SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED JUNE 30, 1994
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. 0-14147
QUESTAR PIPELINE COMPANY
(Exact name of registrant as specified in its charter)
STATE OF UTAH 87-0307414
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 11450, 79 South State Street, Salt Lake City, Utah 84147
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (801) 530-2400
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding as of July 31, 1994
Common Stock, $1.00 par value 6,550,843 shares
Registrant meets the conditions set forth in General Instruction
H(a)(1) and (b) of Form 10-Q and is filing this Form 10-Q with
the reduced disclosure format.
<PAGE>
QUESTAR PIPELINE COMPANY
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended 6 Months Ended 12 Months Ended
June 30, June 30, June 30,
1994 1993 1994 1993 1994 1993
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
REVENUES $29,419 $35,049 $57,169 $113,200 $115,597 $212,306
OPERATING EXPENSES
Natural gas purchases 7,869 53,038 2,984 94,842
Operating and maintenance 10,570 12,324 21,849 26,069 44,136 50,112
Depreciation 3,728 3,499 7,402 6,955 14,531 13,718
Other taxes 1,237 979 2,371 2,022 4,264 3,867
TOTAL OPERATING EXPENSES 15,535 24,671 31,622 88,084 65,915 162,539
OPERATING INCOME 13,884 10,378 25,547 25,116 49,682 49,767
INTEREST AND OTHER INCOME
(EXPENSE) 252 289 478 374 (35) 760
INCOME FROM UNCONSOLIDATED
AFFILIATES 60 21 129 39 218 21
DEBT EXPENSE (3,273) (3,264) (6,476) (6,578) (13,012) (13,598)
INCOME BEFORE INCOME TAXES 10,923 7,424 19,678 18,951 36,853 36,950
INCOME TAXES 4,054 2,646 7,301 6,791 13,361 13,018
NET INCOME $6,869 $4,778 $12,377 $12,160 $23,492 $23,932
</TABLE>
<PAGE>
QUESTAR PIPELINE COMPANY
CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993 1993
(In Thousands)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and short-term investments $1,340 $1,341
Notes receivable from parent company $9,900
Accounts receivable 12,847 33,879 11,191
Inventories 2,892 10,248 2,394
Other current assets 1,801 3,945 2,268
Total current assets 18,880 57,972 17,194
Property, plant and equipment 587,964 524,313 561,108
Less allowances for depreciation 197,182 182,937 189,279
Net property, plant and equipment 390,782 341,376 371,829
Investment in unconsolidated affiliates 7,460 6,856 7,145
Other assets 10,884 6,978 9,726
$428,006 $413,182 $405,894
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Checks outstanding in excess of
cash balances $2,530
Notes payable to parent company $21,100 $3,000
Accounts payable and accrued expense 12,767 14,282 12,668
Purchased gas adjustments 10,571
Total current liabilities 33,867 27,383 15,668
Long-term debt 134,497 134,477 134,487
Deferred credits 2,540 876 2,276
Deferred income taxes 67,597 67,433 67,335
Common shareholder's equity
Common stock 6,551 6,551 6,551
Additional paid-in capital 57,034 57,034 57,034
Retained earnings 125,920 119,428 122,543
Total common shareholder's equity 189,505 183,013 186,128
$428,006 $413,182 $405,894
</TABLE>
<PAGE>
QUESTAR PIPELINE COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
6 Months Ended
June 30,
1994 1993
(In Thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $12,377 $12,160
Depreciation 8,216 7,870
Deferred income taxes 262 3,827
Income from unconsolidated affiliates (129) (39)
20,726 23,818
Change in operating assets and liabilities (2,472) 10,870
NET CASH PROVIDED FROM
OPERATING ACTIVITIES 18,254 34,688
INVESTING ACTIVITIES
Capital expenditures
Purchase of property, plant and equipment (27,170) (12,664)
Other investments (186) (163)
Total capital expenditures (27,356) (12,827)
Proceeds (uses) from disposition of property,
plant and equipment 1 (46)
CASH USED IN INVESTING ACTIVITIES (27,355) (12,873)
FINANCING ACTIVITIES
Increase (decrease) in notes payable to parent 18,100 (7,500)
Checks outstanding in excess of cash balances 2,530
Increase in notes receivable from parent company (9,900)
Payment of dividends (9,000) (8,000)
CASH PROVIDED FROM (USED IN)
FINANCING ACTIVITIES 9,100 (22,870)
DECREASE IN CASH AND SHORT-TERM
INVESTMENTS ($1) ($1,055)
</TABLE>
<PAGE>
QUESTAR PIPELINE COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 1994
(Unaudited)
Note A - Basis of Presentation
The interim financial statements furnished reflect all adjustments which
are, in the opinion of management, necessary for a fair presentation of
the results for the interim periods presented. All such adjustments are
of a normal recurring nature. Due to the seasonal nature of the
business, the results of operations for the three-and six-month periods
ended June 30, 1994, are not necessarily indicative of the results that
may be expected for the year ending December 31, 1994. For further
information refer to the financial statements and footnotes thereto
included in the Company's annual report on Form 10-K for the year ended
December 31, 1993.
