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, 1999 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 100 South, P.O. Box 45433, Salt Lake City, Utah84145-0433
(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, withNew York Stock Exchange
Common Stock Purchase Rights
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, 2000, was
$1,154,878,615 (based on the closing price of such stock).
On March 1, 2000, 80,626,691 shares of the registrant's common
stock, without par value, were outstanding.
Documents Incorporated by Reference. Portions of the definitive Proxy
Statement for the 2000 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.
TABLE OF CONTENTS
Heading Page
PART I
Items 1.
and 2. BUSINESS AND PROPERTIES
General
Market Resources, Exploration and Production
Market Resources, Gathering and Processing
Market Resources, Wholesale Marketing
Market Resources, General
Regulated Services, Introduction
Regulated Services, Retail Distribution
Regulated Services, Transmission and Storage
Regulated Services, Other Services
Other Services
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
FORM 10-K
ANNUAL REPORT, 1999
PART I
ITEMS 1. AND 2. BUSINESS AND PROPERTIES
General
Registrant Questar Corporation ("Questar" or "the Company") is a
diversified energy services holding company. It has two basic
divisions--Market Resources and Regulated Services. Market Resources
engages in energy development and production; gas gathering and
processing; and wholesale gas, electricity and hydrocarbon liquids
marketing and trading. Regulated Services conducts interstate gas
transmission and storage activities and retail gas distribution
services. The Company is also involved in information and
communication systems and technologies.
The Company was organized in 1984 and became a publicly held
entity when the shareholders of Questar Gas Company (then known as
Mountain Fuel Supply Company, "Questar Gas") approved a corporate
reorganization. Questar was created to provide organizational and
financial flexibility and to achieve a more clearly defined separation
of utility and nonutility activities. Questar is a "holding company,"
as that term is defined in the Public Utility Holding Company Act of
1935, because Questar Gas is a natural gas utility. The Company,
however, qualifies for and claims an exemption from provisions of such
act applicable to registered holding companies.
As is noted in the following organization chart, Questar's
Regulated Services unit includes a subholding entity,Questar
Regulated Services Company ("QRS"), Questar Gas, Questar Pipeline
Company ("Questar Pipeline") and Questar Energy Services, Inc.
("QES"). Market Resources entities are owned through another
subholding company, Questar Market Resources, Inc. ("QMR"). They
include Wexpro Company ("Wexpro"), Questar Exploration and Production
Company ("Questar E&P") and its Canadian affiliates, Celsius Energy
Resources Ltd. ("Celsius Ltd.") and Canor Energy, Ltd. ("Canor"),
Questar Gas Management Company ("QGM"), and Questar Energy Trading
("Questar Energy Trading").
The Company's information and communication activities are
conducted by Questar InfoComm, Inc. ("Questar InfoComm") which, in
turn, owns approximately 90 percent of Questar MetroNet Services
("MetroNet"), a new entity organized to take advantage of
opportunities in electronic commerce.
Questar Corporation
Questar InfoComm, Inc. (Information, Communication, and
Electronic Measurement Services)
Questar MetroNet Services, Inc. (Networking,
Website, and Data Security Services)
Questar Market Resources, Inc. (Subholding Company)
Wexpro Company (Production)
Questar Exploration and Production Company (Celsius
Energy Resources, Ltd, and Canor Energy, Ltd.)
(Exploration and Production)
Questar Energy Trading Company (Marketing)
Questar Gas Management Company (Gathering and Processing)
Questar Regulated Services Company (Subholding Company)
Questar Gas Company (Retail Distribution)
Questar Pipeline Company (Transportation and Storage)
Questar Energy Services Inc. (Retail Services)
As a diversified 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 more competitive. Questar's structure
should enhance its financial strength and flexibility by providing a
balance between the relative 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.
Questar intends to continue emphasizing the ownership of
assets, reserves, pipelines, storage reservoirs, distribution
systems, as it offers new and traditional services in a changed
environment with different rules. The Company has important
partnerships and joint venture arrangements and will continue to
pursue new alliances to strengthen its position and to minimize its
risks.
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
13 in the Notes to Consolidated Financial Statements.
The Company's activities are discussed below.
Market Resources, Exploration and Production
The Company has been in the exploration and production ("E&P")
business since its organization in 1935. Through the ensuing years,
the Company's E&P activities have generated substantial economic
benefits for the Company and its shareholders and customers and have
expanded in size and geographic location. The year 1999 was a banner
year for the Company's E&P operations as record production volumes and
reserves were announced, Wexpro's investment base increased, the
Pinedale Anticline area of Wyoming became very active, and
negotiations led to the January purchase of additional Canadian
reserves.
During 1999, Universal Resources Corporation and Celsius Energy
Company were merged to form Questar E&P. A Canadian company, Celsius
Ltd., is included in the Company's E&P operations. Wexpro, a
production company subject to a unique settlement agreement, is
included in the group for some reporting purposes. These entities
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 maintains a geographical balance and
diversity, while concentrating its activities in core areas where it
has accumulated geological knowledge and has significant expertise.
Core areas of activity include the Rocky Mountain region of Wyoming
and Colorado; the Midcontinent region of Oklahoma, the Texas
Panhandle, East Texas, and the Upper Gulf Coast; the Southwest region
of northwestern New Mexico and southwestern Colorado; and the Western
Canadian Sedimentary Basin located primarily in Alberta, Canada.
Natural gas remains the primary focus of the Company's E&P
operations. As of year-end 1999, the Company had proved reserves
(excluding Questar Gas's cost-of-service reserves) of 514.7 billion
cubic feet ("Bcf") of gas and 16.4 million barrels ("MMBbls") of oil
and natural gas liquids, compared to 489.0 Bcf of gas and 16.4 MMBbls
of oil as of the same date in 1998. (Any references to oil in this
report include natural gas liquids.) On an energy-equivalent basis
ratio of six thousand cubic feet ("MCF") of natural gas to one barrel
("Bbl") of crude oil, natural gas comprised 84 percent of total
non-cost-of-service provided reserves. Proved developed reserves
constituted 85 percent of the total non-cost of service proved
reserves reported. Approximately 4 percent of the group's natural gas
reserves and 17 percent of its oil reserves are located in Canada.
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.
On January 26, 2000, the E&P group expanded its operations in
Canada by completing the acquisition of Canor. Canor owns and/or
operates more than 800 wells located primarily in Alberta. This
acquisition expands Canadian reserves by 61.1 billion cubic feet
equivalent ("Bcfe") and adds approximately 150,000 net acres of
undeveloped leasehold acreage. (Canor's reserves are not included in
the reserve totals reported above.)
The E&P companies, including Wexpro, participated in 235 (gross)
wells in 1999, compared to 205 wells in 1998. The 235 wells included
167 gas wells, 10 oil wells, 19 dry holes and 39 wells in progress
(waiting on completion or drilling) at year-end. The overall drilling
success in 1999 was 90.3 percent.
Gas production increased from 51.3 Bcf in 1998 to 62.7 Bcf in
1999. The increase in production was attributable to reserve
acquisitions and expanded development activities. Questar E&P
received an average selling price of $2.00 per Mcf in 1999, compared
to $1.92 per Mcf in 1998. Gas production is produced from four
separate gas producing regions; the Midcontinent area, the San Juan
Basin area, the Rocky Mountain area, and the western Canada area.
Production from each of these areas is generally priced below the
Henry Hub pricing center in Louisiana, reflecting demand and access to
transportation.
Gas prices remained volatile during 1999. The E&P group hedges
as much as 50-60 percent of its natural gas production in order to
minimize the effect of price volatility on revenues. Hedging
activities are conducted by Questar Energy Trading.
The E&P companies increase their activities and minimize their
risks by finding partners that will drill wells on their acreage to
acquire an interest in any resulting production. One example of this
strategy is the joint venture that Questar E&P has with Texaco Corp.
that resulted in five gas-development wells being completed in the
Moxa Arch region of southwestern Wyoming.
During 1999, the E&P companies, on a combined basis, produced 2.9
MMBbls of oil, equivalent to the 2.9 MMBbls in 1998. The production
was sold at an average price of $14.49 per barrel in 1999, compared to
$12.69 per barrel in 1998.
The E&P group continued to generate Section 29 tax credits during
1999. 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. Properties are often
referred to as "tight sands," "coal seams," or low permeability
formations from which it is generally more expensive to produce gas.
During 1999, Questar E&P recorded $5.3 million in Section 29 credits.
(Wexpro does not have an economic interest in the cost-of-service gas
produced from Questar Gas's properties.)
The production of oil and gas is subject to regulation by
appropriate federal and state agencies in the United States and by
federal and provincial agencies in Canada. 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 or Crown leases subject to additional regulatory
requirements. Agencies are generally 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.
Questar E&P maintains regional offices in Denver, Colorado and
Tulsa and Oklahoma City in Oklahoma. Canadian operations are managed
through an office in Calgary, Alberta. All of the companies own wells
and field equipment on properties they operate.
Wexpro Company. Wexpro was incorporated in 1976 as a subsidiary
of Questar Gas. Questar Gas'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 other members of the E&P group, 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 10 in the
Notes to Consolidated Financial Statements.) Wexpro produces gas from
specified properties for Questar Gas and is reimbursed for its costs
plus a return on its investment. In connection with its successful
development gas drilling, Wexpro charges Questar Gas for its costs
plus a specified rate of return (currently 21.7 percent on an
after-tax basis 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 1999, Wexpro's investment (net of
deferred income taxes) in cost-of-service operations was $108.9
million compared to $97.6 million at year-end 1998. Under the terms
of the settlement agreement, Wexpro bears all dry hole costs. The
settlement agreement is monitored by the Utah Division of Public
Utilities and retained experts.
The gas volumes produced by Wexpro for Questar Gas 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 49 percent of Questar Gas's system
requirements during 1999. Questar Gas relies upon Wexpro's drilling
program to develop the properties from which the cost-of-service gas
is produced. During 1999, the average wellhead cost of Questar Gas's
cost-of-service gas was $1.54 per decatherm ("Dth"), which is lower
than Questar Gas's average price for field-purchased gas.
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 Questar Gas. Wexpro, in 1999, produced 38.9
billion cubic feet equivalent ("Bcfe") of natural gas and liquids from
Questar Gas's cost-of-service properties and added reserves of 54.1
Bcfe through drilling activities and reserve estimate revisions.
(These numbers do not include the related royalty gas.)
Wexpro, under the terms of the Wexpro agreement, owns
oil-producing properties. The revenues from the sale of crude oil
produced from such properties are used to recover operating expenses
and provide Wexpro with a return on its investment. In addition,
Wexpro receives 46 percent of any residual income. (The remaining
income is received by Questar Gas and is used to reduce natural gas
costs reflected in customer rates.)
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.
In January of 2000, Questar E&P and Wexpro completed a successful
well in the Pinedale Anticline development in Wyoming and anticipate
completing a second successful well in the area. The Questar
companies own drilling rights to 14,800 gross acres in the area and
have a combined average working interest of 60 percent. Based on
80-acre spacing for drilling sites, the companies estimate there is a
potential for 130 drilling locations and estimate ultimate reserves of
4-11 Bcfe per well.
Market Resources, Gathering and Processing
QGM conducts gathering and processing activities in the Rocky
Mountain and Midcontinent areas. Its activities are not subject to
regulation by the FERC. QGM was originally established in 1993 to
construct and operate the Blacks Fork processing plant in southwestern
Wyoming. It expanded in 1996 when Questar Pipeline spun down its
gathering assets and activities. QGM was then moved from Questar
Pipeline to the Market Resources group in mid-1996 and acquired the
processing plants that formerly belonged to Questar E&P.
QGM's gathering system, which consists of 1,400 miles of
gathering lines, compressor stations, field dehydration plants, and
measuring stations, was largely built to gather production from
Questar Gas's cost-of-service properties. During 1999, QGM gathered
32.1 million decatherms ("MMDth") of natural gas for Questar Gas,
compared to 29.9 MMDth in 1998, for which it received $4.7 million in
demand charges. Under the terms of a contract that was assigned with
the gathering assets from Questar Pipeline, QGM is obligated to gather
Questar Gas's cost-of-service production for the life of the
properties.
QGM's gathering system was originally built as a regulated asset;
QGM now must operate in a different competitive environment. 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. QGM, however, has been able to expand the volumes of gas it
gathers. During 1999, it expanded its total gathering volumes from
120.5 MMDth in 1998 to 136.7 MMDth in 1999.
In addition to gathering activities, QGM is also engaged in
processing activities. It owns a 50 percent interest in the Blacks
Fork processing plant, which has a total daily capacity of 84 million
cubic feet ("MMcf") and will be expanded in 2000. This plant, which
is located in southwestern Wyoming, strips liquids (e.g., ethane,
butane) from natural gas volumes. QGM and Wexpro jointly own a
processing facility located in the Canyon Creek area of southwestern
Wyoming that has a total operating capacity of 45 MMcf per day. QGM
also owns interests in other processing plants in the Rocky Mountain
and MidContinent areas. The 1999 increase in liquid prices restored
the profitability of QGM's processing plants.
Market Resources, Wholesale Marketing
Questar Energy Trading conducts energy marketing activities. It
combines gas volumes purchased from third parties and equity
production (production that is produced by affiliates) to build a
flexible and reliable portfolio. Questar Energy Trading aggregates
supplies of natural gas for delivery to large customers, including
industrial users, municipalities, and other marketing entities.
During 1999, Questar Energy Trading marketed a total of 101.1 MMDth of
natural gas, 2.0 MMBbls of liquids, and 10 megawatt-hours of
electricity and earned a margin of $.036 per equivalent Dth. (The
volumes and margins exclude affiliated production.)
Questar Energy Trading uses derivatives as a risk management tool
to provide price protection for physical transactions involving owned
production and marketing purchases. Questar Energy Trading hedges
with a third party at least a portion of owned production and does so
with a variety of contracts for different periods of time. Questar
Energy Trading does not engage in speculative hedging transactions.
(See Note 5 in the Notes to Consolidated Financial Statement for
additional information relating to hedging activities.)
As a wholesale marketing entity, Questar Energy Trading
concentrates on markets in the Pacific Northwest, Rocky Mountains,
Midwest, and western Canada that are close to reserves owned by
affiliates or accessible by major pipelines.
Questar Energy Trading is expanding its capabilities in order to
sustain its activities in an increasingly competitive environment in
which sellers and purchasers are becoming more sophisticated. Through
a limited liability company, Questar Energy Trading has a certificate
issued by the Federal Energy Regulatory Commission ("FERC") to
construct and operate a storage reservoir, with 4.5 Bcf of capacity,
in southwestern Wyoming adjacent to several interstate pipelines.
Market Resources, General
Investment in Questar's Market Resources segment is growing
faster than its Regulated Services segment. The volatility of
commodity prices makes it imperative for the Market Resources group to
manage risks and form strategic alliances. This segment will continue
to expand the scope of its activities with joint venture or alliance
relationships.
Although the activities of the Market Resources companies are
diverse, they are complementary and support the Company's overall goal
to build value with energy resources and services. As the E&P
companies find or acquire new reserves, QGM 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
Questar's Regulated Services segment includes Questar Gas, a
retail distribution utility; Questar Pipeline, an interstate pipeline;
QES, an entity engaged in retail energy services, particularly
appliance financing and energy management services; and QRS, a
subholding company that provides administrative services to all these
entities. All members of the Regulated Services group have common
officers and share service functions, e.g., marketing, planning,
business development, engineering, compensation, legal, regulatory
affairs, accounting, and budgeting. All Regulated Services employees
share base and incentive compensation programs and are expected to
work together to improve customer service and operating efficiency.
The integration of the entities has resulted in lower operating and
maintenance costs and better coordination of activities and projects.
Regulated Services, Retail Distribution
Customers and Deliveries. Questar Gas distributes natural gas as
a public utility in Utah, southwestern Wyoming, and a small portion of
southeastern Idaho. As of December 31, 1999, it was serving 686,317
sales and transportation customers, a 3.5 percent increase from the
663,392 customers as of year-end 1998. (Customers are defined in
terms of active meters.)
Approximately 96 percent of Questar Gas's customers live in Utah.
Questar Gas 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. Questar Gas supplies natural gas in the
southwestern Wyoming communities of Rock Springs, Green River, and
Evanston, and the southeastern Idaho community of Preston. Questar
Gas has the necessary regulatory approvals granted by the Public
Service Commission of Utah ("PSCU"), the Public Service Commission of
Wyoming ("PSCW"), and the Public Utilities Commission of Idaho
("PUCI") to serve these areas. It also has long-term franchises
granted by communities and counties within its service area.
Questar Gas added 22,925 customers in 1999, which was the sixth
consecutive year in which it added at least 20,000 customers. Utah's
population is continuing to grow faster than the national average, and
Questar Gas expects to add 17,000-21,000 customers each year for the
next several years.
Questar Gas'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) consumes over 75 percent of his
total gas requirements in the coldest six months of the year. Questar
Gas's revenue forecasts used to set rates are based on normal
temperatures. As measured in degree days, temperatures in Questar
Gas's service area were 8 percent warmer than normal in 1999, which
was the sixth consecutive year in which temperatures have been warmer
than normal.
Questar Gas's sensitivity to weather and temperature conditions,
however, has been ameliorated by adopting a weather normalization
mechanism for its general service customers in Utah and Wyoming. The
mechanism, which has been in effect since 1997, 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 1999, Questar Gas sold 82.2 MMDth to residential and
commercial customers, compared to 83.2 MMDth in 1998. General service
sales to residential and commercial customers were responsible for 88
percent of Questar Gas's total revenues in 1999. The decline in sales
volumes reflects a one percent decrease in the average usage of gas on
a temperature-adjusted basis between 1998 and 1999. Questar Gas
customers are continuing to use more efficient gas-burning appliances.
Questar Gas 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 1999-2000
heating season, Questar Gas used a design-day demand of 999,650 Dth
for firm sales customers. Questar Gas is also obligated to have
pipeline capacity, but not gas supply, for firm-transportation
customers; the combined design-day requirement for supply and
transportation capacity is 1,129,133 Dth. Questar Gas's management
believes that the distribution system is adequate to meet the demands
of its firm customers.
Questar Gas has been providing transportation service since 1986.
It has worked diligently to retain its transportation customers with
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 Questar Gas's sales
rates.
Questar Gas's largest transportation customers, as measured by
revenue contributions in 1999, are the Geneva Steel plant in Orem,
Utah; the Kennecott copper processing operations, located in Salt Lake
County; and the mineral extraction operations of Magnesium Corporation
of America in Tooele County, west of Salt Lake City.
Questar Gas's total industrial deliveries, including both sales
and transportation, decreased from 65.1 MMDth in 1998 to 61.5 MMDth in
1999, reflecting a slowdown in operations by a major customer.
Gas Supply. Questar Gas's competitive position has been
strengthened as a result of owning natural gas producing properties.
During 1999, it satisfied 49 percent of its system requirements with
the cost-of-service gas produced from such properties. These
properties are operated by Wexpro, and the gas produced from such
properties is transported by Questar Pipeline. Questar Gas's
investment in these properties is included in its utility rate base.
Questar Gas had reserves of 353.4 Bcf as of year-end 1999,
compared to 339.8 Bcf as of year-end 1998. (The reserve numbers do
not include volumes attributable to royalty interests.) The average
wellhead cost associated with Questar Gas's cost-of-service reserves
was below the cost of purchased gas. During 1999, Questar Gas
recorded $1.9 million in Section 29 tax credits associated with
production from wells on its cost-of-service properties that qualify
for such credits. Questar Gas 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.
Questar Gas uses storage capacity at Clay Basin (a base-load
storage facility owned and operated by Questar Pipeline) 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.
Questar Gas has a balanced and diversified portfolio of gas
supply contracts with 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-term duration or renewable on an annual basis upon agreement of
the parties. Questar Gas's gas acquisition objective is to obtain
reliable, diversified sources of gas supply at competitive prices. In
its latest semi-annual pass-through application, Questar Gas estimated
that its average cost of purchased gas would be $2.61 per Dth for gas
delivered to the upstream pipeline.
Competition. Questar Gas 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 Questar Gas to
retain 90-95 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. Questar Gas has virtually 100 percent of
the space heating and water heating offered in new homes within its
service area that are connected to its system.
Although Questar Gas 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. Questar
Gas continues to monitor its competitive position, in terms of
commodity costs and efficiency of usage, with other energy sources.
Questar Gas 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. Its market share for other gas
appliances, e.g., ranges and dryers, has historically been less than
30 percent, which is significantly lower than its over 90 percent
market share for furnaces and water heaters. Questar Gas continues to
focus marketing efforts to develop incremental load in existing homes
and new construction.
Questar Gas 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, Questar
Gas follows an annual gas supply plan that provides for a judicious
balance between cost-of-service gas and purchased gas and that allows
it to increase operating efficiency.
The Kern River pipeline, which was built to transport gas from
southwestern Wyoming to Kern County, California, runs through portions
of Questar Gas's service area and provides an alternative delivery
source for transportation customers. As of the date of this report,
Questar Gas has lost no industrial load as a result of the Kern River
pipeline. The existence of this interstate pipeline system has made
it possible for Questar Gas to extend service into a new area in Utah
and to develop a second source of supply for its central and its
southern Utah system. Questar Gas has taps on the Kern River line for
the delivery of additional peak-day supplies to meet increasing
demand.
Questar Gas 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, Questar Gas 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 Questar Gas 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.)
Questar Gas has been reviewing the opportunities and risks
associated with unbundling and believes that it is well-positioned to
succeed in a competitive environment. Questar Gas is accurately
described as an efficient local distribution company. It has
consistently increased the number of customers served per employee as
it has consolidated activities and taken advantage of technological
developments. Its operating efficiency is buttressed by owning the
reserves to meet 40-50 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.
Questar Gas 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
has caused Questar Gas and other distribution companies to continue to
review their costs and reexamine their commitment to sales service.
