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, 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.)
79 South State Street, P.O. Box 11450, Salt Lake City, Utah 84147
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (801)530-2400
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933:
9 7/8% Debentures due 2020
9 3/8% Debentures due 2021
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
State the aggregate market value of the voting stock held by
nonaffiliates of the registrant as of March 20, 19945 $0.
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of March 20, 1995. 6,550,843
shares of Common Stock, $1.00 par value. (All shares are owned by
Questar Corporation.)
Registrant meets the conditions set forth in General Instruction
(J)(1)(a) and (b) of Form 10-K and is therefore filing this Form 10-K
Report with the reduced disclosure format.
<PAGE>
TABLE OF CONTENTS
Heading Page
PART I
Items 1.
and 2. BUSINESS AND PROPERTIES
General............................................ 1
Transmission System................................ 2
Transportation .................................... 4
Gathering.......................................... 5
Storage............................................ 6
New Ventures....................................... 6
Regulatory Environment............................. 7
Competition........................................ 8
Employees.......................................... 9
Relationships with Affiliates...................... 9
Item 3. LEGAL PROCEEDINGS..................................... 9
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS...................................... 9
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS....................... 9
Item 6. (Omitted)..............................................10
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION...........11
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA...................................................15
Item 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE...................................15
PART III
Items
10-13. (Omitted)..............................................15
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K................................15
SIGNATURES.....................................................32
<PAGE>
FORM 10-K
ANNUAL REPORT, 1994
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
General
Questar Pipeline Company (Questar Pipeline or the Company) is an
interstate pipeline company that is currently engaged in the gathering,
processing, transportation and storage of natural gas in the Rocky
Mountain states of Utah, Wyoming, and Colorado. During 1994, the
Company capitalized on its strategic location, expanded its storage
capacity at Clay Basin, built new gathering facilities, and entered a
new joint venture to build and operate a processing plant.
Questar Pipeline is a wholly owned subsidiary of Questar Corporation
(Questar). As a "natural gas company," the Company is subject to
regulation by the Federal Energy Regulatory Commission (the FERC)
pursuant to the Natural Gas Act of 1938, as amended, and certain other
federal legislation.
As an open-access pipeline, Questar Pipeline transports gas for
affiliated and unaffiliated customers and also gathers gas for such
customers. It also operates the Clay Basin storage project, which is a
large underground storage project in northeastern Utah, and other
underground storage operations in Utah and Wyoming. The Company is
involved in three partnerships, Blacks Fork Gas Processing Plant (Blacks
Fork), Overthrust Pipeline Company (Overthrust), and TransColorado Gas
Transmission Company (TransColorado).
The Company has significant business relationships with its
affiliates, particularly Mountain Fuel. Mountain Fuel, a regulated
local distribution company that serves over 572,000 customers in Utah,
southwestern Wyoming, and southeastern Idaho, has reserved approximately
800,000 decatherms (Dth) per day of firm capacity on the Company's
transmission system. (A Dth is an amount of heat energy equal to 10
therms or one million Btu. In the Company's system, each thousand cubic
feet of gas (Mcf) equals approximately 1.07 Dth.) Questar Pipeline
transports natural gas owned by Mountain Fuel and produced from
properties operated by Wexpro Company (Wexpro), another affiliate, as
well as some natural gas volumes purchased directly by Mountain Fuel
from field producers. The Company also transports volumes that are
marketed by Universal Resources Corporation (Universal Resources),
another affiliate.
The following diagram sets forth the corporate structure of the
Company and certain affiliates:
Questar Corporation
Entrada Industries, Inc.
Celsius Energy Company
Wexpro Company
Mountain Fuel Supply Company
QUESTAR PIPELINE COMPANY
Questar TransColorado, Inc.
Questar Gas Management Company
Universal Resources Corporation
Questar InfoComm, Inc.
The major activities of Questar Pipeline are described in more
detail below:
Transmission System
The Company's transmission system is strategically located in the
Rocky Mountains near large reserves of natural gas. It is referred to
as a "hub and spoke" system, rather than a "long-line" pipeline, because
it has multiple interconnections to other interstate pipeline systems
and has access to major producing areas. Questar Pipeline's
transmission system has connections with the pipeline systems of
Colorado Interstate Gas Company (CIG), the middle segment of the
Trailblazer Pipeline System (Trailblazer) owned by Wyoming Interstate
Company, Ltd. (WIC), Northwest Pipeline Corporation (Northwest
Pipeline), Williams Natural Gas Company (Williams), and Kern River Gas
Transmission Company (Kern River). These connections have opened
markets outside Mountain Fuel's service area and allow the Company to
transport gas for others.
