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, 1996
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. 1-8796
QUESTAR CORPORATION
(Exact name of registrant as specified in its charter)
State of Utah 87-0407509
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
180 East First South, P.O. Box 45433, Salt Lake City, Utah 84145-0433
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (801) 324-5000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange on
Title of each class which registered
Common Stock, Without Par Value New York Stock Exchange
Common Stock Purchase Rights New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
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
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein and will not be
contained, to the best of registrants' knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. x
The aggregate market value of the registrant's common stock,
without par value, held by nonaffiliates on March 1, 1997, was
$1,469,598,853 (based on the closing price of such stock).
On March 1, 1997, 41,067,129 shares of the registrant's common
stock, without par value, were outstanding.
Documents Incorporated by Reference. Portions of the definitive Proxy
Statement for the 1997 Annual Meeting of Stockholders are incorporated
by reference into Part III. The sections of the Proxy Statement
labelled "Committee Report on Executive Compensation" and "Cumulative
Total Shareholder Return" are expressly not incorporated into this
document.
<PAGE>
TABLE OF CONTENTS
Heading Page
PART I
Items 1.
and 2. BUSINESS AND PROPERTIES...................................
General................................................
Market Resources, Exploration and Production ..........
Market Resources, Wholesale Marketing..................
Market Resources, Gathering and Processing...............
Market Resources, Unregulated Retail Services............
Market Resources, General................................
Regulated Services, Introduction.........................
Regulated Services, Retail Distribution..................
Regulated Services, Transmission and Storage............
Other Operations......................................
Employees.............................................
Environmental Matters.................................
Research and Development..............................
Oil and Gas Operations ................................
Item 3. LEGAL PROCEEDINGS........................................
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS.........................................
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON 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, 1996
PART I
ITEMS 1. AND 2. BUSINESS AND PROPERTIES
General
Registrant Questar Corporation (Questar or the Company) is an
integrated energy services holding company. Through its major
affiliates, the Company is engaged in energy development and production;
gas gathering and processing; wholesale gas, electricity and hydrocarbon
liquids trading; retail energy services; interstate gas transmission and
storage; retail gas distribution; and information systems and
technologies.
The Company was organized as a Utah corporation in March of 1984.
Effective October 2, 1984, it became the parent of Mountain Fuel Supply
Company (Mountain Fuel) when a corporate reorganization was approved by
Mountain Fuel's shareholders. The Company was created to provide
organizational and financial flexibility and to achieve a more
clearly-defined separation of utility and nonutility operations.
Questar is a "holding company," as that term is defined in the Public
Utility Holding Company Act of 1935 because Mountain Fuel is a natural
gas utility. The Company, however, qualifies for and claims an
exemption from provisions of such act applicable to registered holding
companies.
In early 1996, Questar announced a basic division into two
segments, Regulated Services and Market Resources. As is noted in the
following diagram, forming the Regulated Services segment led to the
creation of a new subholding company, Questar Regulated Services Company
(Regulated Services), which owns Mountain Fuel and Questar Pipeline
Company (Questar Pipeline). All Market Resources entities are owned
through another subholding company, Entrada Industries, Inc. (Entrada).
They include Wexpro Company (Wexpro); Celsius Energy Company (Celsius)
and its Canadian subsidiary, Celsius Energy Resources Ltd. (Celsius
Ltd.); Universal Resources Corporation (Universal Resources), Questar
Gas Management Company (Questar Gas Management); Questar Energy Trading
Company (Questar Energy Trading); and Questar Energy Services, Inc.
(Questar Energy Services). The Company's information services are
provided through Questar InfoComm, Inc. (Questar InfoComm).
The following diagram shows the current corporate structure of the
Company and its primary affiliates:
Questar Corporation
Questar InfoComm, Inc.
Entrada Industries, Inc.
Wexpro Company
Questar Gas Management Company
Celsius Energy Company
Celsius Energy Resources Ltd.
Questar Energy Trading Company
Universal Resources Corporation
Questar Energy Services Inc.
Questar Regulated Services Company
Mountain Fuel Supply Company
Questar Pipeline Company
As an integrated provider of energy services, the Company believes
that its structure enhances its operating flexibility as traditional
regulated activities (interstate transmission and storage and retail
distribution) become deregulated and as previously packaged services
become unbundled. Questar's integrated structure also enhances its
financial strength by providing a balance between the stability of
regulated operations and revenues associated with rate-base assets and
the earnings growth potential of exploration and production operations,
wholesale marketing, gathering and processing, and unregulated retail
services.
Financial information concerning the Company's lines of business,
including information relating to the amount of total revenues
contributed by any class of similar products or services responsible for
10 percent or more of consolidated revenues, is presented in Note 14 in
the Notes to Consolidated Financial Statements.
The Company's lines of business are discussed below.
Market Resources, Exploration and Production
The Company has been in the exploration and production (E&P)
business since its organization as Mountain Fuel in 1935. Through the
ensuing years, the Company's exploration and production activities have
generated substantial economic benefits for the Company and its
shareholders and customers and have expanded in size and geographic
location. The year 1996 was a stellar year for Questar's E&P
operations. Significant reserve acquisitions were coupled with higher
average prices for both gas and oil to produce higher net income.
The Company has three affiliates, Wexpro, Celsius, and Universal
Resources, that are directly engaged in exploration and production
operations. The division of Questar's exploration and production
activities into three companies is a result of historical developments.
All three companies are managed by the same group of officers, although
each also has a separate general manager. Together, the three companies
form a unique E&P group that conducts a blended program of low-cost
development drilling, low-risk reserve acquisition, and high-quality
exploration.
The E&P group also has a geographical balance and diversity, with
Wexpro and Celsius located in the Rocky Mountain area and Universal
Resources concentrated in the Midcontinent area. A division of
Universal Resources, known as Questar Energy Company, operates
properties located in the Southwest, e.g., the San Juan and Paradox
Basins. During 1996, Celsius Ltd. was organized as an Alberta
corporation to manage the Canadian assets associated with a $52 million
acquisition.
Natural gas remains the primary focus of the Company's E&P
operations. As of year-end 1996, the Company had proved reserves
(excluding Mountain Fuel's cost-of-service reserves) of 384,047 million
cubic feet (MMcf) of gas and 20,784 thousand barrels of oil (MBbls),
compared to 258,687 MMcf of gas and 12,444 MBbls of oil as of the same
date in 1995. (Any references to oil in this report include natural gas
liquids.) The reserve growth was attributable to acquisitions, rather
than drilling, as the volumes produced exceeded volumes discovered. See
"Oil and Gas Operations," a separate section of this report, for
additional information concerning the Company's oil and gas activities
on a consolidated basis.
The E&P group made two major reserve acquisitions during 1996.
Universal Resources purchased approximately 157 billion cubic feet
equivalent (Bcfe) of oil and gas reserves in Texas, Oklahoma, and the
upper Gulf Coast for $112 million. Celsius Ltd. purchased 37 Bcfe of
reserves in Alberta and British Columbia, Canada, for $52 million.
The E&P companies participated in 108 wells in 1996, compared to
105 wells in 1995. The 1996 wells included 48 gas wells, 20 oil wells,
11 dry holes and 29 wells in progress at year-end. The overall drilling
success in 1996 was 86 percent.
Section 29 tax credits continued to benefit the E&P group during
1996. These tax credits are available for production from wells that
meet specified criteria, including a requirement that drilling of the
wells be commenced prior to January 1, 1993. The properties are often
referred to as "tight sands" or low permeability formations from which
it is generally more expensive to produce gas. The basic credit is $.52
per decatherm (Dth), but is equivalent to a price increase of $.90 per
Dth at the wellhead when factoring in other taxes. During 1996, Celsius
and Universal Resources recorded $6.2 million in Section 29 credits.
Approximately 23 percent of the combined gas production of Celsius and
Universal Resources qualified for the Section 29 tax credits. (Wexpro
does not have an economic interest in the cost-of-service gas produced
from Mountain Fuel's properties. Mountain Fuel earns the credits
associated with such gas.)
The production of oil and gas is subject to regulation by
appropriate federal and state regulatory agencies. In general, these
regulatory agencies are authorized to make and enforce regulations to
prevent waste of oil and gas, protect the correlative rights and
opportunities to produce oil and gas by owners of a common reservoir,
and protect the environment. Many leases held or operated by the E&P
group are federal leases subject to additional regulatory requirements.
Both federal and state agencies are imposing more restrictions on access
to leasehold acreage, thereby increasing the planning time to obtain
drilling permits and limiting the E&P group's flexibility to adapt
quickly to circumstances.
The following description of Questar's E&P group is bifurcated
between Wexpro and the combined Celsius/Universal Resources:
Wexpro Company. Wexpro was incorporated in 1976 as a subsidiary
of Mountain Fuel. Mountain Fuel's efforts to transfer producing
properties and leasehold acreage to Wexpro resulted in protracted
regulatory proceedings and legal adjudications that ended with a
court-approved settlement agreement that was effective August 1, 1981.
Wexpro, unlike Celsius and Universal Resources, generally does not
conduct exploratory operations and does not acquire leasehold acreage
for exploration activities. It conducts oil and gas development and
production activities on certain producing properties located in the
Rocky Mountain region under the terms of the settlement agreement. (The
terms of the settlement agreement are described in Note 11 in the Notes
to Consolidated Financial Statements.) Wexpro produces gas from
specified properties for Mountain Fuel and is reimbursed for its costs
plus a return on its investment. In connection with its successful
development gas drilling, Wexpro charges Mountain Fuel for its costs
plus a specified rate of return (currently 22.04 percent and adjusted
annually based on a specified formula) on its net investment in such
properties adjusted for working capital and deferred taxes. At year-end
1996, Wexpro's net investment in cost-of-service operations was $81.2
million. Under the terms of the settlement agreement, Wexpro bears all
dry hole costs. The settlement agreement also provides for income
sharing after recovery of expenses and rates of return in connection
with Wexpro's production and successful drilling activities on specified
oil properties. The settlement agreement is monitored by the Utah
Division of Public Utilities, the staff of the Public Service Commission
of Wyoming, and retained experts.
The gas volumes produced by Wexpro for Mountain Fuel are reflected
in the latter's rates at cost-of-service prices. Cost-of-service gas
(defined to include the gas attributable to royalty interest owners)
produced by Wexpro satisfied 54 percent of Mountain Fuel's system
requirements during 1996. Costs attributable to Wexpro's operation of
the properties are reflected in Mountain Fuel's rates. Mountain Fuel
relies upon Wexpro's drilling program to develop the properties from
which the cost-of-service gas is produced. During 1996, the average
wellhead cost of Mountain Fuel's cost-of-service gas was $1.15 per Dth,
which is significantly lower than Mountain Fuel's average price for
field-purchased gas. In order to avoid regulatory questioning and to
fulfill its obligations to Mountain Fuel, Wexpro must continue to be an
efficient operator.
Wexpro participates in drilling activities in response to the
demands of other working interest owners, to protect its rights, and to
meet the needs of Mountain Fuel. Wexpro, in 1996, produced 36,740 MMcf
of natural gas from Mountain Fuel's cost-of-service properties, and only
added reserves of 7,177 MMcf through drilling activities and reserve
estimate revisions. (These numbers do not include the related royalty
gas.)
Wexpro has an ownership interest in the wells and appurtenant
facilities related to its oil reservoirs and in the facilities that have
been installed to develop and produce gas reservoirs described above
since August 1, 1981 (a date specified by the settlement agreement
referred to above). Wexpro maintains an office in Rock Springs,
Wyoming, in addition to its principal office in Salt Lake City, Utah.
Celsius Energy Company/Universal Resources Corporation. Celsius
and Universal
Resources are combined from an operating and financial perspective.
Historically, Celsius operated in the Rocky Mountain area and emphasized
exploration and development opportunities while Universal Resources,
acquired as an independent company in 1987, operated in the Midcontinent
and emphasized development and acquisition opportunities. The companies
continue to maintain separate regional offices, with Celsius's office in
Denver, Colorado, and Universal Resources's in Oklahoma City, Oklahoma.
Celsius and Universal Resources, for the third consecutive year in 1996,
produced more gas in the Midcontinent than in the Rocky Mountains. They
also spent more drilling dollars, during 1996, in the Midcontinent than
in the Rocky Mountains.
Gas production for the two entities increased from 32,663 MMcf in
1995 to 40,519 MMcf in 1996. The increase in production was
attributable to the new reserve acquisitions and to having production
flow from existing wells (rather than being shut in, as they were during
part of 1995). Celsius and Universal Resources received an average
selling price of $1.53 per thousand cubic feet (Mcf) in 1996, compared
to $1.33 per Mcf in 1995. Gas production belonging to the two entities
is produced from four separate gas producing regions,the Midcontinent
area, the San Juan Basin area, the Rocky Mountain area, and the Canadian
area. Production from each of these areas is generally priced below the
Henry Hub pricing center in Louisiana, reflecting demand and access to
transportation.
During 1996, Celsius and Universal Resources, again on a combined
basis, had a slight increase in oil production. The two companies
produced 1,836 MBbls in 1996 compared to 1,630 MBbls in 1995. The oil
volumes were sold at an average price of $19.02 per barrel in 1996
compared to $15.50 per barrel in 1995. The combined full-cost
amortization rate for the two entities was $.79 per Mcf equivalent
(Mcfe), compared to $.80 per Mcfe in 1995.
Market Resources, Wholesale Marketing
During 1996, the energy marketing activities conducted by
Universal Resources were transferred to Questar Energy Trading. This
new company continued to pursue a marketing strategy to use purchased
gas volumes and equity production (production that is produced by
affiliates, rather than purchased) to build a flexible and reliable
portfolio. Questar Energy Trading aggregated supplies of natural gas
for delivery to large customers including industrial users,
municipalities, and other marketing entities. It also expanded its
wholesale marketing activities to include oil, other hydrocarbon
liquids, and electricity in response to customer requests for "one stop
shopping." Questar Energy Trading marketed a total of 141,414 thousand
decatherms (MDth) of natural gas in 1996, compared to 109,374 MDth in
1995, for which it earned a gross profit margin of $13,432,000. It also
marketed 1,471 MMbls of liquids and 204,000 Megawatt hours after being
certified by the Federal Energy Regulatory Commission (the FERC) as an
independent power reseller.
Questar Energy Trading uses derivatives as a risk management tool
to provide price protection for physical transactions involving equity
production and marketing purchases. It does not use derivatives for
speculative purposes or without physical transactions. Questar Energy
Trading hedges at least a portion of equity production and does so with
a variety of contracts for different periods of time.
As a wholesale marketing entity, Questar Energy Trading
concentrates on markets in the Pacific Northwest, the Rocky Mountains,
and the Midwest that are close to reserves owned by affiliates or
accessible by major pipelines. It is currently involved in negotiations
with electric utilities to form alliances on the eastern and western
grids to expand its geographical scope and to acquire additional
expertise in the marketing of electricity.
Market Resources, Gathering and Processing
Questar Gas Management conducts gathering and processing
activities in the Rocky Mountain and Midcontinent areas. Its activities
are not subject to regulation by the FERC. Questar Gas Management was
originally established in 1993 to construct and operate the Blacks Fork
processing plant in southwestern Wyoming. Its assets expanded in 1996
when Questar Pipeline spun down its gathering assets and activities.
Questar Gas Management was moved from Questar Pipeline to the Market
Resources segment in mid-1996. Questar Gas Management also acquired the
processing plants that formerly belonged to Universal Resources once it
was transferred to Market Resources.
Questar Gas Management's gathering system, which consists of
gathering lines, compressor stations, field dehydration plants, and
measuring stations, was largely built to gather production from
Mountain Fuel's cost-of-service properties. During 1996, Questar Gas
Management gathered 30,199 MDth of natural gas for Mountain Fuel,
compared to 31,691 MDth in 1995, for which it received $14.5 million
from Mountain Fuel. Under the terms of a contract that was assigned
with the gathering assets from Questar Pipeline, Questar Gas Management
is obligated to gather Mountain Fuel's cost-of-service production for
the life of the properties. Its contractual obligation to gather
Mountain Fuel's field-purchased gas volumes expires in August of 1997.
Questar Gas Management, during 1996, significantly expanded the
volumes of gas it gathered for nonaffiliated customers. Of its total
throughput of 87,518 MDth, a total of 48,525 MDth were gathered for
nonaffiliated customers.
Questar Gas Management faces increased competition from other
gathering entities that are encroaching on its historic area of
operations. Often, new wells will have connections with more than one
gathering system and producers insist that gathering systems be tied to
more than one pipeline. The rates Questar Gas Management charges for
services to Mountain Fuel are subject to scrutiny by regulators.
Questar Gas Management is committed to acquiring additional
gathering facilities that connect with other interstate pipelines and
that complement the drilling and marketing activities of the Market
Resources group. It has budgeted $30 million for acquiring these
systems in 1997.
In addition to being the named partner in the Blacks Fork
processing plant and having a 50 percent ownership in such plant, which
has a daily capacity of 84 MMcf and is located in southwestern Wyoming,
Questar Gas Management owns interests in other processing plants located
in the Rocky Mountain and Midcontinent areas. It is joining Wexpro to
construct a gas processing plant in the Canyon Creek area of
southwestern Wyoming near the Colorado border that will handle 45 MMcf
of gas per day.
Market Resources, Unregulated Retail Services
Questar Energy Services was organized to take advantage of
opportunities created by the unbundling of retail energy services
traditionally offered by utilities. It has currently targeted Mountain
Fuel's service area for a bundle of products and services under the
label "Questar HomeWorks." These products include home maintenance,
repair and improvement programs, home safety and security systems,
earthquake and emergency-preparedness products, and financing and
billing products. Mountain Fuel has recently agreed to allow Questar
Energy Services to have access to its customers through their bills and
to invoice these customers for its products through their Mountain Fuel
bills. Mountain Fuel has also agreed to transfer its appliance
financing program to Questar Energy Services. This entity plans to
participate as an alternative provider of gas supply in Mountain Fuel's
proposal to unbundle some services in Wyoming.
Market Resources, General
Questar's Market Resources segment is growing faster than its
Regulated Services segment. The Company expects to spend more capital
budget dollars on this segment to expand reserves through acquisitions
and drilling and to enlarge its infrastructure of gathering systems,
processing plants, header facilities, and nonregulated storage
facilities. This segment will continue to expand the scope of its
activities and joint venture or alliance relationships. Questar has
announced a goal of having this segment account for at least 55 percent
of corporate earnings by 2000.
The diversity of the activities pursued by Market Resources
companies should not cloud the basic strategy to pursue complementary
growth. As the E&P companies find or acquire new reserves, Questar Gas
Management has more opportunities to expand gathering and processing
activities and Questar Energy Trading has more physical production to
support its marketing programs.
Regulated Services, Introduction
Mountain Fuel and Questar Pipeline comprise Questar's Regulated
Services segment. During 1996, the entities were linked together by the
naming of four common officers who have responsibility for the "shared
service" functions within the group--marketing, planning, business
development, engineering, public and employee communications,
compensation, accounting, budgeting, and tax. Recently, the group's
legal activities were consolidated, and D. N. Rose, the President and
Chief Executive Officer of Mountain Fuel, was named to serve in the same
position with Questar Pipeline. The employees in both entities share
base and incentive compensation programs and are expected to work
together to improve customer service and operating efficiency.
Regulated Services, Retail Distribution
Mountain Fuel distributes natural gas as a public utility in Utah,
southwestern Wyoming, and a small portion of southeastern Idaho. As of
December 31, 1996, Mountain Fuel was serving 618,231 sales and
transportation customers, a 4.3 percent increase from the 592,738
customers as of year-end 1995. (Customers are defined in terms of
active meters.) Approximately 96 percent of Mountain Fuel's customers
live in Utah. Mountain Fuel distributes gas to customers in the major
populated areas 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. Mountain Fuel supplies natural gas in the
southwestern Wyoming communities of Rock Springs, Green River, and
Evanston, and the southeastern Idaho community of Preston. Mountain
Fuel has the necessary regulatory approvals granted by the Public
Service Commission of Utah (the PSCU), the Public Service Commission of
Wyoming (the 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's added almost 25,500 customers in 1996, which was
the third consecutive year in which it added at least 20,000 customers.
The customer growth reflects Utah's economic prosperity and continued
in-migration. Utah's population is growing faster than the national
average, and Mountain Fuel expects to add at least 22,000 customers in
1997 and 15,000-20,000 customers each 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 Dth per year) uses approximately 75 percent of his
total gas requirements in the coldest six months of the year. Mountain
Fuel's revenue forecasts used to set rates are based on normal
temperatures. As measured in degree days, temperatures in Mountain
Fuel's service area were 9 percent warmer than normal in 1996, which was
the third consecutive year in which temperatures have been warmer than
normal.
Mountain Fuel's sensitivity to weather and temperature conditions
has been ameliorated by adopting a weather normalization mechanism for
its general service customers in Utah and Wyoming. The mechanism
adjusts the non-gas portion of a customer's monthly bill as the actual
degree days in the billing cycle are warmer or colder than normal. This
mechanism reduces the sometimes dramatic fluctuations in any given
customer's monthly bill from year to year.
During 1996, Mountain Fuel sold 80,844 thousand decatherms (MDth)
to residential and commercial customers, compared to 73,950 MDth in
1995. General service sales to residential and commercial customers
were responsible for 88 percent of Mountain Fuel's total revenues in
1996.
Mountain Fuel has designed its distribution system and annual gas
supply plan to handle design-day demand requirements. It periodically
updates its design-day demand, which is the volume of gas that firm
customers could use during extremely cold weather. For the 1996-97
heating season, Mountain Fuel used a design-day demand of 911,067 Dth
for firm sales customers. Mountain Fuel is also obligated to have
pipeline capacity, but not gas supply, for firm transportation
customers. 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, decreased during 1996, declining from 68,779 MDth in
1995 to 58,083 MDth in 1996. Sales to industrial users declined after
three consecutive years of increases and moved from 9,210 MDth in 1995
to 8,584 MDth in 1996. The decline in total industrial deliveries
between the two years is not an adverse reflection concerning Utah's
economic situation. The decline reflects a decline in the use of gas
for power generation due to the availability of low-cost electricity
from hydroelectric facilities in the Pacific Northwest.
Mountain Fuel has been providing transportation service since
1986. It has worked diligently to retain its transportation customers
and to offer them cost-based rates. Transportation service is
attractive to customers that can buy volumes of gas directly from
producers and have such volumes transported at aggregate prices lower
than Mountain Fuel's sales rates. Under Mountain Fuel's current rate
schedules, a typical interruptible transportation customer pays block
rates ranging from $.12 to $.02 per Dth and uses Mountain Fuel's
released capacity on Questar Pipeline's transmission system. Mountain
Fuel receives demand cost credits from Questar Pipeline for
transportation customers that use this released capacity. These credits
totaled $9.1 million for 1996.
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 that are located west of Salt Lake.
Mountain Fuel's competitive position has been strengthened as a
result of owning natural gas producing properties. During 1996, it
satisfied 54 percent of its system requirements with the cost-of-service
gas produced from such properties. (As defined, cost-of-service gas
includes the gas attributable to royalty interest owners.) These
properties are operated by Wexpro, and the gas produced from such
properties is transported by Questar Pipeline. Mountain Fuel's
investment in these properties is included in its rate base. (A
court-approved settlement agreement, described in Note 11 in the Notes
to Consolidated Financial Statements, specifies the terms relating to
the ownership and operation of these properties.) Mountain Fuel
estimates that it had reserves of 359,877 MMcf as of year-end 1996,
compared to 389,440 MMcf as of year-end 1995. (The reserve numbers do
not include volumes attributable to royalty interests.) The average
wellhead cost associated with Mountain Fuel's cost-of-service reserves
was $1.15 per Dth in 1996 (compared to $1.73 per Dth of purchased gas).