Questar Gas offers its Wyoming residential and commercial
customers a "supplier choice" program that was approved by the PSCW in
1998. Under the terms of this program, general service customers in
Wyoming have the option of selecting a different supplier of natural
gas while purchasing transportation and associated services from
Questar Gas. As of the date of this report, no other supplier has
offered to provide service under the program. Questar Gas expects to
continue offering the program to its Wyoming customers and hopes that
it will provide valuable information about customer preferences.
The state of Utah and the PSCU are actively involved in reviewing
the restructuring and unbundling of telephone and electric utility
services. Questar Gas anticipates that electric utility service will
be unbundled before retail gas distribution service. Given its
attractive rates and high customer service ratings, Questar Gas does
not believe that its residential customers will push for rapid
unbundling of gas utility services in Utah.
Regulation. As a public utility, Questar Gas is subject to the
jurisdiction of the PSCU and PSCW. (Questar Gas's customers in Idaho
are served under the provisions of its Utah tariff. Pursuant to a
special contract between the PUCI and the PSCU, rates for Questar
Gas's Idaho customers are regulated by the PSCU.) Questar Gas's
natural gas sales and transportation services are made under rate
schedules approved by the two regulatory commissions.
Questar Gas 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, consolidating activities, and
utilizing new technology.
In December of 1999, Questar Gas was disappointed to receive an
order from the PSCU that denied its application to recover certain
gas-processing costs in its pass-through proceedings. Questar Gas, in
order to give its customers time to adjust the combustion settings for
gas appliances in its service area to handle lower-Btu gas, determined
to enhance the Btu of such gas by contracting to have carbon dioxide
removed from it and agreeing to pay the costs associated with this
activity. Questar Gas included the processing costs in its
pass-through application filed in June of 1999.
The PSCU's order forced Questar Gas to accelerate the timing of a
request for general rate relief. In its general rate case
application, which was filed with the PSCU on December 17, 1999,
Questar Gas requested a total rate increase of $22.2 million and
interim rate relief equal to the approximate amount of the annual
disallowance for gas processing costs. The PSCU approved Questar
Gas's request for interim relief and permitted it to collect an
annualized increase of $7.065 million, subject to refund, effective
January 1, 2000.
In its application, Questar Gas is also requesting a return of
equity of 12 percent (compared to its current return on equity of
11.3-11.5 percent). It pointed out that it has been 15 years since it
received a significant general rate increase and noted that its net
investment has increased by $305 million, its customer-per-employee
ratio has increased from 292 to 559, and its usage per customer has
decreased by 17 percent. Hearings are scheduled to begin June 5,
2000. Under Utah law, the PSCU has 240 days from the filing date, or
August 14, 2000, in which to consider Questar Gas's general rate case
application and issue an order concerning it.
Questar Gas has also appealed the PSCU's decision denying it the
ability to collect processing costs as part of its pass-through
proceedings.
Questar Gas has supported legislative efforts to address
regulatory problems in Utah. In early 2000, the Utah state
legislature adopted legislation to direct the PSCU to balance the
interests of consumers and investors, encourage rate-case settlements
without protracted and adversarial proceedings, and to consider future
"known and measurable" changes in setting rates. The legislation also
consolidated two regulatory agencies into one. This legislation won't
become effective until July 1, 2001, and won't affect the outcome of
Questar Gas's general rate case proceedings in 2000, but should
provide for better regulatory processes in the future.
During 1999, Questar Gas also filed a general rate application to
decrease its rates in Wyoming as a result of lower operating costs.
After public hearings, the PSCW permitted Questar Gas to continue
reflecting a return on equity of 11.83 percent in its Wyoming rates
and to reflect processing costs in such rates.
Both the PSCU and the PSCW have authorized Questar Gas 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. The most recent pass-through case reflected an
increase in gas costs, and the resulting rates became effective
December 1, 1999.
Questar Gas also increased its Utah rates effective January 1,
2000, to reflect the impact of an interim order in its Utah general
rate case. The typical residential customer in Utah would have an
annual bill of $611.19, using rates in effect as of January 1, 2000,
compared to an annual bill of $564.56, using rates in effect as of
July 1, 1999.
Miscellaneous. Questar Gas owns and operates distribution
systems throughout its Utah, Wyoming and Idaho service areas and has a
total of 20,696 miles of street mains, service lines, and
interconnecting pipelines. Questar Gas has consolidated many of its
activities in its operations center 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. Questar Gas 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 transports
natural gas in the Rocky Mountain states of Utah, Wyoming and Colorado
and stores gas volumes in Utah and Wyoming. As a "natural gas
company" under the Natural Gas Act of 1938, Questar Pipeline is
subject to regulation by the FERC 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.
Transmission System. Questar Pipeline, as an open-access
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
has a 72 percent ownership interest in Overthrust Pipeline Company
("Overthrust") and, through a subsidiary, a 50 percent ownership
interest in 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"), the middle segment
(commonly referred to as the "WIC segment") of the Trailblazer
pipeline system, The Williams Companies, Inc. ("Williams") including
Kern River, and TransColorado. These connections provide access to
markets outside Questar Gas's service area and allow Questar Pipeline
to transport gas for nonaffiliated customers.
Questar Pipeline's transmission system includes 1,734 miles of
transmission lines that interconnect with other pipelines and link
producers of natural gas with Questar Gas's distribution operations in
Utah and Wyoming. (The transmission mileage figure includes lines at
storage fields and tap lines used to serve Questar Gas.) 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 Questar
Gas. During 1999, Questar Pipeline transported 105.5 MMDth for
Questar Gas, compared to 107.5 MMDth in 1998. These transportation
volumes include cost-of-service gas produced by Wexpro on properties
owned by Questar Gas as well as some volumes purchased by Questar Gas
directly from field producers.
Questar Gas has reserved firm transportation capacity of about
800,000 Dth per day on an ongoing basis, or about 72 percent of
Questar Pipeline's reserved capacity. (Questar Gas also contracts for
additional capacity during the heating season.) Questar Pipeline's
transportation agreement with Questar Gas was extended in 1999 for
another three years and expires on June 30, 2002. Questar Gas paid
reservation charges of $50.7 million to Questar Pipeline in 1999;
these charges include reservation charges attributable to firm and
"no-notice" transportation. Questar Gas only needs its total reserved
capacity during peak-demand situations. When it is not fully
utilizing such capacity, Questar Gas releases it to others, primarily
industrial transportation customers and marketing entities.
Questar Pipeline recovers approximately 95 percent of its
transmission cost of service through demand charges from firm
transportation customers. In other words, these customers pay
primarily for access to transportation capacity. 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. Its
revenues may be adversely affected if the FERC changes its basic
regulatory scheme of "straight fixed-variable" rates.
Questar Pipeline's total system throughput decreased from 255.1
MMDth in 1998 to 253.5 MMDth in 1999. This decrease was primarily
attributable to lower transportation volumes for affiliated customers
other than Questar Gas, which declined from 26.9 MMDth in 1998 to 12.2
MMDth in 1999. The overall decrease in volumes resulted in a one
percent decrease in revenues associated with transportation service,
or $69.9 million in 1999 compared to $70.8 million in 1998.
In addition to the transmission system described above, Questar
Pipeline has a 72 percent interest in and is the operating partner of
Overthrust, a general partnership that owns and operates the
Overthrust segment of Trailblazer. (Its percentage increased from 54
percent to 72 percent effective January 1, 2000, when it purchased the
18 percent owned by Enron Overthrust Pipeline Company.) Trailblazer,
in turn, is a major 800-mile line that transports gas from producing
areas in the Rocky Mountains to the Midwest. The 88-mile Overthrust
segment is the western-most of Trailblazer's three segments. Although
the Overthrust segment is currently underutilized, Questar Pipeline
and its remaining partners are reviewing opportunities, including
backhauling, to increase its value.
The Kern River pipeline, which is owned by Williams, was built to
transport gas from Wyoming to the enhanced oil recovery projects in
Kern County, California. It runs through Utah's Wasatch Front, making
it possible for some large industrial customers to bypass both Questar
Gas 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.
At year-end 1999, Questar Pipeline recorded a writedown of $49.7
million ($31.3 million on an after-tax basis) of its interest in the
TransColorado pipeline project. Questar TransColorado, Inc. which is a
subsidiary of Questar Pipeline, and a subsidiary of Kinder Morgan,
Inc. (formerly KN Energy) each have a 50 percent interest in the
project. This project, which commenced operations March 31, 1999, was
built to transport natural gas from the Rocky Mountain area that was
traditionally priced lower than other gas supplies, e.g., San Juan, to
California and Midwestern markets through interconnections with major
pipeline systems. Constructed at an approximate cost of $310 million,
the pipeline originates at a point on Questar Pipeline's system 25
miles east of Rangely in northwestern Colorado and extends 292 miles
to the Blanco hub in northwestern New Mexico.
In its first nine months of operation, TransColorado incurred
significant losses because gas prices did not reflect basis
differentials that encouraged producers and market aggregators to
transport volumes on the line. Questar Pipeline determined that the
situation was not temporary in nature. Questar Pipeline has a
contractual right to put its 50 percent interest in TransColorado to
its partner during a one-year period commencing March 31, 2001.
Questar Pipeline owns and operates a major compressor complex
near Rock Springs, Wyoming, that compresses volumes of gas from the
transmission system for delivery to the WIC segment of the Trailblazer
system and to CIG. The complex has become a major delivery point on
Questar Pipeline's system, with five of its major natural gas lines
connected to the system at the complex. In addition, both of CIG's
Wyoming pipelines and the WIC segment are connected to the complex.
Storage and Processing. Questar Pipeline's Clay Basin storage
facility in northeastern Utah is the largest underground storage
reservoir in the Rocky Mountains. The facility has a capacity of
117.5 Bcf. Clay Basin has been operational since 1977 and has been
successfully expanded several times. Storage service is important to
parties that need to balance purchases with fluctuating customer
demand, improve service reliability, and avoid imbalance penalties.
The storage capacity at Clay Basin is fully subscribed by customers
under long-term agreements. Questar Gas currently has 13.3 Bcf of
working gas capacity at Clay Basin. Other large customers, in
addition to Questar Gas, include Williams; Washington Natural Gas
Company, a utility in the state of Washington; and BC Gas Utility
Ltd., a distribution utility in British Columbia, Canada. Questar
Pipeline also offers interruptible storage service at Clay Basin and
allows firm storage service customers the right to transfer their
injection and withdrawal rights to other parties.
New Projects. During 1999, Questar Pipeline received a
preliminary decision from the FERC in favor of its proposed conversion
of an oil pipeline to natural gas. The 700-mile pipeline, which
Questar Pipeline named the Southern Trails line after acquiring it in
1998, extends from the Four Corners area of Utah, Colorado, New
Mexico, and Arizona to Long Beach, California. The FERC determined
that a certificate of public convenience and necessity should be
issued to Southern Trails under the optional certificate procedure and
dismissed as "speculative" allegations made by intervening parties
that the line would result in idle capacity and unrecovered costs on
other systems. Final regulatory approval is dependent on the
completion of a favorable environmental review.
Questar Pipeline has delayed its original plan to complete the
conversion and install the necessary compressors in 2000. It is
optimistic that California regulators will take action to allow more
competition, which will facilitate its efforts to market capacity to
California customers. Questar Pipeline will not convert the line to
natural gas service until it receives the FERC certificate, regulatory
issues restricting its ability to compete for transportation customers
in California are resolved, and rights-of-way are obtained.
Questar Pipeline has a pending application before the FERC to
construct and operate a new line, identified as Main Line 104, that is
75.6 miles long and 24 inches in diameter and extends from Price,
Utah, near the Ferron area of coalbed methane gas, to Questar Gas's
system at Payson, Utah, and the Kern River line near Elberta, Utah.
CIG is a 50 percent partner in the project, which is estimated to cost
$81 million and which will provide approximately 272,000 Dth of
additional firm transportation capacity. Questar Gas has contracted
with Questar Pipeline for approximately 22 percent of the additional
capacity on the line, which is scheduled to be in service before the
winter heating season of 2001-02.
Through a subsidiary, Questar Pipeline also owns the processing
plant near Price, Utah, that removes carbon dioxide from coalbed
methane gas in order to raise the Btu content of the gas enough to be
safely and efficiently used for appliances in Questar Gas's service
area.
Miscellaneous. Questar Pipeline extended its footprint to other
parts of the western United States by participating in the
TransColorado pipeline project and purchasing the Southern Trails
line. There are market risks associated with these projects, as
evidenced by Questar Pipeline's decision to writedown its investment
in TransColorado. Questar Pipeline's efforts to make the Southern
Trails line successful are affected by its ability to address
regulatory constraints and to compete with a local distribution
company in southern California.
Questar Pipeline does not currently plan to file a general rate
case in 2000. 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.
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 and it has significant storage capacity with Clay Basin.
Questar Pipeline intends to take advantage of these assets by
increasing its "intra-hub capacity" or its ability to quickly and
reliably move gas between receipt and delivery points and by expanding
its storage capacity and services. Questar Pipeline is currently
reviewing the feasibility of a salt cavern storage project in
southwestern Wyoming.
Regulated Services, Other Services
QES was organized in 1996 to pursue opportunities created by the
deregulation of energy markets and was transferred from QMR to QRS
effective January 1, 1999. It provides energy management equipment,
installation, and service contracts for commercial and industrial
clients and home security systems, service contracts, and equipment
financing to residential customers. QES is currently reviewing
additional opportunities.
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, communication, and
electronic measurement services. It operates a regional microwave
system that covers much of Utah and southwestern Wyoming. This
digital system was originally built to satisfy the needs of Questar's
operations, but also carries data for alternative telephone providers
and other external customers. Questar InfoComm installs and maintains
telephone-switching equipment and voice-mail systems. It built and
leases a fiber optic telephone network in parts of Salt Lake City for
an alternative telephone provider, Nextlink Communication, and owns
shares of stock issued by Nextlink.
Questar InfoComm, in addition to Nextlink, owns equity positions
in other companies that are involved in telecommunications. It owns
an equity interest in Evolution Networks, a private company organized
in 1999 to take advantage of opportunities with integrating and
extending microwave facilities, and Parker Vision, a Florida-based
firm that develops wireless technology and new equipment using such
technology.
During 1999, Questar InfoComm launched a new project, tentatively
referred to as MetroNet Services, that will combine data centers, Web
enablement, and network services, for small to medium-sized
businesses. To support this project, Questar InfoComm organized and
staffed a new subsidiary, transferred its 22,800-square foot
E-Commerce Center in Salt Lake to the subsidiary, and purchased two
small network-service providers. Questar InfoComm also anticipates
the purchase of a web-enablement entity early in the second quarter
and has begun construction of a second E-Commerce Center in Salt Lake
County. The E-Commerce Center provides facilities for hosting
applications and support services for web applications in a secure and
reliable environment with high-speed connections to communications
networks. The Center is fully leased by Questar companies and other
tenants.
Questar InfoComm also owns a Colorado-based manufacturing
company, Questar Baseline Industries, Inc. ("Baseline"), that develops
and manufactures gas-analysis systems. This entity was purchased in
1998 to support Questar InfoComm's strategy to expand its gas-analysis
expertise and applied technology services.
As of year-end 1999, Questar retained 781,481 shares of its
original 3.9 million shares 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. During 1999, Questar InfoComm also sold a
portion of its investment in Nextlink, an alternative telephone
provider.
The Company is using the money realized from the sale of Nextel
and Nextlink shares to fund its stock repurchase program. Through
March 1, 2000, Questar had repurchased 2,500,700 shares, at a cost of
$40.6 million, since it announced a $50 million program in the spring
of 1999.
Questar no longer owns the office building in downtown Salt Lake
City that serves as its headquarters facility. It does have a
long-term lease for the building and has approximately 750 employees
in it. Questar, through a subsidiary, continues to own property
adjacent to the building that is currently used for parking and will
continue to review proposals to develop it.
Through an affiliate, Questar also owns 14.5 acres of commercial
real estate in Salt Lake County that was the site of the Wasatch
Chemical clean-up activities. See Legal Proceedings. Although the
Company intends to continue owning the property to minimize any future
problems associated with environmental compliance, it believes that
the property can earn attractive returns when leased.
Employees
As of December 31, 1999, Questar and its affiliates had 2,288
employees compared to 2,338 at year-end 1998. Of this total, 1,497
worked for the Regulated Services segment, 410 worked for Market
Resources entities, and 381 worked for corporate, Questar InfoComm,
MetroNet, and Baseline. None of these employees is represented under
collective bargaining agreements. During the fourth quarter of 1999,
Questar InfoComm offered an early-retirement program to eligible
employees; the window program was accepted by 50 employees. 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
1999, Questar continued to be involved in actions involving local and
federal environmental enforcement agencies and allegations of
"hazardous waste" problems. 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.
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
Questar Gas 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. The
total amount spent by Questar on research and development activities
either directly or through contributions is not significant.
Oil and Gas Operations
Oil and gas operations are significant 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
11 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 10 in the Notes to Consolidated Financial
Statements and reserve quantities reported to other regulatory
agencies:
The Company, on a consolidated basis, is reporting 868.1 Bcf of
natural gas reserves at year-end 1999. This total represents the net
revenue interest of all owned reserves and includes quantities
attributable to cost-of-service properties.
During 1999, the Company filed estimated reserves as of year-end
1998 on Form EIA-23 with the Energy Information Administration in the
Department of Energy and will submit a comparable report for 1999.
Although the Company used the same technical and economic assumptions
when it filed this report, it was obligated to report reserves on
wells it operates, not on all wells in which it has an interest, and
to include the reserves attributable to other owners in such wells.
Questar Gas files information using a FERC Form 2 format with the
PSCU and PSCW and lists gas reserves of 403.4 Bcf (working interest)
at December 31, 1999, which include reserves attributable to royalty
interests. The 353.4 Bcf (net revenue interest) reported as
cost-of-service gas reserves in Note 11 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 61.6 Bcf at
December 31, 1999. This gas is not included in the total reserve
number.
Oil and Gas Production.1
1999 1998 1997
Natural gas (MMcf) 101,602 88,447 84,896
Oil (Mbbl) 2,934 2,953 2,962
1Production quantities from all properties, including
cost-of-service properties.
Average Sales Price.2
1999 1998 1997
Natural gas per Mcf $ 2.00 $ 1.92 $ 1.89
Oil per bbl 14.49 12.69 18.29
2Average 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 Mcf of gas.
1999 1998 1997
Production cost per Mcfe $.63 $.67 $.68
Producing Wells at December 31, 1999.
Gas Oil
Gross wells 3,805 1,342
Net wells 1,438 513
The numbers for gross wells include 127 wells with multiple
completions.
Leasehold Acreage at December 31, 1999. 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 78 percent of the domestic
unproved acreage consists of federal and state leases that generally
have ten-year terms. The remaining 22 percent is attributable to fee
leases that generally have three- to five-year terms. About 30
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:
Productive Unproved
Gross Net Gross Net
United States 2,376,855 779,868 1,772,353 754,138
Canada 76,339 20,765 100,929 41,518
Total 2,453,194 800,633 1,873,282 795,656
Net Productive and Dry Wells Drilled.
Exploratory Wells Development Wells
1999 1998 1997 1999 1998 1997
Productive 2 3 84 61 36
Dry 1 3 8 5 7
Total 1 5 3 92 66 43
Present Activities. At year-end 1999, Questar affiliates had a
working interest in 32 wells waiting on completion and 7 wells being
drilled.
Delivery Commitments. Questar Gas is obligated to deliver
natural gas to approximately 686,300 customers in Utah, Wyoming and
Idaho, but future quantities associated with such service are neither
fixed nor determinable.
The E&P group sells a majority of its 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. Significant cases are discussed below.
Questar E&P is a named defendant in a class action lawsuit
involving royalty payments that is pending in an Oklahoma state court.
(Named defendants also include Questar and QMR, in addition to
nonaffiliated companies.) The plaintiffs in the lawsuit, Bridenstine
vs. Kaiser Francis Oil Company, allege fraud and contract claims and
allege damages against all defendants for a 17-year period in excess
of $54,000,000 plus punitive damages. The primary claim alleges that
a transportation fee charged against royalty payments was improper and
excessive. The claims involve wells connected to an intrastate
pipeline system that QGM presently owns and operates. Questar E&P and
another defendant, Kaiser Francis, are the major working interest
owners and operate a majority of the wells connected to the system.
Questar E&P disputes the claims; a jury trial in the case is
scheduled for August of 2000.
Questar and some affiliates are involved in several cases filed
by an independent producer, Jack Grynberg. The first significant case
resulted in an adverse jury verdict in 1994; the presiding federal
district court judge in Wyoming entered a judgment as a matter of law
that vacated most portions of the original jury verdict. The Tenth
Circuit Court of Appeals, in January of 2000, reinstated some portions
of the original jury verdict. Specifically, the appellate court
reversed the trial court's judgment on take-or-pay, breach of
contract, intentional interference with a contract, and price on
deregulation claims. The Tenth Circuit upheld the district court's
determination on duty to decontrol, working interest ownership, and
stolen gas claims.
Questar Gas, as a result of acquiring Questar Pipeline's gas
purchase contracts, is liable for the judgment and has paid
approximately $5.1 million to satisfy it. Questar Gas plans to
include any amounts that it pays to Grynberg in its gas purchase
balancing account.
Grynberg filed a second case before the same federal district
court in 1997, alleging new claims, including antitrust and fraud, in
addition to the same claims raised in the initial litigation for a
later period of time. This case has been stayed pending the outcome
of the Tenth Circuit appeal, although the district court did rule
favorably on the Questar parties' motion for a partial summary
judgment.
Questar affiliates are also named defendants in a lawsuit filed
by Grynberg under the Federal False Claims Act. This case and the 75
substantially similar cases filed by Grynberg against pipelines and
their affiliates have been consolidated for discovery and pre-trial
rulings in Wyoming's federal district court. The cases involve
allegations of industry-wide mismanagement of the value of gas on
which royalty payments are due the federal government. The complaint
also seeks treble damages and imposition of civil penalties.