The Company's transmission system includes 1,761 miles of
transmission lines that interconnect with other pipelines and that link
various producers of natural gas with Mountain Fuel's distribution
facilities in Utah and Wyoming. The system includes two major portions,
often referred to as the northern and southern systems. The two
segments are linked together and have significant connections with other
pipeline systems. The northern segment extends from northwestern
Colorado through southwestern Wyoming into northern Utah; the southern
segment of the transmission system extends from western Colorado to
Payson, in central Utah. The total transmission mileage reported above
includes pipelines associated with the Company's storage fields and tap
lines used to serve Mountain Fuel.
The Company's pipelines, compressor stations, regulator stations,
and other transmission-related facilities are constructed on properties
held under long-term easements, rights of way, or fee interests
sufficient for the conduct of its business activities.
In addition to the transmission system described above, Questar
Pipeline has an 18 percent interest and is the operating partner in
Overthrust, a general partnership that was organized in 1979 to
construct, own, and operate the Overthrust segment of Trailblazer.
Trailblazer is a major 800-mile pipeline that transports gas from
producing areas in the Rocky Mountains to the Midwest. The Overthrust
segment is the first of Trailblazer's three segments; it is 88-miles in
length and extends from Whitney Canyon in southwestern Wyoming to the
vicinity of Rock Springs, Wyoming.
As the operating partner of Overthrust, the Company is working to
resolve some issues relating to its future use. Some Overthrust
partners are also shippers that are currently obligated to pay demand
costs on Overthrust despite the fact that minimal volumes are physically
shipped on it. The partners have recently negotiated a buyout
settlement with Columbia Gas Transmission Corporation, which is an
affiliate of an Overthrust partner, Columbia Gulf Transmission Company,
and which has been in bankruptcy proceedings since July of 1991. The
settlement agreement has recently been submitted to the bankruptcy court
and the FERC for approval.
Questar Pipeline owns and operates a major compressor complex near
Rock Springs, Wyoming, that compresses volumes of gas from the Company's
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. Five of the Company's natural gas lines are
connected to the system at the complex. In addition, both of CIG's
Wyoming pipelines and the WIC segment are connected to the complex.
The Company and its partners are continuing to pursue a project
announced in 1990 to build and operate the proposed TransColorado
pipeline. (Questar TransColorado, Inc., the Company's wholly owned
subsidiary is the named partner.) Questar Pipeline's partners include
affiliates of Public Service Company of Colorado and KN Energy, Inc.
The proposed pipeline is approximately 300 miles in length and would
extend from the Piceance Basin in western Colorado to northwestern New
Mexico, where it would interconnect with other major pipeline systems.
As designed, the pipeline could transport up to 300 million cubic feet
(MMcf) of gas per day from western Colorado and other producing basins
in Wyoming and Utah to California and midwestern and southwestern
markets. This project has received the necessary environmental
clearance and regulatory approvals. The project, which was developed
prior to the adoption of Order No. 636, needs additional support from
customers before construction will begin. The Company and its partners
remain optimistic concerning the project and hope that construction can
begin in 1996.
Questar Pipeline no longer has the only transmission system with
direct access to the major population centers in Utah. The new Kern
River pipeline became operational in late February of 1992. This line,
built to transport gas from Wyoming to the enhanced oil recovery
projects in Kern County, California, runs through the major population
areas of Utah. A new tap, the Hunter Park tap, has been installed on
the Kern River line in Salt Lake County. This new tap makes it possible
for Mountain Fuel and other transportation customers to take deliveries
from the Kern River line. At the current time, however, no deliveries
have been made from the Kern River line to industrial customers in the
Wasatch Front area of Utah.
Transportation Service
Questar Pipeline's largest transportation customer is Mountain
Fuel. During 1994, the Company transported 75,941,000 Dth for Mountain
Fuel, compared to 65,061,000 Dth in 1993. These transportation volumes
include Mountain Fuel's cost-of-service gas produced by Wexpro, as well
as volumes purchased by Mountain Fuel directly from field producers
after September 1, 1993. (The Company also sold volumes of gas to
Mountain Fuel prior to September 1, 1993. Consequently, a direct
comparison between Mountain Fuel's transportation volumes in 1993 and
1994 is somewhat misleading.)