During 1996, Mountain Fuel recorded $3.2 million in Section 29 tax
credits associated with production from wells on its cost-of-service
properties that qualify for such credits. Mountain Fuel believes that
it is important to continue owning gas reserves, producing them in a
manner that will serve the best interests of its customers, and
satisfying a significant portion of its supply requirements with gas
produced from such properties.
Mountain Fuel uses storage capacity at Clay Basin to provide
flexibility for handling gas volumes produced from cost-of-service
properties. It stores gas at Clay Basin during the summer and withdraws
it during the heating season.
Mountain Fuel has been directly responsible for its gas
acquisition activities since September 1, 1993. Mountain Fuel has a
balanced and diversified portfolio of approximately 58 gas supply
contracts with more than 28 suppliers located in the Rocky Mountain
states of Wyoming, Colorado, and Utah. It purchases gas on the spot
market and under longer-term contracts, primarily during the winter
heating season. The contracts have market-price 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
its latest semi-annual purchased gas cost filing, Mountain Fuel
estimated that its average wellhead cost of field-purchased gas would be
$1.65 per Dth for 1997.
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 Mountain Fuel to retain over
90 percent of the residential space 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 Mountain Fuel's
ability to attract residential users of alternate energy sources to gas
in its new 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 the fall of 1997.)
Although Mountain Fuel is a public utility and has no direct
competition from other distributors of natural gas for residential and
commercial customers, it 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.
PacifiCorp (operating as Utah Power in Utah) is the primary electric
utility in Utah and portions of southwestern Wyoming. 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,
particularly as Mountain Fuel attempts to secure incremental load.
Mountain Fuel is continuing to expand the size of its customer
base by entering new service areas. During 1996, it extended service to
Ogden Valley, an area east of Ogden, Utah, and recently sought
regulatory approval to extend service to Panguitch, in southern Utah.
Mountain Fuel is also interested in Utah's economic development in
order to enhance market growth and is encouraging the use of natural gas
in additional appliances. Most households in Mountain Fuel's service
area already use natural gas for space and water heating. Mountain
Fuel's market share for other gas appliances, e.g., ranges and dryers,
has historically been less than 20 percent, which is significantly lower
than its over 90 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 and greater efficiency by
converting other appliances to natural gas. It also has marketing
campaigns to encourage contractors to install the necessary lines for
gas fireplaces, ranges, and dryers in new homes.
Mountain Fuel believes that it must maintain a competitive price
advantage in order to retain its residential and commercial customers
and to build incremental load by convincing current customers to convert
additional appliances to natural gas. Consequently, Mountain Fuel has
worked to develop and follow an annual gas supply plan that provides for
a judicious balance between cost-of-service gas and purchased gas and to
increase its operating efficiency. Although its rates for general
service customers increased January 1, 1997, Mountain Fuel's rates for
general service customers in Utah continue to be lower than they were 12
years ago. Using rates in effect as of January 1, 1997, the typical
residential customer in Utah would have an annual bill of $512.38,
compared to an annual bill of $607.07, using rates in effect as of
January 1, 1985.
The Kern River pipeline, which was built to transport gas from
southwestern Wyoming to Kern County, California, runs through portions
of Mountain Fuel's service area and provides an alternative delivery
source for Mountain Fuel's transportation customers. As of the date of
this report, Mountain Fuel has lost no industrial load as a result of
Kern River. The existence of this interstate pipeline system has made
it possible for Mountain Fuel to extend service into a new area in Utah,
to develop a second source of supply for its central and its southern
Utah system. Mountain Fuel also obtained a tap on the Kern River line in
Salt Lake County in order to facilitate the delivery of additional peak-day
supplies to meet increasing demand.
As of September 1, 1997, Mountain Fuel's transportation customers
will no longer be required to pay a special additional charge if they do
not use Mountain Fuel's upstream capacity on Questar Pipeline. The
cessation of this charge, which was approved by the PSCU for a
transitional period, may lead to increased competition, discounted
released capacity revenues, and a reduction in the revenues retained by
Mountain Fuel. Mountain Fuel currently retains 10 percent of such
revenues for Utah rate-making purposes (reduced from 20 percent
effective February 18, 1997), and credits 90 percent of such revenues to
its gas balancing account.
Mountain Fuel has adopted innovative measures to deal with
competitive pressures during the last several years and to maintain its
competitive posture for the future. One measure of improved efficiency
is the number of customers served per employee. The ratio has improved
from 388 customers per employee for 1994 to 423 for 1995 and 453 for
1996.
Mountain Fuel and all other 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 residential and commercial customers the same choices
provided industrial customers, i.e., allowing them to separate the
commodity supply from the transportation service. (Industrial customers
have enjoyed the benefit of supplier choice for over 10 years.)
Mountain Fuel has been reviewing the opportunities and risks
associated with unbundling and believes that it is well-positioned to
succeed in a competitive environment. Sophisticated customer
information systems may allow it to perform billing and dispatch
services for other entities. With an annual operating and maintenance
expense of $158 per customer, a customer-to-employee ratio of 453 to 1,
and an overall customer satisfaction rating in excess of 90 percent,
Mountain Fuel is accurately described as an efficient local distribution
company. Its operating efficiency is buttressed by owning the reserves
to meet over 50 percent of its current demand and by having storage
capacity to balance the relationship between production of its reserves
and seasonal demands of residential customers.
Mountain Fuel and other retail distribution companies have been
subject to governmental regulation, as a substitute for competition.
Other industries, airline, trucking, telecommunication, financial
service, and interstate pipeline, have been and are being deregulated,
and competitive market forces are forcing these industries to focus on
operating efficiency. The substitution of competition for regulation
will cause Mountain Fuel and other distribution companies to continue to
review their costs and levels of service.
Mountain Fuel currently intends to file, during 1997, for
regulatory approval to unbundle certain services in Wyoming. Although
the details of the proposal have not been worked out, it expects to
offer a proposal that will allow Wyoming general service customers to
choose alternative suppliers of natural gas. Mountain Fuel is choosing
Wyoming because the PSCW has already permitted one utility, KN Energy,
Inc., to unbundle services to a portion of its customers and because the
number of Wyoming customers--21,300--provide a smaller group with which
to work. Mountain Fuel expects to gain a better understanding of the
complexities and opportunities associated with unbundling services
through its Wyoming proposal.
The state of Utah and the PSCU are actively involved in reviewing
the restructuring and unbundling of telephone and electric utility
services. Given its attractive rates and high customer service ratings,
Mountain Fuel does not believe that Utah regulators or residential
customers will push for rapid unbundling in Utah.
As a public utility, Mountain Fuel is subject to the jurisdiction
of the PSCU and PSCW. (Mountain Fuel'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 made under rate schedules approved by the
two regulatory commissions.
Mountain Fuel has consistently endeavored to balance the costs of
adding more than 20,000 customers each year with the cost savings
associated with reducing labor costs and consolidating activities.
Mountain Fuel's revenues and resulting net income were favorably
affected by a settlement in its 1995 Utah general rate case that
permitted it to incorporate a weather normalization mechanism in its
rates on a phased-in basis, to collect a new-customer premises charge,
and to change the method for crediting revenues when it releases
pipeline capacity.
On January 8, 1997, the Utah Division of Public Utilities
(Division) filed a motion with the PSCU claiming that Mountain Fuel was
"overearning" and seeking an investigation into the reasonableness of
its rates. The Division subsequently withdrew its motion when Mountain
Fuel agreed to reduce revenues by an annualized amount of $2.8 million
by modifying the new-customer premises charge, reducing the capacity
release revenue sharing, and reducing block rates on a uniform
percentage basis. The settlement agreement was approved by the PSCU
effective February 18, 1997.
Mountain Fuel does not expect to file a general rate case
application with the PSCU or the PSCW in 1997. It is currently
authorized to earn a return on rate base of 10.4 percent in Wyoming and
of 10.22 to 10.34 percent in Utah.
Both the PSCU and the PSCW have authorized Mountain Fuel to use a
balancing account procedure for changes in the cost of natural gas,
including supplier non-gas costs, and to reflect changes on at least a
semi-annual basis. Mountain Fuel's latest semi-annual balancing account
applications were approved January 1, 1997, and its base rates were
increased as the result of an overall increase in the cost of natural
gas.
Mountain Fuel's 1996 and 1997 pass-through applications have been
approved on an interim basis by the PSCU. The Division has raised some
concerns about gathering costs, particularly the cost-of-service rates
charged by Questar Gas Management. The Utah Committee of Consumer
Services, another state agency, has been requesting additional
information concerning no-notice service and transportation balancing.
As of the date of this report, these issues have not been formally
addressed before the PSCU.
Mountain Fuel owns and operates distribution systems throughout
its Utah, Wyoming and Idaho service areas and has a total of 18,685
miles of street mains, service lines, and interconnecting pipelines.
Mountain Fuel has consolidated many of its activities in its operations
center, warehouse and garage located in Salt Lake City, Utah. It also
owns operations centers, field offices, and service center facilities
throughout other parts of its service area. The mains and service lines
are constructed pursuant to franchise agreements or rights-of-way.
Mountain Fuel has fee title to the properties on which its operation and
service centers are constructed.
Regulated Services, Transmission and Storage
Questar Pipeline is an interstate pipeline company that is engaged
in the transportation and storage of natural gas in the Rocky Mountain
states of Utah, Wyoming and Colorado. During 1996, Questar Pipeline
spun down its gathering assets to Questar Gas Management. As a "natural
gas company," Questar Pipeline is subject to regulation by the FERC
pursuant to the Natural Gas Act of 1938, as amended, as to rates and
charges for storage and transportation of gas in interstate commerce,
construction of new facilities, extensions or abandonments of service
and facilities, accounts and records, and depreciation and amortization
policies. Questar Pipeline holds certificates of public convenience and
necessity granted by the FERC for the transportation and underground
storage of natural gas in interstate commerce and for the facilities
required to perform such operations.
As an open-access pipeline, Questar Pipeline transports gas for
affiliated and unaffiliated customers. It also owns and operates the
Clay Basin storage facility, which is a large underground storage
project in northeastern Utah, and other underground storage operations
in Utah and Wyoming. Questar Pipeline is involved in two partnerships,
Overthrust Pipeline Company (Overthrust) and TransColorado Gas
Transmission Company (TransColorado).
Questar Pipeline's transmission system is strategically located in
the Rocky Mountain area near large reserves of natural gas. It is
referred to as a "hub and spoke" system, rather than a "long-line"
pipeline, because of its physical configuration, multiple connections to
other major pipeline systems and access to major producing areas.
Questar Pipeline's transmission system connects with the transmission
systems of Colorado Interstate Gas Company (CIG), Northwest Pipeline
Corporation (Northwest Pipeline), the middle segment (commonly referred
to as the "WIC segment") of the Trailblazer pipeline system
(Trailblazer), Williams Natural Gas Company (Williams), and Kern River
Gas Transmission Company (Kern River). These connections provide access
to markets outside Mountain Fuel's service area and allow Questar
Pipeline to transport gas for nonaffiliated customers.
Questar Pipeline's transmission system includes 1,731 miles of
transmission lines that interconnect with other pipelines and link
producers of natural gas with Mountain Fuel's distribution operations in
Utah and Wyoming. (The transmission mileage figure includes lines at
storage fields and tap lines used to serve Mountain Fuel.) This system
includes two major segments, often referred to as the northern and
southern systems; the northern system segment extends from northwestern
Colorado through southwestern Wyoming into northern Utah and the
southern system segment extends from western Colorado to Payson in
central Utah. The two portions are linked together and have significant
connections with other pipeline systems, making it a fully integrated
system.
Questar Pipeline's largest transportation customer is Mountain
Fuel. During 1996, Questar Pipeline transported 100,161 MDth for
Mountain Fuel, compared to 79,872 MDth in 1995. These transportation
volumes include cost-of-service gas produced by Wexpro on properties
owned by Mountain Fuel, as well as some volumes purchased by Mountain
Fuel directly from field producers.
Prior to September 1, 1993, Questar Pipeline purchased gas for
resale to Mountain Fuel, its only sale-for-resale customer. As of that
date, Mountain Fuel converted its firm sales capacity on Questar
Pipeline's transmission system to firm transportation capacity.
Mountain Fuel has a reserved capacity of about 800,000 Dth per day, or
approximately 72 percent of Questar Pipeline's reserved capacity.
Mountain Fuel paid reservation charges of $45.8 million to Questar
Pipeline in 1996, which include reservation charges attributable to firm
and "no-notice" transportation. Mountain Fuel only needs its total
reserved capacity during peak-demand situations. When it is not fully
utilizing such capacity, Mountain Fuel releases it to others, primarily
industrial transportation customers and marketing entities, and receives
revenue credits from Questar Pipeline. These credits amounted to $9.1
million during 1996.
Questar Pipeline's transportation agreement with Mountain Fuel
expires on June 30, 1999. While it is too soon to predict whether
Mountain Fuel will need the same firm transportation capacity on Questar
Pipeline's transmission system as it currently has, it is clear that
design-day requirements for firm sales and transportation customers
served by Mountain Fuel continue to expand rapidly.
Questar Pipeline recovers approximately 96 percent of its
transmission cost of service through demand charges from firm
transportation customers. In other words, these customers pay for
access to transportation capacity, rather than for the volumes actually
transported. Consequently, Questar Pipeline's throughput volumes do not
have a significant effect on its short-term operating results. Questar
Pipeline's transportation revenues are not significantly impacted by
fluctuating demand based on the vagaries of weather or natural gas
prices.
Questar Pipeline's total system throughput increased from 270,654
MDth in 1995 to 276,383 MDth in 1996. As previously noted, most of this
increase was attributable to increased transportation volumes for
Mountain Fuel. Volumes of gas transported from other affiliated
customers increased from 38,839 MDth in 1995 to 44,327 MDth in 1996.
The volumes of gas transported from nonaffiliated customers decreased
from 151,943 MDth in 1995 to 131,895 MDth in 1996.
Questar Pipeline's transmission system is an open-access system
and has been since September of 1988. The FERC's Order No. 636 and
Questar Pipeline's tariff provisions based on Order No. 636 require it
to transport gas on a nondiscriminatory basis when it has available
transportation capacity. Questar Pipeline does have limited
opportunities for interruptible transportation service.
Questar Pipeline will continue to develop and build new lines and
related facilities that will allow it to meet customer needs or improve
transportation services. During 1997, Questar Pipeline plans to begin
construction of a new 20-inch diameter line extending from Clay Basin to
Coleman Station in southwestern Wyoming. This project, which will be
built in phases and which is scheduled to be finished in 1998, will
significantly expand Questar Pipeline's capacity to move gas north from
its storage facility at Clay Basin and its southern system. Questar
Pipeline is also building a new pipeline into the Ferron area of eastern
Utah, which is the site of a large project to produce gas from coal
seams.
The Kern River pipeline, which is currently owned by The Williams
Companies, Inc., became operational in February of 1992. Built to
transport gas from Wyoming to the enhanced oil recovery projects in Kern
County, California, this line runs through Utah's Wasatch Front, making
it possible for some large industrial customers to bypass both Mountain
Fuel and Questar Pipeline by buying transportation service on Kern
River. The Kern River line has diverted some transportation volumes
from both Questar Pipeline and Overthrust. The Kern River line, on the
other hand, has also provided Questar Pipeline with opportunities to
make additional connections with outside markets and to increase
transportation volumes.
Questar Pipeline has a 36 percent interest in and is operating
partner of Overthrust, a general partnership that was organized in 1979
to construct, own, and operate the Overthrust segment of the Trailblazer
system, a pipeline that transports gas from Wyoming to the Midwest.
Since gas production from the Overthrust area is generally shipped on
the Kern River pipeline to California, the Overthrust segment is
currently underutilized.
Questar Pipeline and its partners are continuing to pursue a
project announced in 1990 to build and operate the proposed
TransColorado pipeline. Partners include affiliates of El Paso Natural
Gas Company and KN Energy, Inc. The proposed pipeline is 292 miles in
length and would extend from the Piceance Basin in western Colorado to
northwestern New Mexico, where it would connect with other major
pipeline systems. As designed, the pipeline could transport up to 300
MMcf of gas per day from western Colorado and other producing basins in
Wyoming and Utah to California and midwestern and southwestern markets.
The project has received the necessary environmental clearances and
regulatory approvals and is moving forward in response to shipper demand
and market opportunities.
Questar Pipeline operates a major storage facility at Clay Basin
in northeastern Utah and three other storage facilities specifically
designed to support Mountain Fuel's peak-demand requirements. Questar
Pipeline's storage facilities are certificated by the FERC, and its
rates for storage service (based on operating costs and investment in
plant plus an allowed rate of return) are subject to the approval of the
FERC. The Clay Basin storage reservoir has been operational since 1977
and has been providing open-access storage service since June of 1991.
The Clay Basin facility, which was significantly expanded in 1995,
is certificated for 46.3 Bcf of working gas capacity and a total
capacity of 110 Bcf. (Working gas is gas that is injected and
withdrawn) As a result of this expansion, maximum deliverability
increased from 500 MMcf per day to 763 MMcf per day.
Storage service is important to parties that need to balance
purchases with fluctuating customer demand, improve service reliability,
and to avoid imbalance penalties. The storage capacity is fully
subscribed by customers under long-term agreements. Mountain Fuel
currently has 12.5 Bcf of working gas capacity at Clay Basin. Other
large customers, in addition to Mountain Fuel, include Northwest
Pipeline; Washington Natural Gas Company, a utility in Washington; and
BC Gas Inc., a distribution utility in British Columbia.
Questar Pipeline currently offers interruptible storage service at
Clay Basin. Effective January 1, 1997, it received regulatory approval
to remove some constraints formerly applicable to interruptible storage
service and hopes to expand interruptible volumes. Questar Pipeline
also allows firm storage service customers the right to transfer their
injection and withdrawal rights to other parties.
A settlement agreement in Questar Pipeline's 1995 general rate
case was approved by the FERC effective February 1, 1996. Under the
terms of this settlement, Questar Pipeline was permitted to collect
rates that reflected an annualized revenue increase of approximately
$5.9 million, to earn a return on equity of 11.75 percent, and to retain
specified revenues associated with interruptible transportation and
service.
Questar Pipeline does not currently plan to file a general rate
case in 1997. It, however, will continue to review its revenues and
costs as it adds new facilities that are not included in its rate base
and makes expenditures to comply with regulatory mandates.
During 1997, Questar Pipeline expects to spend $2.8 million to
comply with standards originally proposed by the Gas Industry Standards
Board (GISB) and mandated by the FERC. These requirements, commonly
known as the GISB standards, are designed to facilitate the seamless
transportation of gas volumes on different pipeline systems and address
such issues as nominations, confirmations, priority of service,
allocation, balancing, and invoicing. Questar Pipeline is required to
comply with some standards by June 1, 1997, to have an Internet web site
by August 1, 1997, and to implement a second round of standards by
November 1, 1997.
The FERC has adopted specific criteria for determining when
"rolled-in" rates (rather than incremental rates) are appropriate.
Under the FERC's policy, rolled-in rates will generally be approved if
rates to existing customers will not increase by more than five percent
and if specified system-wide operational and financial benefits can be
demonstrated. The FERC, however, can still impose at-risk conditions on
new projects even if it approves rolled-in rate treatment for them and
require additional support in subsequent rate cases to continue
rolled-in treatment.
In conjunction with its 1995 general rate case, Questar Pipeline
received rolled-in rate treatment for some facilities that were
previously certificated as at-risk facilities. The FERC, however, did
not remove the at-risk designation for them. Questar Pipeline has again
asked the FERC to remove the at-risk condition on these projects.
Questar Pipeline, when contemplating future expansion projects, must
evaluate the risk of having shareholders, not customers, absorb any
underrecovery of costs if incremental revenues for a new a project do
not cover the costs of such project, versus the risk of losing
transportation volumes to competitors.
Competition for Questar Pipeline's transportation and storage
services has intensified in recent years. Regulatory changes have
significantly increased customer flexibility and increased the risks
associated with new projects. Questar Pipeline has two key assets that
contribute to its continued success. It has a strategically located and
integrated transmission system with interconnections to major pipeline
systems and with access to major producing areas and markets. Questar
Pipeline has the Clay Basin storage facility, a large reservoir that has
been successfully operated since 1977, that has been expanded in
response to customer interest, and that is fully subscribed by
first-service customers under long-term contracts.
Questar Pipeline has established partnerships with others to
acquire expertise, share risks and expand opportunities. Both the
Overthrust pipeline and the proposed TransColorado pipeline involve
partners, some of which are significantly larger than Questar Pipeline.
Other Operations
In addition to the two primary segments of Market Resources and
Regulated Services, Questar has "other operations." This group includes
Questar InfoComm, which is a full-service provider of integrated
information and communication services to affiliates and external
businesses; miscellaneous real estate activities; and the ownership of
stock issued by Nextel Communications Inc. (Nextel).
Questar InfoComm provides information and communication services.
It operates a regional microwave system that covers much of Utah and
southwestern Wyoming. This system, which has been converted to digital,
was originally built to satisfy the needs of internal customers, but
also carriers data for alternative telephone providers and other
external customers. Questar InfoComm installs and maintains
telephone-switching equipment and voice-mail systems. It recently
installed a fiber optic telephone network in parts of Salt Lake City for
an alternative telephone provider--NextLink Communications.
During 1996, Questar InfoComm also completed the construction of a
new DataComm Center, which is designed to protect critical communication
and data processing equipment in the event of a natural disaster.
Although built to allow Questar companies to continue vital operations,
the new facility can accommodate other tenants that have the same need
to safeguard information and equipment.
Questar, through an affiliate, owns a large office building in
downtown Salt Lake City that is currently being remodeled and enlarged.
The building, when completed, will have over 217,000 square feet of
space and will accommodate 800 employees. All Questar companies have
leased space in this building and will use it as their principal place
of business.
Questar also owns 14.5 acres of commercial real estate in Salt
Lake County which was the site of the Wasatch Chemical clean-up
activities. Although the Company intends to continue owning the
property to minimize any future problems associated with environmental
compliance, it believes that such property can earn attractive returns
when leased.
Questar owns 3.0 million shares of stock issued by Nextel, an
international wireless communication company. The Company acquired this
stock in 1994 when it sold Questar Telecom, a specialized mobile radio
subsidiary, to Nextel. Questar has sold approximately .9 million of its
original 3.9 million shares and intends to continue selling such stock
in favorable market conditions.
Employees
As of December 31, 1996, Questar and its affiliates had 2,452
employees compared to 2,510 at year-end 1995. Of this total, 1,701
worked for the Regulated Services segment, 416 worked for Market
Resources entities, and 335 worked for corporate and Questar InfoComm.
None of these employees is represented under collective bargaining
agreements. Questar has comprehensive benefit plans for its employees.
Employee relations are generally deemed to be satisfactory.
Environmental Matters
Questar and its affiliates are subject to the National
Environmental Policy Act and other federal and state legislation
regulating the environmental aspects of their businesses. During 1996,
Questar continued to be involved in actions involving local and federal
environmental enforcement agencies and allegations of "hazardous waste"
problems. Entrada's liability for contamination is described in "Legal
Proceedings" and in Note 7 in the Notes to Consolidated Financial
Statements. The Company does not believe that environmental protection
provisions will have any significant effect on its competitive position;
it does believe, however, that such provisions have added and will
continue to add to capital expenditures and operating costs.