Finally, Grynberg has filed a case against Questar Pipeline in
Utah state district court, alleging mismeasurement of gas volumes
attributable to his working ownership interest in a specified
property. Grynberg cites mismanagement to support claims for breach
of contract, negligent mispresentation, fraud, breach of fiduciary
responsibilities, etc.
With the exception of the first case that has been resolved by
the Tenth Circuit, it is too early to estimate the outcome of the
various cases filed by Grynberg against Questar affiliates.
The Company continues to monitor the Wasatch Chemical property in
Salt Lake City, which is still included on the national priorities
list, commonly known as the "Superfund" list. The Wasatch Chemical
property was the location of chemical mixing operations and is the
subject of a 1992 consent order. Questar conducted the necessary soil
remediation and groundwater remediation activities and expects that
the site will be eventually removed from the Superfund list.
See "Regulated Services, Retail Distribution, Regulation" for a
review of significant regulatory proceedings.
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 1999.
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 12 in
the Notes to Consolidated Financial Statements. As of March 20, 2000,
Questar had 12,046 shareholders of record and estimates that it had an
additional 20,000-23,000 beneficial holders.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
Revenues $924,219 $906,256 $936,337 $817,981 $649,287
Operating expenses
Natural gas and other product purchases 342,129 365,168 399,941 314,271 199,419
Write-down of oil and gas properties 34,000 6,000
Other expenses 402,172 374,307 360,241 332,087 307,842
Total operating expenses 744,301 773,475 766,182 646,358 507,261
Operating income $179,918 $132,781 $170,155 $171,623 $142,026
Interest and other income 74,700 18,202 19,667 12,040 15,753
Write-down of investment in
partnership (49,700)
Net income $98,830 $76,899 $104,795 $98,145 $83,786
Basic earnings per common share $1.20 $0.93 $1.27 $1.20 $1.03
Diluted earnings per common share $1.20 $0.93 $1.27 $1.19 $1.02
Dividends per share $0.67 $0.65 $0.62 $0.60 $0.58
Book value per common share 11.37 10.62 10.30 9.41 8.76
Total assets $2,237,997 $2,161,281 $1,945,017 $1,816,225 $1,584,553
Net cash provided from operating
activities 214,998 284,685 202,678 182,921 204,171
Capital expenditures 268,004 461,347 212,797 291,835 118,188
Capitalization
Long-term debt, less current portion 735,043 615,770 541,986 555,509 421,695
Redeemable cumulative preferred stock 4,828 4,957
Common stock 925,845 877,958 845,778 772,085 712,675
Total capitalization $1,660,888 $1,493,728 $1,387,764 $1,332,422 $1,139,327
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
SUMMARY
Questar Corporation earned $98.8 million in 1999,
representing a 29% improvement over net income
reported for 1998. However, there were several
notable transactions in both 1999 and 1998.
Eliminating these notable transactions results in an
increase of income of 2% in 1999 as indicated by the
following tables.
Earnings impact of notable transactions after income
taxes:
<TABLE>
<CAPTION>
1999 1998 1999 1998
(In Thousands) (Per Share)
<S> <C> <C> <C> <C>
Net income as reported $98,830 $76,899 $1.20 $0.93
Gain from sales of Nextel
shares (33,400) (2,847) (0.40) (0.03)
Gain from sales of
Nextlink shares (3,482) (1,500) (0.04) (0.02)
Write-down of investment
in partnership 31,300 0.38
Early retirement costs 1,781 0.02
Full cost write-down 20,315 0.25
Recurring net income $95,029 $92,867 $1.16 $1.13
</TABLE>
Recurring net income by lines of business:
<TABLE>
<CAPTION>
1999 1998 Change Percentage
In thousands
<S> <C> <C> <C> <C>
Questar Market Resources $45,866 $34,052 $11,814 35%
Questar Regulated Services 42,379 54,827 (12,448) -23%
Corporate and other operations 6,784 3,988 2,796 70%
$95,029 $92,867 $2,162 2%
</TABLE>
Questar Market Resources' net income rose 35% in
1999 compared with 1998 due primarily to a 22%
increase in natural gas production, higher commodity
prices and increased investment by Wexpro in
gas-development properties.
Net income of Questar Regulated Services decreased
23% in 1999 because of operating losses from the
TransColorado Pipeline, higher operating expenses to
serve a rapidly growing distribution customer base,
lower gas usage per distribution customer and the
disallowance of rate coverage in Utah of certain
already incurred gas- processing costs.
Net income of corporate and other operations
increased 70%, excluding the sales of securities and
the expense of an early retirement program. The
improvement resulted from increased
information-technology services provided to
affiliated companies and through sales of
electronic- commerce internet services.
RESULTS OF OPERATIONS
QUESTAR MARKET RESOURCES (Market Resources) conducts
Questar's exploration and production, gas gathering
and processing and energy marketing. Following is a
summary of financial results and operating
information.
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
(Dollars In Thousands)
<S> <C> <C> <C>
OPERATING INCOME
Revenues
Natural gas sales $125,245 $98,767 $89,489
Oil and natural gas liquids 41,521 36,722 53,722
sales
Cost-of-service gas operations 61,705 61,448 52,950
Energy marketing 243,296 234,565 297,413
Gas gathering and processing 22,341 21,954 25,998
Other 4,203 4,816 4,068
Total revenues 498,311 458,272 523,640
Operating expenses
Energy purchases 239,201 230,462 291,851
Operating and maintenance 79,916 74,863 71,858
Depreciation and amortization 78,608 71,377 67,078
Write-down of oil and
gas properties 34,000 6,000
Other taxes 21,516 24,988 25,569
Oil-income sharing 2,292 1,053 2,347
Total operating expenses 421,533 436,743 464,703
Operating income $76,778 $21,529 $58,937
OPERATING STATISTICS
Production volumes
Natural gas (in MMcf) 62,712 51,309 47,442
Oil and natural gas liquids
(in Mbbl) 2,866 2,894 2,938
Production revenue
Natural gas (per Mcf) $2.00 $1.92 $1.89
Oil and natural gas liquids (per bbl) $14.49 $12.69 $18.29
Wexpro investment base, net
of deferred income taxes
(in 000) $108,890 $97,594 $72,867
Energy-marketing volumes
(in thousands of equivalent
Dth) 112,982 113,513 142,601
Natural gas-gathering
volumes (in MDth)
For unaffiliated customers 84,961 72,908 57,586
For Questar Gas 32,050 29,893 28,506
For other affiliated
customers 19,659 17,720 17,679
Total gathering 136,670 120,521 103,771
Gathering revenue (per Dth) $0.15 $0.16 $0.21
</TABLE>
Market Resources' operating income increased 38% in
1999 compared with 1998 excluding a 1998 full- cost
write-down. Primary factors were an increase in gas
production, higher commodity prices and an increase
in the Wexpro investment base.
Revenues from natural gas sales were 27% higher in
1999 compared with 1998. Gas production rose 22%
and selling prices were 4% higher. Revenues from
selling oil and natural gas liquids (NGL) climbed
13% in 1999 due to a 14% increase in average selling
prices.
Market Resources achieved a 132% reserve replacement
ratio in 1999. Reserve additions, revisions and
purchases amounted to 139 Bcfe, with the largest
part of the increased reserves coming through
drilling results. Market Resources drilled 235
wells (93 net wells), including Wexpro's
cost-of-service drilling, with a 90% success rate.
Market Resources sold 34 Bcfe of nonstrategic
reserves, mostly in the Permian Basin and Kansas
with combined daily production of 4.3 million cubic
feet of gas and 1,100 barrels of oil. The sale
proceeds reduced the full cost amortization rate in
the fourth quarter of 1999. Reserve replacement in
1998 was 250% and 173 Bcfe, primarily the result of
acquiring an estimated 150 billion cubic feet
equivalent of proved oil and gas reserves, primarily
in Oklahoma, as well as in Texas, Arkansas and
Louisiana.
Wexpro's investment base, net of deferred income
taxes, grew 12% to $108.9 million as of December
31, 1999, through successful development drilling.
Wexpro's effective after-tax return on investment in
those properties averaged 18.9% in at the end of
1999. A summary of the Wexpro settlement agreement
is provided in Note 10 to the consolidated financial
statements.
Market Resources achieved a five-year average
finding cost of $.85 per thousand cubic feet
equivalent (Mcfe), including cost-of-service
reserves, in 1999 compared with $.93 per Mcfe in
1998.
During 1999, Market Resources had forward contracts
in place on approximately 59% of gas production at
an average price of $2.03 per Mcf, net back to the
well. Approximately 56% of oil production,
excluding oil produced by Wexpro, was hedged for an
average price of $15.02 per barrel, net back to the
well, which was equivalent to $16.33 per barrel
using the West Texas Intermediate benchmark. At
December 31, 1999, approximately 52% of
company-owned gas production for 2000 and 2001 was
under hedging contracts with prices, net back to the
well, between $2.15 and $2.23 per Mcf. Oil
production in 2000 and 2001 is hedged at $17.22 to
$17.67 per barrel, net back to the well, on
approximately 84% of production, excluding Wexpro.
A 31% drop in the average selling price of oil and
NGL caused a $34 million write-down of oil and gas
properties in the fourth quarter of 1998 under
full-cost accounting rules. The write-down reduced
income by $20.3 million after taxes. Revenues for
Market Resources decreased 12% in 1998 compared with
1997, due primarily to lower marketing revenues and
lower selling prices for oil and NGL. Natural gas
production improved 8% primarily as a result of
producing properties acquired in September 1998.
Revenues and product purchases for marketing
activities increased 4% in 1999 compared with 1998
resulting in no change in the margin year to year.
The Company received refunds from pipelines as a
result of orders issued by the Federal Energy
Regulatory Commission (FERC). Marketing volumes
were unchanged year to year.
Revenues from gas gathering and processing grew 2%
in 1999. Gathering volumes increased 13% because of
increased drilling and gas production in the Rocky
Mountain region.
Operating and maintenance expenses increased 7% in
1999 primarily due to an increase in the number of
gas and oil properties. Production costs in
aggregate increased 10% in 1999 compared with 1998,
but were 6% lower on an equivalent Mcf basis. The
full-cost amortization rate was $.80 per thousand
cubic feet equivalent for 1999, down from $.85 in
1998. However, depreciation and amortization
expense increased 10% in 1999 because of higher
production of gas.
QUESTAR REGULATED SERVICES (Regulated Services)
conducts Questar's natural gas- distribution,
transmission, storage and nonregulated retail energy
services.
Natural Gas Distribution - Questar Gas conducts the
Company's natural gas distribution operations.
Following is a summary of financial results and
operating information:
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
(Dollars In Thousands)
<S> <C> <C> <C>
OPERATING INCOME
Revenues
Residential and commercial
sales $396,882 $425,452 $399,174
Industrial sales 28,938 29,555 24,459
Industrial transportation 6,594 6,480 6,491
Other 17,523 15,336 18,099
Total revenues 449,937 476,823 448,223
Natural gas purchases 257,265 281,004 248,933
Margin 192,672 195,819 199,290
Operating expenses
Operating and maintenance 103,308 96,923 101,719
Depreciation and amortization 36,426 33,261 31,160
Other taxes 7,625 8,185 8,174
Total operating expenses 147,359 138,369 141,053
Operating income $45,313 $57,450 $58,237
OPERATING STATISTICS
Natural gas volumes (in MDth)
Residential and commercial
sales 82,201 83,231 85,747
Industrial deliveries
Sales 9,823 9,681 9,523
Transportation 51,643 55,461 51,313
Total industrial 61,466 65,142 60,836
Total deliveries 143,667 148,373 146,583
Natural gas revenue (per Dth)
Residential and commercial $4.83 $5.11 $4.66
Industrial sales 2.95 3.05 2.57
Transportation for industrial
customers 0.13 0.12 0.13
System natural gas cost (per Dth) $2.61 $2.57 $2.62
Heating degree days (normal
5,801) 5,317 5,462 5,465
Warmer than normal 8% 6% 6%
Number of customers at December 31,
Residential and commercial 684,950 662,084 640,496
Industrial 1,367 1,308 1,200
686,317 663,392 641,696
</TABLE>
Questar Gas' operating income was 21% lower in 1999
when compared with 1998 primarily due to lower gas
usage per customer, higher operating expenses to
serve a rapidly growing customer base and a
disallowance of rate coverage in Utah of already
incurred certain gas-processing costs. The Public
Service Commission of Utah (PSCU) denied Questar
Gas' request to recover $3.6 million of expenses
incurred in the second half of 1999 for the removal
of carbon dioxide from a portion of its gas supply.
The Company asked for recovery of these costs as
part of a routine semiannual gas-cost filing. The
action of the PSCU combined with lower usage per
customer, prompted Questar Gas to file a general
rate case in December 1999. The Company is seeking
$22 million of rate relief for gas processing and
other costs. The Wyoming Public Service Commission
approved recovery of gas-processing costs.
Questar Gas requested and received interim rate
relief of $7.1 million effective January 1, 2000.
The Company had asked for interim rate relief to
partially offset higher costs during the rate case
process. The interim rate relief will be collected
subject to refund pending the PSCU's final order
that must be issued under state law by August 14,
2000.
Usage per residential customer was two decatherms or
1% lower in 1999 compared with 1998 and ten
decatherms or 7% lower in 1998 compared with 1997.
Usage per customer is calculated on a
temperature-adjusted basis. Temperatures were warmer
than normal in 1999. However, the financial impact
of warmer weather has been minimized because of a
weather normalization adjustment in rates. Questar
Gas added 22,925 customers, resulting in a 3.5%
growth rate in 1999, and 21,696 customers, or a 3.4%
growth rate in 1998. Customer additions in 2000 are
expected to reach 20,000 to 21,000.
Gas deliveries to industrial customers decreased by
6% in 1999 because a major steel-producing customer
reduced operations and filed for protection under
the bankruptcy laws. Industrial deliveries increased
in 1998 compared with 1997 due to the effects of a
strong regional economy. Margins from gas delivered
to industrial customers, either for gas sold or
transported, are substantially lower than from gas
delivered to residential and commercial customers.
Operating and maintenance expenses were 7% higher in
1999. Increased costs associated with serving a
growing number of customers were partially offset by
lower labor costs. Labor costs were about $3 million
lower in 1999 as a result of an early retirement
program effective July 31, 1998. Depreciation
increased 10% in 1999, reflecting additional
investment in facilities and information-technology
to serve the growing number of customers.
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,
1999 1998 1997
(Dollars In Thousands)
<S> <C> <C> <C>
OPERATING INCOME
Revenues
Transportation $69,885 $70,824 $68,837
Storage 37,647 36,463 34,410
Processing 3,570
Other 1,058 1,270 2,190
Total revenues 112,160 108,557 105,437
Operating expenses
Operating and maintenance 38,534 38,832 37,334
Depreciation and amortization 16,743 13,927 14,797
Other taxes 2,488 2,600 2,816
Total operating expenses 57,765 55,359 54,947
Operating income $54,395 $53,198 $50,490
OPERATING STATISTICS
Natural gas transportation
volumes (in MDth)
For unaffiliated customers 135,886 120,747 116,215
For Questar Gas 105,499 107,501 110,311
For other affiliated customers 12,153 26,878 37,797
Total transportation 253,538 255,126 264,323
Transportation revenue
(per Dth) $0.28 $0.28 $0.26
Clay Basin storage, working gas-
capacity (in Bcf) 51.3 51.3 46.3
</TABLE>
Questar Pipeline's operating income increased 2% in
1999 due primarily to the addition of gas-
processing operations. A subsidiary of Questar
Pipeline removes carbon dioxide from certain gas
supplies to make them suitable for Questar Gas'
system. A $20 million plant was completed and began
operation mid-year 1999.
Revenues from storage operations increased 3% in
1999 as a result of expanding firm-storage capacity
at the company's Clay Basin facility. Storage
capacity was enlarged in May 1998 and is 100%
subscribed under long-term contracts. A majority of
the contractual volumes has remaining terms of at
least 10 years. Questar Gas has contracted for 26%
of firm-storage capacity for at least eight years.
Transportation revenues decreased 1% in 1999 due to
the decrease in gas volumes transported for
affiliated companies. As of December 31, 1999,
approximately 76% of Questar Pipeline's
transportation system was reserved by
firm-transportation customers under contracts with
varying terms and lengths. Questar Gas has reserved
transportation capacity from Questar Pipeline of
approximately 848,000 dth per day, representing 76%
of the total reserved daily-transportation capacity
at December 31, 1999. This contract, which accounts
for 83% of the demand charges collected by Questar
Pipeline, was amended in 1999 extending the term to
June 2002.
Questar Pipeline's O & M expenses decreased 1% in
1999 compared with 1998 due primarily to labor- cost
savings from a reduction in the number of employees
in the third quarter of 1998. Depreciation expense
increased 20% in 1999 resulting from capital
investment in facilities and information-technology
systems.
Questar Pipeline recorded a $49.7 million pre-tax
write-down of its investment in a partnership in
1999. A subsidiary of Questar Pipeline is a 50%
partner, along with a Kinder Morgan Inc. subsidiary,
in the TransColorado Pipeline. With continuing low
volumes due to unfavorable regional transportation
economics, the Company experienced an
other-than-temporary decline in its partnership
investment and recorded a write-down. The write-down
resulted in a $31.3 million after-tax reduction in
net income.
The TransColorado Pipeline extends 292 miles from
northwestern Colorado to a northern New Mexico
pipeline hub and cost approximately $310 million.
Questar Pipeline has a contractual option to put its
50% ownership of the pipeline interest to its
partner, beginning April 1, 2001. The option has a
one-year life. Questar's share of TransColorado's
operating losses in 1999 averaged $900,000 per month
for its nine months of operations. The Company had
reported TransColorado's operating results in losses
from unconsolidated affiliates.
A subsidiary of Questar Pipeline, Questar Line 90
Company, purchased an oil pipeline for $38 million
in 1998. The line extends from the Paradox producing
basin of northwestern New Mexico to Long Beach,
California. The Company intends to convert this
line, named Questar Southern Trails Pipeline, to
transport natural gas to customers in the Los
Angeles basin. Environmental and regulatory review
processes are continuing. The FERC has given
preliminary approval for conversion of the pipeline.
A certificate could be granted in the last half of
2000.
CORPORATE AND OTHER OPERATIONS - This business
segment is responsible for information-technology
and communications services and corporate
administration.
Sales of shares of Nextel and Nextlink stock and the
early retirement of information-technology personnel
were significant transactions reported by Corporate
and Other Operations in 1999. The sales of 1.15
million Nextel shares generated $33.4 million and
165,000 Nextlink shares resulted in $3.5 million of
net income in 1999. A $2.9 million expense
associated with an early retirement window reduced
1999 net income by $1.8 million. Of the 53 eligible
employees, 50 selected the early retirement option.
Operating expenses are expected to be $2.8 million
lower in 2000 as a result of lower labor costs. In
1998, 220,000 Nextel shares were sold resulting in
$2.8 million of net income. Conversion from an
interest in a local Nextlink affiliate to shares of
the parent, net of expenses, represented a $1.5
million after-tax gain in 1998.
Questar InfoComm, which supplies
information-technology services, is developing an
e-commerce business that will combine internet
services, network design and facilities
infrastructure. Questar InfoComm acquired two
computer networking businesses in 1999. Questar
has invested $30 million into the project, with the
possibility of an initial public offering in 2000 or
2001.
CONSOLIDATED OPERATING RESULTS
Revenues: Consolidated revenues increased 2% in
1999 compared with 1998 due primarily to increased
gas production, higher selling prices for gas, oil
and NGL and the revenues from electronic commerce
services. These increases were largely offset by
lower revenues from gas distribution, a function of
lower gas costs collected in rates. Consolidated
revenues were 3% lower in 1998 compared with 1997.
Increased revenues from natural gas distribution and
transmission operations and higher natural gas
production and prices were more than offset by
reduced energy-marketing sales and lower oil and NGL
prices.
Natural gas and other product purchases: Natural
gas and other product purchases were 6% lower in
1999 due to lower gas costs allowed in distribution
rates. Natural gas and other product purchases were
9% lower in 1998 compared with 1997 as a result of
decreased purchases of gas and oil for
energy-marketing sales.
Operating and maintenance: Operating and
maintenance expenses (O & M) increased 9% in 1999
compared with 1998. The increase resulted from
higher costs of serving a growing number of gas-
distribution customers, additional gas and oil
producing properties, the costs of e-commerce
operations and the costs of an early retirement
program for information-technology employees. O & M
increased 4% in 1998 compared with 1997 because of
higher expenses related to development of new
computer and communications systems, operations of
additional gas properties and the growth in the
number of customers served. Labor costs were about
$4.6 million lower in 1999 compared with 1998 and
$2.8 million lower in 1998 compared with 1997 as a
result of an early retirement program accepted by
178 employees effective July 31, 1998.
Depreciation and amortization: Depreciation and
amortization was 10% higher in 1999 as a result of
increased gas production and investment in
exploration and production, distribution and
transmission facilities. The full-cost amortization
rate was $.80 per Mcfe in 1999 compared with $.85
per Mcfe in 1998. The reduction in the amortization
rate resulted primarily from increasing reserves and
selling properties from the full-cost asset pool at
prices in excess of the book value. Depreciation
and amortization increased 6% in 1998 as a result of
increased capital investment in all business
segments and higher gas and oil production. In
addition to depreciation expense, the Company wrote
down the book value of oil and gas properties by $34
million in 1998 and $6 million in 1997.
Other taxes: Other taxes, primarily production and
property related, decreased in 1999 because of lower
oil revenues in prior years. Production taxes are
based on prior-year production values.
Interest and other income: Gains from selling
shares of Nextel and Nextlink were recorded in
interest and other income and represent the
dominating reason for the year-to-year increase.