Prior to September 1, 1993, the Company purchased gas for resale to
Mountain Fuel, its only sale-for-resale customer. As of such date,
Questar Pipeline discontinued sales-for-resale service and Mountain Fuel
converted its firm sales capacity to firm transportation capacity.
Mountain Fuel has a reserved capacity of approximately 800,000 Dth per
day, or approximately 85 percent of Questar Pipeline's reserved daily
capacity. Mountain Fuel paid an annual demand charge of approximately
$46.3 million to the Company in 1994, which includes demand charges
attributable to firm transportation and "no-notice" transportation.
Mountain Fuel only needs its total reserved capacity during peak-demand
situations. When it is not fully utilizing its capacity, Mountain Fuel
releases the capacity to others, primarily industrial transportation
customers and marketing entities, and receives revenue credits from the
Company, which were approximately $9.8 million during the 12-month
period ending August 31, 1994.
Questar Pipeline recovers approximately 96 percent of its
transmission cost of service through demand charges from firm
transportation customers. In other words, these customers pay for
access to transportation capacity, rather than for the volumes actually
transported. Consequently, the Company's throughput volumes do not have
a significant impact on its short-term operating results. Questar
Pipeline is not significantly affected by fluctuating demand based on
the vagaries of weather or commodity prices.
The Company's total system throughput, however, did increase from
238,586,000 Dth in 1993 to 250,284,000 Dth in 1994. As previously
noted, some of this increase was attributable to increased
transportation volumes for Mountain Fuel. The total throughput increase
was also attributable to increased volumes for other affiliated
customers, primarily Universal Resources (from 35,599,000 Dth in 1993 to
45,093,000 Dth in 1994) and nonaffiliated customers (from 113,589,000
Dth in 1993 to 129,250,000 Dth in 1994).
Questar Pipeline's transmission system is an open-access system and
has been since September of 1988. Order No. 636 and the Company's
tariff provisions require it to transport gas on a nondiscriminatory
basis when it has available transportation capacity.
The Company does have limited opportunities for interruptible
transportation service. It, however, is currently obligated, on an
annual basis, to credit 90 percent of the revenues, net of variable
costs, obtained from such service to firm customers after it recovers
$1.5 million in revenues associated with interruptible transportation
service.
In order to comply with Order No. 636, Questar Pipeline installed
additional metering that permits "real time" measurement of gas
transported on its system and an electronic bulletin board that allows
interested parties to nominate for capacity on such system. Questar
Pipeline spent approximately $4.7 million on such equipment and can
recover the costs associated with this equipment upon filing its next
general rate case and establishing the prudency of such costs.
Questar Pipeline will continue to develop and build new lines and
related facilities that will allow it to meet customer needs or to
improve transportation services. The Company has announced plans to
expand its southern transmission system to meet market demand for
transportation of natural gas volumes from the Piceance Basin in western
Colorado. The project will involve upgrading a section of the system as
well as installing additional compression. See "Regulatory Environment"
for a discussion of "at-risk" conditions imposed by the FERC on new
construction projects.
The Company has recently discontinued its participation in the
group organized to develop and operate a proposed market center at the
Muddy Creek pipeline hub in southwestern Wyoming. Universal Resources,
an affiliate, continues to be involved in this activity.
Gathering
The Company provides gathering services for Mountain Fuel and other
customers. In 1994, Questar Pipeline earned revenues of $23,641,000 for
gathering services, compared to $20,386,000 in 1993, but the reported
volume of gathered gas decreased from 92,768,000 Dth in 1993 to
83,983,000 Dth in 1994. All gathering services performed by Questar
Pipeline are conducted on an individual contract basis although it has
included a statement of gathering rates in its tariffs. The Company
performs gathering services for Mountain Fuel under a four-year
agreement that was filed with and accepted by the FERC during 1994.
During 1994, Questar Pipeline spent $9,392,000 to expand its
gathering activities; projects included installing new facilities
(including dehydration units as well as laterals) at the Birch Creek and
Bruff areas in southwestern Wyoming and at Drunkards Wash in eastern
Utah.