As noted earlier, Questar is actively promoting the environmental
advantages of natural gas in comparison to other fuels. It has actively
participated in various clean air committees and has promoted the use of
natural gas in automobiles. Questar's management believes that
increasing concerns about environmental pollution will result in an
increased demand for natural gas.
Research and Development
Mountain Fuel has the primary responsibility for the Company's
research and development activities. It evaluates gas conversion
equipment, gas piping, and engines using natural gas and also evaluates
technological developments with electrical appliances. In addition to
conducting research activities and funding research activities of
entities in which the Company has an equity position, Questar and its
affiliates also contribute to research and development projects of
industry associations, e. g., the Gas Research Institute. The total
dollar amount spent by Questar on research and development activities
either directly or through contributions is not material.
Oil and Gas Operations
Oil and gas operations are material to the business functions and
financial condition of Questar. (All information set forth below
relates to the Company on a consolidated basis.) Certain information
concerning the Company's oil and gas operations is presented in Note 12
in the Notes to Consolidated Financial Statements. The Company does not
have any long-term supply contracts with foreign governments or reserves
of equity investees.
Reserve Reports. The following is a reconciliation of reserve
quantities reported in Note 12 in the Notes to Consolidated Financial
Statements and reserve quantities reported to other regulatory agencies:
Questar is reporting 744 Bcf of natural gas reserves at year-end
1996. This total represents the net revenue interest of all owned
reserves and includes quantities attributable to cost-of-service
properties.
Mountain Fuel files information using a FERC Form 2 format with
the PSCU and PSCW and lists gas reserves of 420 Bcf (working interest)
at December 31, 1996, which include reserves attributable to royalty
interests. The 359.9 Bcf (net revenue interest) reported as
cost-of-service gas reserves in Note 12 exclude reserves attributable to
royalty interests.
Questar Pipeline files a Form 2 (Annual Report) with the FERC.
The Form 2 discloses Questar Pipeline's cushion gas of 59.1 Bcf at
December 31, 1996. This gas is not included in the total reserve
number.
Oil and Gas Production 1/
1996 1995 1994
Natural gas (MMcf) 77,259 69,295 75,094
Oil (MBbl) 2,558 2,493 2,507
1/ Production quantities from all properties, including
cost-of-service properties.
Average Sales Price 2/
1996 1995 1994
Natural gas per Mcf $1.53 $1.33 $1.78
Oil per Bbl 18.80 15.96 14.76
2/ Average sales price is calculated on production excluding
cost-of-service volumes.
Average Production (Lifting) Cost. The average production cost
Mcfe excludes costs and volumes associated with production of
cost-of-service reserves. One barrel of oil equals the energy content
of 6,000 cubic feet of gas.
1996 1995 1994
Production cost per Mcfe $.62 $ .57 $ .52
Producing Wells at December 31, 1996.
Gas Oil
Gross wells 2,705 3,228
Net wells 958 516
The numbers for gross wells include 129 wells with multiple
completions.
Leasehold Acreage at December 31, 1996. Questar can retain its
interest in undeveloped acreage by either drilling activity that
establishes commercial production or by the payment of delay rentals. A
portion of the unproved acreage may be allowed to lapse prior to the
primary terms of the lease. Leasehold acreage is located in the United
States and Canada. Approximately 90 percent of the U. S. unproved
acreage consists of federal and state leases that generally have
ten-year terms. The remaining 10 percent is attributable to fee leases
that generally have three- to five-year terms. About 28 percent of the
unproved acreage is scheduled to expire within the next five years if no
drilling or development activity is undertaken. Substantially all the
Canadian unproved acreage is related to Crown or government leases,
which provide for five-year terms.
The following chart lists the Company's consolidated productive
and unproved acreage by state (United States) and by province (Canada):
State Productive Unproved
Gross Net Gross Net
Arizona 480 450
Arkansas 3,171 1,237 588 763
California 4,725 994
Colorado 191,554 127,432 200,047 95,308
Idaho 44,175 10,650
Illinois 25,575 1,340 13,836 4,150
Indiana 1,420 495 1,696 468
Kansas 187,074 49,969 1,791 2,475
Kentucky 5,131 715 17,245 7,007
Louisiana 11,610 8,538 238
Michigan 3,814 270 6,091 1,294
Minnesota 313 104
Mississippi 25,066 21,324 200
Montana 59,056 13,152 344,891 60,906
Nebraska 3,399 1,381 162,065 44,495
Nevada 520 440 1,845 1,707
New Mexico 135,597 72,602 33,140 14,057
New York 24,271 231
North Dakota 41,098 1,352 157,568 23,719
Ohio 2,633 202 43
Oklahoma 1,410,257 239,984 36,705 24,306
Oregon 43,868 7,670
Pennsylvania 763
South Dakota 9,218 147 204,490 107,055
Texas 249,569 77,293 15,744 7,956
Utah 69,810 39,795 157,260 51,134
Washington 26,631 10,046
West Virginia 11,040 114 192
Wyoming 233,601 139,418 405,416 238,411
Total 2,705,247 796,998 1,881,435 715,406
Province Productive Unproved
Gross Net Gross Net
Alberta 31,040 9,756 78,880 26,869
British Columbia 23,025 5,367 24,312 7,924
Saskatchewan 355 142 966 516
Total 54,420 15,265 104,158 35,309
Net Productive and Dry Wells Drilled.
Exploratory Wells Development Wells
1996 1995 1994 1996 1995 1994
Productive 6 2 1 62 24 31
Dry 1 3 1 10 1 5
Total 7 5 2 72 25 36
Present Activities. At year-end 1996, Questar affiliates had a
working interest in 26 wells waiting on completion and 3 wells being
drilled.
Delivery Commitments. Mountain Fuel is obligated to deliver
natural gas to approximately 618,200 customers in Utah, Wyoming and
Idaho, but future quantities associated with such service are neither
fixed nor determinable.
The three E&P companies sell a majority of their noncost-of-service
oil and gas production through Questar Energy Trading on the spot-market
or under short-term contracts that provide for price readjustments.
ITEM 3. LEGAL PROCEEDINGS
There are various legal proceedings pending against the Company
and its affiliates. While it is not feasible to predict or determine
the outcome of these proceedings, the Company's management believes that
the outcome will not have a material adverse effect on the Company's
financial position.
Questar, Entrada, and Mountain Fuel have each been named a
"potentially responsible party" for contaminants on property owned by
Entrada in Salt Lake City, Utah. 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. The
underlying lawsuits seek declaratory relief that the named potentially
responsible parties, including the Questar affiliates and unrelated
parties, are liable for the expense of the investigation and clean-up.
The consent order was agreed to by Questar, Entrada, and other
affiliates as well as the Utah Department of Health and the
Environmental Protection Agency. Entrada has settled with the named
unrelated parties and has assumed the liability of such parties.
During 1996, 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 recorded all
costs spent on the matter and has 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 any future clean-up costs.
Mountain Fuel, as a result of acquiring Questar Pipeline's gas
purchase contracts, is responsible for any judgment rendered against
Questar Pipeline that resulted from an adverse jury verdict in a case
heard in Wyoming's federal district court. The jury, in late 1994,
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. The presiding judge has not yet issued a
decision concerning the competing forms of judgment submitted by the
opposing parties. Mountain Fuel expects that any amounts arising from
the breach of contract claims will be included in its gas balancing
account and recovered in its rates for natural gas service.
The producer involved recently filed a new lawsuit against Questar
and its affiliates. This lawsuit was also filed in Wyoming's federal
district court and presents some of the same claims heard in the last
case for the time period since the first lawsuit. It also involves new
claims of fraud and antitrust violations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of stockholders
during the last quarter of 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Information concerning the market for the common equity of the
Company and the dividends paid on such stock is located in Note 13 in
the Notes to Consolidated Financial Statements. As of March 14, 1997,
Questar had 11,332 shareholders of record and estimates that it had an
additional 13,000-15,000 beneficial holders.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994 1993 1992
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
Revenues $817,981 $649,287 $670,318 $660,430 $591,346
Operating expenses
Natural gas and other product
purchases 314,271 199,419 212,528 224,500 201,018
Other expenses 332,087 307,842 303,132 287,636 252,792
Total operating expenses 646,358 507,261 515,660 512,136 453,810
Operating income $171,623 $142,026 $154,658 $148,294 $137,536
Write-down of investment in
Nextel Communications $(61,743)
Income from continuing operations $98,145 $83,786 $49,417 $84,464 $73,771
Gain from sale of Questar Telecom
to Nextel Communications 38,126
Loss from discontinued operations (2,772) (2,437)
Cumulative effect of change in
accounting for income taxes 9,303
Net income $98,145 $83,786 $87,543 $81,692 $80,637
Earnings per common share
Income from continuing operations $2.39 $2.05 $1.21 $2.10 $1.85
Gain from sale of discontinued
operations 0.95
Loss from discontinued operations (0.07) (0.06)
Cumulative effect 0.23
Net income $2.39 $2.05 $2.16 $2.03 $2.02
Dividends per common share $1.19 $1.16 $1.13 $1.09 $1.04
Book value per common share 18.82 17.51 16.17 14.99 13.92
Total assets 1,816,225 1,584,553 1,585,575 1,417,687 1,320,358
Net cash provided from operating
activities 182,921 204,171 163,375 194,982 160,179
Capital expenditures $291,835 $118,188 $276,882 $168,388 $180,061
Capitalization
Long-term debt $555,509 $421,695 $494,684 $371,713 $364,594
Redeemable cumulative preferred
stock 4,828 4,957 6,324 7,525 8,726
Common stock 772,085 712,675 653,589 601,942 553,810
Total capitalization $1,332,422 $1,139,327 $1,154,597 $981,180 $927,130
</TABLE>
Note - Selected financial data for 1992 has been reclassified for
the reporting of discontinued operations.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SUMMARY
Questar Corporation reported 1996 net income of $98,145,000 or
$2.39 per share compared with $83,786,000, or $2.05 per share in
1995 and $87,543,000, or $2.16 per share in 1994.
The Company reorganized its major lines of business in 1996 into
the two primary groups consisting of Market Resources and Regulated
Services. Also, natural gas-gathering activities were transferred
from the Regulated Services group, transmission operations, to the
Market Resources group. Financial statements for prior years were
reclassified to reflect the transfer. Consolidated net income was
not affected by the transfer.
Market Resources, which includes nonregulated energy activities,
earned $41,762,000 in 1996 compared with $35,295,000 in 1995 and
$44,831,000 in 1994. Higher gas and oil prices and production and
increased energy-marketing activities resulted in an 18%
improvement in 1996 income.
Regulated Services, consisting of natural gas distribution and
natural gas transmission operations, reported a 15% increase in
1996 earnings to $51,631,000 compared with 1995 results of
$44,936,000 due primarily to higher heating demand, customer
additions, cost containment and recent rate case settlements.
Regulated Services reported net income of $44,566,000 in 1994.
Other operations reported net income of $4,752,000 in 1996 compared
with $3,555,000 in 1995 and a $1,854,000 net loss in 1994,
excluding the write down of the investment in Nextel
Communications. The higher 1996 earnings resulted primarily from
increased sales of Nextel shares.
Net cash provided from operating activities decreased to
$182,921,000 in 1996 from $204,171,000 in 1995 due to working
capital requirements associated with higher gas costs and
increased marketing activities. Capital expenditures amounted to
$291,835,000 in 1996, including acquisitions of gas-and- oil
reserves and facilities for $164,328,000, and were primarily
financed through issuance of long-term debt. Capital spending for
1997 is projected to reach $273,000,000 and to be financed with
cash flow from operations, bank loans and long-term debt.
Long-term debt represented 42% of consolidated capitalization at
December 31, 1996.
RESULTS OF OPERATIONS
MARKET RESOURCES - Celsius Energy, Universal Resources, Wexpro,
Questar Energy Trading, Questar Energy Services and Questar Gas
Management (Market Resources group) conduct the Company's
exploration and production, energy marketing and services, and gas
gathering and processing operations. Following is a summary of
financial results and operating information:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
(Dollars In Thousands)
<S> <C> <C> <C>
OPERATING INCOME
Revenues
Natural gas and oil production $109,015 $82,395 $103,196
Energy marketing 286,042 154,439 160,961
Cost-of-service gas operations 53,119 59,831 57,870
Gas gathering and processing 31,851 31,352 31,962
Other 4,056 3,852 2,175
Total revenues 484,083 331,869 356,164
Operating expenses
Energy purchases 272,610 146,676 154,532
Operating and maintenance 66,741 58,295 55,675
Depreciation and amortization 58,590 53,747 51,942
Oil-income sharing 2,768 3,400 3,391
Other taxes 19,034 17,977 21,938
Total expenses 419,743 280,095 287,478
Operating income $64,340 $51,774 $68,686
OPERATING STATISTICS
Production volumes
Natural gas (in MMcf) 40,519 32,663 37,659
Oil and natural gas
liquids (in Mbbls) 2,502 2,436 2,442
Production revenue
Natural gas (per Mcf) $1.53 $1.33 $1.78
Oil and natural gas
liquids (per bbl) $18.80 $15.96 $14.76
Energy marketing volumes
Natural gas (in Mdth) 141,414 109,374 88,941
Oil (in Mbbl) 1,471
Electricity (in MMwh) 204
Natural gas-gathering volumes (in Mdth)
For unaffiliated customers 48,525 39,028 39,800
For Mountain Fuel 30,199 31,691 32,098
For other affiliated customers 8,794 5,949 12,085
Total gathering 87,518 76,668 83,983
Gathering revenue (per dth) $0.24 $0.28 $0.28
</TABLE>
Market Resources' revenues increased 46% in 1996 to $484,083,000
when compared with 1995 revenues of $331,869,000 primarily due to
higher gas and oil production and prices and increased
energy-marketing activities. Gas production increased 24% to 40.5
billions cubic feet (Bcf) and oil and NGL production increased 3%
or 66,000 barrels (bbls) in 1996. Gas production increased 4.3
Bcf and oil production increased 152,000 bbls in the fourth
quarter of 1996 largely as a result of two acquisitions totaling
$164 million. The two acquisitions added 194 billion cubic feet
equivalent (Bcfe) of gas and oil reserves. The Company purchased
producing properties and facilities in Texas, Oklahoma and
Louisiana for $112 million, which added 157 Bcfe of reserves. The
other purchase, involving Canadian properties primarily located in
the Alberta, Canada region, cost $52 million and added 37 Bcfe of
reserves.
The Market Resources group achieved a five-year average finding
cost of $.70 per Mcfe in 1996 compared with $.65 per Mcfe in 1995.
A strategy of acquisition, exploration and development resulted in
reserve additions of 235 Bcfe and a production-replacement ratio
of 416% for noncost-of-service activities in 1996.
Noncost-of-service activities added 33 Bcfe of gas and oil
reserves in 1995 reflecting a 67% production-replacement ratio.
Prices for gas and oil were higher for the 12 months of 1996 when
compared with the same period of 1995. Prices rebounded in 1996
in response to higher demand. As a result of weak gas prices in
the Rocky Mountain region in 1995, the Company shut in gas
production which resulted in lower 1995 revenues. Revenues were
$24,295,000 lower in 1995 when compared with the same period in
1994. The average selling price of natural gas in 1995 was $1.33
per thousand cubic feet (Mcf), 25% below the average price for
1994.
Energy-marketing revenues increased 85% in 1996 when compared with
1995 after decreasing 4% in 1995 when compared with 1994. The
volume of gas marketed in 1996 was 29% ahead of 1995 because of
increased efforts to utilize undersubscribed natural gas-pipeline
capacity. Gas-marketing volumes increased 23% in 1995 when
compared with 1994 because of purchasing low-cost gas on the open
market. The Market Resources group shut in a portion of its gas
production in 1995 and substituted low-cost purchased gas in the
place of Company-produced gas for delivery on fixed-price
contracts. The Market Resources group also markets oil and
electricity.
The Market Resources group periodically enters into swaps, futures
contracts or option agreements to hedge its exposure to price
fluctuations in connection with marketing production of natural
gas and oil, and to secure a known margin for the purchase and
resale of gas and oil in marketing activities. Face value of these
contracts at December 31, 1996 was $197.1 million, which exceeded
market value by $11 million. Some of these contracts will extend
through June 1999, but the majority, 97%, will expire by the end
of 1997. At year-end 1996, Market Resources had hedges or
fixed-price contracts in place for roughly 66% of its January 1997
gas production at an average price of $1.64 per Mcf to the
wellhead. Approximately 60% of Market Resources' January 1997 oil
production was hedged or under fixed-price contracts at $18.03 per
bbl at year-end 1996. The previously mentioned hedges and
fixed-price contracts assume selling prices are at the lower end
of the contract range.
Revenues from Wexpro's cost-of-service gas operations declined by
11% in 1996 when compared with 1995 primarily due to a drop in
drilling activity in the Rocky Mountains and the related effect on
investment base and operating expenses. Revenues were 3% higher
in 1995 when compared with 1994 because of higher depreciation
charges and operating expenses. Wexpro's net investment in
cost-of-service gas operations was $81,229,000 in 1996,
$89,431,000 in 1995 and $98,134,000 in 1994. Wexpro's after-tax
return on investment in those properties ranges from 14% to 22%,
as described in the Wexpro Settlement Agreement in Note 11 to the
financial statements.
Revenues from gas gathering and processing increased slightly in
1996 when compared with 1995 after decreasing in 1995 when
compared with 1994. The amount of gas gathered increased in 1996
when compared with 1995 as a result of higher selling prices and
improved gas production in the areas served. Gas-gathering
volumes declined in 1995 as a result of some gas producers
shutting in production in response to the lower gas selling
prices.
Market Resources' operating results for 1996 were reduced by a
$3,516,000 pretax loss associated with its share of the Western
Market Center, which included writing off the investment.
REGULATED SERVICES - Mountain Fuel and Questar Pipeline conduct
the Company's regulated services of natural gas distribution,
transmission and storage. Questar Regulated Services was
organized to provide administrative, financial, technical and
related services to Mountain Fuel and Questar Pipeline. The three
companies comprise the Regulated Services group, which earned
$51,631,000 in 1996, $44,936,000 in 1995 and $44,566,000 in 1994.
Natural Gas Distribution - Mountain Fuel conducts the Company's
natural gas distribution operations. Following is a summary of
financial results and operating information:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
(Dollars In Thousands)
<S> <C> <C> <C>
OPERATING INCOME
Revenues
Residential and commercial sales $328,785 $315,458 $329,576
Industrial sales 18,357 22,479 24,395
Industrial transportation 5,898 6,127 5,665
Other 18,888 18,705 18,624
Total revenues 371,928 362,769 378,260
Natural gas purchases 182,400 190,606 210,507
Revenues less natural gas
purchases 189,528 172,163 167,753
Operating expenses
Operating and maintenance 97,110 93,384 94,094
Depreciation and amortization 28,309 25,469 24,749
Other taxes 8,071 9,588 9,589
Total expenses 133,490 128,441 128,432
Operating income $56,038 $43,722 $39,321
OPERATING STATISTICS
Natural gas volumes (in Mdth)
Residential and commercial sales 80,844 73,950 74,233
Industrial deliveries
Sales 8,584 9,210 8,882
Transportation 49,499 59,569 51,382
Total industrial 58,083 68,779 60,264
Total deliveries 138,927 142,729 134,497
Natural gas revenue (per dth)
Residential and commercial $4.07 $4.27 $4.44
Industrial sales 2.14 2.44 2.75
Transportation for industrial customer 0.12 0.10 0.11
System natural gas cost (per dth) $2.44 $2.16 $2.40
Heating degree days (normal 5,801) 5,307 5,047 5,290
Warmer than normal 9% 13% 9%
Number of customers at end of period 618,231 592,738 572,174
</TABLE>
Revenues, net of gas costs, increased $17,365,000 in 1996 when
compared with 1995 due to higher heating demand, customer
additions, cost containment and a 1995 rate case settlement.
Revenues, net of gas costs, increased $4,410,000 in 1995 when
compared with 1994. Colder temperatures in 1996 were responsible
for an increase in demand for natural gas for heating purposes.
Temperatures, as measured in degree days, were 5% colder in 1996
when compared with 1995. Temperatures were 5% warmer in 1995 when
compared with 1994. In addition to colder temperatures, gas usage
by a typical general-service customer increased by over two
decatherms in 1996.
Mountain Fuel added 25,493 customers in 1996 representing a 4.3%
increase. The number of customers increased by 3.6% in 1995.
Mountain Fuel expects to add about 22,000 customers in 1997.
Through this rapid customer-growth period, Mountain Fuel has
managed its operating expenses through cost-containment measures.
Mountain Fuel and Questar Pipeline have combined functions common
to gas-distribution and gas-transmission operations. These
combined functions are conducted in the recently organized Questar
Regulated Services. In addition, Mountain Fuel undertook a
reorganization of service centers and an early-retirement program
in the first half of 1995. Mountain Fuel closed five regional
offices and reduced functions at five others in an effort to
consolidate and restructure operations.
The provisions of a 1995 rate case settlement with the Public
Service Commission of Utah (PSCU) provided for a
weather-normalization adjustment, a new customer connection fee
and sharing of transportation capacity-release credits. The
weather-normalization adjustment results in an adjustment in
customer bills and company revenues for weather variations above
or below normal temperatures. Under the provisions of the Utah
rate settlement, the weather-normalization adjustment was extended
to all residential and commercial volumes beginning October 1,
1996. Utah residential customers can choose to be exempt from
this adjustment by notifying Mountain Fuel. However, less than 1
percent of Mountain Fuel's residential customers chose this
exemption. Mountain Fuel received approval from the Public
Service Commission of Wyoming to implement a
weather-normalization adjustment for all residential and
commercial customers beginning September 1, 1996. The Utah rate
case was intended to add about $3.7 million in annual revenues.
It also authorized an increase in Mountain Fuel's allowed return
on rate base from 10.08% to between 10.22% and 10.34%.
On January 8, 1997, the Utah Division of Public Utilities
(Division) filed a motion with the PSCU seeking an investigation
into the reasonableness of Mountain Fuel's rates and requesting an
interim rate decrease of $3.5 million. On January 29, 1997, the
Division withdrew its petition and the PSCU accepted that action
after receiving an agreed upon Mountain Fuel filing to reduce
rates and charges by $2.8 million. On February 4, 1997, Mountain
Fuel filed an application with the PSCU to reduce block rates,
eliminate the new-premises fee for multi-family dwellings and
reduce the capacity-release revenues retained by Mountain Fuel
from 20% to 10%. The annual revenue decrease resulting from these
changes is expected to be about $2.85 million. The PSCU approved
the filing effective February 18, 1997.
Gas deliveries to industrial customers decreased by 16% in 1996
when compared with 1995 because of the availability of cheap
electricity from hydropower sources, reducing the use of gas for
electricity generation. Deliveries to industrial customers
increased by 14% in 1995 when compared with 1994 because of strong
economic growth in Mountain Fuel's service area.
Natural Gas Transmission - Questar Pipeline conducts the
Company's natural gas transmission and storage operations.