<TABLE>
<CAPTION>
Year ended December 31,
1999 1998 1997
(In Thousands)
<S> <C> <C> <C>
Sales and conversion of interests
in securities $60,720 $10,474 $9,376
Return earned on working-gas inventory 2,198 1,892 1,317
Allowance for borrowed funds used
during construction 2,017 1,426 781
Interest income and other earnings 9,765 4,410 8,193
Interest and other income $74,700 $18,202 $19,667
</TABLE>
Operations of unconsolidated affiliates: This
income-statement line item includes the $49.7
million write-down of investment in a partnership
that occurred in 1999 and the operating results of
unconsolidated affiliates. Questar's share of the
loss reported by TransColorado Pipeline amounted to
$5.9 million, which comprised an operating loss of
$8.2 million reduced by capitalized financing
charges (AFUDC) of $2.3 million. Earnings from
unconsolidated affiliates were 33% lower in 1998
when compared with 1997 due to lower amounts of
AFUDC and an operating loss incurred by a
liquids-processing plant.
Debt expense: Increased borrowings to finance
capital investments and higher interest rates
resulted in interest expense increases of 12% in
1999 and 10% in 1998.
Income taxes: The effective combined federal, state
and foreign income tax rate was 32.6% in 1999, 27.4%
in 1998 and 30.3% in 1997. Income tax rates were
below the combined statutory rate of about 38%
primarily due to tax credits for tight-sands gas
production. Production tax credits of $7.2 million
in 1999, $8 million in 1998 and $9.3 million in 1997
reduced income tax expenses.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided from operating activities
decreased to $215 million in 1999 from $284.7
million reported in 1998 due to working capital
changes. Capital expenditures amounted to $268
million in 1999, down from $461.3 million reported
in 1998, which included purchases of gas and oil
reserves and an oil pipeline.
Operating Activities:
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
(In Thousands)
<S> <C> <C> <C>
Net cash provided from operating
activities $214,998 $284,685 $202,678
</TABLE>
Net cash provided from operating activities
decreased 24% in 1999 when compared with 1998. The
decline resulted from the payment of accounts
payable. The balance in payables was higher at the
end of 1998 due to construction projects completed
in 1999. The write-downs of investment in
partnership and oil and gas properties were noncash
expenses.
Investing Activities:
Capital expenditures amounted to $268 million in
1999 and $461.3 million in 1998. Capital
expenditures in 1998 included $158 million for gas
and oil reserve-purchases and $38 million for an oil
pipeline; no similar transactions occurred during
1999. Following is some detail of capital
expenditures for 1999 and 1998, and a forecast for
2000:
<TABLE>
<CAPTION>
Year Ended December 31,
2000
Forecast 1999 1998
(In Thousands)
<S> <C> <C> <C>
Questar Market Resources
$15,797 $1,538 $5,898
57,422 64,642 60,402
10,372 19,464 6,789
61,123 3,704 158,000
11,263 12,856 8,434
7,925 12,703 11,046
1,605 19,362 3,977
165,507 134,269 254,546
Questar Regulated Services
Natural gas distribution
34,851 40,632 35,106
10,787 9,445 15,338
5,119 4,170 14,859
12,528 14,200 11,025
63,285 68,447 76,328
Natural gas transmission
17,932 11,936 21,395
3,492 1,571 6,284
24,046 14,414 26,000
10,000 14,639 39,471
1,000 2,912 16,259
6,901 4,952 4,909
63,371 50,424 114,318
Other 15,088 1,385 493
141,744 120,256 191,139
Corporate and other operations
23,562 4,296
5,779 3,472 7,850
2,726 1,724
162 2,985 6,088
29,503 13,479 15,662
$336,754 $268,004 $461,347
</TABLE>
Questar Market Resources
Capital expenditures in 1999 were primarily
comprised of exploration and development of gas and
oil reserves and a $9.1 million equity contribution
in a partnership that operates a liquids-processing
plant. Market Resources participated in drilling
235 wells (93 net wells) in 1999 that resulted in
167 gas wells, 10 oil wells, 19 dry holes and 39
wells in progress at year-end. The 1999 success rate
was 90%. Early in 2000, Market Resources purchased
100% of the common stock of a Canadian company with
61 Bcfe of gas and oil reserves for $61 million.
Questar Regulated Services - Natural gas
distribution
Expansion of the distribution system in response to
the rapid customer growth was the focus of capital
spending. The distribution system was extended by
720 miles of main, feeder and service lines.
Questar Regulated Services - Natural gas
transmission
Capital spending included equity investment in a
partnership to complete construction of the
TransColorado Pipeline, costs of a crude-oil
pipeline which will be converted to transport gas in
the future, expansion of the traditional
gas-transmission network and completion of a
gas-processing plant.
Corporate and Other Operations
Capital expenditures included acquiring e-commerce
operations and improving information-technology
facilities.
Financing Activities:
The Company used cash flow generated from
operations, the sale of investments and a net
increase in long-term debt to fund capital
expenditures, reduce short-term borrowings,
repurchase shares of its common stock and pay
dividends to holders of common stock. Proceeds from
a sale of nonstrategic gas and oil properties were
placed in an escrow account pending reinvestment in
strategic producing properties.
In April 1999, the Company announced plans to
repurchase up to $50 million worth of its shares
over the next two years. By the end of 1999, 1.7
million shares with a cost of $28.3 million had been
purchased. The Company used part of the $75.1
million in proceeds from the sales of Nextel and
other securities to fund those stock repurchases.
Short-term borrowings amounted to $128.4 million of
commercial paper and $15.7 million of bank loans at
December 31, 1999. A year earlier, short-term debt
consisted of $171.1 million of commercial paper and
$50 million of bank loans. The weighted average
interest rate on balances at December 31 was 6.14%
in 1999 and 5.38% in 1998. Commercial-paper
borrowings are backed by short-term line-of-credit
arrangements and rated P1 and A1 by Moody's and
Standard and Poor's, respectively.
In 1999, Market Resources entered into a long-term
senior-revolving-credit facility with a syndication
of banks. The credit facility has a $295 million
capacity. Market Resources had borrowed $264.9
million as of December 31, 1999 under this
arrangement. Questar Pipeline borrowed $42 million
in October 1999 through a medium-term note program.
The notes have a 10-year life and a weighted-
average coupon rate of 7.48%.
The Company typically has negative net working
capital at December 31 because of short-term
borrowings. These borrowings are seasonal and
generally peak at the end of the year because of
cold-weather gas purchases. However, Questar had
substantially more current liabilities than current
assets at December 31, 1998, because of the
short-term debt connected with the Market Resources'
acquisitions. The short-term borrowings were
converted into long-term debt early in 1999.
Questar's consolidated capital structure consisted
of 44% long-term debt and 56% common shareholders'
equity at December 31, 1999. Moody's and Standard
and Poor's have rated the long-term debt of Questar
Gas and Questar Pipeline A1 and A+, respectively.
Questar Market Resources' debt rating is BBB+ by
Standard and Poor's and Baa3 by Moody's. Questar
Market Resources intends to refinance a portion of
its debt with the proceeds from the sale of senior
notes in 2000.
Market Risk
Questar's primary market-risk exposures arise from
commodity-price changes for natural gas, oil and
other hydrocarbons and changes in long-term interest
rates. The Company has an investment in a foreign
operation that may subject it to exchange-rate risk.
However, the exposure is not significant due to the
amount of the foreign investment. Market Resources
also has reserved certain volumes of pipeline
capacity for which it is obligated to pay $3 million
annually for the next seven years, whether or not it
is able to market the capacity to others.
Energy-Price Risk Management: Energy-price risk is
a function of changes in commodity prices as supply
and demand fluctuate. Market Resource bears a
majority of the risk associated with changes in
commodity prices. A primary objective of
energy-price hedging is to protect product sales
from adverse changes in energy prices. The Company
does not enter into hedging contracts for
speculative purposes.
Market Resources held hedge contracts covering the
price exposure for about 72.1 million Dth of gas and
2.4 million bbls of oil at December 31, 1999. A
year earlier the contracts covered 45.3 million Dth
of natural gas and 464,000 bbls of oil. The hedging
contracts exist for a significant share of
Questar-owned gas and oil production and for a
portion of gas-marketing transactions. The
contracts at December 31, 1999, had terms extending
through December 2001, with about 65% of those
contracts expiring by the end of 2000.
The mark-to-market adjustment of gas and oil
price-hedging contracts at December 31, 1999 was a
negative $6.2 million. The calculation used energy
prices posted on the NYMEX from the last trading day
of 1999. A 10% decline in gas and oil prices would
cause a positive mark-to-market adjustment of $16.7
million. Conversely, a 10% increase in prices
results in a $16.3 million negative mark-to-market
adjustment. The fair value of hedging contracts at
December 31, 1998, was $6 million. A 10% decline in
gas and oil prices would cause the fair value of the
contracts to increase by $3.9 million. A 10%
increase in prices results in a $4.1 million lower
fair value calculation. The sensitivity calculations
do not consider the effect of gains or losses
recognized on the underlying physical side of these
transactions, which should largely offset the change
in value.
Interest-Rate Risk Management: The Company owed
$735 million of long-term debt at December 31, 1999,
of which $470.1 million was secured at a fixed rate.
The fair value of fixed-rate debt is subject to
change as interest rates fluctuate. The fair value
of Questar's long-term debt amounted to $735.4
million at December 31, 1999. The fair-value
calculation was based upon quoted market prices and
the discounted present value of cash flows using the
Company's current borrowing rates. If interest
rates declined by 10%, fair value would increase to
$753.3 million and interest costs paid on
variable-rate long-term debt would decrease about
$1.7 million. The fair value of Questar's long-term
debt amounted to $670.1 million at December 31,
1998. If interest rates declined by 10%, fair value
would increase to $693.6 million and interest costs
paid on variable-rate long-term debt would decrease
about $1.1 million. The sensitivity calculations do
not represent the cost to retire the debt
securities. The book value of variable-rate debt
approximates fair value.
Securities Available for Sale: Securities available
for sale represent equity instruments traded on
national exchanges. The value of these investments
is subject to day to day market volatility. A 10%
change in prices would result in either an up or
down change in value of $9.5 million in 1999 and
$5.7 million in 1998, respectively.
Foreign Currency Risk Management: The Company does
not hedge the foreign currency exposure of its
foreign operation's net assets and long-term debt.
The net assets of the foreign operation were
negative at December 31, 1999. Long-term debt held
by the foreign operation, amounting to $59.9 million
(U.S.), is expected to be repaid from future
operations of the foreign company. In January 2000,
Market Resources purchased 100% of the outstanding
common stock of a Canadian company for $61 million
(U.S.).
Year 2000
Questar Corporation established a team to address
the issue of computer programs and embedded computer
chips being unable to distinguish between the year
1900 and the year 2000 (Y2K). The team identified
55 projects among Questar and its affiliated
companies that were assessed, remediated, tested and
determined to be completed. In the process, Questar
employees contacted more than 8,000 vendors and
suppliers to assess their readiness to meet
obligations to Questar. The cost of the Y2K project
was approximately $5.1 million.
The Company did not experience a disruption of
operations because of Y2K. Preparation for Y2K
provided several benefits. The Company completed an
inventory of its primary systems and a testing
laboratory. Systems were tested and remediated
where necessary. The testing laboratory will become
an important part of the information-technology
management. In response to the Y2K challenge,
business contingency plans were revised and
successfully tested.
Forward-Looking Statements
The annual report contains forward-looking
statements about future operations, capital
spending, regulatory matters and expectations of
Questar. According to management, these statements
are made in good faith and are reasonable
representations of the Company's expected
performance at the time. Actual results may vary
from management's stated expectations and
projections due to a variety of factors.
Important assumptions and other significant factors
that could cause actual results to differ materially
from those discussed in forward-looking statements
include changes in general economic conditions, gas
and oil prices and supplies, competition, regulatory
issues, weather conditions, availability of gas and
oil properties for sale and other factors beyond the
control of the Company. These other factors include
the rate of inflation, quoted price of securities
available for sale and adverse changes in the
business or financial condition of the Company.
These factors are not necessarily all of the
important factors that could cause actual results to
differ significantly from those expressed in any
forward-looking statements. Other unknown or
unpredictable factors could also have a significant
adverse effect on future results. The Company does
not undertake an obligation to update
forward-looking information contained herein or
elsewhere to reflect actual results, changes in
assumptions or changes in other factors affecting
such forward-looking information.
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 3,
2000.
The following individuals are serving as executive officers of
the Company:
Primary Positions Held with
Name the Company and Affiliates
R. D. Cash 57 Chairman of the Board of Directors (May 1985);
President and Chief Executive Officer, Director
(May 1984); Chairman of the Boards of
Directors, all affiliates except Questar Energy
Trading.
D. N. Rose 55 President and Chief Executive Officer, Questar
Gas (October 1984), Questar Pipeline (March
1997), QRS (December 1996), QES (January 1999);
Executive Vice President, Questar (February
1996); Senior Vice President, Questar (May 1985
to February 1996); Director (May 1984);
Director, Questar Gas (May 1984), Questar
Pipeline (May 1996), QRS (December 1996), and
QES (January 1999).
Gary L. Nordloh 52 President and Chief Executive Officer, all
Market Resources affiliates (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, QMR
(May 1991), all Market Resources subsidiaries
(various times beginning in June 1989);
Chairman, Questar Energy Trading (August 1998).
Clyde M. Heiner 61 Senior Vice President, Questar (May 1984);
President and Chief Executive Officer, Questar
InfoComm (February 1993) and MetroNet (October
1999); Director, QMR (May 1984), Questar
InfoComm (February 1993), and MetroNet (October
1999).
S. E. Parks 48 Vice President, Treasurer and Chief Financial
Officer, Questar and all affiliates except
Questar Energy Trading (February 1996);
Treasurer, Questar and affiliates except
Questar Energy Trading (at various dates
beginning in May 1984); Director, Questar E&P
(May 1996) and MetroNet (October 1999).
Connie C. Holbrook 53 Vice President and Corporate Secretary (October
1984); General Counsel (April 1999); Corporate
Secretary, Questar Gas and other affiliates
except Questar Energy Trading (at various dates
beginning in March 1982); Director, Questar E&P
(June 1987), QRS (December 1996), and MetroNet
(October 1999).
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 2000 annual meeting,
under the sections entitled "Executive Compensation" and "Election of
Directors" and is incorporated herein by reference. The sections of
the Proxy Statement labeled "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 2000 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 2000 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 1999 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 as amended effective
May 19, 1998. (Exhibit No. 3.1. to Form 10-Q Report for
Quarter ended June 30, 1998.)
3.2.* Bylaws (as amended effective August 11, 1998). (Exhibit
No. 3.2. to Form 10-Q Report for Quarter ended June 30,
1998.)
4.1.*1 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.)
4.2.* Questar Dividend Reinvestment and Stock Purchase Plan.
(Exhibit No. 4. to Current Report on Form 8-K dated
February 8, 2000.)
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.*2 Questar Corporation Annual Management Incentive Plan, as
amended and restated effective May 18, 1999. (Exhibit
No. 10.1. to Form 10-Q Report Quarter ended June 30,
1998.)
10.3.*2 Questar Corporation Executive Incentive Retirement Plan,
as amended and restated effective May 19, 1998. (Exhibit
No. 10.2. to Form 10-Q Report for Quarter Ended June 30,
1998.)
10.4.2 Questar Corporation Long-Term Stock Incentive Plan, as
amended and restated effective February 8, 2000.
10.5.*2 Questar Corporation Executive Severance Compensation
Plan, as amended and restated effective May 19, 1998.
(Exhibit No. 10.3. to Form 10-Q Report for Quarter Ended
June 30, 1998.)
10.6.*2 Questar Corporation Deferred Compensation Plan for
Directors, as amended and restated effective May 19,
1998. (Exhibit No. 10.5. to Form 10-Q Report for Quarter
Ended June 30, 1998.)
10.7.*2 Questar Corporation Supplemental Executive Retirement
Plan, as amended and restated effective June 1, 1998.
(Exhibit No. 10.6. to Form 10-Q Report for Quarter Ended
June 30, 1998.)
10.8.*2 Questar Corporation Stock Option Plan for Directors, as
amended and restated effective October 29, 1998.
(Exhibit No. 10.10. to Form 10-Q Report for Quarter Ended
September 30, 1998.)
10.9.*2 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.)
10.10.*2 Questar Corporation Deferred Share Plan, as amended and
restated effective May 19, 1998. (Exhibit No. 10.7. to
Form 10-Q Report for Quarter Ended June 30, 1998.)
10.11.*2 Questar Corporation Deferred Compensation Plan, as
amended and restated effective May 19, 1998. (Exhibit
No. 10.10. to Form 10-Q Report for Quarter Ended June 30,
1998.)
10.12.*2 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.)
10.13.*2 Questar Corporation Deferred Share Make-Up Plan.
(Exhibit No. 10.8. to Form 10-Q Report for Quarter Ended
June 30, 1998.)
10.14.*2 Questar Corporation Special Situation Retirement Plan.
(Exhibit No. 10.10. to Form 10-Q Report for Quarter Ended
June 30, 1998.)
21. Subsidiary Information.
23. Consent of Independent Auditors.
24. Power of Attorney.
27. Financial Data Schedule.
99.1. 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.
1The name of the Rights Agent has been changed to ChaseMellon
Shareholder Services, L.L.C.
2Exhibit 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 1999.
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a) (1) and (2), and (d)
LIST OF FINANCIAL STATEMENTS
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
YEAR ENDED DECEMBER 31, 1999
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 financial statements of Questar Corporation and
subsidiaries are included in Item 8:
Consolidated Statements of income - Years ended December 31, 1999,
1998 and 1997
Consolidated balance sheets - December 31, 1999 and 1998
Consolidated statements of common shareholder's equity - Years
ended December 31, 1999, 1998 and 1997
Consolidated statements of cash flows - Years ended December 31,
1999, 1998 and 1997
Notes to consolidated financial statements
Financial statement schedules, for which provision is made in the
applicable accounting regulations of the Securities and Exchange
Commission, are not required under the related instructions or are
inapplicable, and therefore have been omitted.
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, 1999 and 1998,
and the related consolidated statements of income and common
shareholders' equity and cash flows for each of three years in the
period ended December 31, 1999. 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 audit standards generally
accepted in the United States. Those standards require that we plan
and perform our 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, 1999 and 1998,
and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1999 in
conformity with accounting principles generally accepted in the United
States.