Note B - Accounting for Postemployment Benefits
Effective January 1, 1994, the Company recorded a liability for
postemployment disability and health care benefits in compliance with the
Statement of Financial Accounting Standards No. 112. This did not have
an effect on net income since the $1,256,000 liability was offset with a
regulatory asset because the Company expects to include these costs in
future rates.
Note C - Financing
On July 1, 1994 Questar Pipeline received a $25,000,000 capital
contribution from its parent company. Proceeds from the capital
contribution were used to fund capital expenditures and to repay
short-term debt.
<PAGE>
QUESTAR PIPELINE COMPANY
MANAGEMENT'S ANALYSIS
June 30, 1994
Operating Results --
Following is a summary of operating information for the Company:
<TABLE>
<CAPTION>
3 Months Ended 6 Months Ended 12 Months Ended
June 30, June 30, June 30,
1994 1993 1994 1993 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Natural gas volumes (in thousands of
decatherms)
Transportation
For Mountain Fuel 15,204 9,778 52,064 23,037 94,088 40,179
For other customers 38,729 41,536 69,932 80,407 138,713 172,550
Total transportation 53,933 51,314 121,996 103,444 232,801 212,729
Sales for resale to Mountain Fuel 3,298 24,337 42,044
Total system throughput 53,933 54,612 121,996 127,781 232,801 254,773
Gathering
For Mountain Fuel 8,637 6,281 20,702 27,270 37,864 46,519
For other customers 12,624 11,809 24,407 19,399 53,344 37,865
Total gathering 21,261 18,090 45,109 46,669 91,208 84,384
Natural gas revenues (per decatherm)
Transportation $0.28 $0.23 $0.25 $0.23 $0.25 $0.22
Sales for resale 5.00 2.99 3.19
Gathering 0.34 0.22 0.28 0.22 0.25 0.23
</TABLE>
Questar Pipeline began operating under Federal Energy Regulatory
Commission (FERC) Order 636 effective September 1, 1993. At that time
Questar Pipeline unbundled its transportation, gathering and storage
services and eliminated its sales-for-resale function. Under the Order
636 operating environment, firm transportation volumes do not have a
significant impact on current operating results since 96% of the cost of
service is recovered in the demand component of rates using the straight
fixed-variable rate design. Since this demand component is collected
equally each month of the year, revenues collected using the straight
fixed-variable rate design in the high-volume first and fourth quarters
are less than those collected under the rate design in effect during the
comparable periods of 1993. The straight fixed-variable rate design
resulted in increased revenues during the second quarter of 1994, when
compared to the same quarter of 1993.
Deliveries to Mountain Fuel were higher in the 3-, 6- and 12-month
periods ended June 30, 1994. Transportation for other customers was lower
in the 1994 periods because of lower firm transportation contract demand.
In April 1994, the FERC approved a gathering agreement between Questar
Pipeline and Mountain Fuel retroactive to September 1, 1993, which
allocates 60% of gathering costs to the demand component of rates and 40%
to the commodity component. Gathering revenues were increased
$1,335,000 in the second quarter of 1994, to retroactively reflect the
FERC approved gathering agreement. Mountain Fuel accounted for 46% of
the volumes of gas gathered in the first half of 1994.