Following is a summary of financial results and operating
information:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
(Dollars In Thousands)
<S> <C> <C> <C>
OPERATING INCOME
Revenues
Transportation $67,656 $61,749 $61,844
Storage 34,280 31,276 27,620
Other 2,242 1,747 1,645
Total revenues 104,178 94,772 91,109
Operating expenses
Operating and maintenance 39,959 34,003 31,949
Depreciation and amortization 14,206 12,911 12,053
Other taxes 2,519 3,370 3,621
Total expenses 56,684 50,284 47,623
Operating income $47,494 $44,488 $43,486
OPERATING STATISTICS
Natural gas transportation volumes (in Mdth)
For unaffiliated customers 131,895 151,943 129,250
For Mountain Fuel 100,161 79,872 75,941
For other affiliated customers 44,327 38,839 45,093
Total transportation 276,383 270,654 250,284
Transportation revenue (per dth) $0.24 $0.23 $0.25
Clay Basin storage, working gas-
volumes (in Bcf) 46.3 46.3 41.8
</TABLE>
A rate increase and expanded firm gas-storage activities resulted
in higher revenues in 1996 when compared with 1995. Questar
Pipeline filed for a rate increase with the Federal Energy
Regulatory Commission (FERC) on July 31, 1995. It began
collecting revenues under the new rate structure, subject to
refund, February 1, 1996. The FERC approved a rate settlement
July 1, 1996 which included a stated return on equity of 11.75%
and allowed Questar Pipeline to collect a greater share of costs
from firm-transportation customers. The new rate structure adds
approximately $5.9 million to annual revenues.
A majority of Questar Pipeline's transportation capacity has been
reserved by firm-transportation customers. Approximately 88% of
firm-transportation capacity was reserved at year-end 1996, which
is equivalent to full pipeline usage at city-gate distribution
points. Mountain Fuel has reserved transportation capacity from
Questar Pipeline of approximately 800,000 decatherms per day, or
about 72% of the total reserved daily-transportation capacity
through 1999. Firm-transportation customers can release that
capacity to third parties when it is not required for their own
needs. Interruptible-transportation revenues have been lower in
1996 and 1995 as a result of a shift by customers from
interruptible-transportation service to a higher-quality
capacity-release service.
Storage revenues increased $3,004,000 in 1996. In addition to a
rate increase, firm-storage capacity increased from 41.8 Bcf to
46.3 Bcf in May 1995, resulting in higher revenues in 1996 from a
full 12 months of billings to customers. Storage revenues
increased $3,656,000 in 1995 as a result of increased capacity at
the Clay Basin storage reservoir. Storage capacity at year-end
1996 was 100% subscribed, with some contracts extending through
the year 2025. Mountain Fuel has reserved 27% of firm-storage
capacity through 2019. In 1997, Questar Pipeline began offering a
more flexible interruptible-storage service. Interruptible
service will utilize capacity that is temporarily not required by
firm-service customers. Questar Pipeline will retain 25% of the
interruptible-service revenues and credit the remaining 75% to
firm-storage customers.
Questar Pipeline purchased an 18% interest in the Overthrust
Pipeline partnership from Columbia Gulf Transmission Company in
1996, bringing its ownership in the transmission line to 36%.
OTHER OPERATIONS - Following is a summary of the results from
Questar's other operations:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
(In Thousands)
<S> <C> <C> <C>
Corporate and other net income (loss) $4,752 $3,555 $(39,980)
Gain from sale of Questar Telecom 38,126
Other operations reported net income of $4,752,000 for 1996
compared with $3,555,000 for 1995 and a net loss of $1,854,000 for
1994, excluding the write-down of investment in Nextel
Communication (Nextel). Sales of Nextel shares and FCC licenses
were the primary reasons for the earnings reported for 1996 and
1995. The Company sold 620,000 shares of Nextel in 1996 and
300,000 shares in 1995. The net loss reported in 1994 was largely
the result of operating losses reported by FuelMaker. The Company
wrote off its investment in FuelMaker in the fourth quarter of
1994. The write-off of investment and a note receivable totalled
$3,368,000 and were offset by income tax benefits, resulting in no
effect to net income.
In the third quarter of 1994, Questar Corporation sold Questar
Telecom to Nextel in exchange for 3.9 million shares of Nextel
common stock, reporting a $38.1 million after-tax gain from the
sale. At year-end 1994, the Company wrote down its investment in
Nextel by $61.7 million before income taxes, or $.95 per share
after income taxes. Since Questar Telecom represented all of
Questar's specialized-mobile-radio operations, these operations
were disclosed as discontinued on Questar's financial statements.
The Company was named a potentially responsible party in an
environmental clean-up action involving a site in Salt Lake City.
The site was the location of chemical operations conducted by
Entrada's Wasatch Chemical Division, which ceased operation in
1978. Remediation began in 1994 under a plan approved by both the
Environmental Protection Agency and the Utah Department of Health.
Clean-up of the site was completed in 1996. Future efforts will
be focused on maintenance of a groundwater filtration system at
the site. Settlements were reached with the other major
potentially responsible parties and an accrual was established for
the remedial work costs. Management believes that current accruals
of $5,094,000, recorded in other liabilities, will be sufficient
for estimated remaining clean-up and site-maintenance costs, which
are expected to be incurred over the next several years. Total
cost of the clean-up project through December 31, 1996 was
$21,852,000. The Company has made claims and collected amounts
from insurance companies throughout most of the clean-up process.
At December 31, 1996, the receivable from an insurance company
amounted to $4,683,000 for expected payments related to the
Wasatch Chemical cleanup. Additional amounts may be collected from
the insurance company if future clean-up costs are higher than
anticipated.
CONSOLIDATED OPERATING RESULTS
Revenues: Consolidated revenues rose 26% to $817,981,000 in 1996
when compared with 1995 because of increases in energy-marketing
revenues, revenues from the production of gas and oil, and natural
gas-distribution sales. Consolidated revenues in 1995 were 3%
lower than the amount reported in 1994 because of lower natural
gas selling prices and production.
Natural gas and other product purchases: Natural-gas and other
product purchases increased by $114,852,000 or 58% in 1996 when
compared with 1995. This reflected a higher level of product
purchases for resale in the energy-marketing activities and the
increased volumes and costs of natural gas sold to distribution
customers. Natural-gas purchases declined 6% in 1995 when compared
with 1994 due primarily to lower gas costs.
Operating and maintenance expenses: Operating and maintenance
expenses increased 9% in 1996 when compared with 1995 and 3% in
1995 when compared with 1994. The primary causes of the higher
expenses were producing-property additions by the Market Resources
group, the growth in number of customers and territory served by
Mountain Fuel, and the expansion of natural-gas transmission
operations. The Regulated Services group's cost-containment
efforts, including the combination of shared services, have
somewhat mitigated the escalation of operating expenses. Operating
costs in 1994 were partially offset by $6,000,000 of
gas-production credits obtained by selling gas from a discontinued
pressure-maintenance project. Selling gas from the project ended
in the second quarter of 1995 after reducing expense $1,500,000 in
that year.
Depreciation expenses and other taxes: Depreciation and
amortization expenses increased 9% in 1996 as the result of
increased capital investment and higher gas-and-oil production
rates. Depreciation expenses were 3% higher in 1995 when compared
with 1994 due largely to increased investment in natural
gas-distribution and natural gas-transmission facilities. This
was partially offset by lower gas production by the Market
Resources group. The full-cost amortization rate was $.79 per
Mcfe in 1996, $.80 per Mcfe in 1995 and $.78 per Mcfe in 1994.
Other taxes decreased in 1996 due to settlements with local taxing
agencies that reduced property taxes by $2,160,000. Lower gas
prices in 1995 caused a reduction in other taxes by decreasing
production-related taxes when compared with 1994.
Interest and other income: Interest and other income of
$12,967,000 was $4,347,000 lower in 1996 when compared with 1995
due primarily to the following transactions:
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995 1994
(In Thousands)
<S> <C> <C> <C>
Sales of Nextel and other securities $6,265 $4,438
Settlement of gas-sales contracts 4,315
Gain from the sales of FCC licenses and equipment 702 1,239
Costs associated with development of new projects 176 (2,310) $(2,110)
One-time reduction of gas costs 5,589
Return earned on working-gas inventory 1,827 2,697 2,294
Earnings (losses) of equity investees 927 1,561 (1,555)
Write-off of Western Market Center (2,970)
Write-off of FuelMaker (3,368)
Gains (losses) from selling excess properties 1,642 (141) (57)
Interest income 4,398 5,515 4,164
$12,967 $17,314 $4,957
</TABLE>
Income taxes: The effective combined federal and state income-tax
rate was 31.6% in 1996, 28.1% in 1995 and 14.9% in 1994.
Income-tax rates were below the statutory rate of about 38%,
primarily due to tight-sands production tax credits. These income
tax credits were received from production of gas from certain
properties. Credits of $9,491,000 for 1996, $8,395,000 for 1995
and $10,289,000 for 1994 increased net income by reducing
income-tax expenses. The lower effective tax rate reported in
1994 was due to the effect of these credits on lower pre-tax
income.
Robert E. Kadlec is a member of the Boards of Directors of Questar
Corporation and BC Gas Inc. and former President and Chief
Executive Officer of BC Gas Inc. BC Gas has several contracts to
purchase gas from the Market Resources group during portions of
the 1995-1996 and 1996-1997 winter-heating seasons and also has
long-term contracts with Questar Pipeline for storage service. The
Company and BC Gas are former owners of FuelMaker Corporation.
The Company sold its interest in FuelMaker during 1995.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided from operating activities decreased to
$182,921,000 in 1996 from $204,171,000 in 1995 due largely to
working capital requirements associated with higher gas costs and
increased marketing activities. Capital expenditures amounting to
$291,835,000 in 1996, including acquisitions of gas-and-oil
reserves and facilities for $164,328,000, were financed primarily
through issuance of long-term debt. Long-term debt increased
$119,515,000 in 1996 and represented 42% of consolidated
capitalization at December 31, 1996.
Operating Activities:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
(In Thousands)
<S> <C> <C> <C>
Net cash provided from operating
activities $182,921 $204,171 $163,375
</TABLE>
Net cash provided from operating activities of $182,921,000
declined 10% or $21,250,000 when compared with the amount reported
for 1995. Decreased cash flow from operating assets and
liabilities more than offset the increased cash flow from higher
net income. The amount received in distribution rates for recovery
of gas costs did not keep pace with market prices of natural gas.
In addition, growing energy-marketing sales consumed more working
capital in 1996. In 1995, net cash provided from operating
activities was 25% more than the previous year because of an
increase in noncash expenses and a reduction in accounts
receivable.
Investing Activities:
Capital expenditures reached a record level in 1996 largely the
result of acquiring gas-and-oil properties by the Market Resources
group. The 147% growth over the 1995 level was fueled by a
rebound in energy prices and the accompanying improved project
economics. Following is a summary of capital expenditures for
1996 and 1995, plus a forecast for 1997:
<TABLE>
<CAPTION>
Year Ended December 31,
1997
Estimated 1996 1995
(In Thousands)
<S> <C> <C> <C>
Market Resources group
Exploration $15,500 $14,768 $6,144
Development 32,800 9,955 11,190
Reserve acquisitions 21,500 154,374 731
Production 8,900 3,641 3,502
Gas gathering and processing 47,100 4,566 5,661
Cost-of-service gas development 2,800 2,794 3,199
General and other 2,700 1,694 855
131,300 191,792 31,282
Regulated Services group
Natural gas distribution
New-customer service 33,400 29,152 24,950
Distribution system 10,200 10,594 9,981
Buildings 5,000 1,902 3,473
Computer software and hardware 8,200 7,321 5,121
General 7,200 2,688 7,888
64,000 51,657 51,413
Natural gas transmission
Transmission system 24,600 18,173 15,216
Storage 1,700 1,466 2,500
Partnerships 5,300 2,890 506
General 3,200 1,279 4,924
34,800 23,808 23,146
Other operations
General office building 6,000 14,861 2,433
Special projects 25,000
Other 11,700 9,717 9,914
42,700 24,578 12,347
$272,800 $291,835 $118,188
</TABLE>
Market Resources
The Market Resources group acquired 194 Bcfe of gas and oil
reserves and related facilities and participated in drilling of
108 wells in 1996. The drilling program resulted in 48 gas wells,
20 oil wells, 11 dry holes and 29 wells in progress at year-end
with a success rate of 86%.
Regulated Services - Natural gas distribution
Mountain Fuel's capital spending program was primarily in response
to a record increase in the number of customers served. Mountain
Fuel extended its system by 658 miles of main, feeder and service
lines in 1996.
Regulated Services - Natural gas transmission
Questar Pipeline's 1996 capital expenditures included replacement
and expansion of sections of gas mainlines, completion of the Clay
Basin storage project and cushion-gas injection, storage well
workovers and an additional 18% interest in Overthrust Pipeline.
Other Operations
Remodeling corporate offices and construction of a fiber-optic
communication line represented the largest part of capital
spending for other operations.
Financing Activities:
Funding for 1996 capital spending of $291,835,000 was obtained
from both internal and external sources. Net cash flow provided
from operating activities, plus the cash raised from selling
excess assets less dividends, amounted to $157,561,000. The
remaining funding was provided from borrowings under long-term
debt arrangements and issuing common stock, primarily through a
dividend-reinvestment plan. In addition to funding capital
expenditures in 1996, a $19,000,000 scheduled repayment of
long-term debt was made. Capital expenditures for 1997 will be
funded with cash generated internally and through the dividend
reinvestment plan, short- and long-term borrowings and continued
sales of Nextel stock.
The Company has short-term line-of-credit arrangements with
several banks under which it may borrow up to $145,200,000. These
lines have interest rates generally below the prime interest rate
and are renewable in 1997 and 1998. The balance of short-term
bank loans and commercial paper outstanding amounted to
$77,800,000 with a weighted average interest rate of 5.73% at
December 31, 1996. The balance of short-term bank loans and
commercial paper outstanding amounted to $77,200,000 with a
weighted average interest rate of 5.99% at December 31, 1995.
Commercial-paper borrowings are backed by the short-term
line-of-credit arrangements, and rated P-1 and A-1 by Moody's and
Standard and Poor's, respectively.
At December 31, 1996, an additional $84,500,000 of commercial
paper having an average interest rate of 5.67% was classified as
long-term debt because refinancing negotiations were substantially
completed by year-end 1996. The borrowing capacity of the
revolving-credit loan agreement at Market Resources was increased
from $130 million to $200 million, and the maturity was extended
to 2002. In addition, a subsidiary of Questar issued a $31
million 7.11% senior secured note due 2012.
The Company typically has negative net working capital at the end
of the year because of short-term borrowings. These borrowings
are seasonal and generally peak at the end of December because of
cold-weather gas purchases.
Questar had a consolidated capital structure consisting of 42%
long-term debt and 58% common shareholders' equity at December 31,
1996. Moody's and Standard and Poor's have rated Mountain Fuel's
and Questar Pipeline's long-term debt A-1 and A+, respectively.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this Item are submitted in a
separate section of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company 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
The information requested in this item concerning Questar's
directors is presented in the Company's definitive Proxy Statement under
the section entitled "Election of Directors" and is incorporated herein
by reference. A copy of the definitive Proxy Statement will be filed
with the Securities and Exchange Commission on or about April 7, 1997.
The following individuals are serving as executive officers of the
Company:
Primary Positions Held with
Name the Company and Affiliates
R. D. Cash 54 Chairman of the Board of Directors (May
1985); President and Chief Executive Officer,
Director (May 1984); Chairman of the Boards
of Directors, all affiliates.
D. N. Rose 52 President and Chief Executive Officer,
Mountain Fuel (October 1984); President and
Chief Executive Officer, Questar Pipeline
(March 1997); President and Chief Executive
Officer, Regulated Services (December 1996);
Executive Vice President, Questar (February
1996); Senior Vice President, Questar (May
1985 to February 1996); Director (May 1984);
Director, Mountain Fuel (May 1984), and
Questar Pipeline (May 1996).
Gary L. Nordloh 49 President and Chief Executive Officer,
Wexpro, Celsius, Universal Resources, Questar
Gas Management, Questar Energy Trading,
Questar Energy Services, and Celsius Ltd. (at
various times beginning in March 1991);
Executive Vice President, Questar (February
1996); Senior Vice President, Questar (March
1991 to February 1996); Director, (October
1996); Director, Entrada (May 1991), Questar
Pipeline (May 1996), all Market Resources
subsidiaries (various times beginning in June
1989).
Clyde M. Heiner 58 Senior Vice President, Questar (May 1984);
President and Chief Executive Officer,
Questar InfoComm (February 1993); Director,
Entrada (May 1984) and Questar InfoComm
(February 1993).
S. E. Parks 45 Vice President, Treasurer and Chief Financial
Officer, Questar and all affiliates (February
1996); Treasurer, Questar and affiliates (at
various dates beginning in May 1984);
Director, Celsius and Universal Resources
(May 1996).
G. G. Sackett 56 Vice President and General Counsel (February
1997); Associate General Counsel (May 1980 to
February 1997) and Assistant Vice President
(May 1986 to February 1997).
Connie C. Holbrook 50 Vice President and Corporate Secretary
(October 1984); Corporate Secretary, Mountain
Fuel and other affiliates (at various dates
beginning in March 1982); Director, Celsius
(May 1985) and Universal Resources (June
1987).
There is no "family relationship" between any of the listed
officers or between any of them and the Company's directors. The
executive officers serve at the pleasure of the Board of Directors.
There is no arrangement or understanding under which the officers were
selected. Information concerning compliance with Section 16(a) of the
Securities Exchange Act of 1934, as amended, is presented in the
Company's definitive Proxy Statement under the section entitled "Section
16(a) Compliance" and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information requested in this item is presented in Questar's
definitive Proxy Statement for the Company's 1997 annual meeting, under
the sections entitled "Executive Compensation" and "Election of
Directors" and is incorporated herein by reference. The sections of the
Proxy Statement labelled "Committee Report on Executive Compensation"
and "Cumulative Total Shareholder Return" are expressly not incorporated
into this document.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information requested in this item for certain beneficial
owners is presented in Questar's definitive Proxy Statement for the
Company's 1997 annual meeting under the section entitled "Security
Ownership, Principal Holders" and is incorporated herein by reference.
Similar information concerning the securities ownership of directors and
executive officers is presented in the definitive Proxy Statement for
the Company's 1997 annual meeting under the section entitled "Security
Ownership, Directors and Executive Officers" and is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information requested in this item for related transactions
involving the Company's directors and executive officers is presented in
the definitive Proxy Statement for the Questar's 1997 annual meeting
under the section entitled "Election of Directors."
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.
(a)(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
2.* Plan and Agreement of Merger dated as of December 16,
1986, by and among the Company, Questar Systems
Corporation, and Universal Resources Corporation.
(Exhibit No. (2) to Current Report on Form 8-K dated
December 16, 1986.)
3.1.* Restated Articles of Incorporation effective May 28,
1991. (Exhibit No. 3.2. to Form 10-Q Report for Quarter
ended June 30, 1991.)
3.2.* Bylaws (as amended effective August 11, 1992). (Exhibit
No. 3. to Form 10-Q Report for Quarter ended June 30,
1992.)
4.3.* Rights Agreement dated as of February 13, 1996, between
the Company and Chemical Mellon Shareholder Services L.L.
C. pertaining to the Company's Shareholder Rights Plan.
(Exhibit No. 4. to Current Report on Form 8-K dated
February 13, 1996.)
10.1.* Stipulation and Agreement, dated October 14, 1981,
executed by Mountain Fuel; Wexpro; 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 Mountain Fuel Supply Company's Form 10-K Annual Report
for 1981.)
10.2.*1 Questar Corporation Annual Management Incentive Plan, as
amended and restated effective February 13, 1996.
(Exhibit No. 10.2. to Form 10-K Annual Report for 1995.)
10.3.*1 Questar Corporation Executive Incentive Retirement Plan,
as amended and restated effective February 13, 1996.
(Exhibit No. 10.3. to Form 10-K Annual Report for 1995.)
10.4.*1 Questar Corporation Long-Term Stock Incentive Plan, as
amended and restated effective May 21, 1996. (Exhibit
No. 10.5. to Form 10-Q Report for Quarter ended June 30,
1996.)
10.5.*1 Questar Corporation Executive Severance Compensation
Plan, as amended and restated effective February 13,
1996. (Exhibit No. 10.6. to Form 10-K Annual Report for
1995.)
10.6.*1 Questar Corporation Deferred Compensation Plan for
Directors, as amended and restated effective February 13,
1996. (Exhibit No. 10.7. to Form 10-K Annual Report for
1995.)
10.7.*1 Questar Corporation Supplemental Executive Retirement
Plan, as amended and restated effective February 13,
1996. (Exhibit No. 10.8. to Form 10-K Annual Report for
1995.)
10.8.*1 Questar Corporation Equalization Benefit Plan, as amended
and restated effective February 13, 1996. (Exhibit No.
10.9. to Form 10-K Annual Report for 1995.)
10.9.*1 Questar Corporation Stock Option Plan for Directors, as
amended and restated effective May 21, 1996. (Exhibit
No. 10.10. to Form 10-Q Report for Quarter ended June 30,
1996.)
10.10.*1 Form of Individual Indemnification Agreement dated
February 9, 1993 between Questar Corporation and
Directors. (Exhibit No. 10.11. to Form 10-K Annual
Report for 1992.)
10.11.*1 Questar Corporation Deferred Share Plan, as amended and
restated effective February 13, 1996. (Exhibit No.
10.12. to Form 10-K Annual Report for 1995.)
10.12.*1 Questar Corporation Deferred Compensation Plan, as
amended and restated effective February 13, 1996.
(Exhibit No. 10.13. to Form 10-K Annual Report for 1995.)
10.13.* Agreement and Plan of Reorganization dated April 29,
1994, by and between Nextel Communications, Inc.; Questar
Corporation; Advance MobilComm, Inc.; Robert C. Mearns
and Francis G. Fuson. (Exhibit No. 10.14. to Form 10-Q
Report for Quarter ended June 30, 1994.)
10.14.*1 Questar Corporation Directors' Stock Plan as approved May
21, 1996. (Exhibit No. 10.15. to Form 10-Q Report for
Quarter ended June 30, 1996.)
11. Statement concerning computation of earnings per share.
22. Subsidiary Information.
23. Consent of Independent Auditors.
24. Power of Attorney.
27. Financial Data Schedule.
99.1. Form 11-K Annual Report for the Questar Corporation
Employee Investment Plan.
99.2. Undertakings for Registration Statements on Form S-3 (No.
33-48168) and on Form S-8 (Nos. 33-4436, 33-15149,
33-40800, 33-40801, 33-48169, 333-04913, and 333-04951).
________________________
*/Exhibits so marked have been filed with the Securities and
Exchange Commission as part of the indicated filing and are incorporated
herein by reference.
1/ Exhibit so marked is management contract or compensation plan or
arrangement.
(b) The Company did not file any Current Reports on Form 8-K
during the last quarter of 1996.
<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, 1996
QUESTAR CORPORATION
SALT LAKE CITY, UTAH
FORM 10-K -- ITEM 14 (a) (1) and (2)
QUESTAR CORPORATION AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of Questar
Corporation and subsidiaries are included in Item 8:
Consolidated statements of income -- Years ended December 31,
1996, 1995 and 1994
Consolidated balance sheets -- December 31, 1996 and 1995
Consolidated statements of common shareholders' equity -- Years
ended December 31, 1996, 1995 and 1994
Consolidated statements of cash flows -- Years ended December 31,
1996, 1995 and 1994
Notes to consolidated financial statements
Financial statements schedules, for which provision is made in
the applicable accounting regulation 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
Shareholders and Board of Directors
Questar Corporation
We have audited the accompanying consolidated balance sheets of
Questar Corporation and subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of income and
common shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1996. 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 consolidated
financial position of Questar Corporation and subsidiaries at
December 31, 1996 and 1995, and the consolidated results of their
operations and their cash flows for each of the three years in
the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
As discussed in Notes 1 and 9 to the financial statements,
Questar Corporation changed its method of accounting for certain
equity securities and postemployment benefits in 1994.