/s/Ernst & Young
Ernst & Young
Salt Lake City, Utah
February 7, 2000
QUESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C>
REVENUES $924,219 $906,256 $936,337
OPERATING EXPENSES
Natural gas and other product
purchases 342,129 365,168 399,941
Operating and maintenance 231,704 212,358 204,834
Depreciation and amortization 137,744 125,157 118,037
Write-down of oil and gas properties 34,000 6,000
Other taxes 32,724 36,792 37,370
TOTAL OPERATING EXPENSES 744,301 773,475 766,182
OPERATING INCOME 179,918 132,781 170,155
INTEREST AND OTHER INCOME 74,700 18,202 19,667
OPERATIONS OF UNCONSOLIDATED
AFFILIATES
Income (loss) (4,356) 2,917 4,341
Write-down of investment in
partnership (49,700)
(54,056) 2,917 4,341
DEBT EXPENSE (53,944) (47,971) (43,766)
INCOME BEFORE INCOME TAXES 146,618 105,929 150,397
INCOME TAXES 47,788 29,030 45,602
NET INCOME $98,830 $76,899 $104,795
EARNINGS PER COMMON SHARE
Basic and diluted $1.20 $0.93 $1.27
Average common shares outstanding
Basic 82,547 82,365 82,166
Diluted 82,676 82,817 82,667
</TABLE>
See notes to consolidated financial statements
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1999 1998
(In Thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term investments $8,291 $17,489
Accounts receivable 143,987 141,186
Unbilled gas accounts receivable 37,287 36,444
Inventories, at lower of average
cost or market
Gas stored underground 26,913 26,797
Materials and supplies 10,701 11,020
Total inventories 37,614 37,817
Purchased-gas adjustments 432 2,067
Prepaid expenses and deposits 11,249 11,864
TOTAL CURRENT ASSETS 238,860 246,867
PROPERTY, PLANT AND EQUIPMENT
Market Resources 1,469,676 1,412,641
Regulated Services - gas distribution 1,013,599 948,280
Regulated Services - gas transmission 698,236 670,456
Regulated Services - other 4,493 3,066
Corporate and other operations 72,769 70,079
3,258,773 3,104,522
LESS ALLOWANCES FOR DEPRECIATION
AND AMORTIZATION
Market Resources 778,695 717,129
Regulated Services - gas distribution 421,111 382,657
Regulated Services - gas transmission 228,784 215,589
Regulated Services - other 2,542 2,216
Corporate and other operations 40,727 39,290
1,471,859 1,356,881
NET PROPERTY, PLANT AND EQUIPMENT 1,786,914 1,747,641
SECURITIES AVAILABLE FOR SALE 94,945 56,910
INVESTMENT IN UNCONSOLIDATED
AFFILIATES 25,269 58,638
OTHER ASSETS
Cash held in escrow 36,727
Unamortized costs of reacquired debt 12,513 13,326
Income taxes recoverable from
customers 11,852 9,409
Other noncurrent assets 30,917 28,490
TOTAL OTHER ASSETS 92,009 51,225
$2,237,997 $2,161,281
</TABLE>
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31,
1999 1998
(In Thousands)
<S> <C> <C>
CURRENT LIABILITIES
Short-term debt $144,115 $221,100
Accounts payable and accrued expenses
Accounts and other payables 132,466 170,670
Federal income taxes 17,374 8,698
Other taxes 22,315 22,712
Interest 7,518 7,676
Total accounts payable and accrued expenses 179,673 209,756
Current portion of long-term debt 7 6,006
TOTAL CURRENT LIABILITIES 323,795 436,862
LONG-TERM DEBT, less current portion 735,043 615,770
DEFERRED INCOME TAXES 211,112 197,206
DEFERRED INVESTMENT TAX CREDITS 5,648 6,035
OTHER LONG-TERM LIABILITIES 36,554 27,450
COMMITMENTS AND CONTINGENCIES - Note 7
COMMON SHAREHOLDERS' EQUITY
Common stock - without par value;
350,000,000 shares authorized;
81,418,853 outstanding at December 31,
1999 and 82,632,078 outstanding at
December 31, 1998 278,437 298,888
Retained earnings 608,498 564,958
Other comprehensive income 38,910 18,067
Note receivable from employee
investment plan (ESOP) (3,955)
TOTAL COMMON SHAREHOLDERS' EQUITY 925,845 877,958
$2,237,997 $2,161,281
</TABLE>
See notes to consolidated financial statements
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION> Note Other
Receiv- Compre- Compre-
Common Stock Retained able hensive hensive
Shares Amount Earnings from ESOP Income Income
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Balances at January 1,
1997 82,049,774 $292,613 $487,799 ($15,556) $7,229
Issuance of common stock 745,212 11,328
Purchase of common stock (652,902) (12,619)
1997 net income 104,795 $104,795
Payment of dividends
Preferred stock (192)
Common stock of $.62
per share (50,943)
Premium paid on retired
preferred stock (48)
Income tax credit of
dividends paid to ESOP 252
Collection of note
receivable from ESOP 5,383
Other comprehensive income
Unrealized gain on securities
available for sale,
net of income
taxes of $9,642 15,564 15,564
Foreign currency
translation adjustment,
net of income
taxes of $98 173 173
Balances at December 31,
1997 82,142,084 291,322 541,663 (10,173) 22,966 $120,532
Issuance of common stock 521,879 8,243
Purchase of common stock (31,885) (677)
1998 net income 76,899 $76,899
Payment of common
stock dividends
of $.6525 per share (53,747)
Income tax credit of
dividends paid to ESOP 143
Collection of note
receivable from ESOP 6,218
Other comprehensive income
Unrealized loss on securities
available for sale,
net of income tax
credit of $3,086 (4,992) (4,992)
Foreign currency
translation adjustment,
net of income
taxes of $53 93 93
Balances at December 31,
1998 82,632,078 298,888 564,958 (3,955) 18,067 $72,000
Issuance of common stock 488,302 8,124
Purchase of common stock (1,701,527) (28,575)
1999 net income 98,830 $98,830
Payment of common
stock dividends
of $.67 per share (55,328)
Income tax credit of
dividends paid to ESOP 38
Collection of note
receivable from ESOP 3,955
Other comprehensive income
Unrealized gain on securities
available for sale,
net of income
taxes of $13,193 21,303 21,303
Foreign currency
translation adjustment,
net of income tax
credit of $284 (460) (460)
Balances at December 31,
1999 81,418,853 $278,437 $608,498 - $38,910 $119,673
</TABLE>
See notes to consolidated financial statements
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
(In Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $98,830 $76,899 $104,795
Depreciation and amortization 144,704 128,664 122,517
Deferred income taxes and investment
tax credits 315 (14,911) 5,541
Write-down of investment in
partnership 49,700
Write-down of oil and gas properties 34,000 6,000
(Income) loss from
unconsolidated affiliates,
net of cash distributions 7,671 (360) (2,541)
Gain from sales and conversion
of securities (60,720) (10,474) (9,376)
240,500 213,818 226,936
Changes in operating assets
and liabilities
Accounts receivable (1,004) 9,922 (9,555)
Inventories 252 (7,238) (6,725)
Prepaid expenses and deposits 615 2,556 (865)
Accounts payable and accrued
expenses (41,549) 38,207 686
Federal income taxes 8,684 2,251 7,444
Purchased-gas adjustments 1,635 35,184 (13,041)
Other 5,865 (10,015) (2,202)
NET CASH PROVIDED FROM OPERATING
ACTIVITIES 214,998 284,685 202,678
INVESTING ACTIVITIES
Capital expenditures
Purchase of property, plant
and equipment (221,835) (427,680) (199,919)
Other investments (46,169) (33,667) (12,878)
Total capital expenditures (268,004) (461,347) (212,797)
Proceeds from disposition of property,
plant and equipment 44,176 44,496 13,118
Proceeds from sales of securities 75,126 6,759 17,268
NET CASH USED IN INVESTING ACTIVITIES (148,702) (410,092) (182,411)
FINANCING ACTIVITIES
Issuance of common stock 8,124 8,243 11,328
Purchase of Questar common stock (28,575) (677) (12,619)
Redemption of preferred stock (4,876)
Issuance of long-term debt 317,000 152,743 60,047
Repayment of long-term debt (206,996) (77,198) (70,479)
Increase (decrease) in short-term
loans (76,985) 89,900 53,400
Cash held in escrow (36,727)
Collection of note receivable
from ESOP 3,955 6,218 5,383
Income tax credit of dividends
paid to ESOP 38 143 252
Payment of dividends (55,328) (53,747) (51,135)
NET CASH PROVIDED FROM (USED IN)
FINANCING ACTIVITIES (75,494) 125,625 (8,699)
CHANGE IN CASH AND SHORT-TERM
INVESTMENTS (9,198) 218 11,568
BEGINNING CASH AND SHORT-TERM
INVESTMENTS 17,489 17,271 5,703
ENDING CASH AND SHORT-TERM INVESTMENTS $8,291 $17,489 $17,271
</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 a diversified natural gas
company with two principal lines of business:
nonregulated and regulated. The Company's
nonregulated activities of exploration and
production, gas gathering and processing, and energy
marketing are conducted by Questar Market Resources,
Inc. (Market Resources). The Company's regulated
activities of natural-gas distribution, transmission
and storage operations are conducted by Questar
Regulated Services Co. (Regulated Services). Natural
gas-distribution activities are conducted by Questar
Gas. Questar Pipeline provides natural gas
transmission and storage services. Regulated
Services also includes Questar Energy Services which
conducts retail energy-services operations.
Corporate and other operations include
information-technology and telecommunication
services and corporate activities. All significant
intercompany accounts and transactions have been
eliminated in consolidation.
Investments in Unconsolidated Affiliates:
Questar uses the equity method to account for
investments in affiliates in which it does not have
control. Principal affiliates include: Overthrust
Pipeline Company, TransColorado Gas Transmission
Company, Canyon Creek Compression Company and Blacks
Fork Gas Processing Company. Generally, the
Company's investment in these affiliates equals the
underlying equity in net assets, except for
TransColorado where the investment was written down.
The Company experienced an other-than-temporary
decline in its partnership investment caused by low
volumes resulting from unfavorable regional
transportation economics.
Regulation: Questar Gas is regulated by the
Public Service Commission of Utah (PSCU) and the
Public Service Commission of Wyoming (PSCW). While
Questar Gas also serves a small area of southeastern
Idaho, the Public Utilities 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 nonrate
regulated 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. Questar Gas records gas-distribution
revenues for gas delivered to residential and
commercial customers but not billed at the end of
the accounting period. Rate regulated companies
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: Questar Gas
accounts for purchased-gas costs in accordance with
procedures authorized by the PSCU and PSCW under
which purchased-gas costs that are different from
those provided for in present rates are accumulated
and recovered or credited through future rate
changes.
Cash and Short-Term Investments: Short-term
investments consist principally of repurchase
agreements with maturities of three months or less.
Securities Available for Sale: The value of
securities available for sale approximates fair
value at the balance sheet date based on published
share prices. The Company records unrealized gains
or losses, based on market value net of income
taxes, as a separate component of other
comprehensive income in shareholders' equity at the
balance sheet date. Gains or losses resulting from
the sale of securities are included in the
determination of income.
Property, Plant and Equipment: Property,
plant and equipment is stated at cost. The Company
employs the full-cost accounting method for a
majority of its gas and oil exploration and
development activities. 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 gas and oil reserves plus the fair value
of unproved properties (the full-cost ceiling) the
excess is expensed. Wexpro, a subsidiary of Market
Resources, uses the successful-efforts accounting
method to account for its development activities
under the terms of the Wexpro settlement agreement
(Note 10). Questar follows the provisions of
Statement of Financial Accounting Standards (SFAS)
121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of."
The provisions of SFAS 121 do not supersede
full-cost accounting rules, which require a
quarterly full-cost ceiling test.
The provision for depreciation and amortization is
based upon rates that will systematically charge the
costs of assets against income over the estimated
useful lives of those assets. The investment in
natural gas distribution, transmission, storage and
gathering property, plant and equipment, and
processing plants is charged to expense using the
straight-line method. The costs of gas and oil
wells and leaseholds are charged to expense using
the units-of-production method. Average
depreciation and amortization rates used were as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Market Resources
Exploration and production,
per Mcf equivalent
Full-cost amortization rate
(U.S. and Canada) $0.80 $0.85 $0.84
Wexpro depreciation
rate $0.42 $0.39 $0.39
Gas gathering and
processing 4.4% 4.9% 5.8%
Regulated Services
Natural gas distribution
Distribution plant 4.2% 4.3% 4.2%
Gas wells, per Mcf $0.15 $0.17 $0.16
Natural gas transmission 3.4% 3.2% 3.5%
and storage
Corporate and other
operations 8.8% 8.5% 6.7%
</TABLE>
Capitalized Interest: Questar's regulated
subsidiaries capitalize the cost of capital employed
during the construction period of plant and
equipment and the Company's nonregulated
subsidiaries capitalize interest costs during
construction of assets when applicable. The sum of
allowance for funds used during construction and
capitalized interest amounted to $5,052,000 in 1999,
$2,847,000 in 1998 and $2,268,000 in 1997.
Reacquisition of Debt: Gains and losses on
the reacquisition of debt by regulated affiliates
are deferred and amortized as debt expense over the
would-be remaining life of the retired debt or the
life of the replacement debt in order to match
regulatory treatment.
Foreign Currency Translation: The local
currency is the functional currency of the Company's
foreign operations. Translation from the functional
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. Adjustments resulting from such translations
are reported as a separate component of other
comprehensive income in shareholders' equity.
Deferred income taxes have been provided on
translation adjustments because the earnings are not
considered to be permanently invested.
Energy Price Risk Management: Market
Resources enters into swaps, futures contracts or
options 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, oil and electricity in marketing activities.
There is a high degree of correlation between such
contracts and the physical transactions. The timing
of production and of the hedge contracts is closely
matched. Hedge prices are established in the areas
of Market Resources' production operations. The
Company settles most contracts in cash and
recognizes the gains and losses on hedge
transactions during the same time period as the
related physical transactions. Contracts no longer
qualifying for high correlation with the physical
transactions would be marked-to-market and
recognized in current period income. 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 hedging contracts for
speculative purposes.
Interest Rate Risk Management: The Company
uses fixed and variable rate debt as part of its
financing plans. These agreements expose the Company
to market risk related to changes in interest rates.
Income Taxes: Regulated operations record
cumulative increases in deferred taxes as income
taxes recoverable from customers. Questar Gas and
Questar Pipeline have adopted procedures with their
regulatory commissions to include under-provided
deferred taxes in customer rates on a systematic
basis. Questar Gas and Questar Pipeline use the
deferral method to account for investment tax
credits as required by regulatory commissions.
Questar 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.
Earnings Per Share: The Company presents
basic and diluted earnings per share (EPS) on the
face of the income statement. Basic EPS are computed
by dividing net income available to common
shareholders by the weighted average number of
common shares outstanding during the accounting
period, including ESOP shares. Diluted EPS include
the potential dilution as a result of exercising
stock options. This amount represents the
difference between the number of basic and diluted
average shares outstanding shown on the Consolidated
Statements of Income.
Comprehensive Income: Questar reports other
comprehensive income on the Consolidated Statement
of Shareholders' Equity. Other comprehensive income
transactions that currently apply to Questar result
from changes in market value of securities held for
sale and changes in holding value resulting from
foreign currency translation adjustments. These
transactions are not the culmination of the earnings
process, but result from periodically adjusting
historical balances to market value. The balances in
accumulated foreign currency translation adjustments
and unrealized gains on securities available for
sale amounted to a negative $375,000 and
$39,285,000, respectively, at December 31, 1999 and
$85,000 and $17,982,000, respectively, at December
31, 1998. Income is realized when the securities
available for sale are sold. Income tax expenses
associated with realized gains from selling
securities available for sale, which were included
in other comprehensive income in prior years, were
$23.4 million in 1999, $1.9 million in 1998 and $3.8
million in 1997.
Business Segments: Questar's lines of
business disclosures are presented based on the way
top management evaluates the performance of its
business segments. The information disclosed does
not affect measurement of operating results, cash
flows or financial position. Certain intersegment
sales include intercompany profit.
Reclassifications: Certain reclassifications
were made to the 1998 and 1997 financial statements
to conform with the 1999 presentation.
New accounting standard: The Company is
required to adopt the accounting provisions of
Statement of Financial Accounting Standards (SFAS)
133 "Accounting for Derivative Instruments and
Hedging Activities" beginning in January 2001. The
new accounting rules require that the fair value of
hedging instruments be measured and recorded as
either assets or liabilities on the balance sheet
with a regular, periodic mark-to-market adjustment.
The effect of adopting this new accounting standard
is not known at this time because the Company has
not completed its evaluation.
Note 2 - Purchases of Gas and Oil Companies
On January 26, 2000, a subsidiary of Market
Resources acquired 100% of the outstanding shares of
Canor Energy Ltd from NI Canada ULC, a subsidiary of
Northwest Natural Gas Co. The cost of the cash
transaction was $US 61 million and was accounted for
as a purchase. Canor owns and/or operates more
than 800 wells located in Alberta, British Columbia
and Saskatchewan provinces of Canada. Canor's proven
gas and oil reserves are estimated at 61.1 billion
cubic feet equivalent.
A subsidiary of Market Resources acquired 100% of
the common stock of HSRTW, Inc., a wholly owned
subsidiary of HS Resources, Inc. for $155 million,
effective September 1, 1998. Market Resources
obtained an estimated 150 billion cubic feet
equivalent of proved oil and gas reserves primarily
in Oklahoma, as well as in Texas, Arkansas and
Louisiana as a result of the transaction. The cash
transaction was accounted for as a purchase.
Market Resources sold nonstrategic properties in
1999, mostly in the Permian Basin and Kansas and
deposited the proceeds into an escrow account
pending reinvestment.
Note 3 - Debt
Questar has short-term line-of-credit arrangements
with several banks under which it may borrow up to
$240.2 million. These lines have interest rates
generally below the prime interest rate. Commercial
paper borrowings are backed by the short-term
line-of-credit arrangements. The details of
short-term debt are as follows:
December 31,
1999 1998
(Dollars In Thousands)
Commercial paper with
variable interest rates $128,379 $171,100
Bank loans with variable
interest rates 15,736 50,000
$144,115 $221,100
Weighted average interest
rate at December 31 6.14% 5.38%
The details of long-term debt are as follows:
December 31,
1999 1998
(In Thousands)
Market Resources
Revolving-credit loan due
2001- 2005 with variable
interest rates (6.54%
at December 31, 1999) $264,894 $181,624
Regulated Services -
Natural gas distribution
Medium-term notes 6.85% to 8.43%,
due 2007 to 2024 225,000 225,000
Regulated Services -
Natural gas transmission
Medium-term notes 5.85% to 7.55%,
due 2008 to 2019 130,400 88,400
9 3/8% debentures due 2021 85,000 85,000
9 7/8% debentures due 2020 30,000 30,000
Corporate and other
Revolving-credit term loan
due 2001 with variable
interest rates 6,000
8.28% ESOP notes due 1999 6,000
Other 155 161
Total long-term debt
outstanding 735,449 622,185
Less current portion 7 6,006
Less unamortized debt 399 409
discount
$735,043 $615,770
Maturities of long-term debt for the five years
following December 31, 1999, are as follows:
(In Thousands)
2000 $7
2001 3,002
2002 35,253
2003 7,254
2004 184,256
Cash paid for interest was $56,019,000 in 1999,
$49,430,000 in 1998 and $42,289,000 in 1997.
At December 31, 1999, Questar Pipeline guaranteed
$100 million of long-term debt borrowed by
TransColorado Gas Transmission Company. The
partnership has borrowed $200 million under a
three-year revolving-credit arrangement dated
October 1998.
Note 4 - Common Stock
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 issued common stock
from the Company amounting to 371,985 shares in
1999, 329,794 shares in 1998 and 296,178 shares in
1997. At December 31, 1999, 2,242,823 shares were
reserved for future issuance.
Employee Investment Plan: The Employee Investment
Plan (Plan) allows eligible employees to purchase
shares of Questar Corporation common stock or other
investments through payroll deduction. The Plan was
changed effective January 1, 1999 to limit employee
purchases to pretax contributions only and to
increase the Company's matching contributions of
common stock to the Plan from 75% to 80% of
employees' eligible contributions.
In June 1989, Questar sold 3,985,768 shares of its
common stock (LESOP shares) to the trustee of the
Plan to prefund its matching obligation for a
10-year period. The prefunding arrangements of the
LESOP expired in June of 1999. Since then the
Company's expense equals its matching contribution.
The Plan trustee financed the purchase of stock by
borrowing $35 million from the Company. A note
receivable from the Plan was recorded as a reduction
of common shareholders' equity and was repaid using
the Company's contribution and dividends paid on
LESOP shares. At the same time, Questar borrowed
$35 million from a group of insurance companies.
Final payment of the loan was made July 1999.
Interest expense on these notes to the insurance
companies totaled $248,000 in 1999, $716,000 in 1998
and $1,130,000 in 1997.
Questar's expense and contribution to the Plan,
dividends paid by the Company to the Plan, and
income tax benefits for dividends paid on Plan
shares and dividends paid directly to the Plan are
summarized below:
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
(In Thousands)
<S> <C> <C> <C>
Company's expense and
contribution to the Plan $4,713 $4,542 $4,289
Dividends paid by the Company
to the Plan
Allocated shares $942 $2,195 $1,879
Unallocated shares 100 374 660
$1,042 $2,569 $2,539
Income tax benefits for
dividends paid on
Plan shares were recorded as
Reduction of income tax expense $360 $840 $719
Direct increase to
retained earnings 38 143 252
$360 $840 $719
</TABLE>
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 made available for a
given year for options or other stock awards under
the Long-term Stock Incentive Plan is 1% of the
outstanding shares of common stock on the first day
of the calendar year. The current plan expires
after May 2001, unless it is renewed by
shareholders. The option price equals the market
price of the stock on the grant date. Stock options
for employees have a 10-year life and vest in four
equal annual installments beginning six months after
grant date. Nonemployee directors may receive
shares of common stock instead of cash in payment
for directors fees under a separate plan. At
December 31, 1999 there were 92,124 shares available
for future issuance under this plan.
No compensation expense is recorded for stock
options issued to employees or directors because the
option price equals the market price on the date of
issue. If compensation expense had been recorded,
it would be based on an estimate of the fair value
of stock options granted and would reduce earnings
per share by $.02 in 1999 and $.03 in 1998 and 1997.
The pro forma amounts of net income and earnings per
share were calculated for options granted since
January 1, 1995. For purposes of the pro forma
expense, the weighted average fair value of the
options was amortized over the vesting period. The
pro forma estimates rely upon subjective assumptions
and the use of a mathematical model to estimate
value, and may not be representative of future
results.
Transactions involving option shares in the Stock
Plans are summarized as follows:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Shares Price Range Price
<S> <C> <C> <C>
Balance at January 1, 1997 3,038,810 $9.81-16.81 $14.80
Granted 795,400 19.13 19.13
Cancelled (155,200) 13.69-19.13 16.34
Exercised (738,400) 9.81-16.81 13.43
Balance at December 31, 1997 2,940,610 9.81-19.13 16.22
Granted 857,800 21.38 21.38
Cancelled (77,200) 13.69-21.38 17.33
Exercised (437,209) 9.81-16.81 14.72
Balance at December 31, 1998 3,284,001 9.81-21.38 $17.74
Granted 866,400 17.00 17.00
Cancelled (93,150) 9.81-21.38 17.94
Exercised (138,545) 9.81-16.81 14.44
Balance at December 31, 1999 3,918,706 $9.81-21.38 $17.69
Exercisable at December
31, 1999 2,730,556 $17.23
Available for future grant
December 31, 1999 1,279,508
</TABLE>
The stock options at December 31, 1999 had a
weighted average remaining life of 7 years. The fair
value of the stock options was determined on the
grant date using the Black-Scholes option valuation
model. The calculated fair value of options granted
and major assumptions used in the model at the date
of grant were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Fair value of options at
grant date $3.16 $3.94 $3.76
Risk-free interest rate 5.11% 5.56% 6.15%
Expected price volatility 20.6% 20.2% 19.0%
Expected dividend yield 3.88% 3.09% 3.19%
Expected life in years 7.2 4.4 5.1
</TABLE>
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, annual
installments beginning one year 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>
1999 1998 1997
<S> <C> <C> <C>
Shares of restricted stock
awarded 16,919 7,620 24,274
Market price at award date $15.00 $17.00 $21.38
</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
$87.50. 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 $.005
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
The carrying value and estimated fair values of the
Company's financial instruments were as follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
Financial assets
Cash and short-term
investments $8,291 $8,291 $17,489 $17,489
Financial liabilities
Short-term loans 144,115 144,115 221,100 221,100
Long-term debt,including
current portion 735,050 728,273 622,185 670,075
Gas and oil price hedging
contracts (6,200) 6,000
</TABLE>
The Company used the following methods and
assumptions in estimating fair values: Cash and
short-term investments and short-term loans - the
carrying amount approximates fair value; Long-term
debt - the carrying amount of variable-rate debt
approximates fair value. The fair value of
fixed-rate debt is based on quoted market prices,
and on the discounted present value of cash flows
using the Company's current borrowing rates; Gas and
oil price hedging contracts - the mark-to-market
adjustment of contracts is based on market prices as
posted on the NYMEX from the last trading day of the
year.