The Company intends to continue expanding its gathering facilities
and services. It is currently reviewing options to transfer gathering
facilities to a subsidiary or affiliate given the FERC's current
position that it has no direct jurisdiction over the gathering
activities of pipeline affiliates. Current natural gas prices have
caused some producers to shut in their wells and to postpone drilling
activities; these activities, at least for the short-term, will result
in reduced gathering volumes for the Company.
Questar Pipeline owns 819 miles of gathering lines, compressor
stations, field dehydration plants, and measuring stations.
Storage
Questar Pipeline operates a major storage facility at Clay Basin in
northeastern Utah. This storage reservoir has been operational since
1977; open-access storage service has been available at Clay Basin since
June of 1991. The Company's storage facilities are certificated by the
FERC and its rates for storage service (based on operating costs and
investment in plant plus an allowed rate of return) are subject to the
approval of the FERC.
During 1994, Questar Pipeline installed the necessary compressors
and storage laterals to offer additional working gas capacity of
approximately 15.3 billion cubic feet (Bcf) of gas. The reservoir
currently is certificated for 46.3 Bcf of working gas capacity and a
total capacity of 110 Bcf. (Working gas is gas that is injected and
withdrawn. Cushion gas is gas in the formation that is necessary to
maintain pressure and is not withdrawn under normal operating
conditions.) As a result of this expansion, Clay Basin's maximum
deliverability increased from 500 million cubic feet of gas MMcf per day
to 763 MMcf per day.
Clay Basin's storage capacity is fully subscribed by customers
under agreements extending to 30 years. Mountain Fuel currently has
12.5 Bcf of working gas capacity at Clay Basin. Other large customers
include Northwest Pipeline; Washington Natural Gas Company, a
distribution utility in Washington; and BC Gas Inc., a distribution
utility in British Columbia. Storage service is increasingly important
to distribution companies that need to match annual gas purchases with
fluctuating customer demand, improve service reliability, and avoid
imbalance penalties.
Questar Pipeline also owns and operates three smaller storage
reservoirs. These projects were developed to serve Mountain Fuel's
needs, and Mountain Fuel has 100 percent of the working gas capacity in
them. These small reservoirs are used to supplement Mountain Fuel's gas
supply needs on peak-days.
The Company is also determining if there is sufficient customer
interest in a new salt-cavern storage project in southwestern Wyoming.
In a salt cavern, unlike a depleted gas reservoir, working gas can be
cycled more frequently.
New Ventures
During 1994, Questar Pipeline, through a direct subsidiary, formed
a partnership with an affiliate of Coastal Corporation to build and
operate a new processing plant in southwestern Wyoming. The $20 million
plant, which should become fully operational in the spring of 1995, has
a design capacity of 84 MMcf per day and is located in a prolific gas
producing area. Natural gas liquids, ethane, propane, butane, and
gasoline, will be extracted from the natural gas volumes delivered to the
plant. In conjunction with this new processing plant, the Company
extended its gathering system to the Birch Creek area, approximately 32
miles north of the plant. The new plant and the expanded gathering
system provide producers more options for gathering and processing their
gas volumes. Once the liquids are stripped, the natural gas can be
transported by pipeline to end-use markets. The processing plant is not
subject to the jurisdiction of the FERC and represents Questar
Pipeline's strategy to expand its expertise and its investment in
nonregulated activities.
Regulatory Environment
The Company is a natural gas company under the Natural Gas Act and
is subject to the jurisdiction of the FERC as to rates and charges for
storage and transportation of gas in interstate commerce, construction
of new storage and transmission 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.
This simple factual explanation of federal regulation does not
adequately account for the major transformation that has occurred in the
natural gas industry within the last several years. Questar Pipeline,
in common with other interstate pipelines, chose to terminate its
sale-for-resale function when it implemented FERC Order No. 636. To
comply with Order No. 636, as amended, the Company restructured its
tariff provisions to provide for firm and interruptible transportation
and storage service, no-notice transportation service to former sales
customers, a capacity release mechanism for shippers and a straight
fixed-variable (SFV) rate methodology. It was also required to
discontinue use of upstream capacity in its own name, to provide
flexible receipt and delivery points for firm transportation customers,
and to provide an interactive electronic bulletin board to assist with
the administration of the new provisions.