Questar Pipeline expanded firm storage service at Clay Basin from 31 to
41.8 Bcf working gas capacity in mid-May 1994. With additional cushion
gas, storage capacity will be increased to 46.3 Bcf by the 1995-96
heating season.
Operating and maintenance expenses were lower in the periods ended June
30, 1994, because of lower variable costs caused by reduced system
throughput and lower field gathering costs. Depreciation expense was
higher in the periods ended June 30, 1994, because of capital spending,
primarily for storage and gathering activities.
The effective income tax rate of 37.1% in the first half of 1994 was
higher than the 35.8% in the first half of 1993 because of an increase in
the federal income tax rate from 34% to 35%.
Effective January 1, 1994, the Company recorded a liability for
postemployment disability and health care benefits in compliance with the
Statement of Financial Accounting Standards No. 112. This did not have
an effect on net income since the $1,256,000 liability was offset with a
regulatory asset because the Company expects to include these costs in
future rates.
Liquidity and Capital Resources --
Operating Activities:
Net cash provided from operating activities was $18,254,000 for the first
half of 1994 compared with $34,688,000 for the same period of 1993. The
decrease was due to reduced sources from deferred taxes and working
capital. In the Order 636 operating environment, Questar Pipeline
eliminated the purchased gas cost adjustment account and all but 3 Bcf of
working gas capacity. As a result, the Company no longer experiences
large seasonal changes in working capital as it did in the first six
months of 1993.
Investing Activities:
Capital expenditures were $27,356,000 in the first half of 1994, compared
with $12,827,000 in the corresponding 1993 period as the Company
continues expanding a major gas storage reservoir. Capital expenditures
for calendar year 1994 are estimated at $64,500,000.
Financing Activities:
On July 1, 1994 Questar Pipeline received a $25,000,000 capital
contribution from its parent company. The Company used the capital
contribution to fund capital expenditures and to repay short-term debt
borrowed from its parent company.
The Company had a short-term line-of-credit arrangement with a bank
totaling $200,000. In addition, its parent company loans funds to the
Company under a short-term arrangement. As of June 30, 1994, Questar
Pipeline had borrowed $21,100,000 from Questar Corporation.
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
a. The Federal Energy Regulatory Commission (the FERC), on
May 17, 1994, issued an order disclaiming jurisdiction over the
Blacks Fork processing plant, which is being constructed in
southwestern Wyoming by a joint venture between Questar Pipeline
Company (Questar Pipeline or the Company), through an affiliate,
and Coastal Gas Gathering and Processing Company. The plant,
which is currently scheduled to be completed in December of 1994,
will remove hydrocarbon liquids from gas gathered in the area.
b. On June 3, 1994, the FERC issued an order granting an
application filed by TransColorado Gas Transmission Company
(TransColorado) to construct and operate a new interstate gas
transmission system. Questar Pipeline, through a subsidiary, has
a one-third interest in the proposed TransColorado project, which
will extend from producing areas in northwestern Colorado and
interconnect with major pipeline systems in northwestern New
Mexico. The Company's partners in TransColorado are affiliates
of Public Service Company of Colorado and KN Energy Inc.
TransColorado filed a petition for rehearing on a limited
number of issues. On August 1, 1994, the FERC issued an order
granting a rehearing for the purpose of further consideration.
c. On July 11, 1994, Questar Pipeline, as operator of the
Overthrust Pipeline Company (Overthrust Pipeline) partnership,
filed an offer of settlement in that entity's pending general
rate case with the FERC. Comments supporting the settlement
offer have been filed by the FERC's staff and shippers that are
affiliated with the Overthrust Pipeline partners. In addition to
the Company with its 18 percent ownership interest, Overthrust
Pipeline partners include CIG Overthrust, Inc., Columbia Gulf
Transmission Company, Enron Overthrust Pipeline Company, NGPL -
Overthrust Inc., and Tennessee Overthrust Gas Company. As of the
date of this report, the FERC has not issued an order concerning
the settlement offer.
SIGNATURES
Pursuant to the requirements 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.
QUESTAR PIPELINE COMPANY
(Registrant)
August 11, 1994 /s/ A. J. Marushack
(Date) A. J. Marushack
President and Chief
Executive Officer
August 11, 1994 /s/ W. F. Edwards
(Date) W. F. Edwards
Vice President and Chief
Financial Officer