The average price of the oil contracts at December
31, 1999, was $18.83 per barrel and was based on the
average of fixed amounts in contracts which settle
against the NYMEX. All oil contracts relate to
Company-owned production where basis adjustments
would result in a net to the well price between
$17.22 and $17.67 per barrel. The average price of
the gas contracts at December 31, 1999 was $2.22 per
Mcf representing the average of contracts with
different terms including fixed, various
into-the-pipe postings and NYMEX references.
Gas-hedging contracts were in place for Market
Resources-owned production and gas-marketing
transactions. Transportation and heat-value
adjustments on the hedges of Company-owned gas as of
December 31, 1999, would result in price between
$2.15 and $2.23 per Mcf, net back to the well.
Fair value is calculated at a point in time and does
not represent the amount 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.
Energy Price Risk Management: Market Resources held
open hedge contracts covering the price exposure for
about 72.1 million dth of gas and 2.4 million
barrels of oil at December 31, 1999, and 45.3
million dth of natural gas and 464,000 barrels of
oil at December 31, 1998. The contracts at
December 31, 1999 had terms extending through
December 2001, with about 65% of those contracts
expiring by the end of 2000. A primary objective of
energy-price hedging is to protect product sales
from adverse changes in energy prices. The Company
does not enter into hedging contracts for
speculative purposes.
Securities Available for Sale: Securities available
for sale represent equity instruments traded on
national exchanges. The value of these investments
is subject to day to day market volatility.
Credit Risk: The Company's primary market areas are
the Rocky Mountain and Midcontinent regions of the
United States. Exposure to credit risk may be
impacted by the concentration of customers in these
regions due to changes in economic or other
conditions. Customers include individuals and
numerous industries that may be affected differently
by changing conditions. Management believes that
its credit-review procedures, loss reserves,
customer deposits and collection procedures have
adequately provided for usual and customary
credit-related losses.
Note 6 - Income Taxes
Details of Questar's income tax expenses and
deferred income taxes are provided in the following
tables. The components of income taxes were as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
(In Thousands)
<S> <C> <C> <C>
Federal
Current $43,326 $39,454 $36,131
Deferred (2,349) (7,160) 6,773
State
Current 6,602 3,918 5,742
Deferred 437 346 639
Deferred investment tax credits (387) (387) (388)
Foreign income taxes 159 (7,141) (3,295)
$47,788 $29,030 $45,602
</TABLE>
The difference between income tax expense reported
and the tax computed by applying the statutory
federal income tax rate of 35% to income before
income taxes is explained as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
(In Thousands)
<S> <C> <C> <C>
Income before income taxes $146,618 $105,929 $150,397
Federal income taxes
at 35% $51,316 $37,075 $52,639
State income taxes,
net of federal income
tax benefit 4,576 2,773 4,138
Tight-sands gas production
credits (7,154) (7,953) (9,319)
Investment tax credits
utilized (387) (387) (388)
Deferred taxes related
to regulated assets
that were not provided
in prior years 921 922 884
Tax benefits from dividends
paid to ESOP (398) (840) (719)
Foreign income taxes 48 (1,061) (1,340)
Other (1,134) (1,499) (293)
Income tax expense $47,788 $29,030 $45,602
Effective income tax rate 32.6% 27.4% 30.3%
</TABLE>
Significant components of the Company's deferred tax
liabilities and assets were as follows:
December 31,
1999 1998
(In Thousands)
Deferred tax liabilities
Property, plant and
equipment $219,109 $200,213
Mark to market adjustments
of securities
available for sale 24,333 11,145
Other 13,195 14,541
Total deferred tax 256,637 225,899
liabilities
Deferred tax assets
Associated with write-down
of investment in
partnership 18,400
Alternative minimum tax
and production credit
carryforwards 2,468 12,591
Depletion and ITC
carryforwards 2,140
Other 22,517 16,102
Total deferred tax
assets 45,525 28,693
Net deferred tax
liabilities $211,112 $197,206
Cash paid for income taxes was $35,244,000 in 1999,
$35,036,000 in 1998 and $29,653,000 in 1997.
Note 7 - Litigation and Commitments
Questar Exploration & Production (Questar E & P),
Questar Market Resources, as well as Questar Market
Resources and Questar are named defendant in a class
action lawsuit involving royalty payments in
Oklahoma state court. In Bridenstine vs.
Kaiser-Francis Oil Company, the plaintiffs allege
fraud and contract claims and assert damages against
all defendants for a 17-year period in excess of
$54,000,000 plus punitive damages. The plaintiffs'
primary claim alleges that a transportation fee
charged against royalty payments was improper or
excessive. The claims involve wells connected to an
intrastate pipeline system that Questar Gas
Management presently owns and operates.
Kaiser-Francis and Questar E & P are the major
working interest owners and operators of a majority
of the wells connected to this pipeline system.
The Oklahoma Supreme Court has denied defendants'
appeal from the trial court's decision to certify
the Bridenstine case as a class action. Questar E &
P disputes these claims. Management cannot predict
the outcome of the lawsuit, which will be tried
before a jury beginning August of 2000, but
believes it will not have a material effect on
results of operations, cash flows or the balance
sheet.
Questar and its affiliates are involved in several
cases filed by an independent producer, Jack
Grynberg. The first case resulted in an adverse jury
verdict in 1994; the presiding federal district
court judge in Wyoming entered a judgment as a
matter of law that vacated most portions of the
original jury verdicts. The Tenth Circuit Court of
Appeals, in January of 2000, reinstated some
portions of the original jury verdict.
Specifically, the appellate court reversed the trial
court's judgment on take-or-pay, breach of contract,
intentional interference with a contract, and price
on deregulation claims. The Tenth Circuit did
uphold the district court's determination on duty to
decontrol, working interest ownership, and stolen
gas claims.
Questar Gas, as a result of acquiring Questar
Pipeline's gas purchase contracts, is liable for the
judgment, which it estimates may be as high as $5.1
million, when interest is added to the portions of
the jury verdict that were reinstated on appeal.
Questar Gas plans to include any amounts that it is
required to pay to Grynberg in its gas purchase
balancing account.
Grynberg filed a second case before the same federal
district court in 1997, alleging new claims,
including antitrust and fraud, in addition to the
same claims raised in the initial litigation for a
later period of time. This case has been stayed
pending the outcome of the Tenth Circuit appeal,
although the district court did rule favorably on
Questar's motion for a partial summary judgment.
Questar affiliates are also named defendants in a
lawsuit filed by Grynberg under the Federal False
Claims Act. This case and the 75 substantially
similar cases filed by Grynberg against pipelines
and their affiliates have been consolidated for
discovery and pre-trial rulings in Wyoming federal
district court. The cases involve allegations of
industry-wide mismanagement of the value of gas on
which royalty payments are due the federal
government. The complaint also seeks treble damages
and imposition of civil penalties.
Finally, Grynberg has filed a case against Questar
Pipeline in Utah state district court, alleging
mismeasurement of gas volumes attributable to his
working ownership interest in a specified property
in southwestern Wyoming. Grynberg cites
mismanagement to support claims for breach of
contract, negligent mispresentation, fraud, breach
of fiduciary responsibilities, etc.
It is too early to estimate the outcome of the
various cases, with the exception of the first case
that has been resolved by the Tenth Circuit, filed
by Grynberg against Questar affiliates.
There are various other legal proceedings against
Questar and its subsidiaries. While it is not
currently possible to predict or determine the
outcomes of these proceedings, it is the opinion of
management that the outcomes will not have a
materially adverse effect on the Company's results
of operations, financial position or liquidity.
Questar Gas employs a diversified gas supply
portfolio comprised of company-owned gas reserves
and purchases from other suppliers. Historically,
company-owned reserves have accounted for 45% to 50%
of the yearly gas supply needs. The remaining gas
supply is purchased predominately using one-year
contracts which are renegotiated each year prior to
the heating season. In addition, Questar Gas makes
use of various storage arrangements to meet peak gas
demand during certain times of the heating season.
Each year, Questar Gas purchases significant
quantities of natural gas under numerous
gas-purchase contracts with varying terms and
conditions. Purchases under these agreements
totaled $93 million in 1999, $100 million in 1998
and $122.1 million in 1997.
Questar Energy Trading has reserved certain volumes
of pipeline capacity for which it is obligated to
pay $3 million annually for the next seven years,
whether or not it is able to market the capacity to
others.
Questar sold its headquarters building under a sale
and lease-back arrangement in 1998. The operating
agreement commits the Company to occupy the building
for the next 12 years with an option for renewal.
The annual lease payment is $3.4 million in 1999 and
for the next four years.
Note 8 - Rate Regulation and Other Matters
The Public Service Commission of Utah (PSCU) denied
on December 3, 1999, Questar Gas' request to
recover, as part of its gas costs, the cost of
removing carbon dioxide from gas processed at a new
plant constructed and operated by an affiliated
company. Some of the natural gas Questar Gas
delivers to its customers must be processed to
remove carbon dioxide, ensuring a natural gas
composition that can operate safely and efficiently
in customers' appliances. Gas-processing costs were
estimated at about $7.5 million annually. Questar
Gas has since included gas-processing costs in a
general rate case filed December 17, 1999. Questas
Gas has filed an appeal of the PSCU's decision with
the Utah Supreme Court.
The PSCU on November 12, 1999 approved an annualized
gas cost increase of approximately $36.9 million
effective December 1, 1999, but disallowed rate
coverage for $3.6 million of processing charges
incurred in 1999.
Questar Gas filed a general rate case December 17,
1999 requesting $22 million of general rate relief
and also asked for $7.1 million of interim rate
relief. Higher costs of serving customers,
inclusion of charges for the removal of carbon
dioxide from part of the gas supply and lower gas
usage per customer were cited among the reasons for
requesting rate relief. The PSCU granted $7.1
million of interim rate relief effective January 1,
2000. Hearings have been scheduled for June 5
through June 7 of 2000. The interim relief is
subject to refund, pending the commission's final
order that must be issued by August 2000. Questar
Gas last filed a general rate case in 1995.
The Public Service Commission of Wyoming (PSCW) in
February 2000 reaffirmed Questar's 11.83% authorized
return on equity in a general rate case filing and
approved the company's request for a $377,000 rate
reduction. The PSCW's rate-ruling also allowed the
Company to transfer the recovery of gas-processing
costs from gas costs to general rates beginning
April 2000. Cost efficiencies and slower population
growth in Wyoming compared with Utah, enabled
Questar Gas to reduce its rates in Wyoming
A subsidiary of Questar Pipeline, Questar Southern
Trails Pipeline Company, filed an application with
the FERC in January 1999 requesting permission to
convert a 700-mile crude oil pipeline, extending
from New Mexico to Long Beach, California, to carry
natural gas. The application also seeks authority
to install required compression equipment and to
upgrade the system to carry 120 MDth of gas per day.
A preliminary determination on non-environmental
issues was ordered by the FERC October 15, 1999 that
provided a favorable outcome. The environmental
process is continuing and the FERC will not grant a
final certificate until the environmental review
process is completed.
Overthrust Pipeline, a pipeline partnership operated
by Questar Pipeline, filed a general rate case on
October 1, 1999 requesting a $1 million increase in
annual rates. Hearings before the FERC are
scheduled for August 21, 2000. Overthrust is
seeking a settlement with the FERC prior to the
August 2000 hearing date.
The Utah legislature enacted major legislation that
will restructure the state's regulatory process. The
legislation creates a clear public policy to balance
the needs of consumers for safe, reliable utility
services at a fair price with the utilities' needs
to earn fair, competitive returns. The regulatory
process will be streamlined through the merging of
the Division of Public Utilities and the Committee
of Consumer Services into a new organization, the
Office of Public Advocate. The legislation
establishes a process that encourages more
settlements of rate matters. The legislation also
requires that post test-year known and measurable
changes be taken into consideration in setting
rates. The legislation will not go into effect until
July 1, 2001.
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 the employee's age
at retirement, years of service and highest earnings
in a consecutive 72 pay-period interval 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.
Questar InfoComm, which conducts telecommunications
and information-technology services, announced an
early-retirement program effective November 1, 1999.
Fifty of the 53 eligible employees elected to
retire. Costs, amounting to $2,883,000 associated
with the early-retirement window, were expensed in
1999.
Eligible employees in Regulated Services were
offered an early-retirement program that was
effective July 31, 1998. Enhanced benefits were
paid to 178 employees taking advantage of the offer.
Costs, amounting to $3,147,000 associated with the
early-retirement program, are being amortized over a
five-year period in accordance with anticipated
regulatory treatment.
A summary of pension expense is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
(In Thousands)
<S> <C> <C> <C>
Service cost $8,894 $7,746 $7,226
Interest cost 18,814 18,617 18,270
Expected return on plan
assets (24,059) (23,016) (20,970)
Prior service and other
costs 1,365 872 678
Early retirement expenses 3,744 530 651
Pension expense $8,758 $4,749 $5,855
</TABLE>
Assumptions used to calculate pension expense were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Discount rate 6.75% 6.75% 7.50%
Rate of increase in
compensation 5.00% 5.00% 5.35%
Long-term return on
assets 9.25% 8.50% 8.50%
</TABLE>
The status of the pension plan was as follows:
Pension Plan 1999 1998
(In Thousands)
Change in benefit obligation
Projected benefit
obligation at January 1, $252,799 $269,259
Service cost 8,894 7,746
Interest cost 18,814 18,617
Plan amendments 2,164 7,022
Change in discount rate
assumption (42,321)
Actuarial loss 35,264 15,768
Benefits paid (11,469) (11,577)
Early retirement
settlements paid (17,187) (54,036)
Projected benefit
obligation at December 31, 246,958 252,799
Change in plan assets
Fair value of plan assets
at January 1, 264,632 284,698
Actual return on plan
assets 32,831 40,347
Contributions to the plan 6,100 5,200
Benefits paid (11,469) (11,577)
Early retirement
settlements (17,187) (54,036)
Fair value of plan assets
at December 31, 274,907 264,632
Plan assets in excess of
projected benefit
obligation 27,949 11,833
Unrecognized net
actuarial gain (36,724) (18,012)
Unrecognized prior
service cost 12,424 11,482
Unrecognized transition
obligation 210 353
Prepaid pension expense recorded
in current assets $3,859 $5,656
Postretirement Benefits Other Than Pensions:
Generally, postretirement health-care benefits and
life insurance are provided only to employees hired
before January 1, 1997. The Company pays a portion
of the costs of health-care benefits, as determined
by an employee's years of service, and limited to
170% of the 1992 contribution. The Company's policy
is to fund amounts allowable for tax deduction under
the Internal Revenue Code. Plan assets consist of
equity securities and corporate and U.S. government
debt obligations. The Company is amortizing its
transition obligation over a 20-year period, which
began in 1992.
Regulated Services accounts for approximately 51% of
the postretirement benefit costs. The impact of
postretirement benefit costs on Questar's future net
income will be mitigated by the ability to recover
these costs from customers. The regulatory agencies
allowed Questar Gas and Questar Pipeline to recover
future costs if the amounts are funded in external
trusts.
A summary of the expense of postretirement benefits
other than pensions follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
(In Thousands)
<S> <C> <C> <C>
Service cost $1,006 $1,138 $1,075
Interest cost 4,545 4,094 4,050
Expected return on plan
assets (2,831) (1,830) (1,647)
Amortization of transition
obligation 1,877 1,878 1,971
Actuarial gain (68)
Amortization of regulatory
liability 523
Postretirement benefit
expense $5,120 $5,280 $5,381
</TABLE>
Assumptions used to calculate postretirement benefit
expense were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Discount rate 6.75% 6.75% 7.5%
Long-term return on assets 9.25% 8.50% 8.5%
Health care inflation rate 10.50% 11.00% 11.50%
decreasing to
5.5% by 2010
</TABLE>
A 1% increase in the health care inflation rate
would increase the service cost and interest cost by
$300,000 and the accumulated postretirement benefit
obligation by $3.3 million. A 1% decrease in the
health care inflation rate would decrease the
service cost and interest cost by $200,000 and the
accumulated postretirement benefit obligation by
$2.8 million.
The status of the postretirement benefit programs
was as follows:
Postretirement Benefits Other Than Pensions
1999 1998
(In Thousands)
Change in benefit obligation
Projected benefit
obligation at January 1, $64,245 $59,743
Service cost 1,006 1,138
Interest cost 4,545 4,094
Plan amendments (1,409)
Actuarial (gain) loss (498) 2,435
Benefits paid (3,129) (1,756)
Projected benefit
obligation at December 31, 66,169 64,245
Change in plan assets
Fair value of plan assets
at January 1, 30,845 24,684
Actual return on plan 3,732 4,161
assets
Contributions to the plan 3,854 3,756
Benefits paid (3,129) (1,756)
Fair value of plan assets
at December 31, 35,302 30,845
Projected benefit obligation
in excess of plan assets (30,867) (33,400)
Unrecognized transition 24,406 26,284
obligation
Unrecognized net gain (4,594) (3,195)
Accrued postretirement benefit
liability recorded
in current liabilities ($11,055) ($10,311)
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.
Questar's postemployment liability at December 31
was $2,347,000 in 1999, $2,452,000 in 1998 and
$2,468,000 in 1997. The PSCU and the PSCW have
allowed Questar Gas to recover postemployment costs
of about $1.1 million, as measured at December 31,
1994, over a 10-year period.
Note 10 - 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 Questar Gas' 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
Questar Gas' 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
after-tax rate of return is adjusted annually and is
approximately 13.7%. Any net income remaining after
recovery of expenses and Wexpro's return on
investment is divided between Wexpro and Questar
Gas, 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 after-tax
rate of return is adjusted annually and is
approximately 18.7%. Any net income remaining after
recovery of expenses and Wexpro's return on
investment is divided between Wexpro and Questar
Gas, with Wexpro retaining 46%.
c. Amounts received by Questar Gas 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 Questar Gas. Wexpro is
reimbursed for the costs of producing the gas plus a
return on its investment in successful wells. The
after-tax return allowed Wexpro is approximately
21.7%.
e. Wexpro operates natural-gas properties owned by
Questar Gas. Wexpro is reimbursed for its costs of
operating these properties, including a rate of
return on any investment it makes. This after-tax
rate of return is approximately 13.7%.
Note 11 - Oil and Gas Producing Activities
(Unaudited)
The following information discusses Questar's oil
and gas producing activities, which are located in
the United States and Canada. 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
the Wexpro settlement agreement (Note 10).
Production from gas properties owned or operated by
Wexpro is delivered to Questar Gas at cost of
service. Production from noncost-of-service
properties is sold at market prices. These
properties include all Questar Exploration and
Production properties and Wexpro oil properties.
Production from Wexpro oil properties is sold at
market prices and the income is shared with Questar
Gas 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, 1999
United Canada Total
States
(In Thousands)
<S> <C> <C> <C>
Proved properties $989,207 $59,006 $1,048,213
Unproved properties 58,248 11,529 69,777
1,047,455 70,535 1,117,990
Accumulated depreciation
and amortization 581,176 34,515 615,691
$466,279 $36,020 $502,299
December 31, 1998
Proved properties $974,768 $49,652 $1,024,420
Unproved properties 49,724 12,763 62,487
1,024,492 62,415 1,086,907
Accumulated depreciation
and amortization 538,480 29,163 567,643
$486,012 $33,252 $519,264
December 31, 1997
Proved properties $805,614 $42,882 $848,496
Unproved properties 19,200 13,390 32,590
824,814 56,272 881,086
Accumulated depreciation
and amortization 472,773 9,643 482,416
$352,041 $46,629 $398,670
</TABLE>
Full-Cost Amortization: Unproved properties held by
United States and Canadian operations are excluded
from amortization until evaluation. A summary of
costs excluded from the amortization pool at
December 31, 1999, and the year in which these costs
were incurred are listed below. Costs excluded from
amortization include $11,529,000 associated with
Canadian properties.
<TABLE>
<CAPTION>
Year Costs Incurred
1996 and
Total 1999 1998 1997 Prior
(In Thousands)
<S> <C> <C> <C> <C> <C>
Leaseholds $55,462 $11,728 $24,788 $5,492 $13,454
Exploration 14,315 2,447 2,956 2,276 6,636
$69,777 $14,175 $27,744 $7,768 $20,090
</TABLE>
Costs Incurred: The following costs were incurred
in noncost-of-service oil- and gas-producing
activities:
<TABLE>
<CAPTION>
Year Ended December 31,
United Canada Total
States
1999 (In Thousands)
<S> <C> <C> <C>
Property acquisition
Unproved $12,547 $351 $12,898
Proved 3,746 18 3,764
Exploration 7,467 501 7,968
Development 53,814 3,745 57,559
$77,574 $4,615 $82,189
1998
Property acquisition
Unproved $29,367 $145 $29,512
Proved 126,723 3,144 129,867
Exploration 10,055 1,222 11,277
Development 45,497 5,363 50,860
$211,642 $9,874 $221,516
1997
Property acquisition
Unproved $4,057 $203 $4,260
Proved 2,155 2,155
Exploration 9,975 1,198 11,173
Development 45,067 4,437 49,504
$61,254 $5,838 $67,092
</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. The Company recorded
write-downs of oil and gas properties in 1998 and
1997.