When it was engaged in sales-for-resale activities and had a
purchased gas adjustment procedure, Questar Pipeline was required to
file a general rate case every three years. It is no longer subject to
this requirement. The Company, however may determine to file a general
rate case before year-end and must weigh several competing factors when
making the decision. The Company cannot recover its costs of
implementing Order No. 636 or its full cost accrual for postretirement
benefits (medical and life) and postemployment benefits (long-term
disability) in the absence of a general rate case. Other important
considerations include actual revenue generating capability,
expectations of allowed return on equity, and revenue crediting issues.
In a post-Order No. 636 environment, Questar Pipeline cannot expect
to receive unconditioned regulatory approvals for new construction
proposals without the support of long-term firm service agreements. The
FERC is currently imposing at-risk conditions on projects that lack such
support. In other words, the FERC is insisting that shareholders, not
customers, absorb any underrecovery of costs if the incremental revenues
obtained from a new project do not cover the costs. Given the change
that has already occurred in the industry and given the expectation of
additional change, customers are understandably wary of providing
pipelines with long-term contracts for firm service.
Under the Natural Gas Pipeline Safety Act of 1968, as amended, the
Company is subject to the jurisdiction of the Department of
Transportation (DOT) with respect to safety requirements in the design,
construction, operation and maintenance of its transmission and storage
facilities. The Company also complies with the DOT's drug testing
regulations and the DOT's new alcohol testing regulations.
In addition to the regulations discussed above, Questar Pipeline's
activities in connection with the operation and construction of
pipelines, plants, and other facilities for transporting, processing, or
storing natural gas and other products are subject to extensive
environmental regulation by state and federal authorities, including
state air quality control boards and the federal Environmental
Protection Agency. These compliance activities increase the cost of
planning, designing, installing and operating facilities.
Competition
Competition for Questar Pipeline's transportation and gathering
services has intensified in recent years. Regulatory changes, such as
FERC Order No. 636, have significantly increased customer flexibility
and customer responsibility to directly manage their gas supplies. The
Company actively competes with other interstate pipelines, intrastate
pipelines, and gathering companies to gather and transport gas volumes
throughout the intermountain region.
In common with Questar Pipeline, other pipeline companies are
interested in expanding their non-regulated (or less-regulated)
activities and are focusing attention on gathering and field service
activities. Other pipelines and marketing groups are encroaching on the
Company's historic service territory and competing with Questar Pipeline
for gathering. It is not uncommon for wells to have connections with
more than one gathering system or for producers to insist that gathering
systems be tied to more than one pipeline.
As a result, Questar Pipeline's customers have access to a larger
universe of service options and providers. They are demanding better
service and more flexibility, forcing the Company to improve its
accounting processes and electronic communications, to develop balancing
and pooling arrangements, and to work with other parties to develop some
standard rules within the new environment. The national pipeline grid
has become more integrated, even as competition among the pipelines has
become more aggressive.
The Company has several key assets that contribute to its continued
success. It has a strategically located and integrated transmission
system with interconnections to major pipeline systems and with access
to major producing areas and markets. Questar Pipeline has the Clay
Basin storage project, a strategically located storage reservoir that
has been successfully operated since 1977, that has been expanded in
response to interest from others, and that is fully subscribed by
firm-service customers. Questar Pipeline also has an extensive
gathering system developed to collect gas volumes from producing wells
as well as expertise in extracting hydrocarbon liquids from natural gas.
As the operator of the new Blacks Fork processing plant, the Company is
expanding its activities and expertise. Questar Pipeline intends to
expand its processing and field-treatment activities.
Questar Pipeline has consistently established partnerships with
other players to share risks and expand opportunities. The Overthrust
pipeline, TransColorado pipeline, and Blacks Fork plant projects involve
partners, most of which are significantly larger than the Company.
Employees
As of December 31, 1994, the Company had 478 employees, compared to
470 as of the end of 1993. None of these employees is represented under
collective bargaining agreements. The Company participates in the
comprehensive benefit plans of Questar and pays the share of costs
attributable to its employees covered by such plans. Questar Pipeline's
employee relations are generally deemed to be satisfactory.
Relationships with Affiliates
There are significant business relationships between the Company
and its affiliates, particularly Mountain Fuel and Universal Resources.
