation thereof will hold at least
a majority of the total voting power of the surviving or new company),
or (B) a sale or disposition of all or substantially all assets of
Questar, or (C) a plan of liquidation or dissolution of Questar. A
change of control shall also include any act or event that, with the
passage of time, would result in a Distribution Date, within the meaning
of the Rights Agreement.
Paragraph 9. Interest on Previously Deferred Amounts.
Amounts voluntarily deferred prior to February 12, 1991, shall be
credited with interest from the date the payment was first available in
cash to the date of actual payment. Such interest shall be calculated
at a monthly rate using the typical rates paid by major banks on new
issues of negotiable Certificates of Deposit in the amounts of
$1,000,000 or more for one year as quoted in The Wall Street Journal on
the first day of the relevant calendar month or the next preceding
business day if the first day of the month is a non-business day.
Paragraph 10. Coordination with Deferred Compensation Plan.
Some Participants are entitled to defer the receipt of their cash
bonuses under the terms of Questar's Deferred Compensation Plan, which
became effective November 1, 1993. Any cash bonuses deferred pursuant
to the Deferred Compensation Plan shall be accounted for and distributed
according to the terms of such plan and the choices made by the
Participant.
Paragraph 11. Death and Beneficiary Designation. In the
event of the death of a Participant, any undistributed portions of prior
awards shall become payable. Amounts previously deferred by the
Participant, together with credited interest to the date of death, shall
also become payable. Each Participant shall designate a beneficiary to
receive any amounts that become payable after death under this Paragraph
or Paragraph 8. In the event that no valid beneficiary designation
exists at death, all amounts due shall be paid as a lump sum to the
estate of the Participant. Any shares of restricted stock previously
credited to the Participant shall be distributed to the Participant's
beneficiary or, in the absence of a valid beneficiary designation, to
the Participant's estate, at the same time any cash is paid.
Paragraph 12. Amendment of Plan. The Company's Board of
Directors, at any time, may amend, modify, suspend, or terminate the
Plan, but such action shall not affect the awards and the payment of
such awards for any prior years. The Company's Board of Directors
cannot terminate the Plan in any year in which a change of control has
occurred without the written consent of the Participants. The Plan
shall be deemed suspended for any year for which the Board of Directors
has not fixed a maximum dollar amount available for award.
Paragraph 13. Nonassignability. No right or interest of any
Participant under this Plan shall be assignable or transferable in whole
or in part, either directly or by operation of law or otherwise,
including, but not by way of limitation, execution, levy, garnishment,
attachment, pledge, bankruptcy, or in any other manner, and no right or
interest of any Participant under the Plan shall be liable for, or
subject to, any obligation or liability of such Participant. Any
assignment, transfer, or other act in violation of this provision shall
be void.
Paragraph 14. Effective Date of the Plan. The Plan shall be
effective with respect to the fiscal year beginning January 1, 1984, and
shall remain in effect until it is suspended or terminated as provided
by Paragraph 12.
MOUNTAIN FUEL SUPPLY COMPANY
DEFERRED COMPENSATION PLAN FOR DIRECTORS
(As Amended and Restated February 13, 1996)
1. Purpose of Plan.
The purpose of the Deferred Compensation Plan for Directors
("Plan") is to provide Directors of Mountain Fuel Supply Company
(the "Company") with an opportunity to defer compensation paid to
them for their services as Directors of the Company and to
maintain a Deferred Account Balance until they cease to serve as
Directors of the Company or its affiliates.
2. Eligibility.
Subject to the conditions specified in this Plan or otherwise
set by the Company's Board of Directors, all voting Directors of
the Company who receive compensation for their service as
Directors are eligible to participate in the Plan. Eligible
Directors are referred to as "Directors." Directors who elect to
defer receipt of fees or who have account balances are referred to
as "Participants" in this Plan.
3. Administration.
The Company's Board of Directors shall administer the Plan
and shall have full authority to make such rules and regulations
deemed necessary or desirable to administer the Plan and to
interpret its provisions.
4. Election to Defer Compensation.
(a) Time of Election. A Director can elect to defer future
compensation or to change the nature of his election for future
compensation by submitting a notice prior to the beginning of the
calendar year. A newly elected Director is entitled to make a
choice within five days of the date of his election or appointment
to serve as a Director to defer payment of compensation for future
service. An election shall continue in effect until the
termination of the Participant's service as a Director or
until the end of the calendar year during which the Director
serves written notice of the discontinuance of his election.
All notices of election, change of election, or
discontinuance of election shall be made on forms prepared by the
Corporate Secretary and shall be dated, signed, and filed with the
Corporate Secretary. A notice of change of election or
discontinuance of election shall operate prospectively from the
beginning of the calendar year, but any compensation deferred
shall continue to be held and shall be paid in accordance with the
notice of election under which it was withheld.