<TABLE>
<CAPTION>
Year Ended December 31,
United Canada Total
States
1999 (In Thousands)
<S> <C> <C> <C>
Revenues
From unaffiliated
customers $59,682 $12,316 $71,998
From affiliates 97,618 97,618
Total revenues 157,300 12,316 169,616
Production expenses 46,671 3,681 50,352
Oil-income sharing under Wexpro
settlement agreement 2,292 2,292
Depreciation and
amortization 58,477 3,512 61,989
Total expenses 107,440 7,193 114,633
Revenues less expenses 49,860 5,123 54,983
Income tax expense
(credit) - Note 1 13,294 2,567 15,861
Results of operations before
corporate overhead and
interest expenses $36,566 $2,556 $39,122
1998
Revenues
From unaffiliated
customers $60,092 $10,384 $70,476
From affiliates 69,561 69,561
Total revenues 129,653 10,384 140,037
Production expenses 42,739 3,004 45,743
Oil-income sharing under Wexpro
settlement agreement 1,053 1,053
Depreciation and
amortization 50,628 5,275 55,903
Write-down of oil and gas
properties 19,000 15,000 34,000
Total expenses 113,420 23,279 136,699
Revenues less expenses 16,233 (12,895) 3,338
Income tax expense
(credit) - Note 1 634 (5,300) (4,666)
Results of operations before
corporate overhead and
interest expenses $15,599 ($7,595) $8,004
1997
Revenues
From unaffiliated
customers $60,650 $8,694 $69,344
From affiliates 76,858 76,858
Total revenues 137,508 8,694 146,202
Production expenses 41,981 2,424 44,405
Oil-income sharing under Wexpro
settlement agreement 2,347 2,347
Depreciation and
amortization 46,372 5,374 51,746
Write-down of oil and gas
properties 3,000 3,000
Total expenses 90,700 10,798 101,498
Revenues less expenses 46,808 (2,104) 44,704
Income tax expense
(credit) - Note 1 10,500 (1,729) 8,771
Results of operations before
corporate overhead and
interest expenses $36,308 ($375) $35,933
</TABLE>
Note 1 - Income tax expense has been reduced by gas
production tax credits of $5,282,000 in 1999,
$5,736,000 in 1998 and $6,633,000 in 1997.
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
Associates, Netherland, Sewell & Associates, and
Malkewicz Huni Associates, Incorporated, independent
reservoir engineers, and the remainder by the
Company's reservoir engineers. Estimated Canadian
reserves were prepared by Gilbert Laustsen Jung
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 were located in the United
States and Canada. The Company does not have any
long-term supply contracts with foreign governments
or reserves of equity investees.
<TABLE>
<CAPTION>
Natural Gas Oil
United Canada Total United Canada Total
States States
(In Million Cubic Feet) (In Thousands of Barrels )
<S> <C> <C> <C> <C> <C> <C>
Proved Reserves
Balance at January 1, 1997 359,572 24,475 384,047 18,657 2,127 20,784
Revisions of estimates 11,409 (4,635) 6,774 (1,847) (316) (2,163)
Extensions and discoveries 24,353 4,366 28,719 1,060 898 1,958
Purchase of reserves in
place 8,166 8,166 351 351
Sale of reserves in place (1,292) (1,292) (450) (3) (453)
Production (44,370) (3,072) (47,442) (2,667) (271) (2,938)
Balance at December 31, 1997 357,838 21,134 378,972 15,104 2,435 17,539
Revisions of estimates 334 (3,568) (3,234) (3,199) 238 (2,961)
Extensions and discoveries 28,688 1,984 30,672 730 261 991
Purchase of reserves in
place 129,207 5,110 134,317 3,720 71 3,791
Sale of reserves in place (440) (440) (76) (76)
Production (48,584) (2,725) (51,309) (2,490) (404) (2,894)
Balance at December 31, 1998 467,043 21,935 488,978 13,789 2,601 16,390
Revisions of estimates 4,041 (106) 3,935 4,746 372 5,118
Extensions and discoveries 77,740 1,720 79,460 1,007 257 1,264
Purchase of reserves in
place 17,020 17,020 130 130
Sale of reserves in place (11,984) (11,984) (3,665) (3,665)
Production (59,839) (2,873) (62,712) (2,431) (435) (2,866)
Balance at December 31, 1999 494,021 20,676 514,697 13,576 2,795 16,371
Proved Developed Reserves
Balance at January 1, 1997 299,219 14,683 313,902 16,686 1,880 18,566
Balance at December 31, 1997 300,859 16,670 317,529 13,209 1,851 15,060
Balance at December 31, 1998 412,181 17,835 430,016 12,583 2,281 14,864
Balance at December 31, 1999 412,252 17,076 429,328 12,410 2,565 14,975
</TABLE>
Standardized Measure of Future Net Cash Flows
Relating to Proved Reserves for Noncost-of-Service
Activities: Future net cash flows were calculated
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,
United Canada Total
States
(In Thousands)
<S> <C> <C> <C>
1999
Future cash inflows $1,384,688 $107,227 $1,491,915
Future production and
development costs (472,937) (31,426) (504,363)
Future income tax expenses (196,395) (10,773) (207,168)
Future net cash flows 715,356 65,028 780,384
10% annual discount
for estimated
timing of net cash flows (293,670) (23,365) (317,035)
Standardized measure
of discounted
future net cash flows $421,686 $41,663 $463,349
1998
Future cash inflows $1,012,259 $66,873 $1,079,132
Future production and
development costs (374,046) (22,784) (396,830)
Future income tax expenses (81,076) (81,076)
Future net cash flows 557,137 44,089 601,226
10% annual discount
for estimated
timing of net cash flows (220,117) (14,809) (234,926)
Standardized measure
of discounted
future net cash flows $337,020 $29,280 $366,300
1997
Future cash inflows $937,059 $68,550 $1,005,609
Future production and
development costs (349,624) (25,066) (374,690)
Future income tax expenses (99,107) (99,107)
Future net cash flows 488,328 43,484 531,812
10% annual discount
for estimated
timing of net cash flows (198,070) (14,885) (212,955)
Standardized measure
of discounted
future net cash flows $290,258 $28,599 $318,857
</TABLE>
The principal sources of change in the standardized
measure of discounted future net cash flows were:
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
(In Thousands)
<S> <C> <C> <C>
Beginning balance $366,300 $318,857 $416,282
Sales of oil and gas produced, net
of production costs (119,264) (94,294) (101,797)
Net changes in prices and
production costs 177,481 (61,660) (138,678)
Extensions and discoveries, less
related costs 81,833 25,787 31,535
Revisions of quantity estimates 32,871 (14,805) (4,979)
Purchase of reserves in place 3,764 129,867 2,155
Sale of reserves in place (33,043) (540) (3,606)
Accretion of discount 36,630 31,886 41,629
Net change in income taxes (68,523) 15,727 73,804
Change in production rate (12,363) 7,314 5,025
Other (2,337) 8,161 (2,513)
Net change 97,049 47,443 (97,425)
Ending balance $463,349 $366,300 $318,857
</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,
1999 1998 1997
(In Thousands)
<S> <C> <C> <C>
Questar Gas $25,380 $27,739 $32,399
Wexpro 114,628 104,492 87,927
$140,008 $132,231 $120,326
</TABLE>
Costs Incurred: Costs incurred by Wexpro for
cost-of-service gas-producing activities were
$20,947,000 in 1999, $24,549,000 in 1998 and
$10,281,000 in 1997.
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.
<TABLE>
<CAPTION>
Natural Gas Oil
(In Million (In Thous.
Cubic Feet) of Barrels)
<S> <C> <C>
Proved Developed Reserves
Balance at January 1,
1997 359,877 564
Revisions of estimates 7,008 41
Extensions and
discoveries 7,439 28
Production (37,454) (24)
Balance at December 31, 1997 336,870 609
Revisions of
estimates 15,061 (12)
Extensions and
discoveries 24,987 45
Production (37,138) (59)
Balance at December
31, 1998 339,780 583
Revisions of estimates 5,813 261
Extensions and
discoveries 46,736
Production (38,890) (68)
Balance at December
31, 1999 353,439 776
</TABLE>
Note 12 - Quarterly Financial and Stock Price
Information (Unaudited) Following is a summary
of quarterly financial and stock price data.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
(Dollars In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
1999
Revenues $277,814 $177,858 $183,070 $285,477 $924,219
Operating income 67,362 30,549 27,396 54,611 179,918
Net income 43,364 23,070 15,102 17,294 98,830
Basic earnings per common share 0.52 0.28 0.19 0.21 1.20
Diluted earnings per common share 0.52 0.28 0.18 0.21 1.20
Dividends per common share 0.165 0.165 0.17 0.17 0.67
Market price per common share
High $19.38 $19.94 $19.63 $19.13 $19.94
Low $16.13 $15.81 $17.88 $14.75 $14.75
Close $16.94 $19.13 $18.13 $15.00 $15.00
Price-earnings ratio on closing price 17.8 18.4 16.2 12.5 12.5
Annualized dividend yield on closing price 3.9% 3.5% 3.8% 4.5% 4.5%
Market-to-book ratio on closing price 1.52 1.69 1.58 1.32 1.32
Average number of common shares traded per day 201 147 138 179 166
1998
Revenues $300,083 $179,157 $150,282 $276,734 $906,256
Operating income 67,056 25,084 18,173 22,468 132,781
Net income 40,882 16,196 8,235 11,586 76,899
Basic earnings per common share 0.50 0.19 0.10 0.14 0.93
Diluted earnings per common share 0.49 0.19 0.10 0.14 0.93
Dividends per common share 0.1575 0.165 0.165 0.165 0.6525
Market price per common share
High $22.28 $22.38 $19.81 $20.38 $22.38
Low $20.19 $18.69 $15.81 $17.38 $15.19
Close $20.78 $19.63 $19.25 $19.38 $19.38
Price-earnings ratio on closing price 16.4 15.1 15.9 20.8 20.8
Annualized dividend yield on closing price 3.2% 3.4% 3.4% 3.4% 3.4%
Market-to-book ratio on closing price 1.94 1.84 1.82 1.82 1.82
Average number of common shares traded per day 171 165 169 188 173
1997
Revenues $358,378 $151,453 $138,632 $287,874 $936,337
Operating income 71,922 23,448 20,342 54,443 170,155
Net income 40,974 13,607 15,726 34,488 104,795
Basic and diluted earnings per common share 0.50 0.16 0.19 0.42 1.27
Dividends per common share 0.1525 0.1525 0.1575 0.1575 0.62
Market price per common share
High $20.25 $21.50 $21.44 $22.38 $22.38
Low $17.81 $17.13 $19.19 $18.38 $17.13
Close $18.00 $20.19 $20.28 $22.31 $22.31
Price-earnings ratio on closing price 14.2 16.3 16.0 17.5 17.5
Annualized dividend yield on closing price 3.4% 3.0% 3.1% 2.8% 2.8%
Market-to-book ratio on closing price 1.84 2.05 2.01 2.17 2.17
Average number of common shares traded per day 124 182 172 148 157
</TABLE>
Note 13 - Operations by Line of Business
Following is a summary of operations by line of
business for the Year Ended December 31.
<TABLE>
<CAPTION>
Questar Regulated Services
Natural Natural Corporate Inter-
Questar Gas Gas & Other company Questar
Market Distribu- Trans- Opera- Trans- Consoli-
Resources tion mission Other tions actions dated
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
1999
Revenues
From unaffiliated customers $418,603 $447,606 $36,922 $2,260 $18,828 $924,219
From affiliated companies 79,708 2,331 75,238 196 38,851 ($196,324)
498,311 449,937 112,160 2,456 57,679 (196,324) 924,219
Operating expenses
Natural gas and other
product purchases 239,201 257,265 (154,337) 342,129
Operating and maintenance 79,916 103,308 38,534 2,474 47,167 (39,695) 231,704
Depreciation and
amortization 78,608 36,426 16,743 14 5,953 137,744
Other expenses 23,808 7,625 2,488 24 1,071 (2,292) 32,724
Total operating expenses 421,533 404,624 57,765 2,512 54,191 (196,324) 744,301
Operating income (loss) 76,778 45,313 54,395 (56) 3,488 179,918
Interest and other income 4,272 2,980 4,229 1,014 73,406 (11,201) 74,700
Income (loss) from
unconsolidated affiliates 763 (5,109) (10) (4,356)
Write-down of investment
in partnership (49,700) (49,700)
Debt expense (17,363) (20,062) (17,466) (605) (9,649) 11,201 (53,944)
Income tax (expense) credit (18,584) (9,012) 5,260 (102) (25,350) (47,788)
Net income (loss) $45,866 $19,219 ($8,391) $251 $41,885 $98,830
Identifiable assets $831,186 $722,290 $517,981 $11,423 $155,117 $2,237,997
Investment in unconsolidated
affiliates 13,301 11,724 244 $25,269
Capital expenditures 134,269 68,447 50,424 1,385 13,479 $268,004
1998
Revenues
From unaffiliated customers $382,791 $475,754 $37,156 $2,355 $8,200 $906,256
From affiliated companies 75,481 1,069 71,401 99 39,707 ($187,757)
458,272 476,823 108,557 2,454 47,907 (187,757) 906,256
Operating expenses
Natural gas and other
product purchases 230,462 281,004 (146,298) 365,168
Operating and maintenance 74,863 96,923 38,832 3,518 38,628 (40,406) 212,358
Depreciation and
amortization 71,377 33,261 13,927 17 6,575 125,157
Write-down of oil and gas
properties 34,000 34,000
Other expenses 26,041 8,185 2,600 1,019 (1,053) 36,792
Total operating expenses 436,743 419,373 55,359 3,535 46,222 (187,757) 773,475
Operating income (loss) 21,529 57,450 53,198 (1,081) 1,685 132,781
Interest and other income 3,638 3,566 78 655 22,756 (12,491) 18,202
Income (loss) from
unconsolidated
affiliates (930) 4,011 (164) 2,917
Debt expense (12,631) (19,792) (14,456) (385) (13,198) 12,491 (47,971)
Income tax (expense) credit 2,131 (13,816) (14,940) 339 (2,744) (29,030)
Net income (loss) $13,737 $27,408 $27,891 ($472) $8,335 $76,899
Identifiable assets $778,694 $699,727 $556,226 $8,519 $118,115 $2,161,281
Investment in unconsolidated
affiliates 3,673 54,712 253 $58,638
Capital expenditures 254,546 76,328 114,318 493 15,662 $461,347
1997
Revenues
From unaffiliated customers $451,233 $445,684 $36,343 $595 $2,482 $936,337
From affiliated companies 72,407 2,539 69,094 135 36,453 ($180,628) -
523,640 448,223 105,437 730 38,935 (180,628) 936,337
Operating expenses
Natural gas and other
product purchases 291,851 248,933 (140,843) 399,941
Operating and maintenance 71,858 101,719 37,334 2,359 29,002 (37,438) 204,834
Depreciation and
amortization 67,078 31,160 14,797 9 4,993 118,037
Write-down of oil and gas
properties 6,000 6,000
Other expenses 27,916 8,174 2,816 811 (2,347) 37,370
Total operating expenses 464,703 389,986 54,947 2,368 34,806 (180,628) 766,182
Operating income (loss) 58,937 58,237 50,490 (1,638) 4,129 170,155
Interest and other income 5,854 3,388 1,323 314 19,488 (10,700) 19,667
Income (loss) from
unconsolidated
affiliates (288) 4,629 4,341
Debt expense (10,882) (19,119) (13,536) (186) (10,743) 10,700 (43,766)
Income tax (expense) credit (11,522) (13,492) (16,338) 567 (4,817) (45,602)
Net income (loss) $42,099 $29,014 $26,568 ($943) $8,057 $104,795
Identifiable assets $648,170 $601,720 $410,481 $2,610 $282,036 $1,945,017
Investment in unconsolidated
affiliates 2,508 26,977 467 29,952
Capital expenditures 92,310 65,375 32,596 77 22,439 212,797
</TABLE>
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 24th day of March, 2000.
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
*Teresa Beck Director
*Patrick J. Early Director
*U. Edwin Garrison Director
*W. W. Hawkins Director
*Robert E. Kadlec Director
*Marilyn S. Kite Director
*Dixie L. Leavitt Director
*Gary G. Michael Director
*G. L. Nordloh Director
*Scott S. Parker Director
*D. N. Rose Director
*Harris H. Simmons Director
March 24, 2000 *By /s/ R. D. Cash
Date R. D. Cash, Attorney in Fact
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 as amended effective May
19, 1998. (Exhibit No. 3.1. to Form 10-Q Report for Quarter
ended June 30, 1998.)
3.2.* Bylaws (as amended effective August 11, 1998). (Exhibit No.
3.2. to Form 10-Q Report for Quarter ended June 30, 1998.)
4.1.*1 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.)
4.2.* Questar Dividend Reinvestment and Stock Purchase Plan.
(Exhibit No. 4. to Current Report on Form 8-K dated February
8, 2000.)
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.*2 Questar Corporation Annual Management Incentive Plan, as
amended and restated effective May 18, 1999. (Exhibit No.
10.1. to Form 10-Q Report Quarter ended June 30, 1998.)
10.3.*2 Questar Corporation Executive Incentive Retirement Plan, as
amended and restated effective May 19, 1998. (Exhibit No.
10.2. to Form 10-Q Report for Quarter Ended June 30, 1998.)
10.4.2 Questar Corporation Long-Term Stock Incentive Plan, as
amended and restated effective February 8, 2000.
10.5.*2 Questar Corporation Executive Severance Compensation Plan,
as amended and restated effective May 19, 1998. (Exhibit
No. 10.3. to Form 10-Q Report for Quarter Ended June 30,
1998.)
10.6.*2 Questar Corporation Deferred Compensation Plan for
Directors, as amended and restated effective May 19, 1998.
(Exhibit No. 10.5. to Form 10-Q Report for Quarter Ended
June 30, 1998.)
10.7.*2 Questar Corporation Supplemental Executive Retirement Plan,
as amended and restated effective June 1, 1998. (Exhibit
No. 10.6. to Form 10-Q Report for Quarter Ended June 30,
1998.)
10.8.*2 Questar Corporation Stock Option Plan for Directors, as
amended and restated effective October 29, 1998. (Exhibit
No. 10.10. to Form 10-Q Report for Quarter Ended September
30, 1998.)
10.9.*2 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.)
10.10.*2 Questar Corporation Deferred Share Plan, as amended and
restated effective May 19, 1998. (Exhibit No. 10.7. to Form
10-Q Report for Quarter Ended June 30, 1998.)
10.11.*2 Questar Corporation Deferred Compensation Plan, as amended
and restated effective May 19, 1998. (Exhibit No. 10.10. to
Form 10-Q Report for Quarter Ended June 30, 1998.)
10.12.*2 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.)
10.13.*2 Questar Corporation Deferred Share Make-Up Plan. (Exhibit
No. 10.8. to Form 10-Q Report for Quarter Ended June 30,
1998.)
10.14.*2 Questar Corporation Special Situation Retirement Plan.
(Exhibit No. 10.10. to Form 10-Q Report for Quarter Ended
June 30, 1998.)
21. Subsidiary Information.
23. Consent of Independent Auditors.
24. Power of Attorney.
27. Financial Data Schedule.
99.1. 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.
1The name of the Rights Agent has been changed to ChaseMellon
Shareholder Services, L.L.C.
2Exhibit 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 1999.
QUESTAR CORPORATION
LONG-TERM STOCK INCENTIVE PLAN
(As Amended and Restated February 8, 2000)
Section 1. Purpose
The Questar Corporation Long-Term Stock Incentive Plan (the
"Plan") is designed to encourage officers and selected key employees
of and consultants to Questar Corporation and its affiliated companies
(the "Company") to acquire a proprietary interest in the Company, to
generate an increased incentive to contribute to the Company's future
growth and success, and to enhance the Company's ability to attract
and retain talented officers and employees. Accordingly, the Company,
during the term of this Plan, may grant incentive stock options,
nonqualified stock options, stock appreciation rights, restricted
stock, performance shares, and other awards valued in whole or in part
by reference to the Company's stock.
Section 2. Definitions
"Affiliate" shall mean any business entity in which the Company
directly or indirectly has an equity interest deemed significant by
the Company's Board of Directors.
"Approved Termination" shall mean any retirement under the
Company's Retirement Plan, with approval of the Board of Directors, or
any termination of service on or after age 55, with approval of the
Board.
"Award" shall mean a grant or award under Section 6 through 10,
inclusive, of the Plan, as evidenced in a written document delivered
to a Participant as provided in Section 12(b).
"Board" shall mean the Board of Directors of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
"Committee" shall mean the Management Performance Committee of
the Board of Directors.
"Common Stock" or "Stock" shall mean the Common Stock, no par
value, of the Company. The term shall also include any Common Stock
Purchase Rights attached to the Common Stock.
"Company" shall mean Questar Corporation on a consolidated basis.
"Designated Beneficiary" shall mean the beneficiary designated by
the Participant, in a manner determined by the Committee, to receive
amounts due the Participant in the event of the Participant's death.
In the absence of an effective designation by the Participant,
Designated Beneficiary shall mean the Participant's estate.
"Disability" shall mean permanent and total disability within the
meaning of Section 105(d)(4) of the Code.
"Employee" shall mean any officer or key employee of or
consultant to the Employer.
"Employer" shall mean the Company and any Affiliate.
"Fair Market Value" shall mean the regular closing benchmark
price of the Company's Common Stock reported on the New York Stock
Exchange on the date in question, or, if the Common Stock shall not
have been traded on such date, the closing price on the next preceding
day on which a sale occurred.
"Family Member" shall mean the Participant's spouse, children,
grandchildren, parents, siblings, nieces and nephews.
"Fiscal Year" shall mean the fiscal year of the Company.
"Incentive Stock Option" shall mean a stock option granted under
Section 6 that is intended to meet the requirements of Section 422 of
the Code.
"Nonqualified Stock Option" shall mean a stock option granted
under Section 6 that is not intended to be an Incentive Stock Option.
"Option" shall mean an Incentive Stock Option or a Nonqualified
Stock Option.
"Participant" shall mean an Employee who is selected by the
Committee to receive an Award under the Plan.
"Payment Value" shall mean the dollar amount assigned to a
Performance Share which shall be equal to the Fair Market Value of the
Common Stock on the day of the Committee's determination under Section
8(c)(2) with respect to the applicable Performance Period.