/s/ ERNST & YOUNG LLP
Salt Lake City, Utah
February 7, 1997
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C>
REVENUES $817,981 $649,287 $670,318
OPERATING EXPENSES
Natural gas and other product
purchases 314,271 199,419 212,528
Operating and maintenance 196,389 179,725 174,080
Depreciation and amortization 105,209 96,292 93,037
Other taxes 30,489 31,825 36,015
TOTAL OPERATING EXPENSES 646,358 507,261 515,660
OPERATING INCOME 171,623 142,026 154,658
INTEREST AND OTHER INCOME 12,967 17,314 4,957
WRITE-DOWN OF INVESTMENT IN NEXTEL
COMMUNICATIONS - Note 1 (61,743)
DEBT EXPENSE (41,083) (42,815) (39,811)
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 143,507 116,525 58,061
INCOME TAXES - Note 6 45,362 32,739 8,644
INCOME FROM CONTINUING OPERATIONS 98,145 83,786 49,417
GAIN FROM SALE OF DISCONTINUED
OPERATIONS - Note 10 38,126
NET INCOME $98,145 $83,786 $87,543
EARNINGS PER COMMON SHARE
Income from continuing operations $2.39 $2.05 $1.21
Gain from sale of discontinued
operations 0.95
Net income $2.39 $2.05 $2.16
Average common shares outstanding 40,828 40,552 40,292
</TABLE>
See notes to consolidated financial statements
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
December 31,
1996 1995
(In Thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and short-term investments $5,703 $5,122
Accounts receivable 153,931 97,334
Unbilled gas accounts receivable 23,528 25,149
Federal income taxes receivable 997 4,045
Inventories, at lower of average
cost or market
Gas stored underground 14,141 18,829
Materials and supplies 8,202 9,281
Total inventories 22,343 28,110
Purchased-gas adjustments 24,210
Prepaid expenses and deposits 13,555 10,965
TOTAL CURRENT ASSETS 244,267 170,725
PROPERTY, PLANT AND EQUIPMENT
Market Resources 1,100,070 920,909
Regulated Services - gas distribution 825,121 784,466
Regulated Services - gas transmission 562,711 547,831
Other operations 87,078 77,694
2,574,980 2,330,900
LESS ALLOWANCES FOR DEPRECIATION
AND AMORTIZATION
Market Resources 547,958 494,048
Regulated Services - gas distribution 325,821 302,619
Regulated Services - gas transmission 194,396 183,840
Other operations 29,469 40,272
1,097,644 1,020,779
NET PROPERTY, PLANT AND EQUIPMENT 1,477,336 1,310,121
OTHER ASSETS
Securities available for sale,
approximates fair value - Note 1 38,612 52,745
Investments in unconsolidated
affiliates 19,192 13,720
Unamortized costs of reacquired debt 12,433 13,221
Income taxes recoverable from
customers 11,223 12,162
Other noncurrent assets 13,162 11,859
TOTAL OTHER ASSETS 94,622 103,707
$1,816,225 $1,584,553
</TABLE>
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31,
1996 1995
(In Thousands)
<S> <C> <C>
CURRENT LIABILITIES
Short-term loans - Notes 2 $77,800 $77,200
Accounts payable and accrued expenses
Accounts payable 136,773 80,004
Customer refund 11,886
Other taxes 14,706 13,554
Interest 6,465 7,183
Other 3,867 4,613
Total accounts payable and
accrued expenses 161,811 117,240
Purchased-gas adjustments 9,182
Current portion of long-term debt 4,705 19,004
TOTAL CURRENT LIABILITIES 244,316 222,626
LONG-TERM DEBT, less current
portion - Notes 2 and 5 555,509 421,695
OTHER LIABILITIES
Unbilled gas revenues - Note 8 10,360 15,541
Other - Note 7 25,073 19,159
TOTAL OTHER LIABILITIES 35,433 34,700
DEFERRED INVESTMENT-TAX CREDITS 6,810 7,271
DEFERRED INCOME TAXES - Note 6 197,244 180,629
COMMITMENTS AND CONTINGENCIES - Note 7
REDEEMABLE CUMULATIVE PREFERRED
STOCK - Notes 3 and 5 4,828 4,957
COMMON SHAREHOLDERS' EQUITY - Note 4
Common stock - without par value;
175,000,000 shares authorized;
41,024,887 outstanding in 1996
and 40,697,814 outstanding in 1995 292,613 283,776
Retained earnings 487,799 438,284
Note receivable from employee
investment plan (ESOP) (15,556) (21,238)
Unrealized gain on securities avail-
able for sale, net of income taxes 7,410 11,853
Foreign currency translation adjustment (181)
TOTAL COMMON SHAREHOLDERS' EQUITY 772,085 712,675
$1,816,225 $1,584,553
</TABLE>
See notes to consolidated financial statements
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
<TABLE>
<CAPTIONS>
Unrealized
gain (loss) on Foreign
Note securities Currency
Common Stock Retained Receivable available Translation
Shares Amount Earnings from ESOP for sale Adjustment
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1994 40,169,399 $269,107 $359,637 $(26,802)
Issuance of common stock 270,718 7,813
Purchase of Questar common stock (11,378) (365)
1994 net income 87,543
Payment of dividends
Preferred stock (591)
Common stock - $1.13 per share (45,528)
Income tax benefit of dividends paid
to ESOP 516
Collection of note receivable
from ESOP 2,259
Balances at December 31, 1994 40,428,739 276,555 401,577 (24,543)
Issuance of common stock 290,410 7,841
Purchase of Questar common stock (21,335) (620)
1995 net income 83,786
Payment of dividends
Preferred stock (483)
Common stock - $1.16 per share (47,042)
Income tax benefit of dividends paid
to ESOP 446
Collection of note receivable
from ESOP 3,305
Unrealized gain on securities avail-
able for sale, net of income taxes $11,853
Balances at December 31, 1995 40,697,814 283,776 438,284 (21,238) 11,853
Issuance of common stock 372,167 10,396
Purchase of Questar common stock (45,094) (1,559)
1996 net income 98,145
Payment of dividends
Preferred stock (391)
Common stock - $1.19 per share (48,589)
Income tax benefit of dividends paid
to ESOP 350
Collection of note receivable
from ESOP 5,682
Unrealized gain on securities avail-
able for sale, net of income taxes
net of income taxes (4,443)
Foreign currency translation
adjustment $(181)
Balances at December 31, 1996 41,024,887 $292,613 $487,799 ($15,556) $7,410 $(181)
</TABLE>
See notes to consolidated financial statements
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
(In Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $98,145 $83,786 $87,543
Depreciation and amortization 110,006 101,093 97,567
Deferred income taxes 17,137 16,417 (20,029)
Deferred investment-tax credits (461) (401) (417)
Gain from the sales of securities (6,265) (4,438)
Write-down of investment in Nextel
Communications 61,743
Gain from sale of Questar Telecom to
Nextel Communications (38,126)
218,562 196,457 188,281
Changes in operating assets and
liabilities
Accounts receivable (51,604) 20,598 (4,215)
Inventories 5,767 1,988 (170)
Prepaid expenses and deposits (2,590) 274 (1,013)
Accounts payable and accrued
expenses 44,571 9,313 (10,649)
Federal income taxes 3,048 (5,740) (172)
Purchased-gas adjustments (33,392) (7,889) (8,656)
Other (1,441) (10,830) (31)
NET CASH PROVIDED FROM OPERATING
ACTIVITIES 182,921 204,171 163,375
INVESTING ACTIVITIES
Capital expenditures
Purchase of property, plant and
equipment (287,489) (114,820) (267,515)
Investment in discontinued
operations (8,080)
Other investments (4,346) (3,368) (1,287)
Total capital expenditures (291,835) (118,188) (276,882)
Proceeds from disposition of property,
plant and equipment, and investments 10,418 11,406 12,217
Proceeds from sales of securities 13,202 9,789
NET CASH USED IN INVESTING ACTIVITIES (268,215) (96,993) (264,665)
FINANCING ACTIVITIES
Issuance of common stock 10,396 7,841 7,813
Purchase of Questar common stock (1,559) (620) (365)
Redemption of preferred stock (129) (1,367) (1,201)
Issuance of long-term debt 181,500 2,000 155,000
Repayment of long-term debt (61,985) (55,985) (32,029)
Change in short-term loans 600 (17,700) 16,600
Collection of note receivable
from ESOP 5,682 3,305 2,259
Income tax benefit of dividends paid
to ESOP 350 446 516
Payment of dividends (48,980) (47,525) (46,119)
NET CASH PROVIDED FROM (USED IN)
FINANCING ACTIVITIES 85,875 (109,605) 102,474
CHANGE IN CASH AND SHORT-TERM
INVESTMENTS 581 (2,427) 1,184
BEGINNING CASH AND SHORT-TERM
INVESTMENTS 5,122 7,549 6,365
ENDING CASH AND SHORT-TERM
INVESTMENTS $5,703 $5,122 $7,549
</TABLE>
See notes to consolidated financial statements
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Accounting Policies
Principles of Consolidation: The consolidated financial
statements contain the accounts of Questar Corporation and
subsidiaries (Questar or the Company). Questar is engaged in two
principal lines of business. The Company's exploration and
production, gas gathering and processing, and energy marketing
operations are conducted by the Market Resources group. Market
Resources includes Celsius Energy Company and its Canadian
subsidiary Celsius Energy Resources Ltd (Celsius Energy),
Universal Resources Corporation (Universal Resources), Wexpro
Company (Wexpro), Questar Gas Management Company, Questar Energy
Trading Company and Questar Energy Services Inc. The Company's
natural-gas distribution, transmission and storage operations are
conducted by the Questar Regulated Services Company (Regulated
Services). Regulated Services is a holding company organized in
1996, that provides administrative functions for its two
subsidiaries, Mountain Fuel Supply Company (Mountain Fuel) and
Questar Pipeline Company (Questar Pipeline). Distribution
activities are conducted by Mountain Fuel and transmission and
storage activities are conducted by Questar Pipeline. All
significant intercompany accounts and transactions have been
eliminated in consolidation.
Regulation: 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 Public Service Commission of Idaho has
deferred to the PSCU for rate oversight of this area. Questar
Pipeline is regulated by the Federal Energy Regulatory Commission
(FERC). These regulatory agencies establish rates for the
storage, transportation and sale 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 of rate-regulated businesses 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. Rate-regulated affiliates periodically
collect revenues subject to possible refunds pending final orders
from regulatory agencies. These companies establish 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 present rates are accumulated and
recovered or credited through future rate changes.
Property, Plant and Equipment: Property, plant and equipment are
stated at cost. Celsius Energy and Universal Resources account
for exploration and development activities using the full-cost
accounting method. Under the full-cost method, all costs
associated with the acquisition, exploration and development of
oil and gas reserves are capitalized. If net capitalized costs
exceed the present value of estimated future net revenues from
proved oil and gas reserves plus the fair value of unproved
properties, the excess is expensed. Wexpro uses the
successful-efforts accounting method to account for its
development activities under the terms of the Wexpro settlement
agreement (See Note 11). In 1996, the Company adopted the
provisions of Statement of Financial Accounting Standards (SFAS)
No.121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of" without a significant
impact to operating results, financial position or cash flow.
Celsius Energy and Universal Resources continue to apply
full-cost accounting rules to its gas-and-oil assets, which
include a quarterly full-cost ceiling test. The provisions of
SFAS No. 121 do not supersede full-cost accounting rules.
The provision for depreciation and amortization is based upon
rates that will systematically charge the costs of assets over
their estimated useful lives. The costs of natural gas
distribution, transmission, storage and gathering property,
plant and equipment and processing plants are amortized using the
straight-line method. The costs of gas and oil wells and
leaseholds are amortized using the units-of-production method.
Average depreciation and amortization rates used were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Market Resources
Exploration and production, per
Mcf equivalent
Full-cost amortization rate $0.79 $0.80 $0.78
Wexpro depreciation rate $0.45 $0.44 $0.39
Gas gathering 4.3% 4.5% 4.4%
Regulated Services
Natural gas distribution
Distribution plant 4.1% 3.9% 4.0%
Gas wells, per Mcf $0.16 $0.17 $0.17
Natural gas transmission 3.7% 3.4% 3.4%
Other operations 7.0% 6.8% 9.0%
</TABLE>
Foreign Currency Translation: The local currency is the
functional currency of the Company's foreign operations.
Translation from the foreign currency to U. S. dollars is
performed for balance-sheet accounts using the exchange rate in
effect at the balance-sheet date. Revenue and expense accounts
are translated using an average exchange rate for the period.
Adjustments resulting from such translations are reported as a
separate component of shareholders' equity. Deferred income
taxes have been provided on translation adjustments because the
earnings are not considered to be permanently invested.
Energy Price and Interest Rate Risk Management: The Market
Resources group enters into swaps, futures contracts or option
agreements to hedge exposure to price fluctuations in connection
with marketing of the Company's natural gas and oil production,
and to secure a known margin for the purchase and resale of gas
and oil in marketing activities. There is a high degree of
correlation of such contracts because timing of production and
the hedge contracts is closely matched, and hedge prices are
established in the areas of the Market Resources group's
operations. Recognized gains and losses on hedge transactions are
matched and reported during the same time period as the related
physical transactions. Cash flows from the hedge contracts are
reported in the same category as cash flows from the hedged
assets. The Company does not enter into financial derivatives
for trading purposes.
The Company has entered into interest-rate swaps for the purpose
of managing interest rate exposure. Amounts payable or receivable
under these agreements are recorded as increases or decreases of
interest expense in the accounting period incurred.
Securities Available for Sale: Securities available for sale are
carried at fair value at the balance-sheet date. The Company
records unrealized gains or losses, net of income taxes, as a
separate component of shareholders' equity at the balance-sheet
date based on the market value. Gains or losses resulting from
the sale of securities are included in the determination of
income. Available-for-sale securities at December 31 consisted
of 2,955,950 shares in 1996 and 3,575,950 shares in 1995 of
Nextel Communications common stock. At December 31, 1994,
Questar Corporation wrote-down its investment in Nextel shares to
$37,578,000 to reflect an other-than-temporary decline in value.
Investments in Unconsolidated Affiliates: The Company uses the
equity method to account for investments in affiliates in which
it does not own a controlling interest. Principal affiliates
include: Overthrust Pipeline Company, TransColorado Gas
Transmission Company, Canyon Creek Compression Company, Western
Market Center and Blacks Fork Gas Processing Company. Generally,
the Company's investment in these affiliates equals the
underlying equity in net assets. The Company has written off its
investment in Western Market Center.
Income Taxes: Regulated operations record cumulative increases
in deferred taxes as income taxes recoverable from customers.
Mountain Fuel and Questar Pipeline have adopted procedures with
their regulatory commissions to include under-provided deferred
taxes in customer rates on a systematic basis. Mountain Fuel and
Questar Pipeline use the deferral method to account for
investment-tax credits as required by regulatory commissions.
The Company allocates income taxes to subsidiaries on a
separate-return basis except that subsidiaries are paid for all
tax benefits utilized in the consolidated tax return.
Reacquisition of Debt: Gains and losses on the reacquisition of
debt by rate-regulated affiliates are deferred and amortized as
debt expense over the remaining life of the issue or the life of
the replacement debt in order to match regulatory treatment.
Capitalized Interest: The Company's rate-regulated subsidiaries
capitalize the cost of capital during the construction period of
plant and equipment. The Company's nonrate-regulated
subsidiaries capitalize interest costs during construction of
assets when applicable. Allowance for Funds Used During
Construction amounted to $1,486,000 in 1996, $784,000 in 1995 and
$1,759,000 in 1994.
Stock Plans: No expense is recorded when stock options are
issued because the option price equals the market price on the
grant date.
Earnings Per Common Share: Earnings per common share are
computed by dividing net income less preferred stock dividends by
the weighted average number of common shares outstanding, which
includes ESOP shares, during the year. Common-stock equivalents
in the form of stock options do not have a material dilutive
effect on the earnings-per-share calculations and are excluded
from the computation.
Cash and Short-Term Investments: Short-term investments consist
principally of Euro-time deposits and repurchase agreements with
maturities of three months or less.
Other Information: Operations by line of business are contained
in the section titled "Operations by Line of Business." The
quarterly results of operations are contained in the section
titled "Quarterly Financial and Stock Price Data."
Reclassifications: Certain reclassifications were made to the
1995 and 1994 financial statements to conform with the 1996
presentation.
Note 2 - Debt
The Company has short-term line-of-credit arrangements with
several banks under which it may borrow up to $145,200,000.
These lines have interest rates generally below the prime
interest rate, and most are renewable in 1997 and 1998.
Commercial paper-borrowings are backed by the short-term
line-of-credit arrangements. The details of short-term debt were
as follows:
<TABLE>
<CAPTION>
December 31,
1996 1995
(In Thousands)
<S> <C> <C>
Commercial paper with variable interest
rates
(5.67% at December 31, 1996 and
6.00% at December 31, 1995) $45,000 $67,200
Bank loans with variable interest rates
(5.81% at December 31, 1996 and
5.97% at December 31, 1995) 32,800 10,000
$77,800 $77,200
</TABLE>
At December 31, 1996, an additional $84,500,000 of commercial
paper having an average interest rate of 5.67% was classified as
long-term debt because refinancing negotiations were
substantially completed by year end 1996. The borrowing capacity
of the revolving credit loan agreement at Market Resources was
increased from $130 million to $200 million and the maturity was
extended to 2002. In addition, a subsidiary of Questar issued a
$31 million 7.11% senior note, secured with an office building,
due 2012. The details of long-term debt were as follows:
<TABLE>
<CAPTION>
December 31,
1996 1995
(In Thousands)
<S> <C> <C>
Market Resources
Revolving-credit loan due 2001 with
variable interest rates (6.04% at
December 31, 1996) $120,000 $53,000
Regulated Services - Mountain Fuel
Medium-term notes 7.19% to 8.43%, due
2007 to 2024 175,000 175,000
Regulated Services - Questar Pipeline
9 3/8% debentures due 2021 85,000 85,000
9 7/8% debentures due 2020 50,000 50,000
Questar
Revolving-credit term loan due 1998
with variable interest rates (5.84%
at December 31, 1996) 30,000 43,000
8.25% ESOP notes due 1996 19,000
8.28% ESOP notes due 1997 - 1999 16,000 16,000
Other 170 174
Commercial paper refinanced through
revolving-credit amendment and secured 84,500
Total long-term debt outstanding 560,670 441,174
Less current portion 4,705 19,004
Less unamortized debt discount 456 475
$555,509 $421,695
</TABLE>
Maturities of long-term debt for the five years following
December 31, 1996, are as follows:
(In Thousands)
1997 $4,705
1998 35,305
1999 6,006
2000 8
2001 2,508
Cash paid for interest was $41,338,000 in 1996, $42,487,000 in
1995 and $38,110,000 in 1994.
Note 3 - 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.
8% Series $8.625
(In Thousands)
Balance at January 1, 1994 $5,125 $2,400
1994 redemption of stock (1) (1,200)
1995 redemption of stock (167) (1,200)
1996 redemption of stock (129) -
Balance at December 31, 1996 $4,828 -
Redemption requirements for the five years following December 31,
1996, are as follows:
(In Thousands)
1997 $148
1998 180
1999 180
2000 180
2001 180
Note 4 - Common Stock
Employee Investment Plan: The Employee Investment Plan (ESOP)
allows eligible employees to purchase shares of Questar
Corporation common stock or other investments through payroll
deduction. The Company makes matching contributions of common
stock to the ESOP of approximately 75% of the employees'
purchases and contributes an additional $200 worth of common
stock in the name of each eligible employee. In June 1989, the
Company sold 1,992,884 shares of its common stock (LESOP shares)
to the trustee of the ESOP to prefund its matching obligation for
a 10-year period. This prefunding arrangement combined with the
increase in stock price has enabled the Company to payout an
additional annual contribution of 10% to 68% in excess of the 75%
matching contribution since 1993.
The ESOP trustee financed the purchase of stock by borrowing $35
million from the Company. A note receivable from the ESOP was
recorded as a reduction of common shareholders' equity. At the
same time, the Company borrowed $35 million from a group of
insurance companies. Interest expense on these notes to the
insurance companies totaled $2,109,000 in 1996, and $2,892,000 in
1995 and 1994.
The ESOP is repaying the loan to Questar over 10 years using
Company contributions and dividends on LESOP shares. As the
LESOP loan is repaid, shares are released and allocated to
employee accounts. Employees' accounts are credited with an
equivalent number of shares for dividends paid on allocated LESOP
shares and used by the ESOP to repay the Company. At December
31, 1996, 1,351,946 shares were allocated to employees with the
remaining 640,938 shares unallocated. The Company's contribution
to the ESOP is determined by the amount of debt service required
after considering dividends paid on LESOP shares. Questar's
expense and contribution to the ESOP, dividends paid by the
Company to the ESOP, and income tax benefits for dividends paid
on ESOP shares and dividends paid directly to the ESOP are
summarized below:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
(In Thousands)
<S> <C> <C> <C>
Company's expense and contribution to
the ESOP $3,849 $3,249 $2,956
Dividends paid by the Company to
the ESOP:
Allocated shares $1,571 $1,298 $1,102
Unallocated shares 915 1,167 1,350
$2,486 $2,465 $2,452
Income tax benefits for dividends paid
on ESOP shares were recorded as:
Reduction of income tax expense $601 $496 $422
Direct increase to retained earnings 350 446 516
$951 $942 $938
</TABLE>
Dividend Reinvestment and Stock Purchase Plan: The Dividend
Reinvestment and Stock Purchase Plan (Reinvestment Plan) allows
shareholders to reinvest dividends or invest additional funds in
common stock. The Reinvestment Plan purchased common stock from
the Company amounting to 130,937 shares in 1996, 144,414 shares
in 1995 and 164,124 shares in 1994. At December 31, 1996,
1,620,390 shares were reserved for future issuance.
Stock Plans: The Company has a Long-term Stock Incentive Plan
for officers and key employees and a Stock Option Plan for
nonemployee directors (Stock Plans). The number of shares
available for options or other stock awards under the Long-term
Stock Incentive Plan is increased each year by 1% of the
outstanding shares of common stock on the first day of the
calendar year. No awards may be granted under the Stock Plans
after May 2001. The option price equals the market price of the
stock on the grant date. Stock options have a 10 year life and
vest in four equal installments beginning six months after grant
date.
No compensation expense was recorded for stock options issued in
1996, 1995 and 1994. If compensation expense had been recorded
based on an estimate of the fair value of stock options granted,
the Company's net income and earnings per share would have been
lower. The pro forma amounts of net income and earnings per
share shown below were calculated for options granted since
January 1, 1995. The pro forma estimates rely upon subjective
assumptions and the use of a mathematical model to estimate
value, and are not likely to be representative of future results.