(b) Amount of Deferral. A Participant may elect to defer
receipt of all or a specified portion of the compensation payable
to him for serving as a Director and attending Board and Committee
Meetings as a Director. For purposes of this Plan, compensation
does not include any funds paid to a Director to reimburse him for
expenses.
(c) Period of Deferral. When making an election to defer
all or a specified percentage of his compensation, a Participant
shall elect to receive the deferred compensation in a lump sum
payment within 45 days following the end of his service as a
Director or in a number of annual installments (not to exceed
four), the first of which would be payable within 45 days
following the end of his service as a Director with each
subsequent payment payable one year thereafter. Under an
installment payout, the Participant's first installment shall be
equal to a fraction of the balance in his Deferred Compensation
Account as of the last day of the calendar month preceding such
payment, the numerator of which is one and the denominator of
which is the total number of installments selected. The amount of
each subsequent payment shall be a fraction of the balance in the
Participant's Account as of the last day of the calendar month
preceding each subsequent payment, the numerator of which is one
and the denominator of which is the total number of installments
elected minus the number of installments previously paid. The
term "balance," as used herein, refers to the amount credited to a
Participant's Account or to the Fair Market Value (as defined in
Section 5 (a)) of the Phantom Shares of Questar Corporation's
common stock ("Common Stock") credited to his Account.
(d) Phantom Stock Option and Certificates of Deposit
Option. When making an election to defer all or a specified
percentage of his compensation, a Participant shall choose between
two methods of determining earnings on the deferred compensation.
He may choose to have such earnings calculated as if the deferred
compensation had been invested in Common Stock at the Fair Market
Value (as defined in Section 5 (a)) of such stock as of the date
such compensation amount would have otherwise been payable to him
("Phantom Stock Option"). Or he may choose to have earnings
calculated as if the deferred compensation had been invested in
negotiable certificates of deposit at the time such compensation
would otherwise be payable to him ("Certificates of Deposit
Option").
The Participant must choose between the two options for all
of the compensation he elects to defer in any given year. He may
change the option for future compensation by filing the
appropriate notice with the Corporate Secretary before the first
day of each calendar year, but such change shall not affect the
method of determining earnings for any compensation deferred in a
prior year.
5. Deferred Compensation Account.
A Deferred Compensation Account ("Account") shall be
established for each Participant.
(a) Phantom Stock Option Account. If a Participant elects
the Phantom Stock Option, his Account will include the number of
shares and partial shares of Common Stock (to four decimals) that
could have been purchased on the date such compensation would have
otherwise been payable to him. The purchase price for such stock
is the Fair Market Value of such stock, i.e., the closing price of
such stock as reported on the Composite Tape of the New York Stock
Exchange for such date or the next preceding day on which sales
took place if no sales occurred on the actual payable date.
The Participant's Account shall also include the dividends
that would have become payable during the deferral period if
actual purchases of Common Stock had been made, with such
dividends treated as if invested in Common Stock as of the payable
date for such dividends.
(b) Certificates of Deposit Option Account. If a
Participant elects the Certificates of Deposit Option, his Account
will be credited with any compensation deferred by the Participant
at the time such compensation would otherwise be payable and with
interest calculated at a monthly rate using the typical rates paid
by major banks on new issues of negotiable Certificates of Deposit
on amounts of $1,000,000 or more for one year as quoted in The
Wall Street Journal under "Money Rates" on the first day of the
relevant calendar month or the next preceding business day if the
first day of the month is a non-business day. The interest
credited to each Account shall be based on the amount held in the
Account at the beginning of each particular month.
6. Statement of Deferred Compensation Account.
Within 45 days after the end of the calendar year, a
statement will be sent to each Participant listing the balance in
his Account as of the end of the year.
7. Retirement
Upon retirement or resignation as a Director from the Board
of Directors, a Participant shall receive payment of the balance
in his Account in accordance with the terms of his prior
instructions and the terms of the Plan unless he is still serving
as a voting director of Questar Corporation ("Questar"). Upon
retirement or resignation as a Director of Questar or upon
appointment as a non-voting Senior Director of Questar, a
Participant shall receive payment of the balance in his Account in
accordance with the terms of his prior instructions and the terms
of the Plan unless he is currently serving as a Director of the
Company.
8. Payment of Deferred Compensation.
(a) Phantom Stock Option. The amount payable to the
Participant choosing the Phantom Stock Option shall be the cash
equivalent of the stock using the Fair Market Value of such stock
on the date of withdrawal.
(b) Certificates of Deposit Option. The amount payable to
the Participant choosing the Certificate of Deposit Option shall
include the interest on all sums credited to the Account, with
such interest credited to the date of withdrawal.
(c) The date of withdrawal for both the Phantom Stock
Option Account and the Certificates of Deposit Option Account
shall be the last day of the calendar month preceding payment or
if payment is made because of death, the date of death.