"Performance Period" or "Period" shall mean the period of years
selected by the Committee during which the performance is measured for
the purpose of determining the extent to which an Award of Performance
Shares has been earned.
"Performance Goals" shall mean the objectives established by the
Committee for a Performance Period, for the purpose of determining the
extent to which Performance Shares that have been contingently awarded
for such Period are earned.
"Performance Share" shall mean an Award granted pursuant to
Section 8 of the Plan expressed as a share of Common Stock.
"Reduction in Force" shall mean an involuntary termination of
employment due to economic conditions, sale of assets, shift in focus,
or other reasons independent of the Participant's performance.
"Restricted Period" shall mean the period of years selected by
the Committee during which a grant of Restricted Stock or Restricted
Stock Units may be forfeited to the Company.
"Restricted Stock" shall mean shares of Common Stock contingently
granted to a Participant under Section 9 of the Plan.
"Restricted Stock Unit" shall mean a fixed or variable dollar
denominated unit contingently awarded under Section 9 of the Plan.
"Right" shall mean a Stock Appreciation Right granted under
Section 7.
"Stock Unit Award" shall mean an Award of Common Stock or units
granted under Section 10.
"Termination of Employment" shall mean the date on which a
Participant actually notifies his/her supervisor of his/her
resignation, in the case of a voluntary termination; and the date on
which the Company actually notifies the Participant of his/her
termination, in the case of an involuntary termination. This term, as
defined, does not include termination of employment as the result of
an Approved Termination, Disability, death, or Reduction in Force.
Section 3. Administration
The Plan shall be administered by the Committee. The Committee
shall have sole and complete authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the operation
of the Plan, and to interpret the terms and provisions of the Plan.
The Committee's decisions shall be binding upon all persons, including
the Company, stockholders, an Employer, Employees, Participants,
Designated Beneficiaries, and Family Members.
Section 4. Eligibility
Awards may only be granted to officers and key employees of or
consultants to the Company or any Affiliate who have the capacity to
contribute to the success of the Company. When selecting Participants
and making Awards, the Committee may consider such factors as the
Employee's functions and responsibilities and the Employee's past,
present and future contributions to the Company's profitability and
growth.
Neither the members of the Committee nor any member of the Board
who is not an Employee of the Company shall be eligible to receive
awards.
Nothing contained in the Plan or in any individual agreement
pursuant to the terms of the Plan shall confer upon any Participant
any right to continue in the employment of the Company or to limit in
any respect the right of the Company to terminate the Participant's
employment at any time and for any reason.
Section 5. Maximum Amount Available for Awards and Maximum Award
The aggregate number of shares of Common Stock that may be issued
under Awards pursuant to this Plan on an annual basis shall not exceed
one percent (1%) of the issued and outstanding shares of Common Stock
as of the first day of each calendar year for which the Plan is in
effect. Any shares available in any year using this formula that are
not granted under this Plan or other plans in which stock is awarded
to Employees would be available for use in subsequent years. Shares
of Common Stock may be made available from the authorized but unissued
shares of the Company or from shares reacquired by the Company,
including shares purchased in the open market. In the event that an
Option or Right expires or is terminated unexercised as to any shares
of Common Stock covered thereby, or any Award in respect of shares is
forfeited for any reason under the Plan, such shares, to the extent
not precluded by applicable law or regulation, shall be again
available for Awards pursuant to the Plan.
In the event that the Committee shall determine that any stock
dividend, extraordinary cash dividend, recapitalization,
reorganization, merger, consolidation, split-up, spin-off,
combination, exchange of shares, warrants or rights offering to
purchase Common Stock at a price substantially below fair market value
or other similar corporate event affects the Common Stock such that an
adjustment is required in order to preserve the benefits or potential
benefits intended to be made available under this Plan, then the
Committee, in its sole discretion, may take action. The Committee may
adjust any or all of the number and kind of shares that thereafter may
be awarded or optioned and sold or made the subject of Rights under
the Plan, the number and kind of shares subject to outstanding Options
and other Awards, and the grant, exercise or conversion price with
respect to any of the foregoing and/or, if deemed appropriate, make
provision for a cash payment to a Participant or a person who has an
outstanding Option or other Award.
There is a maximum of 300,000 shares that can be the subject of
Awards granted to any single Participant in any given fiscal year.
Section 6. Stock Options
(a) Grant. Subject to the provisions of the Plan, the Committee
shall have sole and complete authority to determine the Employees to
whom Options shall be granted, the number of shares to be covered by
each Option, the option price therefor and the conditions and
limitations, applicable to the exercise of the Option. The Committee
shall have the authority to grant Incentive Stock Options,
Nonqualified Stock Options, or both types of Options. In the case of
Incentive Stock Options, the terms and conditions of such grants shall
be subject to and comply with such rules as may be prescribed by
Section 422 of the Code and any implementing regulations.
(b) Option Price. The Committee shall establish the option
price at the time each Option is granted, which price shall not be
less than 100 percent of the Fair Market Value of the Common Stock on
the date of grant.
(c) Exercise. Each Option shall be exercisable at such times
and subject to such terms and conditions as the Committee, in its sole
discretion, may specify in the applicable Award or thereafter;
provided, however, that in no event may any Option granted hereunder
be exercisable earlier than six months after the date of such grant or
after the expiration of ten years from the date of such grant. The
Committee may impose such conditions with respect to the exercise of
Options, including without limitation, any conditions relating to the
application of federal or state securities laws, as it may deem
necessary or advisable.
No shares shall be delivered pursuant to any exercise of an
Option until payment in full of the option price is received by the
Company. Such payment may be made in cash, or its equivalent, or, if
and to the extent permitted by the Committee, by exchanging shares of
Common Stock owned by the optionee (which are not the subject of any
pledge or other security interest), or by a combination of the
foregoing, provided that the combined value of all cash and cash
equivalents and the Fair Market Value of any such Common Stock so
tendered to the Company, valued as of the date of such tender, is at
least equal to such option price.
(d) Transferability. Participants are allowed to transfer
vested Nonqualified Stock Options to Family Members or family trusts,
provided that such options were granted as of and after February 10,
1998 and provided that such transfers are made and transferred Options
are exercised in accordance with procedural rules adopted by the
Committee.
Section 7. Stock Appreciation Rights
(a) The Committee may, with sole and complete authority, grant
Rights in tandem with an Option. Rights shall not be exercisable
earlier than six months after grant, shall not be exercisable after
the expiration of ten years from the date of grant and shall have an
exercise price of not less than 100 percent of the Fair Market Value
of the Common Stock on the date of grant.
(b) A Right shall entitle the Participant to receive from the
Company an amount equal to the excess of the Fair Market Value of a
share of Common Stock on the exercise of the Right over the grant
price thereof. The Committee shall determine whether such Right shall
be settled in cash, shares of Common Stock or a combination of cash
and shares of Common Stock.
Section 8. Performance Shares
(a) The Committee shall have sole and complete authority to
determine the Employees who shall receive Performance Shares and the
number of such shares for each Performance Period and to determine the
duration of each Performance Period and the value of each Performance
Share. There may be more than one Performance Period in existence at
any one time, and the duration of Performance Periods may differ from
each other.
(b) Once the Committee decides to use Performance Shares, it
shall establish Performance Goals for each Period on the basis of
criteria selected by it. During any Period, the Committee may adjust
the Performance Goals for such Period as it deems equitable in
recognition of unusual or non-recurring events affecting the Company,
changes in applicable tax laws or accounting principles, or such other
factors as the Committee may determine.
(c) As soon as practicable after the end of a Performance
Period, the Committee shall determine the number of Performance Shares
that have been earned on the basis of performance in relation to the
established Performance Goals. Payment Values of earned Performance
Shares shall be distributed to the Participant or as soon as
practicable after the expiration of the Performance Period and the
Committee's determination. The Committee shall determine whether
Payment Values are to be distributed in the form of cash and/or shares
of Common Stock.
Section 9. Restricted Stock and Restricted Stock Units
(a) Subject to the provisions of the Plan, the Committee shall
have sole and complete authority to determine the Employees to whom
shares of Restricted Stock and Restricted Stock Units shall be
granted, the number of shares of Restricted Stock and the number of
Restricted Stock Units to be granted to each Participant, the duration
of the Restricted Period during which and the conditions under which
the Restricted Stock and Restricted Stock Units may be forfeited to
the Company, and the other terms and conditions of such Awards.
(b) Shares of Restricted Stock and Restricted Stock Units may
not be sold, assigned, transferred, pledged or otherwise encumbered,
except as herein provided, during the Restricted Period. At the
expiration of the Restricted Period, the Company shall deliver such
certificates to the Participant or the Participant's legal
representative. Payment for Restricted Stock Units shall be made to
the Company in cash and/or shares of Common Stock, as determined at
the sole discretion of the Committee.
Section 10. Other Stock Based Awards
(a) In addition to granting Options, Rights, Performance Shares,
Restricted Stock, Restricted Stock Units, the Committee shall have
authority to grant Stock Unit Awards to Participants that can be in
the form of Common Stock or units, the value of which is based, in
whole or in part, on the value of Common Stock. Subject to the
provisions of the Plan, Stock Unit Awards shall be subject to such
terms, restrictions, conditions, vesting requirements and payment
rules as the Committee may determine in its sole and complete
discretion at the time of grant.
(b) Any shares of Common Stock that are part of a Stock Unit
Award may not be assigned, sold, transferred, pledged or otherwise
encumbered prior to the date on which the shares are issued or, if
later, the date provided by the Committee at the time of grant of the
Stock Unit Award.
Stock Unit Awards may provide for the payment of cash
consideration by the person to whom such Award is granted or provide
that the Award, and any Common Stock to be issued in connection
therewith, if applicable, shall be delivered without the payment of
cash consideration, provided that for any Common Stock to be purchased
in connection with a Stock Unit Award the purchase price shall be at
least 50 percent of the Fair Market Value of such Common Stock on the
date such Award is granted.
Stock Unit Awards may relate in whole or in part to certain
performance criteria established by the Committee at the time of
grant. Stock Unit Awards may provide for deferred payment schedules
and/or vesting over a specified period of employment. In such
circumstances as the Committee may deem advisable, the Committee may
waive or otherwise remove, in whole or in part, any restriction or
limitation to which a Stock Unit Award was made subject at the time of
grant.
(c) In the sole and complete discretion of the Committee, an
Award, whether made as a Stock Unit Award under this Section 10 or as
an Award granted pursuant to Sections 6 through 9, may provide the
Participant with dividends or dividend equivalents (payable on a
current or deferred basis) and cash payments in lieu of or in addition
to an Award.
Section 11. Termination of Employment
The following provisions define a Participant's status in the
event of termination of employment:
(a) Options and Rights. If a Participant shall cease to be
employed by the Company or an Affiliate either directly or in a
consulting role, any Option and any Right granted to him under the
Plan shall terminate in accordance with the following rules:
(1) A Participant who terminates employment for any reason
other than Approved Termination, Disability, death, or Reduction in
Force shall lose the right to exercise any Options or Rights as of
Termination of Employment. Any Options transferred to a Family Member
or family trust shall also be terminated as of the Participant's
Termination of Employment for any reason other than Approved
Termination, Disability, death or Reduction in Force.
(2) A Participant who terminates employment as a result of
an Approved Termination shall have a period of time specified in the
individual agreements by which Options are granted to exercise such
Options or Rights.
(3) A Participant who is Disabled shall have 12 months
after Termination of Employment in which to exercise an Option or
Right.
(4) A Participant whose employment is terminated as a
result of a Reduction in Force shall have 30 days from the date on
which he is notified of his termination to exercise any Options or
Rights that were vested as of the date of notification.
(5) Upon the death of a Participant during employment, the
Participant's Designated Beneficiary shall have 12 months from the
date of death to exercise the Participant's Option or Right. Upon the
death of a Participant after an Approved Termination but within the
period specified by the Committee to exercise Options or Rights after
the Participant's Approved Termination, the Participant's Designated
Beneficiary shall have the period specified by the Committee to
exercise the Option or Right.
(6) The foregoing notwithstanding, a Participant or the
Participant's Designated Beneficiary shall not be permitted to
exercise an Option or Right after the expiration date and a
Participant shall forfeit any Options or Rights upon a determination
made by the Board that the Participant has accepted employment or
provided consulting services to a direct competitor of the Company.
(b) Restricted Stock. If a Participant terminates employment
before the end of the Restricted Period for a reason other than death,
Approved Termination, Disability, Change of Control, or Reduction in
Force, the Participant shall forfeit all shares of Restricted Stock as
of Termination of Employment. If a Participant terminates employment
as a result of death, Approved Termination, Change of Control, or
Reduction in Force, the Committee, in its sole discretion, shall
determine what portion, if any, of the Restricted Stock shall be freed
from restrictions.
(c) Performance Shares and Other Awards. If a Participant
ceases to be an Employee before the end of any Performance Period as a
result of death, Approved Termination, Disability, or Reduction in
Force, the Committee may authorize the payment to such Participant or
his Designated Beneficiary of a pro rata portion of the amount that
would have been paid to him had he continued as an Employee to the end
of the Performance Period. In the event a Participant terminates
employment for any other reason, any amounts for outstanding
Performance Periods shall be forfeited as of Termination of
Employment.
Section 12. General Provisions
(a) Withholding. The Employer shall have the right to deduct
from all amounts paid to a Participant in cash any taxes required by
law to be withheld in respect of Awards under this Plan. In the case
of payments of Awards in the form of Common Stock, the Committee shall
require the Participant to pay to the Employer the amount of any taxes
required to be withheld with respect to such Common Stock, or, in lieu
thereof, the Employer shall have the right to retain (or the
Participant may be offered the opportunity to elect to tender) the
number of shares of Common Stock whose Fair Market Value equals the
amount required to be withheld.
(b) Awards. Each Award shall be evidenced in writing delivered
to the Participant and shall specify the terms and conditions and any
rules applicable to such Award.
(c) Nontransferability. Except as provided in Section 6(d), no
Award shall be assignable or transferable, and no right or interest of
any Participant shall be subject to any lien, obligation or liability
of the Participant, except by will or the laws of descent and
distribution.
(d) No Rights as Stockholder. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have
any rights as a stockholder with respect to any shares of Common Stock
to be distributed under the Plan until becoming the holder.
Notwithstanding the foregoing, in connection with each grant of
Restricted Stock hereunder, the applicable Award shall specify if and
to what extent the Participant shall not be entitled to the rights of
a stockholder in respect of such Restricted Stock.
(e) Construction of the Plan. The validity, construction,
interpretation, administration and effect of the Plan and of its rules
and regulations, and rights relating to the Plan, shall be determined
solely in accordance with the laws of Utah.
(f) Effective Date. Subject to the approval of the stockholders
of the Company, the Plan shall be effective on March 1, 1991. No
Options or Awards may be granted under the Plan, however, until the
Plan is approved by the Company's shareholders or after May 20, 2001.
(g) Amendment of Plan. The Board of Directors may amend,
suspend or terminate the Plan or any portion thereof at any time,
provided that no amendment shall be made without stockholder approval
if such approval is necessary to comply with any tax or regulatory
requirement, including for these purposes any approval requirement
that is a prerequisite for exemptive relief under Section 16(b) of the
Securities Exchange Act of 1934.
(h) Amendment of Award. The Committee may amend, modify or
terminate any outstanding Award with the Participant's consent at any
time prior to payment or exercise in any manner not inconsistent with
the terms of the Plan, including without limitation, to change the
date or dates as of which an Option or Right becomes exercisable; a
Performance Share is deemed earned; Restricted Stock becomes
nonforfeitable; or to cancel and reissue an Award under such different
terms and conditions as it determines appropriate.
Section 13. Change of Control.
In the event of a Change of Control of the Company, all Options,
Restricted Stock, and other Awards granted under the Plan shall vest
immediately.
A Change in Control of the Company shall be deemed to have
occurred if (i) any "Acquiring Person" (as such term is defined in the
Rights Agreement dated as of February 13, 1996, between the Company
and ChaseMellon Shareholder Services L.L.C. ("Rights Agreement")) is
or becomes the beneficial owner (as such term is used in Rule 13d-3
under the Securities Exchange Act of 1934) of securities of the
Company representing 25 percent or more of the combined voting power
of the Company; or (ii) the following individuals cease for any reason
to constitute a majority of the number of directors then serving:
individuals who, as of May 19, 1998, constitute the Company's Board of
Directors and any new director (other than a director whose initial
assumption of office is in connection with an actual or threatened
election contest, including but not limited to a consent solicitation,
relating to the election of directors of the Company) whose
appointment or election by the Board or nomination for election by the
Company's stockholders was approved or recommended by a vote of at
least two-thirds of the directors then still in office who either were
directors on May 19, 1998, or whose appointment, election or
nomination for election was previously so approved or recommended; or
(iii) the Company's stockholders approve a merger or consolidation of
the Company or any direct or indirect subsidiary of the Company with
any other corporation, other than a merger or consolidation that would
result in the voting securities of the Company outstanding immediately
prior to such merger or consolidation continuing to represent (either
by remaining outstanding or by being converted into voting securities
of the surviving entity or any parent thereof) at least 60 percent of
the combined voting power of the securities of the Company or such
surviving entity or its parent outstanding immediately after such
merger or consolidation, or a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction)
in which no person is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 25 percent or
more of the combined voting power of the Company's then outstanding
securities; or (iv) the Company's stockholders approve a plan of
complete liquidation or dissolution of the Company or there is
consummated an agreement for the sale or disposition by the Company of
all or substantially all of the Company's assets, other than a sale or
disposition by the Company of all or substantially all of the
Company's assets to an entity, at least 60 percent of the combined
voting power of the voting securities of which are owned by
stockholders of the Company in substantially the same proportions as
their ownership of the Company immediately prior to such sale. A
Change in Control, however, shall not be considered to have occurred
until all conditions precedent to the transaction, including but not
limited to, all required regulatory approvals have been obtained.
SUBSIDIARY INFORMATION
Registrant Questar Corporation has the following subsidiaries:
Questar Regulated Services Company, Questar Market Resources, Inc.,
Questar InfoComm, Inc., Interstate Land Corporation, and Questar
Employee Services, Inc. Each of these companies is a Utah
corporation.
Questar Market Resources, Inc., has the following subsidiaries:
Wexpro Company, Questar Exploration and Production Company, Questar
Energy Trading Company, and Questar Gas Management Company. Questar
Exploration and Production is a Texas corporation. The other listed
companies are incorporated in Utah.
Questar Exploration and Production has a wholly owned subsidiary,
Celsius Energy Resources, Ltd., which is an Alberta corporation.
Celsius, Ltd., in turn has a subsidiary, Canor Energy Ltd., which is
also an Alberta corporation.
Questar Exploration and Production has three other active
subsidiaries: URC Canyon Creek Compression Company, Questar WMC
Corporation, and Questar URC Company. The first two entities are Utah
corporations; the third entity is a Delaware corporation. Questar
Exploration and Production also does business under the names
Universal Resources Corporation, Questar Energy Company and URC
Corporation.
Questar Regulated Services has three subsidiaries, all of which
are Utah corporations: Questar Gas Company, Questar Pipeline Company,
and Questar Energy Services, Inc. Questar Pipeline, in turn, has four
wholly owned subsidiaries: Questar TransColorado, Inc., Questar Line
90 Company, Questar Southern Trails Company, and Questar
Transportation Services Company, which are all Utah corporations.
Exhibit 23.
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration
Statement (Form S-8, 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, 2000, with respect
to the consolidated financial statements of Questar Corporation
included in this Annual Report (Form 10-K) for the year ended December
31, 1999.
Salt Lake City, Utah
March 23, 2000
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 1999 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 1999 and any and all amendments to such
Report.
Witness our hands on the respective dates set forth below.
Signature Title Date
/s/ R. D. Cash Chairman of the Board, 2-8-00
R. D. Cash President and Chief
Executive Officer
/s/ Teresa Beck Director 2-8-00
Teresa Beck
/s/ Patrick J. Early Director 2-8-00
Patrick J. Early
/s/ U. Edwin Garrison Director 2-8-00
U. Edwin Garrison
/s/ W. Whitley Hawkins Director 2-8-00
W. Whitley Hawkins
/s/ Robert E. Kadlec Director 2-8-00
Robert E. Kadlec
/s/ Marilyn S. Kite Director 2-8-00
Marilyn S. Kite
/s/ Dixie L. Leavitt Director 2-8-00
Dixie L. Leavitt
/s/ Gary G. Michael Director 2-8-00
Gary G. Michael
/s/ Gary L. Nordloh Director 2-8-00
Gary L. Nordloh
/s/ Scott S. Parker Director 2-8-00
Scott S. Parker
/s/ D. N. Rose Director 2-8-00
D. N. Rose
/s/ Harris H. Simmons Director 2-8-00
Harris H. Simmons
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The follow schedule contains summarized information extracted from the
Questar Corporation Consolidated Statements of Income and Balance Sheet
for the period ended December 31, 1999, and is qualified in its entirety
by reference to such audited financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 8,291
<SECURITIES> 0
<RECEIVABLES> 181,274
<ALLOWANCES> 0
<INVENTORY> 37,614
<CURRENT-ASSETS> 238,860
<PP&E> 3,258,773
<DEPRECIATION> 1,471,859
<TOTAL-ASSETS> 2,237,997
<CURRENT-LIABILITIES> 323,795
<BONDS> 735,043
0
0
<COMMON> 278,437
<OTHER-SE> 647,408
<TOTAL-LIABILITY-AND-EQUITY> 2,237,997
<SALES> 0
<TOTAL-REVENUES> 924,219
<CGS> 0
<TOTAL-COSTS> 573,833
<OTHER-EXPENSES> 170,468
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 53,944
<INCOME-PRETAX> 146,618
<INCOME-TAX> 47,788
<INCOME-CONTINUING> 98,830
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 98,830
<EPS-BASIC> 1.20
<EPS-DILUTED> 1.20
</TABLE>
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.