1996 1995
(In Thousands, Except
Per Share Amounts)
As reported:
Net income $98,145 $83,786
Earnings per share $2.39 $2.05
Pro forma:
Net income $95,874 $82,279
Earnings per share $2.34 $2.02
Transactions involving option shares in the Stock Plans are
summarized as follows:
<TABLE>
<CAPTION>
Weighted Average
Price Exercise
Shares Range Price
<S> <C> <C> <C>
Balance at January 1, 1994 899,536 $16.50-28.88 $23.32
Granted 409,100 31.50 31.50
Cancelled (5,400) 16.50-31.50 29.09
Exercised (70,918) 16.50-28.88 20.18
Balance at December 31, 1994 1,232,318 17.69-31.50 26.19
Granted 413,800 27.38 27.38
Cancelled (15,871) 18.81-31.50 28.11
Exercised (150,984) 17.69-31.50 20.10
Balance at December 31, 1995 1,479,263 17.69-31.50 27.12
Granted 429,100 33.63 33.63
Cancelled (38,250) 27.38-33.63 30.56
Exercised (350,708) 17.69-33.63 24.00
Balance at December 31, 1996 1,519,405 $19.63-33.63 $29.59
Exercisable at December 31, 1996 913,955 $28.47
Available for future grant at
December 31, 1996 854,433
</TABLE>
The stock options at year-end 1996 have a weighted average
remaining life of 7.6 years. Approximately 85% of the
outstanding options have exercise prices between $28.875 and
$33.625. The fair value, at the grant date, of an option granted
in 1996 was $7.50. The valuation was determined using the
Black-Scholes model and the following assumptions: risk-free
interest rate at date of grant of 5.73%, expected price
volatility of 20.9%, expected dividend yield of 3.51% and an
expected life of 8 years. The fair value of an option granted in
1995 was $7.09 using the Black-Scholes model and the following
assumptions: risk-free interest rate of 7.7%, expected price
volatility of 20.8%, expected dividend yield of 4.16% and an
expected life of 10 years.
In addition to stock options, the Company issued restricted
shares to officers and key employees as part of its payment of
bonuses. Compensation expense is recorded when the bonus is
earned. Restricted stock vests in two equal installments
beginning at one and two years after grant. Stock is issued at
the market price on date of issuance. Recipients of restricted
stock awards are entitled to full voting rights and receipt of
dividends.
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Shares of restricted stock awarded 23,486 5,447 32,368
Market price at award date $38.25 $33.625 $27.375
</TABLE>
Shareholder Rights: On February 13, 1996, Questar's Board of
Directors declared a stock right dividend for each outstanding
share of common stock. The stock rights were issued March 25,
1996. The rights become exercisable if a person, as defined,
acquires 15% or more of the Company's common stock or announces
an offer for 15% or more of the common stock. Each right
initially represents the right to buy one share of the Company's
common stock for $175. Once any person acquires 15% or more of
the Company's common stock, the rights are automatically
modified. Each right not owned by the 15% owner becomes
exercisable for the number of shares of Questar's stock that have
a market value equal to two times the exercise price of the
right. This same result occurs if a 15% owner acquires the
Company through a reverse merger when Questar and its stock
survive. If the Company is involved in a merger or other
business combination at any time after the rights become
exercisable, rightsholders will be entitled to buy shares of
common stock in the acquiring company having a market value equal
to twice the exercise price of each right. The rights may be
redeemed by the Company at a price of $.01 per right until 10
days after a person acquires 15% ownership of the common stock.
The rights expire March 25, 2006.
Note 5 - Financial Instruments and Risk Management Activities
The carrying amounts and estimated fair values of the Company's
financial instruments were as follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
(In Thousands)
<S> <C> <C> <C> <C>
Financial assets
Cash and short-term investments $5,703 $5,703 $5,122 $5,122
Financial liabilities
Short-term loans 77,800 77,800 77,200 77,200
Long-term debt 560,214 593,477 440,699 476,133
Redeemable cumulative preferred stoc 4,828 4,876 4,957 5,006
Gas and oil price hedging activities 197,100 186,100 73,385 69,770
</TABLE>
The Company used the following methods and assumptions in
estimating fair values: (1) Cash and short-term investments and
short-term loans - the carrying amount approximates fair value;
(2) Long-term debt - the carrying amount of variable-rate debt
approximates fair value. The fair value of marketable debt is
based on quoted market prices, and the fair value of other debt
is based on the discounted present value of cash flows using the
Company's current borrowing rates; (3) Redeemable cumulative
preferred stock - the fair value is based on the call price at
year end; (4) Gas and oil price hedging - the fair value of
contracts is based on market prices as posted on the NYMEX at the
end of the year.
Fair value is calculated at a point in time and does not
represent what the Company would pay to retire the debt
securities. In the case of gas-and-oil price-hedging activities,
the fair value calculation does not consider the physical side of
gas and oil transactions.
Price Risk Management: The Market Resources group periodically
enters into swaps, futures contracts or option agreements to
hedge its exposure to price fluctuations in connection with
marketing of the Company's natural gas and oil production, and to
secure a known margin for the purchase and resale of gas and oil
in marketing activities. While it is a primary objective of the
Market Resources group to protect product sales against changes
in market prices, hedging transactions give rise to market risk,
which results from changes in market prices. Losses are reported
along with any gains as a factor in determining revenues when
products are sold.
At December 31, the Market Resources group held hedge contracts
covering prices for about 74.5 million dth of natural gas and 1
million bbls of oil in 1996, and 56 million dth of natural gas in
1995. The hedging contracts are primarily for gas and oil
marketing activities, but also include Questar-owned production.
The 1996 contracts, which primarily were swaps, have terms
extending through June 1999. 97% of the 1996 contracts will
expire by the end of 1997. Face value of these contracts at
December 31, 1996 was $197.1 million, which exceeded market value
by $11 million. Deferred losses on anticipated transactions are
not material.
Interest Rate Risk Management: The Market Resources group
entered into a three-year interest rate-swap agreement in 1995
covering $25 million notional principal of floating-rate debt.
The Market Resources group recognizes interest expense and
receives a payment based on LIBOR (5.56% at December 31, 1996) in
exchange for making a payment at a fixed rate of 5.55%. The
LIBOR rate is reset every three months and the agreement
terminates January 1999.
Credit Risk: The Company's primary market areas are the Rocky
Mountain and Midcontinent regions of the United States. The
Company's exposure to credit risk may be impacted by the
concentration of customers in these regions 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.
Note 6 - Income Taxes
At December 31, 1996, the Company had net operating loss
carryforwards of $4,314,000 which expire from 1999 through 2001.
These net-operating-loss carryforwards were acquired by Questar
when it purchased Universal Resources and can be used to offset
Universal Resources' future taxable income. The tax benefit of
these carryforwards at December 31, 1996, is $1,510,000. In
addition to net-operating- loss carryforwards, the Company
acquired percentage-depletion and investment-tax credit (ITC)
carryforwards with a total tax benefit of $3,898,000, which was
fully offset by a valuation allowance.
The components of income taxes were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
(In Thousands)
<S> <C> <C> <C>
Federal
Current $21,412 $15,419 $13,329
Deferred 18,696 14,244 (6,103)
State
Current 4,442 1,599 1,704
Deferred 1,273 1,878 131
Deferred investment-tax credits (461) (401) (417)
$45,362 $32,739 $8,644
</TABLE>
The difference between income tax expense reported and the tax
computed by applying the statutory federal income tax rate to
income from continuing operations before income taxes is
explained as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
(In Thousands)
<S> <C> <C> <C>
Income from continuing operations
before income taxes $143,507 $116,525 $58,061
Federal income taxes at statutory rate $50,227 $40,784 $20,321
State income taxes, net of federal
income tax benefit 4,160 2,918 1,239
Tight-sands gas production credits (9,491) (8,395) (10,289)
Investment tax credits utilized (461) (401) (417)
Capital loss carryforwards recognized (694) (2,498)
Tax benefits from dividends paid to ESOP (601) (446) (422)
Adjustment of deferred income tax rate (571)
Deferred taxes related to regulated
assets for which deferred taxes were
not provided in prior years 857 772 772
Other 671 (1,228) (62)
Income tax expense $45,362 $32,739 $8,644
Effective income tax rate 31.6% 28.1% 14.9%
Significant components of the Company's deferred tax liabilities
and assets were as follows:
December 31,
1996 1995
(In Thousands)
Deferred tax liabilities
Property, plant and equipment $192,671 $191,894
Purchased-gas adjustments 9,200
Unamortized debt reacquisition costs 4,696 5,018
Pension costs 1,616 1,845
Income taxes recoverable from customers 4,342 4,855
Other 15,009 14,587
Total deferred tax liabilities 227,534 218,199
Deferred tax assets
Alternative minimum tax and production
credit carryforwards 15,783 13,145
Net-operating-loss carryforwards 1,510 5,346
Unbilled revenues 3,937 5,905
Depletion and ITC carryforwards 3,898 4,328
Purchased-gas adjustments 3,489
Deferred investment tax credits 2,581 2,746
Other 6,479 6,939
Total deferred tax assets 34,188 41,898
Less a valuation allowance 3,898 4,328
Net deferred tax assets 30,290 37,570
Net deferred tax liabilities $197,244 $180,629
Cash paid for income taxes was $22,455,000 in 1996, $23,232,000
in 1995, and $29,974,000 in 1994.
Note 7 - Litigation, Environmental Matters and Commitments
The Company was named a potentially responsible party in an
environmental clean-up action involving a site in Salt Lake City.
The site was the location of chemical operations conducted by
Entrada's Wasatch Chemical Division, which ceased operation in
1978. Remediation began in 1994 under a plan approved by both
the Environmental Protection Agency and the Utah Department of
Health. Clean-up of the site was completed in 1996. Future
efforts will be focused on maintenance of a groundwater
filtration system at the site. Settlements were reached with the
other major potentially responsible parties and an accrual was
established for the remedial work costs. Management believes that
current accruals of $5,094,000, recorded in other liabilities,
will be sufficient for estimated remaining clean-up and
site-maintenance costs, which are expected to be incurred over
the next several years. Total cost of the clean-up project
through December 31, 1996 was $21,852,000. The Company has made
claims and collected amounts from an insurance company throughout
most of the clean-up process. At December 31, 1996 the
receivable from an insurance company amounted to $4,683,000 for
expected payments related to the Wasatch Chemical cleanup.
Additional amounts may be collected from the insurance company if
future groundwater clean-up costs are higher than anticipated.
The Company has received notice that it may be partially liable
in several additional environmental cleanup 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 significantly affect its results
of operations or financial position.
There are various other legal proceedings against Questar and its
subsidiaries. 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 materially adverse
effect on the Company's results of operations, financial position
or liquidity.
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
$67,249,000 in 1996, $44,892,000 in 1995 and $73,682,000 in 1994.
Historically, gas-purchase contracts extended over many years.
However, now it is common practice to contract for anywhere from
one day up to one year. As of April 1, 1997, all but two
long-term contracts will have terminated. One of the remaining
contracts has a ten-year duration to supply gas to seven small,
isolated southern Utah towns. It obligates Mountain Fuel to
purchase up to 5,000 dth of gas per day at prices related to a
market index. The other contract requires Mountain Fuel to
purchase 50 dth per day at prices currently below market.
Note 8 - Rate Matters
On January 8, 1997, the Utah Division of Public Utilities
(Division) filed a motion with the PSCU seeking an investigation
into the reasonableness of Mountain Fuel's rates and requesting
an interim rate decrease of $3.5 million. On January 29, 1997,
the Division withdrew its petition and the PSCU accepted that
action after receiving an agreed upon Mountain Fuel filing to
reduce rates and charges by $2.8 million. On February 4, 1997,
Mountain Fuel filed an application with the PSCU to reduce block
rates, eliminate the new-premises fee for multi-family dwellings,
and reduce the capacity-release revenue retained by Mountain Fuel
from 20% to 10%. The annual revenue reduction resulting from
these changes is expected to be about $2.85 million. The PSCU
approved the filing effective February 18, 1997.
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
same 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.
Questar Pipeline filed for a rate increase with the FERC on July
31, 1995. The Company began collecting revenues under the new
rate structure, subject to refund, February 1, 1996. The FERC
approved a rate settlement July 1, 1996. The settlement included
a stated return on equity of 11.75% and allowed the Company to
collect a greater share of costs from firm transportation
customers. As a result of the new rate structure, Questar
Pipeline is expected to add approximately $5.9 million.
Questar Pipeline transferred approximately $55 million of
gas-gathering assets to Questar Gas Management, a wholly owned
subsidiary. The transfer was approved by the FERC February 28,
1996 and was effective March 1, 1996. Questar Gas Management was
subsequently transferred to the nonregulated Market Resources
group of Questar on July 1, 1996. The transaction was in the
form of a stock dividend payable to Questar with no gain or loss
recorded.
Note 9 - Employee Benefits
Pension Plan: The Company has a defined-benefit pension plan
covering the majority of its employees. Benefits are generally
based on years of service and the employee's 36-month period of
highest earnings during the ten years preceding retirement. The
Company's policy is to make contributions to the plan at least
sufficient to meet the minimum funding requirements of the
Internal Revenue Code. Plan assets consist principally of equity
securities and corporate and U.S. government debt obligations. A
summary of pension cost is as follows:
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
(In Thousands)
<S> <C> <C> <C>
Service cost $7,606 $5,940 $7,167
Interest cost 16,829 16,162 15,411
Actual gain on plan assets (29,026) (47,543) (13)
Net amortization and deferral 10,514 31,535 (16,677)
Pension cost $5,923 $6,094 $5,888
</TABLE>
Assumptions used to calculate costs were as follows:
<TABLE>
<CAPTION>
January 1,
1996 1995 1994
<S> <C> <C> <C>
Discount rate 7.00% 8.50% 7.00%
Rate of increase in compensation 5.35% 6.35% 5.35%
Long-term return on assets 8.50% 8.50% 8.50%
</TABLE>
The Company used a discount rate of 7.5% and a rate of increase
in compensation of 5.35% to measure the actuarial present value
of benefits at December 31, 1996. The status of the plan was as
follows:
<TABLE>
<CAPTION>
December 31,
1996 1995 1994
(In Thousands)
<S> <C> <C> <C>
Actuarial present value of benefits
Vested benefits $159,162 $158,335 $133,390
Nonvested benefits 25,696 25,248 21,336
Accumulated benefit obligation 184,858 183,583 154,726
Effect of projected future salary
increases 49,376 55,725 42,619
Projected benefit obligation 234,234 239,308 197,345
Fair value of plan assets 252,071 225,963 200,349
Plan assets in excess of (less than)
projected benefit obligation 17,837 (13,345) 3,004
Unrecognized net (gain) loss (13,900) 15,060 337
Unrecognized transition obligation 640 783 926
Unrecognized prior service cost 3,684 4,089 3,437
Prepaid pension cost $8,261 $6,587 $7,704
</TABLE>
Postretirement Benefits Other Than Pensions: The Company pays a
portion of health-care costs and life- insurance costs for
employees who retired prior to January 1, 1993. The plan changed
for employees hired after January 1, 1993, to link the
health-care benefits to years of service and to limit Questar's
monthly health care contribution per individual to 170% of the
1992 contribution. Employees hired after December 31, 1996, do
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, which began in
1992. A table listing the primary components of the costs of
postretirement benefits other than pensions is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
(In Thousands)
<S> <C> <C> <C>
Service cost $1,015 $956 $1,207
Interest cost 3,452 3,871 3,768
Actual gain on plan assets (2,103) (2,600) (334)
Amortization of transition obligation 1,833 1,971 2,016
Net amortization and deferral 695 1,598 (378)
Postretirement benefit cost $4,892 $5,796 $6,279
</TABLE>
Assumptions used to calculate cost were as follows:
<TABLE>
<CAPTION>
January 1,
1996 1995 1994
<S> <C> <C> <C>
Discount rate 7.0% 8.5% 7.0%
Long-term return on assets 8.5% 8.5% 8.5%
Health care inflation rate 12.5% 13.0% 13.5%
decreasing to
5.0% 6.5% 5.5%
by .5% per year
</TABLE>
A 1% increase in the health care inflation rate would increase
the service cost by $83,000, the interest cost by $304,000 and
the accumulated postretirement benefit obligation by $3,977,000.
The Company used a discount rate of 7.5% to measure the actuarial
present value of benefits at December 31, 1996. The status of
the postretirement benefit programs at was as follows:
<TABLE>
<CAPTION>
December 31,
1996 1995 1994
(In Thousands)
<S> <C> <C> <C>
Accumulated postretirement benefit
obligation
Retired employees and beneficiaries $28,911 $33,228 $29,758
Active employees 19,513 22,772 20,403
48,424 56,000 50,161
Plan assets 20,477 16,748 11,305
Accumulated postretirement benefit
obligation in excess of plan assets 27,947 39,252 38,856
Unrecognized transition obligation (31,542) (33,514) (35,370)
Unrecognized gains (losses) 10,222 (432) 679
Accrued postretirement benefit
liability $6,627 $5,306 $4,165
</TABLE>
Mountain Fuel and Questar Pipeline account for approximately 50%
and 14% of the postretirement benefit costs, respectively. The
impact of postretirement benefit costs on Questar's future net
income will be mitigated by recovery of these costs from
customers. Both the PSCU and the PSCW allowed Mountain Fuel to
recover future costs if the amounts are funded in an external
trust. The FERC allows rate-recovery of future postretirement
benefits costs to the extent that pipeline companies contribute
the amounts to an external trust. As part of its 1996 general
rate settlement, Questar Pipeline began making contributions to
an external trust fund in 1996 for an amount of future
postretirement costs and will recover costs at December 1995 over
a three-year period.
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 at December 31, 1994 in future rates. Beginning in 1996,
the FERC allows Questar Pipeline to recover postemployment costs
measured at December 1995 in future rates over a three year
period. A summary of postemployment costs is as follows:
<TABLE>
<CAPTION>
December 31,
1996 1995 1994
<S> <C> <C> <C>
Postemployment benefits $2,412,000 $1,994,000 $1,872,000
Assumptions used to calculate costs were as follows:
Discount rate 7.5% 7.0% 8.5%
Health-care inflation rate 12.5% 12.5% 13.0%
decreasing to
5.5% 5.0% 6.5%
by .5% per year
</TABLE>
Note 10 - Discontinued Operations
In October 1993, Questar reached an agreement with Nextel
Communications (NASD:CALL) to sell Questar's entire interest in
Questar Telecom for 3,875,950 unregistered shares of Nextel
common stock. The sale was completed August 4, 1994, resulting
in a pretax gain of $61,743,000 ($38,126,000 after income taxes)
based on the closing price of Nextel's common stock. Since
Questar Telecom represented all of Questar's
specialized-mobile-radio operations, these operations were
disclosed as discontinued on Questar's financial statements. Net
losses from Questar Telecom subsequent to the sales agreement
were deferred until the sale was recorded. The Company received
registered shares of Nextel in July 1995.
The Company's net investment in Questar Telecom at the closing
date of the sale was $37,578,000, consisting of net assets at
September 30, 1993, of $29,498,000 plus additional expenditures
and closing costs of $8,080,000 as specified in the sales
agreement.
Note 11 - Wexpro Settlement Agreement
Wexpro's operations are subject to the terms of the Wexpro
settlement agreement. The agreement was effective August 1,
1981, and sets forth the rights of Mountain Fuel's utility
operations to share in the results of Wexpro's operations. The
agreement was approved by the PSCU and PSCW in 1981 and affirmed
by the Supreme Court of Utah in 1983. Major provisions of the
settlement agreement are as follows:
a. Wexpro continues to hold and operate all oil-producing
properties previously transferred from Mountain Fuel's nonutility
accounts. The oil production from these properties is sold at
market prices, with the revenues used to recover operating
expenses and to give Wexpro a return on its investment. The rate
of return is adjusted annually and is currently 14.04%. Any net
income remaining after recovery of expenses and Wexpro's return
on investment is divided between Wexpro and Mountain Fuel, with
Wexpro retaining 46%.
b. Wexpro conducts developmental oil drilling on productive oil
properties and bears any costs of dry holes. Oil discovered from
these properties is sold at market prices, with the revenues used
to recover operating expenses and to give Wexpro a return on its
investment in successful wells. The rate of return is adjusted
annually and is currently 19.04%. Any net income remaining after
recovery of expenses and Wexpro's return on investment is divided
between Wexpro and Mountain Fuel, with Wexpro retaining 46%.
c. Amounts received by Mountain Fuel from the sharing of
Wexpro's oil income are used to reduce natural-gas costs to
utility customers.
d. Wexpro conducts developmental gas drilling on productive gas
properties and bears any costs of dry holes. Natural gas
produced from successful drilling is owned by Mountain Fuel.
Wexpro is reimbursed for the costs of producing the gas plus a
return on its investment in successful wells. The return allowed
Wexpro currently is 22.04%.
e. Wexpro operates natural-gas properties owned by Mountain
Fuel. Wexpro is reimbursed for its costs of operating these
properties, including a rate of return on any investment it
makes. This rate of return is currently 14.04%.
Note 12 - Oil-and-Gas Producing Activities (Unaudited)
The following information discusses the Company's oil-and-gas
producing activities. The Company began operations in Canada in
the second half of 1996 through an acquisition. Prior to 1996,
all of the Company's oil-and-gas properties were located in the
United States. Separate disclosures are presented for
cost-of-service and noncost-of-service activities.
Cost-of-service properties are those for which the operations and
return on investment are governed by state regulatory agencies or
the Wexpro settlement agreement (see Note 11). Production from
gas properties owned or operated by Wexpro is delivered to
Mountain Fuel at cost of service. Production from
noncost-of-service properties is sold at market prices. These
properties include all Celsius Energy and Universal Resources
properties and Wexpro oil properties. Production from Wexpro oil
properties is sold at market prices and the income is shared with
Mountain Fuel after operating costs are recovered and a specified
return on investment is earned.
Information on the results of operations and standardized measure
of future net cash flows has not been included for
cost-of-service activities because operating results and the
value of the related properties are dependent upon returns
established by state regulatory agencies based on historical
costs or the terms of the Wexpro settlement agreement.
NONCOST-OF-SERVICE ACTIVITIES
Capitalized Costs: The aggregate amounts of costs capitalized
for noncost-of-service oil-and-gas producing activities and the
related amounts of accumulated depreciation and amortization
follow:
<TABLE>
<CAPTION>
December 31,
1996 1995 1994
United States Canada Total
(In Thousands)
<S> <C> <C> <C> <C> <C>
Proved properties $760,329 $43,721 $804,050 $631,580 $621,732
Unproved properties 16,448 8,351 24,799 18,307 19,756
776,777 52,072 828,849 649,887 641,488
Accumulated depreciation and amortizat 428,708 1,494 430,202 388,957 364,360
$348,069 $50,578 $398,647 $260,930 $277,128
</TABLE>
Full-Cost Amortization: Unproved properties held by Celsius
Energy and Universal Resources are excluded from amortization
until evaluation. A summary of costs excluded from amortization
at December 31, 1996, and the year in which these costs were
incurred are listed below. Costs excluded from amortization and
incurred in 1996 include $8,351,000 associated with Canadian
properties.