(d) The payment shall be made in the manner (lump sum or
installment) chosen by the Participant. In the event of a
Participant's death, payment shall be made within 45 days of the
Participant's death to the beneficiary designated by the
Participant or, in the absence of such designation, to the
Participant's estate.
9. Payment, Change in Control.
Notwithstanding any other provisions of this Plan or deferred
elections made pursuant to Section 4 of this Plan, a Director, in
the event of a Change in Control of Questar, shall be entitled to
elect a distribution of his account balance within 60 days
following the date upon which Questar obtained actual knowledge of
a Change in Control. As used herein, a Change in Control of
Questar shall be deemed to have occurred if (i) any "Acquiring
Person" (as that term is used in the Rights Agreement dated as of
February 13, 1996, between Questar and Chemical Mellon Shareholder
Services, L.L.C. ("Rights Agreement")) is or becomes the
beneficial owner (as such term is used in Rule 13d-3 under the
Securities Exchange Act of 1934) of securities of Questar
representing 15 percent or more of the combined voting power of
Questar, or (ii) the stockholders of Questar approve (A) a plan of
merger or consolidation of Questar (unless immediately following
consummation of such merger or consolidation, the persons who held
Questar's voting securities immediately prior to consummation
thereof will hold at least a majority of the total voting power of
the surviving or new company, or (B) a sale or disposition of all
or substantially all assets of Questar, or (C) a plan of
liquidation or dissolution of Questar. A Change in Control shall
also include any act or event that, with the passage of time,
would result in a Distribution Date, within the meaning of the
Rights Agreement.
10. Hardship Withdrawal.
Upon petition to and approval by the Company's Board of
Directors, a Participant may withdraw all or a portion of the
balance in his Account in the case of financial hardship in the
nature of an emergency, provided that the amount of such
withdrawal cannot exceed the amount reasonable necessary to meet
the financial hardship. The Board of Directors shall have sole
discretion to determine the circumstances under which such
withdrawals are permitted.
11. Amendment and Termination of Plan
The Plan may be amended, modified or terminated by the
Company's Board of Directors. No amendment, modification, or
termination shall adversely affect a Participant's rights with
respect to amounts accrued in his Account. In the event that the
Plan is terminated, the Board of Directors has the right to make
lump-sum payments of all Account balances on such date as it may
determine.
12. Nonassignability of Plan.
The right of a Participant to receive any unpaid portion of
his Account shall not be assigned, transferred, pledged or
encumbered or be subject in any manner to alienation or
attachment.
13. No Creation of Rights.
Nothing in this Plan shall confer upon any Participant the
right to continue as a Director. The right of a Participant to
receive any unpaid portion of his Account shall be an unsecured
claim against the general assets and will be subordinated to the
general obligations of the Company.
14. Effective Date.
The Plan was effective on June 1, 1982, and shall remain in
effect until it is discontinued by action of the Company's Board
of Directors. The effective date of the amendment to the Plan
establishing a Phantom Stock Option is January 1, 1983. The Plan
was amended and restated effective April 30, 1991, and was further
amended and restated effective February 13, 1996.
POWER OF ATTORNEY
We, the undersigned directors of Mountain Fuel Supply Company,
hereby severally constitute D. N. Rose and S. E. Parks, 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 1995 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 1995 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 2-13-96
R. D. Cash
/s/ D. N. Rose President & Chief 2-13-96
D. N. Rose Executive Officer
Director
/s/ R. H. Bischoff Director 2-13-96
R. H. Bischoff
/s/ W. W. Hawkins Director 2-13-96
W. W. Hawkins
/s/ R. E. Kadlec Director 2-13-96
R. E. Kadlec
/s/ Dixie L. Leavitt Director 2-13-96
Dixie L. Leavitt
/s/ Gary G. Michael Director 2-13-96
Gary G. Michael
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summarized financial information extracted from the
Mountain Fuel Supply Company Statement of Income and Balance Sheet for the
year ended December 31, 1995, and is qualified in its entirety by reference
to such audited financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,466
<SECURITIES> 0
<RECEIVABLES> 67,642
<ALLOWANCES> 0
<INVENTORY> 20,915
<CURRENT-ASSETS> 93,866
<PP&E> 784,466
<DEPRECIATION> 302,619
<TOTAL-ASSETS> 600,261
<CURRENT-LIABILITIES> 127,082
<BONDS> 175,000
4,957
0
<COMMON> 22,974
<OTHER-SE> 185,671
<TOTAL-LIABILITY-AND-EQUITY> 600,261
<SALES> 0
<TOTAL-REVENUES> 362,769
<CGS> 0
<TOTAL-COSTS> 283,990
<OTHER-EXPENSES> 35,057
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,580
<INCOME-PRETAX> 31,374
<INCOME-TAX> 7,706
<INCOME-CONTINUING> 23,668
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,668
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