These relationships are described above. See Note G to the financial
statements for additional information concerning transactions between
the Company and its affiliates.
The Company obtains data processing and communication services from
another affiliate, Questar InfoComm, Inc. (formerly Questar Service
Corporation), under the terms of a written agreement. Questar InfoComm
worked closely with the Company to develop the electronic bulletin board
that is currently being used by Questar Pipeline and its customers.
Questar, the Company's parent, provides certain administrative services,
e.g., personnel, legal, public relations, financial, audit, and tax, to
the Company and other members of the consolidated group. A
proportionate share of the costs associated with such services is
directly billed or allocated to Questar Pipeline.
ITEM 3. LEGAL PROCEEDINGS
Questar Pipeline is involved in various legal and regulatory
proceedings. While it is not currently possible to predict or determine
the outcome of these proceedings, it is the opinion of management that
the outcome will not have a material adverse effect on the Company's
financial position or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company, as the wholly owned subsidiary of a reporting person,
is entitled to omit the information requested in this Item.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's outstanding shares of common stock, $1.00 par value,
are currently owned by Questar. Information concerning the dividends
paid on such stock and the Company's ability to pay dividends is
reported in the Statements of Shareholder's Equity and Notes to
Financial Statements included in Item 8.
ITEM 6. SELECTED FINANCIAL DATA
The Company, as the wholly owned subsidiary of a reporting person,
is entitled to omit the information requested in this Item.
<PAGE>
ITEM 7. MANAGEMENT'S ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Following is a summary of operating income and operating
information for the Company's operations:
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
(Dollars In Thousands)
<S> <C> <C> <C>
OPERATING INCOME
Revenues
Transportation $61,844 $51,590 $43,912
Gathering 23,641 20,386 17,822
Storage 27,620 14,698 7,798
Sales for resale 81,813 133,059
Other 2,503 3,141 1,995
Total revenues 115,608 171,628 204,586
Operating expenses
Natural gas purchases 56,022 93,024
Operating and maintenance 42,778 48,356 46,601
Depreciation and amortization 15,453 14,084 13,699
Other taxes 4,499 3,915 3,842
Total expenses 62,730 122,377 157,166
Operating income $52,878 $49,251 $47,420
OPERATING STATISTICS
Natural gas volumes (in Mdth)
Transportation
For Mountain Fuel 75,941 65,061 33,883
For other customers 174,343 149,188 171,097
Total transportation 250,284 214,249 204,980
Sales for resale to Mountain Fuel 24,337 38,981
Total system throughput 250,284 238,586 243,961
Gathering
For Mountain Fuel 32,098 44,432 48,164
For other customers 51,885 48,336 25,901
Total gathering 83,983 92,768 74,065
Clay Basin storage working gas
volumes (in Bcf) 41.8 31.0 30.0
Natural gas revenues (per dth)
Transportation $0.25 $0.24 $0.21
Gathering 0.28 0.22 0.24
Sales for resale - 3.36 3.41
Natural gas purchase cost (per dth - 2.28 2.53
</TABLE>
1994 was the first full year of operations for Questar
Pipeline under the regulations of FERC Order No. 636. In this
new regulatory environment Questar Pipeline's transportation,
gathering and storage services are separate activities, and
sales-for-resale services have been discontinued.
Firm-transportation volumes do not have a significant impact
on current operating results because about 96% of the cost of
service is recovered equally each month in the reservation
component of rates.
Most of Questar Pipeline's transportation capacity has been
reserved by firm-transportation customers. Roughly 92% of
firm-transportation contracts have remaining terms of at least
four years. Firm-transportation customers can release that
capacity to third parties when it is not required for their
own needs. Mountain Fuel has reserved transportation capacity
from Questar Pipeline of approximately 800,000 decatherms per
day, or about 85% of the total reserved daily transportation
capacity.
Throughput volumes increased 5% in 1994 reflecting increases
in services provided to both firm- and
interruptible-transportation customers. After $1.5 million of
revenues are earned from interruptible-transportation
services, 90% of remaining interruptible-transportation
revenues are credited back to firm-transportation customers.
Throughput volumes for Mountain Fuel, which include sales for
resale in 1993 and 1992, declined 15% in 1994 because of
warmer weather in Mountain Fuel's service area.
Gathering revenues increased 16% in 1994 and 14% in 1993.