<TABLE>
<CAPTION>
Year Costs Incurred
1993 and
Total 1996 1995 1994 Prior
(In Thousands)
<S> <C> <C> <C> <C> <C>
Leaseholds $16,888 $8,800 $1,230 $3,726 $3,132
Exploration 7,911 1,767 1,133 1,176 3,835
$24,799 $10,567 $2,363 $4,902 $6,967
</TABLE>
Costs Incurred: The following costs were incurred in
noncost-of-service oil-and gas-producing activities:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
United States Canada Total
(In Thousands)
<S> <C> <C> <C> <C> <C>
Property acquisition
Unproved $1,159 $8,114 $9,273 $1,162 $5,623
Proved 111,994 42,380 $154,374 731 99,892
Exploration 3,639 800 $4,439 3,978 5,877
Development 13,367 778 $14,145 14,701 16,488
$130,159 $52,072 $182,231 $20,572 $127,880
</TABLE>
Results of Operations: Following are the results of operations
of noncost-of-service oil- and gas-producing activities before
corporate overhead and interest expenses:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
United States Canada Total
(In Thousands)
<S> <C> <C> <C> <C> <C>
Revenues
From unaffiliated customers $77,235 $3,233 $80,468 $85,185 $104,498
From affiliates 30,814 30,814 14 15
Total revenues 108,049 3,233 111,282 85,199 104,513
Production expenses 33,824 750 34,574 27,076 27,085
Oil-income sharing under Wexpro
settlement agreement 2,768 2,768 3,400 3,391
Depreciation and amortization 40,655 1,526 42,181 35,085 38,046
Total expenses 77,247 2,276 79,523 65,561 68,522
30,802 957 31,759 19,638 35,991
Income tax expense - Note 1 5,349 186 5,535 3,249 7,433
Results of operations before corporate
overhead and interest expenses $25,453 $771 $26,224 $16,389 $28,558
</TABLE>
Note 1 - Income tax expense has been reduced by tight-sands gas
production credits of $6,245,000 in 1996, $4,019,000 in 1995, and
$5,619,000 in 1994.
Estimated Quantities of Proved Oil and Gas Reserves for
Noncost-of-Service Properties: The majority of the reserve
estimates located in the United States were made by Ryder Scott
Company, H. J. Gruy and Company and Netherland, Sewell &
Associates, independent reservoir engineers, and the remainder by
the Company's reservoir engineers. Estimated Canadian reserves
were prepared by Grant Trimble Engineering Ltd and Gilbert
Lausten Young Associates Ltd. Reserve estimates are based on a
complex and highly interpretive process that is subject to
continuous revision as additional production and
development-drilling information becomes available. The
quantities reported below 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 prior to 1996. The Company does not have any long-term
supply contracts with foreign governments or reserves of equity
investees.
<TABLE>
<CAPTION>
Natural Gas Oil
United States Canada Total United States Canada Total
(In Million Cubic Feet) (In Thousands of Barrels )
<S> <C> <C> <C> <C> <C> <C>
Proved Reserves
Balance at January 1, 1994 191,328 191,328 10,509 10,509
Revisions of estimates (10,119) (10,119) 792 792
Extensions and discoveries 20,581 20,581 972 972
Purchase of reserves in place 104,580 104,580 3,927 3,927
Sale of reserves in place (883) (883) (224) (224)
Production (37,659) (37,659) (2,442) (2,442)
Balance at December 31, 1994 267,828 267,828 13,534 13,534
Revisions of estimates 6,156 6,156 909 909
Extensions and discoveries 15,912 15,912 436 436
Purchase of reserves in place 2,679 2,679 24 24
Sale of reserves in place (1,225) (1,225) (23) (23)
Production (32,663) (32,663) (2,436) (2,436)
Balance at December 31, 1995 258,687 258,687 12,444 12,444
Revisions of estimates 19,219 3,354 22,573 1,286 (774) 512
Extensions and discoveries 8,331 2,534 10,865 540 84 624
Purchase of reserves in place 116,855 19,600 136,455 6,816 2,920 9,736
Sale of reserves in place (4,014) (4,014) (30) (30)
Production (39,506) (1,013) (40,519) (2,399) (103) (2,502)
Balance at December 31, 1996 359,572 24,475 384,047 18,657 2,127 20,784
Proved Developed Reserves
Balance at January 1, 1994 183,494 183,494 9,743 9,743
Balance at December 31, 1994 252,677 252,677 12,707 12,707
Balance at December 31, 1995 245,357 245,357 11,756 11,756
Balance at December 31, 1996 299,219 14,683 313,902 16,686 1,880 18,566
</TABLE>
Standardized Measure of Future Net Cash Flows Relating to Proved
Reserves for Noncost-of-Service Activities: Future net cash
flows were calculated using at December 31 using year-end prices
and known contract-price changes. Year-end production,
development costs and income tax rates were used to compute the
future net cash flows. All cash flows were discounted at 10% to
reflect the time value of cash flows, without regard to the risk
of specific properties.
The assumptions used to derive the standardized measure of future
net cash flows are those required by accounting standards and do
not necessarily reflect the Company's expectations. The
usefulness of the standardized measure of future net cash flows
is impaired because of the reliance on reserve estimates and
production schedules that are inherently imprecise, and because
the costs of oil-income sharing under the Wexpro settlement
agreement were not included.
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
United States Canada Total
(In Thousands)
<S> <C> <C> <C> <C> <C>
Future cash inflows $1,259,525 $123,186 $1,382,711 $614,469 $649,644
Future production and development costs (443,074) (37,445) (480,519) (206,712) (222,894)
Future income tax expenses (187,263) (15,857) (203,120) (59,093) (54,203)
Future net cash flows 629,188 69,884 699,072 348,664 372,547
10% annual discount for estimated
timing of net cash flows (259,602) (23,188) (282,790) (126,582) (135,297)
Standardized measure of discounted
future net cash flows $369,586 $46,696 $416,282 $222,082 $237,250
</TABLE>
The principal sources of change in the standardized measure of
discounted future net cash flows were:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
(In Thousands)
<S> <C> <C> <C>
Beginning balance $222,082 $237,250 $180,472
Sales of oil and gas produced, net
of production costs (76,708) (58,123) (77,428)
Net changes in prices and production 168,288 1,468 (15,667)
Extensions and discoveries, less rel 16,400 14,381 20,524
Revisions of quantity estimates 25,298 9,012 (4,173)
Purchase of reserves in place 154,374 731 99,892
Sale of reserves in place (3,045) (1,062) (10,873)
Accretion of discount 22,208 23,725 18,047
Net change in income taxes (79,386) 368 12,220
Change in production rate (19,738) (298) 1,046
Other (13,491) (5,370) 13,190
Net change 194,200 (15,168) 56,778
Ending balance $416,282 $222,082 $237,250
</TABLE>
COST-OF-SERVICE ACTIVITIES
Capitalized Costs: Capitalized costs for cost-of-service oil-
and gas-producing activities net of the related accumulated
depreciation and amortization were as follows:
<TABLE>
<CAPTION>
December 31,
1996 1995 1994
(In Thousands)
<S> <C> <C> <C>
Mountain Fuel $34,334 $37,485 $40,991
Wexpro 81,229 89,431 98,134
$115,563 $126,916 $139,125
</TABLE>
Costs Incurred: Costs incurred by Wexpro for cost-of-service
gas-producing activities were $3,931,000 in 1996, $4,827,000 in
1995, and $15,636,000 in 1994.
Estimated Quantities of Proved Oil and Gas Reserves for
Cost-of-Service Properties: The following estimates were made by
the Company's reservoir engineers. No estimates are available
for cost-of-service proved undeveloped reserves that may exist.
Natural Gas Oil
(In Million (In Thousands
Cubic Feet) of Barrels)
Proved Developed Reserves
Balance at January 1, 1994 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
Revisions of estimates 4,365 (44)
Extensions and discoveries 2,812 2
Production (36,740) (56)
Balance at December 31, 1996 359,877 564
Note 13 - Quarterly Financial and Stock Price Data (Unaudited)
Following is a summary of financial and stock price data:
<TABLE>
<CAPTION>
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
1996
Revenues (1) $225,723 $148,968 $156,469 $286,821 $817,981
Operating income 61,061 25,169 23,268 62,125 171,623
Net income 34,596 16,068 12,787 34,694 98,145
Earnings per common share 0.85 0.39 0.31 0.84 2.39
Dividends per common share 0.295 0.295 0.295 0.305 1.19
Market price per common share 0.00 0.00
High 34 1/2 35 1/4 37 3/8 41 3/8 41 3/8
Low 30 7/8 31 1/2 31 3/8 34 1/4 30 7/8
Close $33 $34 $35 3/8 $36 3/4 $36 3/4
Price-earnings ratio on closing price 14.8 15.0 15.4 15.4 15.4
Annualized dividend yield on
closing price 3.6% 3.5% 3.3% 3.3% 3.3%
Market-to-book ratio on closing price 1.80 1.85 1.91 1.95 1.95
Average number of common shares traded
per day 71 52 78 70 68
1995
Revenues $215,932 $138,569 $111,922 $182,864 $649,287
Operating income 50,352 24,964 16,133 50,577 142,026
Net income 27,073 14,562 11,940 30,211 83,786
Earnings per common share 0.67 0.35 0.29 0.74 2.05
Dividends per common share 0.285 0.285 0.295 0.295 1.16
Market price per common share 0.00 0.00
High 30 1/8 31 33 33 3/4 33 3/4
Low 26 1/8 28 27 1/2 28 5/8 26 1/8
Close $30 $28 3/4 $32 $33 1/2 $33 1/2
Price-earnings ratio on closing price 14.6 13.9 13.9 16.3 16.3
Annualized dividend yield on
closing price 3.8% 4.0% 3.7% 3.5% 3.5%
Market-to-book ratio on closing price 1.78 1.70 1.87 1.91 1.91
Average number of common shares traded
per day 85 65 75 77 75
1994
Revenues $223,309 $135,397 $110,431 $201,181 $670,318
Operating income 55,475 26,232 17,695 55,256 154,658
Write-down of investment in Nextel
Communications (61,743) (61,743)
Income (loss) from continuing operations $31,093 $13,928 $9,033 $(4,637) $49,417
Gain from sale of Questar Telecom to
Nextel Communications 38,126 38,126
Net income (loss) $31,093 $13,928 $47,159 $(4,637) $87,543
Earnings per common share
Income (loss) from continuing
operations $0.77 $0.34 $0.22 $(0.12) $1.21
Gain from sale of Questar Telecom 0.95 0.95
Net income (loss) $0.77 $0.34 $1.17 $(0.12) $2.16
Dividends per common share $0.275 $0.285 $0.285 $0.285 $1.13
Market price per common share
High 35 1/4 34 3/8 33 1/2 29 3/8 35 1/4
Low 29 7/8 29 3/8 28 26 5/8 26 5/8
Close $30 1/4 $32 3/8 $28 3/8 $27 1/2 $27 1/2
Price-earnings ratio on closing price 15.4 17.1 9.7 12.7 12.7
Annualized dividend yield on
closing price 3.6% 3.5% 4.0% 4.1% 4.1%
Market-to-book ratio on closing price 1.95 2.08 1.75 1.70 1.70
Average number of common shares traded
per day 91 57 78 61 72
</TABLE>
(1) The Company began marketing oil and electricity in 1996 and
initially reported revenues net of expenses due to
insignificance. However, for purposes of the 1996 annual report,
revenues and expenses were disclosed separately. Revenues for the
second and third quarter of 1996 were increased by $4,813,000 and
$10,840,000, respectively.
Note 14 - Operations by Line of Business
Following is a summary of operations by line of business:
(In Thousands)
<TABLE>
<CAPTION>
Regulated Services
Market Natural Gas Natural Gas Other Intercompany Questar
Resources DistributionTransmissionOperations Transactions Consolidated
<S> <C> <C> <C> <C> <C> <C>
1996
Revenues
From unaffiliated customers $408,205 $368,905 $38,837 $2,034 $817,981
From affiliates 75,878 3,023 65,341 29,723 $(173,965)
484,083 371,928 104,178 31,757 (173,965) 817,981
Operating expenses
Natural gas and other product
purchases 272,610 182,400 (140,739) 314,271
Operating and maintenance 66,741 97,110 39,959 23,037 (30,458) 196,389
Depreciation and amortization 58,590 28,309 14,206 4,104 105,209
Other expenses 21,802 8,071 2,519 865 (2,768) 30,489
Total operating expenses 419,743 315,890 56,684 28,006 (173,965) 646,358
Operating income 64,340 56,038 47,494 3,751 171,623
Interest and other income 89 3,033 1,980 15,503 (7,638) 12,967
Debt expense (8,704) (16,637) (13,416) (9,964) 7,638 (41,083)
Income tax expense (13,963) (13,446) (13,415) (4,538) (45,362)
Net income $41,762 $28,988 $22,643 $4,752 $98,145
Identifiable assets $668,221 $554,476 $396,019 $197,509 $1,816,225
Capital expenditures 191,792 51,657 23,808 24,578 291,835
1995
Revenues
From unaffiliated customers $251,800 $358,758 $36,780 $1,949 $649,287
From affiliates 80,069 4,011 57,992 29,570 $(171,642)
331,869 362,769 94,772 31,519 (171,642) 649,287
Operating expenses
Natural gas purchases 146,676 190,606 (137,863) 199,419
Operating and maintenance 58,295 93,384 34,003 24,422 (30,379) 179,725
Depreciation and amortization 53,747 25,469 12,911 4,165 96,292
Other expenses 21,377 9,588 3,370 890 (3,400) 31,825
Total operating expenses 280,095 319,047 50,284 29,477 (171,642) 507,261
Operating income 51,774 43,722 44,488 2,042 142,026
Interest and other income 5,921 4,232 1,744 11,548 (6,131) 17,314
Debt expense (8,290) (16,580) (13,472) (10,604) 6,131 (42,815)
Income tax (expense) credit (14,110) (7,706) (11,492) 569 (32,739)
Net income $35,295 $23,668 $21,268 $3,555 $83,786
Identifiable assets $470,466 $542,503 $399,129 $172,455 $1,584,553
Capital expenditures 31,282 51,413 23,146 12,347 118,188
1994
Revenues
From unaffiliated customers $264,048 $374,240 $30,928 $1,102 $670,318
From affiliates 92,116 4,020 60,181 28,099 $(184,416)
356,164 378,260 91,109 29,201 (184,416) 670,318
Operating expenses
Natural gas purchases 154,532 210,507 (152,511) 212,528
Operating and maintenance 55,675 94,094 31,949 20,876 (28,514) 174,080
Depreciation and amortization 51,942 24,749 12,053 4,293 93,037
Other expenses 25,329 9,589 3,621 867 (3,391) 36,015
Total operating expenses 287,478 338,939 47,623 26,036 (184,416) 515,660
Operating income 68,686 39,321 43,486 3,165 154,658
Interest and other income 462 7,820 1,172 937 (5,434) 4,957
Write-down of investment in Nextel (61,743) (61,743)
Debt expense (7,883) (15,886) (13,107) (8,369) 5,434 (39,811)
Income tax (expense) credit (16,434) (7,903) (10,337) 26,030 (8,644)
Income (loss) from continuing operations $44,831 $23,352 $21,214 $(39,980) $49,417
Identifiable assets $492,388 $536,157 $401,942 $155,088 $1,585,575
Capital expenditures 161,213 53,816 48,835 13,018 276,882
</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 25th day of March, 1997.
QUESTAR CORPORATION
(Registrant)
By /s/ R. D. Cash
R. D. Cash
Chairman, 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/ R. D. Cash Chairman, President and Chief
R. D. Cash Executive Officer (Principal
Executive Officer)
/s/ S. E. Parks Vice President, Treasurer and Chief
S. E. Parks Financial Officer (Principal Financial
and Accounting Officer)
*R. D. Cash Director
*Patrick J. Early Director
*U. Edwin Garrison Director
*James A. Harmon Director
*W. W. Hawkins Director
*W. N. Jones Director
*Robert E. Kadlec Director
*Dixie L. Leavitt Director
*Gary G. Michael Director
*G. L. Nordloh Director
*D. N. Rose Director
*Harris H. Simmons Director
March 25, 1997 *By /s/ R. D. Cash
Date R. D. Cash, Attorney in Fact
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit
2.* Plan and Agreement of Merger dated as of December 16, 1986,
by and among the Company, Questar Systems Corporation, and
Universal Resources Corporation. (Exhibit No. (2) to
Current Report on Form 8-K dated December 16, 1986.)
3.1.* Restated Articles of Incorporation effective May 28, 1991.
(Exhibit No. 3.2. to Form 10-Q Report for Quarter ended June
30, 1991.)
3.2.* Bylaws (as amended effective August 11, 1992). (Exhibit No.
3. to Form 10-Q Report for Quarter ended June 30, 1992.)
4.3.* Rights Agreement dated as of February 13, 1996, between the
Company and Chemical Mellon Shareholder Services L.L. C.
pertaining to the Company's Shareholder Rights Plan.
(Exhibit No. 4. to Current Report on Form 8-K dated February
13, 1996.)
10.1.* Stipulation and Agreement, dated October 14, 1981, executed
by Mountain Fuel; Wexpro; 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
Mountain Fuel Supply Company's Form 10-K Annual Report for
1981.)
10.2.*1 Questar Corporation Annual Management Incentive Plan, as
amended and restated effective February 13, 1996. (Exhibit
No. 10.2. to Form 10-K Annual Report for 1995.)
10.3.*1 Questar Corporation Executive Incentive Retirement Plan, as
amended and restated effective February 13, 1996. (Exhibit
No. 10.3. to Form 10-K Annual Report for 1995.)
10.4.*1 Questar Corporation Long-Term Stock Incentive Plan, as
amended and restated effective May 21, 1996. (Exhibit No.
10.5. to Form 10-Q Report for Quarter ended June 30, 1996.)
10.5.*1 Questar Corporation Executive Severance Compensation Plan,
as amended and restated effective February 13, 1996.
(Exhibit No. 10.6. to Form 10-K Annual Report for 1995.)
10.6.*1 Questar Corporation Deferred Compensation Plan for
Directors, as amended and restated effective February 13,
1996. (Exhibit No. 10.7. to Form 10-K Annual Report for
1995.)
10.7.*1 Questar Corporation Supplemental Executive Retirement Plan,
as amended and restated effective February 13, 1996.
(Exhibit No. 10.8. to Form 10-K Annual Report for 1995.)
10.8.*1 Questar Corporation Equalization Benefit Plan, as amended
and restated effective February 13, 1996. (Exhibit No.
10.9. to Form 10-K Annual Report for 1995.)
10.9.*1 Questar Corporation Stock Option Plan for Directors, as
amended and restated effective May 21, 1996. (Exhibit No.
10.10. to Form 10-Q Report for Quarter ended June 30, 1996.)
10.10.*1 Form of Individual Indemnification Agreement dated February
9, 1993 between Questar Corporation and Directors. (Exhibit
No. 10.11. to Form 10-K Annual Report for 1992.)
10.11.*1 Questar Corporation Deferred Share Plan, as amended and
restated effective February 13, 1996. (Exhibit No. 10.12.
to Form 10-K Annual Report for 1995.)
10.12.*1 Questar Corporation Deferred Compensation Plan, as amended
and restated effective February 13, 1996. (Exhibit No.
10.13. to Form 10-K Annual Report for 1995.)
10.13.* Agreement and Plan of Reorganization dated April 29, 1994,
by and between Nextel Communications, Inc.; Questar
Corporation; Advance MobilComm, Inc.; Robert C. Mearns and
Francis G. Fuson. (Exhibit No. 10.14. to Form 10-Q Report
for Quarter ended June 30, 1994.)
10.14.*1 Questar Corporation Directors' Stock Plan as approved May
21, 1996. (Exhibit No. 10.15. to Form 10-Q Report for
Quarter ended June 30, 1996.)
11. Statement concerning computation of earnings per share.
22. Subsidiary Information.
23. Consent of Independent Auditors.
24. Power of Attorney.
27. Financial Data Schedule.
99.1. Form 11-K Annual Report for the Questar Corporation Employee
Investment Plan.
99.2. Undertakings for Registration Statements on Form S-3 (No.
33-48168) and on Form S-8 (Nos. 33-4436, 33-15149, 33-40800,
33-40801, 33-48169, 333-04913, and 333-04951).
________________________
*/Exhibits so marked have been filed with the Securities and
Exchange Commission as part of the indicated filing and are incorporated
herein by reference.
1/Exhibit so marked is management contract or compensation plan or
arrangement.
(b) The Company did not file any Current Reports on Form 8-K
during the last quarter of 1996.
EXHIBIT 11.
STATEMENT CONCERNING COMPUTATION OF EARNINGS PER SHARE
QUESTAR CORPORATION
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
(In Thousands, Except Per Share
Amounts)
<S> <C> <C> <C>
Net Income Data
Income from continuing operations $98,145 $83,786 $49,417
Gain from sale of discontinued operations 38,126
Preferred stock dividends (391) (483) (591)
Income available for common stock $97,754 $83,303 $86,952
Earnings Per Share on Income Statement - Note 1
Average shares outstanding 40,828 40,552 40,292
Earnings per share from continuing
operations $2.39 $2.05 $1.21
Gain from sale of discontinued operations 0.95
Net income per share $2.39 $2.05 $2.16
Primary Earnings Per Share
Average shares outstanding 40,828 40,552 40,292
Additional shares assuming exercise of
dilutive stock options - based on treasury
stock method using average market price 267 181 225
Shares used in primary earnings per
share 41,095 40,733 40,517
Earnings per share from continuing
operations $2.38 $2.05 $1.21
Gain from sale of discontinued operations 0.94
Net income per share $2.38 $2.05 $2.15
Fully Diluted Earnings Per Share
Averge shares outstanding 40,828 40,552 40,292
Additional shares assuming exercise of
dilutive stock options - based on treasury
stock method using year-end market price
if higher than average market price 254 181 225
Shares used in fully diluted earnings
per share 41,082 40,733 40,517
Earnings per share from continuing
operations $2.38 $2.05 $1.21
Gain from sale of discontinued operations .94
Loss from discontinued operations $2.38 $2.05 $2.15
Net income per share
</TABLE>
Note 1 - The earnings per share reported on the income statement do
not reflect the dilutive effect of the stock options because the
dilution is less than 3%.
Exhibit 22 SUBSIDIARY INFORMATION
Registrant Questar Corporation has the following subsidiaries:
Questar Regulated Services Company; Entrada Industries, Inc.; Questar
InfoComm, Inc.; and Interstate Land Corporation. Each of these
companies is a Utah corporation.
Entrada Industries, Inc., has the following subsidiaries: Wexpro
Company; Celsius Energy Company; Universal Resources Corporation;
Questar Energy Trading Company; and Questar Energy Services, Inc.
Celsius Energy is a Nevada corporation and Universal Resources is a
Texas corporation. The other listed companies are incorporated in Utah.
Celsius Energy has a wholly owned subsidiary, Celsius Energy
Resources, Ltd., which is an Alberta corporation.
Universal Resources Corporation has two active subsidiaries: URC
Canyon Creek Compression Company and Questar WMC Corporation. Both
entities are Utah corporations. Universal Resources also does business
under the names Questar Energy Company and URC Corporation.
Questar Regulated Services has two subsidiaries, both of which are
Utah corporations: Mountain Fuel Supply Company and Questar Pipeline
Company. Questar Pipeline, in turn, has one wholly owned subsidiary,
Questar TransColorado, Inc., which is a Utah corporation.
Interstate Land has one active subsidiary, Questar GO Holding
Corporation, which is a Utah corporation.
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8, No. 33-15148, No. 33-15149, Post-effective Amendment No. 3 to No.
33-4436, No. 33-40800, No. 33-40801 and No. 33-48169; Form S-8, No. 333-04951;
and Form S-8 No. 333-04913) and the Registration Statement (Form S-3,
No. 33-48168) of Questar Corporation and in the related
Prospectus of our report dated February 7, 1997 with respect to the
consolidated financial statements of Questar Corporation included in this
Annual Report (Form 10-K) for the year ended December 31, 1996.
/s/ ERNST & YOUNG LLP
Salt Lake City, Utah
March 21, 1997
Exhibt 24 POWER OF ATTORNEY
We, the undersigned directors of Questar Corporation, hereby
severally constitute R. D. Cash 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 1996 and any and all
amendments to be filed with the Securities and Exchange Commission by
Questar Corporation, 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 1996 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, 2-11-97
R. D. Cash President & Chief
Executive Officer
/s/ Patrick J. Early Director 2-11-97
Patrick J. Early
/s/ U. Edwin Garrison Director 2-11-97
U. Edwin Garrison
/s/ J. A. Harmon Director 2-11-97
J. A. Harmon
/s/ W. Whitley Hawkins Director 2-11-97
W. Whitley Hawkins
/s/ William N. Jones Director 2-11-97
William N. Jones
/s/ R. E. Kadlec Director 2-11-97
R. E. Kadlec
/s/ Dixie L. Leavitt Director 2-11-97
Dixie L. Leavitt
/s/ Gary G. Michael Director 2-11-97
Gary G. Michael
/s/ Gary L. Nordloh Director 2-11-97
Gary L. Nordloh
/s/ D. N. Rose Director 2-11-97
D. N. Rose
/s/ Harris H. Simmons Director 2-11-97
Harris H. Simmons
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The following schedule contains summarized financial information extracted
from the Questar Corporation Statements of Income and Balance Sheets for
the period ended December 31, 1996, 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-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 5,703
<SECURITIES> 0
<RECEIVABLES> 178,456
<ALLOWANCES> 0
<INVENTORY> 22,343
<CURRENT-ASSETS> 244,267
<PP&E> 2,574,980
<DEPRECIATION> 1,097,644
<TOTAL-ASSETS> 1,816,225
<CURRENT-LIABILITIES> 244,316
<BONDS> 555,509
4,828
0
<COMMON> 292,613
<OTHER-SE> 479,472
<TOTAL-LIABILITY-AND-EQUITY> 1,816,225
<SALES> 0
<TOTAL-REVENUES> 817,981
<CGS> 0
<TOTAL-COSTS> 510,660
<OTHER-EXPENSES> 135,698
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41,083
<INCOME-PRETAX> 143,507
<INCOME-TAX> 45,362
<INCOME-CONTINUING> 98,145
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 98,145
<EPS-PRIMARY> 2.39
<EPS-DILUTED> 2.39
</TABLE>
Exhibit 99.1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO
_____.
Commission File No. 1-8796
QUESTAR CORPORATION
EMPLOYEE INVESTMENT PLAN
Questar Corporation
180 East First South
P.O. Box 45433
Salt Lake City, Utah 84145-0433
<PAGE>
FORM 11-K
ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996.
Commission File Number 1-8796.
A. The full title of the plan is the Questar Corporation
Employee Investment Plan. The address of the plan is the same as that
of the issuer named below.
B. The name of the issuer of the securities held pursuant to the
plan and the address of its principal executive office are: Questar
Corporation, 180 East First South, P.O. Box 45433, Salt Lake City, Utah
84145-0433.
C. Financial statements and schedules prepared in accordance
with the Employee Retirement Income Security Act of 1974 for the fiscal
year ended December 31, 1996, are
attached as an exhibit to this Form 11-K.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the members of the Questar Corporation Employee Benefits Committee
have duly caused this annual report to be signed by its duly authorized
chairman.
QUESTAR CORPORATION
EMPLOYEE INVESTMENT PLAN
Date: March 25, 1997 By: /s/R. D. Cash
R. D. Cash
Chairman, Employee Benefits
Committee
<PAGE>
Financial Statements
and Schedules
Questar Corporation
Employee Investment Plan
Years ended December 31, 1996 and 1995
Questar Corporation Employee Investment Plan
Financial Statements
and Schedules
Years ended December 31, 1996 and 1995
<PAGE>
Contents
Report of Independent Auditors
Audited Financial Statements
Statements of Net Assets Available for Plan Benefits
Statements of Changes in Net Assets Available for Plan Benefits
Notes to Financial Statements
<PAGE>
Schedules
Assets Held for Investment
Transactions or Series of Transactions in Excess of 5% of the
Current Value of Plan Assets
Report of Independent Auditors
Participants in Questar Corporation
Employee Investment Plan
We have audited the accompanying statements of net assets
available for plan benefits of Questar Employee Investment
Plan as of December 31, 1996 and 1995, and the related
statements of changes in net assets available for plan
benefits for the years then ended. These financial
statements are the responsibility of the Plan'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 net assets
available for plan benefits of the Plan at December 31,
1996 and 1995, and the changes in its net assets available
for plan benefits for the years then ended, in conformity
with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion
on the financial statements taken as a whole. The
accompanying supplemental schedules are presented for the
purposes of complying with the Department of Labor's Rules
and Regulations for Reporting and Disclosure under the
Employee Retirement Income Security Act of 1974, and are
not a required part of the financial statements. The
supplemental schedules have been subjected to the auditing
procedures applied in our audit of the 1996 financial
statements and, in our opinion, are fairly stated in all
material respects in relation to the 1996 financial
statements taken as a whole.
/s/ ERNST & YOUNG LLP
Salt Lake City, Utah
February 21, 1997
<PAGE>
Questar Corporation
Employee Investment Plan
Statements of Net Assets Available for Plan Benefits
<TABLE>
<CAPTION>
December 31,
1996 1995
(In Thousands)
<S> <C> <C>
Assets
Investments
Questar Corporation common stock -
at market :
Allocated 120608 103439
Unallocated 23554 29525
Mutual funds 13495 10259
Money market fund 3457 3143
Guaranteed investment contracts 205 707
161319 147073
Cash and short-term investments 58 31
161377 147104
Contribution receivable from Questar Cor 447 2060
Contribution receivable from employees 113
Interest receivable 34 15
161971 149179
Liabilities
Unallocated contributions and dividends 55 27
Interest payable 924
Security acquisition loans 15556 21238
15611 22189
Net assets available for plan benefits 146360 126990
</TABLE>
See accompanying notes.
<PAGE>
Questar Corporation
Employee Investment Plan
Statements of Changes in Net Assets Available for Plan Benefits
<TABLE>
<CAPTION>
Year ended December 31
1996 1995
(In Thousands)
<S> <C> <C>
Additions
Dividend and interest income 6579 5470
Contributions:
Employees 6289 6495
Employer 4744 3660
11033 10155
17612 15625
Deductions
Withdrawals - at market 8903 13194
Distribution of dividends to participa 297 282
Trustee fees and commissions 17 33
Interest expense 1512 1940
10729 15449
Net realized and unrealized appreciation
in the fair value of investments 12487 25759
Net additions 19370 25935
Net assets available for plan benefits
at beginning of year 126990 101055
Net assets available for plan benefits
at end of year 146360 126990
</TABLE>
See accompanying notes.
<PAGE>
Questar Corporation
Employee Investment Plan
Notes To Financial Statements
December 31, 1996
1. Description of the Plan
The Questar Corporation Employee Investment Plan (Plan) is an
employee benefit plan for employees of Questar Corporation
(Questar) and its subsidiaries. The Plan is an employee stock
ownership plan (ESOP) as defined in Code Section 4975(e)(7).
In addition to Questar common stock, employees are able to direct
the investment of their contributions into the following funds:
1) Equitable GIC and Fidelity Money Market Fund, which invest in
guaranteed investment contracts and short-term instruments; 2)
Fidelity Magellan Fund, which invests primarily in common stocks;
3) Fidelity Puritan Fund, which invests primarily in both common
stocks and bonds; 4) Fidelity Intermediate Bond Fund, which
invests primarily in high and upper-medium grade fixed-income
obligations; 5) Vanguard 500 Portfolio Index Fund, which invests
primarily in common stocks as it seeks to replicate the Standard
& Poors 500 Composite Price Index; and 6) Vanguard Total
International Portfolio Fund, which invests in a combination of
the European, Pacific, and Emerging Markets Vanguard
International Equity Index Funds. The Plan allows participants
to change their contribution elections one day before the first
day of the calendar month in which the change is to become
effective.
With the exception of the Questar stock fund, participants can
transfer amounts invested between the various investment funds on
a monthly basis. Employees who contribute to the stock fund or
any of the other investment funds receive employer matching
contributions in the form of leveraged Questar shares released
from the suspense account (see Note 3) on the first 6% of their
eligible compensation contributed, at the following percentages:
100% of the first 2%, 75% of the next 2%, and 50% of the next 2%.
Employees are eligible to participate in the Plan after
completing one year of service. An employee is credited with one
year of service for each year in which at least 1,000 hours are
worked or paid for by Questar or an affiliate. Subject to
certain restrictions in the Internal Revenue Code (Code),
non-highly compensated employees can elect to contribute from 1%
to 16% of annual compensation to the Plan on either a pre-tax
basis pursuant to salary reduction arrangements which will
qualify the contributions under section 401(k) of the Code,
on an after-tax basis, or a combination of the two. "Highly
compensated employees" are limited to contributing from 1% to 6%
of annual compensation to the Plan on a pre-tax
basis, after-tax basis, or a combination of the two.
The Plan also provides an additional $200 annual employer
contribution at the end of the Plan year in the form of shares of
Questar stock to each employee eligible to participate in the
Plan at the beginning of the Plan year and employed on the last
day of the Plan year. This contribution is made irrespective of
whether the eligible employee actually participates in the Plan.
The Plan provides for the direct rollover of taxable amounts
withdrawn from the Plan to the Trustee of the participant's
Individual Retirement Account (IRA) or other qualified plan, if
the participant so elects.
The rules for in-service withdrawals of Questar shares and
investment funds allocated to participants' accounts and for
distributions of such amounts upon termination of employment,
disability or death are set forth in the Summary Plan Description
of the Plan.
The Plan is subject to the diversification requirements imposed
on ESOP's by the Tax Reform Act of 1986 and meets these
requirements by allowing qualified participants to receive
distributions of shares of Questar stock.
Employees are always fully vested in all shares and funds
allocated to their individual accounts. Should the Plan
terminate at some future time, all amounts allocated to the
employees' accounts would be distributed to them.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual
amounts could differ from the estimates.
2. Accounting Policies
Investments
Investment in Questar common stock is recorded at market value
based on the closing market price on the last business day of the
year on the New York Stock Exchange. The mutual funds are
valued at market. The money market fund and the guaranteed
investment contracts are valued at cost plus interest earned,
which approximates market. Short-term investments consist
primarily of investments in a separate money market portfolio
fund and are valued at market.
Dividends
Questar has a Dividend Reinvestment and Stock Purchase Plan
whereby participants may reinvest dividends to purchase
additional shares of Questar common stock at market value.
Dividends payable with respect to Questar stock purchased with
employee after-tax and 401(k) contributions are distributed
directly to participants unless they elect to have such dividends
retained in the Plan. Dividends on shares purchased with
employer contributions must be reinvested. Dividends paid on
leveraged shares are applied to the principal and interest
payments on the promissory note payable to Questar (see Note 3).
Withdrawals
Withdrawals are recorded based on market prices at the date
withdrawn. The differences between cost and market at the time
of withdrawal are included in the financial statements as
realized gains or losses.
Administrative Expenses
All legal, accounting, fixed income management and other
administrative expenses except commissions and a portion of the
trustee fees have been paid by Questar.
Income Taxes
The Plan is a qualified employee benefit plan under the Internal
Revenue Code and is exempt from federal income tax. Participants
are not subject to income tax on employer contributions
(including 401(k) salary reductions) or income credited to
individual accounts until such time as these amounts are
distributed. A description of the income tax consequences to
employees is included in the Summary Plan Description of the
Plan, which has been provided to all participants.
Reclassifications
Certain 1995 amounts have been reclassified to conform with the
1996 presentation.
3. Security Acquisition Loans
The Plan issued two promissory notes payable to Questar totaling
$35,000,000 and used the proceeds to purchase 1,992,884 shares
(leveraged shares) of Questar common stock at $17.5625 per share.
These shares are held in a separate suspense account established
under the Trust and are released and allocated to eligible
participants as the notes are repaid over a ten year period.
Payments on the notes are made with contributions from Questar
and its participating subsidiaries and dividends and earnings
received on the remaining allocated and unallocated leveraged
shares. The notes are collateralized by the unreleased leveraged
shares.
The detail of these notes payable is as follows:
December 31,
1996 1995
8.25% Senior ESOP Notes-Series A,
due July 1, 1996 $5,238
8.28% Senior ESOP Notes-Series B,
due July 1, 1999 $15,556 16,000
$15,556 $21,238
3. Security Acquisition Loans (continued)
Under the terms of the notes, the Plan is obligated to make
principal payments annually, which, in aggregate, must meet or
exceed cumulative minimum principal payments as of each payment
date. Cumulative actual payments may exceed the cumulative
minimum payments when the actual number of shares needed to make
matching allocations exceeds the minimum shares required to be
released under the terms of the notes. Leveraged shares in
excess of those needed to make matching allocations may also be
released from the suspense account in certain years in order to
meet required cumulative minimum payments. These excess shares
will be allocated to: (i) participants who are employed on the
last day of the year, (ii) participants who are on leave under
the federal Family and Medical Leave Act of 1993 on the last day
of such Plan year, and (iii) to former participants (or their
beneficiaries) who become disabled, retire, or die during the
year in which the excess leveraged shares are released from the
suspense account. At year-end 1996 and 1995, a special
distribution of excess shares was allocated to the accounts of
the eligible participants who contributed to the Plan during the
year. Depending on the market price of Questar stock, there
could be further special distributions of shares in order to meet
cumulative minimum payment requirements.
The minimum principal payment requirements for the
three years following December 31, 1996, are as
follows:
(In Thousands)
1997 $4,256
1998 5,300
1999 6,000
4. Investments
First Security Bank of Utah, N.A., is the Plan Trustee.
Investments in Common Stock of Questar at cost for the two years
ended December 31, 1996, were as follows:
<TABLE>
<CAPTION>
Allocated Unallocated
Shar Cost Shar Cost
(In Thousands)
<S> <C> <C> <C> <C>
Balances at January 1, 1995 3043 63247 1077 18917
Purchases 241 7239
Allocation of shares 196 5952 -196 -3439
Withdrawals -392 -8137
Balances at December 31, 1995 3088 68301 881 15478
Purchases 196 6662
Allocation of shares 240 8496 -240 -4222
Withdrawals -242 -5429
Balances at December 31, 1996 3282 78030 641 11256
</TABLE>
Average cost per share of allocated stock was $23.78 and $22.12
as of December 31, 1996 and 1995, respectively.
Market price per share of stock, both allocated and unallocated,
was $36.75 and $33.50 as of December 31, 1996 and 1995,
respectively.
The cost of allocated shares is based on the average market
purchase price for shares for each quarter, whereas the cost of
unallocated shares is shown as the original purchase price of the
shares which was $17.5625 per share.
Statement amounts that were attributable to allocated and
unallocated shares during 1996 and 1995, were as follows:
<TABLE>
<CAPTION>
Allocated Unallocated
1996 1995 1996 1995
(In Thousands)
<S> <C> <C> <C> <C>
Net realized and unrealized
appreciation (depreciation) 14435 20610 -1748 3342
Security acquisition loans 688 155556 20550
Dividends 3757 3435 915 1167
</TABLE>
Interest expense was entirely attributable to shares that were
unreleased during 1996 and 1995. Employer contributions
receivable, employer contributions, and distributions were
entirely attributable to allocated shares.
The net asset value per unit and the total number of units for
the Investment Funds at the end of each quarter for the years
indicated are as follows:
<TABLE>
<CAPTION>
1996 1995
Net Asset Net Asset
Value per Total Value per Total
Unit Units Unit Units
<S> <C> <C> <C> <C>
Fidelity Magellan Fund
March 31 87.51 84099 72.44 77571
June 30 74.80 99304 83.50 72769
September 30 76.05 96001 92.37 74732
December 31 80.65 97073 85.98 81708
Fidelity Puritan Fund
March 31 17.64 194965 15.42 164812
June 30 17.68 201690 16.15 164523
September 30 16.48 229358 16.78 175076
December 31 17.24 238992 17.01 187949
Fidelity Intermediate Bond Fund
March 31 10.14 4008 9.99 3394
June 30 10.00 4677 10.24 3393
September 30 10.00 8667 10.23 3446
December 31 10.08 11630 10.41 3502
Fidelity Money Market Fund
March 31 1.00 3108680 1.00 2763330
June 30 1.00 3227339 1.00 2838271
September 30 1.00 3339668 1.00 3082968
December 31 1.00 3456808 1.00 3142732
Equitable GIC
March 31 1.00 554071 1.00 1228112
June 30 1.00 394083 1.00 1018975
September 30 1.00 286769 1.00 835501
December 31 1.00 205123 1.00 707303
Vanguard 500 Portfolio Index Fund
March 31 60.43 1412
June 30 62.89 6664
September 30 64.59 15395
December 31 69.16 18502
Vanguard Total International Portfolio Fund
December 31 10.14 14631
</TABLE>
The market values for Investment Funds are as shown below:
<TABLE>
<CAPTION>
Vanguard
December 31, 1996 Total
Fidelity Fidelity Fidelity Fidelity Vanguard 5Intn'l.
Equitable Money Magellan Puritan Interm. Portfolio Portfolio
GIC Market FundFund Fund Bond Fund Index FundFund Total
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investments:
Mutual funds 7829 4121 118 1279 148 13495
Money market fund 3457 3457
Guaranteed investment
contracts 205 205
205 3457 7829 4121 118 1279 148 17157
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
Fidelity Fidelity Fidelity Fidelity
Equitable Money Magellan Puritan Intermediate
GIC Market FundFund Fund Bond Fund Total
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Investments:
Mutual funds 7025 3197 37 10259
Money market fund 3143 3143
Guaranteed investment
contracts 707 707
707 3143 7025 3197 37 14109
</TABLE>
The changes in net assets by Fund are as shown below:
<TABLE>
<CAPTION>
Year ended December 31, 1996 (1)
Vanguard
Vanguard Total
Fidelity Fidelity Fidelity Fidelity 500 Intern'l.
Equitable Money Magellan Puritan Intermed. Portfolio Portfolio Questar
GIC Market FundFund Fund Bond Fund Index FundFund Stock Total
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Additions:
Employee contributions 189 1057 536 26 318 10 4041 6177
Employer contributions 4744 4744
Dividend and
Interest income 34 175 1194 452 4 5 4696 6560
34 364 2251 988 30 323 10 13481 17481
Withdrawals -229 -395 -118 -10 -8151 -8903
Distribution of dividends -297 -297
Trustee fees -17 -17
Interest expense -1512 -1512
Net transfers in (out) -536 179 -677 -11 52 852 141
Net realized and unrealized
appreciation (depreciation)
of investments -375 65 -1 114 -3 12687 12487
Net additions (deductions) -502 314 804 924 81 1279 148 16191 19239
Net assets held by trustee at
beginning of year 707 3143 7025 3197 37 112418 126527
Net assets held by trustee at
end of year 205 3457 7829 4121 118 1279 148 128609 145766
</TABLE>
(1) The above statement differs from the Statement of Net
Assets Available for Plan Benefits because the above statement
excludes receivables.
<TABLE>
<CAPTION>
Year ended December 31, 1995 (1)
Fidelity Fidelity Fidelity Fidelity
Equitable Money Magellan Puritan Interm. Questar
GIC Market FundFund Fund Bond Fund Stock Total
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Additions:
Employee contributions 257 991 597 4651 6496
Employer contributions 3679 3679
Dividend and
Interest income 86 167 404 204 2 4643 5506
86 424 1395 801 2 12973 15681
Withdrawals -586 -837 -246 -11525 -13194
Distribution of dividends -282 -282
Trustee fees -33 -33
Interest expense -1940 -1940
Net transfers in (out) -807 923 -52 -64
Net realized and unrealized
appreciation of
investments 1437 368 2 23952 25759
Net additions (deductions) -721 761 1943 859 4 23145 25991
Net assets held by trustee at
beginning of year 1428 2382 5082 2338 33 89273 100536
Net assets held by trustee at
end of year 707 3143 7025 3197 37 112418 126527
</TABLE>
(1) The above statement differs from the Statement of Net
Assets Available for Plan Benefits because the above statement
excludes receivables.
<PAGE>
Schedules
Questar Corporation
Employee Investment Plan
Assets Held for Investment
December 31, 1996
Assets Held in Trust by First Security Bank of Utah, N.A.
<TABLE>
<CAPTION>
Cost Fair Value
(In Thousands)
<S> <C> <C>
Description of Investments
Questar Corporation Common Stock
Allocated - 3,281,849 shares 78029 120608
Unallocated - 640,939 shares 11256 23554
Fidelity Magellan Fund - 97,073 units 7419 7829
Fidelity Puritan Fund - 238,992 units 3882 4121
Fidelity Intermediate Bond Fund - 11,630 units 122 118
Vanguard 500 Portfolio Index Fund - 18,502 units 1167 1279
Vanguard Total International Portfolio
Fund - 14,631 units 151 148
Fidelity Institutional Cash Portfolio -
Money Market Fund - 3,456,808 units 3457 3457
The Equitable Life Assurance Society of
the United States
Guaranteed Investment
Contracts - 205,123 units 205 205
Cash and Short-Term Investments 58 58
105746 161377
</TABLE>
Transactions or Series of Transactions in Excess of 5% of
the Current Value of Plan Assets
Year ended December 31, 1996
<TABLE>
<CAPTION>
Purchase Selling Net Gain
Identity of Issuer DescriptionPrice Price or Loss
<S> <C> <C> <C> <C>
Category (i) - Single Transaction in Excess of 5% of Plan Assets
None
Category (ii) - Series of Transactions (Other than Securities Transactions)
with the Same Person Aggregating 5% of Plan
Assets
None
Category (iii) - A Series of Transactions in a Security Issue Aggregating 5% of Plan
Assets
(In Thousands)
Questar Corporation Common Stock -
156 Withd 5430 8150 2720
Category (iv) - Transactions in Securities with a Person if Any Single Transaction
with that Person was in Excess of 5% of Plan
Assets
None
</TABLE>
<PAGE>
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8, No. 33-4436 and 33-48169) pertaining to the Questar Corporation
Employee Investment Plan (formerly the Questar Corporation Employee Stock
Purchase Plan) of our report dated February 21, 1997, with respect to the
financial statements and schedules of the Questar Corporation Employee
Investment Plan included in this Annual Report (Form 11-K) for the year ended
December 31, 1996.
/s/ ERNST & YOUNG LLP
Salt Lake City, Utah
March 21, 1997
Exhibit 99.2
TO BE INCORPORATED BY REFERENCE INTO REGISTRATION
STATEMENTS ON FORM S-3 (NO. 33-48168) AND ON
FORM S-8 (NOS. 33-4436, 33-15149, 33-40800, 33-40801,
33-48169, 333-04913, and 333-04951)
UNDERTAKINGS
(a) Rule 415 Offering.
The undersigned registrant hereby undertakes:
(l) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement;
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) that, individually or in the aggregate, represents a
fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed
that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be
reflected on the form of prospectus filed by the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the
"calculation of Registration Fee" table in the effective
registration statement;
(iii)To include any material information with respect
to the plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the registration statement is on Form S-3 or Form S-8 and the
information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the
registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered
that remain unsold at the termination of the offering.
(b) Incorporation of Documents by Reference.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing
of the registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(e) Incorporated Annual and Quarterly Reports.
The undersigned registrant hereby undertakes to deliver or cause
to be delivered with the prospectus, to each person to whom the
prospectus is sent or given, the latest annual report to security
holders that is incorporated by reference in the prospectus and
furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule
14c-3 under the Securities Exchange Act of 1934; and where interim
financial information required to be presented by Article 3 of
Regulation S-X are not set forth in the prospectus, to deliver or cause
to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by
reference in the prospectus to provide such interim financial
information.
(h) Registration Statements on Form S-8.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant, the registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or controlling person
of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of
such issue.