Gathering activities were unbundled from the sales function in
1991. Volumes of gas gathered for Mountain Fuel have remained
level for 1994, 1993 and 1992. However, billings for gas
gathered for Mountain Fuel in 1993 and 1992 were based on
imputed volumes, which were substantially higher than volumes
gathered. Gas volumes gathered for other customers have
increased. Questar Pipeline has expanded its gas gathering
operations in the past several years in the Birch Creek, Bruff
and Henry areas of southwestern Wyoming.
Questar Pipeline began a program in 1993 to expand
firm-storage service offered at its Clay Basin storage
facility. Working gas storage capacity was increased to 31
Bcf in 1993 and to 41.8 Bcf beginning May 1994. Planned
capacity of 46.3 Bcf is projected beginning mid-year 1995.
Storage capacity at year-end 1994 was 100% subscribed with
contractual terms extending from seven to 30 years.
Firm-storage revenues increased 20% to $22,400,000 in 1994 as
a result of increased capacity and the associated service at
Clay Basin, and unbundling and reclassifying peaking storage
service from sales-for-resale revenues. Peaking storage is
designed to meet peak daily demand requirements of Mountain
Fuel.
Questar Pipeline, through a partnership, is a 50% owner of a
gas processing plant in southwestern Wyoming. The Blacks
Fork Processing plant cost $19.7 million to build and will be
operational in the first half of 1995.
Under the terms of Order No. 636, Questar Pipeline is no
longer required to file rate cases every three years.
However, with its capital expenditure program, recent adoption
of new accounting rules for postemployment and postretirement
costs, and loss of interruptible-transportation revenues, the
Company is considering filing a rate case in 1995.
The Company did not purchase gas for resale after August 31,
1993. Natural gas purchases decreased 40% in 1993 and 25% in
1992 consistent with changes in sales-for-resale volumes.
Operating and maintenance expenses decreased 12% in 1994
because of eliminating volume and fuel usage costs associated
with the resale of natural gas. Operating and maintenance
expenses increased 4% in 1993 because of higher labor and
supplies costs. Depreciation expense was 10% higher in 1994
and 3% higher in 1993 as a result of Questar Pipeline's
capital expenditure program. Interest and other income
(expense) in 1994 and 1993 includes the reduction in value of
certain investments.
The effective income tax rate was 33.6% in 1994, 35.6% in
1993, and 35.4% in 1992. A 1994 reversal of $1,245,000 of
income tax expense previously expensed resulted in a lower
effective income tax rate. The adjustment resulted from the
exclusion from taxable income of the transportation revenues
recorded on cushion gas transported into storage.
The Company adopted SFAS No.112, Accounting for Postemployment
Benefits, on January 1, 1994, by establishing a liability of
$1,256,000 offset by a regulatory asset. This statement
requires the Company to recognize 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. SFAS No.112 requires the Company to accrue both
current and future costs which formerly had been recorded when
paid. By December 1994 the total liability had dropped to
$450,000 as a result of designating Medicare as the primary
health care provider and increasing the discount rate from 7%
to 8.5%. The Company expects to recover SFAS No.112 costs in
a subsequent rate filing.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
Net cash provided from operating activities decreased 42% in
1994 after increasing 65% in 1993. Net cash provided from
operating activities was $39,675,000 in 1994, $68,548,000 in
1993, and $41,479,000 in 1992. Cash flow generated by income
and depreciation has grown steadily in the period from 1992
through 1994. The balance of operating assets and liabilities
changed dramatically in 1993. as a result of adopting FERC Order
No.636. Balances in receivables and payables decreased, and gas
stored underground was transferred to Mountain Fuel.
Investing Activities
Following is a summary of capital expenditures for 1994, 1993
and a forecast of 1995 expenditures:
<TABLE>
<CAPTION>
1995
Estimated 1994 1993
(In Thousands)
<S> <C> <C> <C>
Clay Basin cushion gas and expansion $8,700 $42,196 $30,070
Other storage 4,200
Transmission lines 12,300 1,878 4,856
Gathering facilities 8,200 9,392 5,743
Order 636 transition costs 421 4,313
Partnerships 2,000 614 354
General and other 5,600 3,726 2,244
$41,000 $58,227 $47,580
</TABLE>
Questar Pipeline has completed the majority of work expanding
the capacity of its Clay Basin underground gas storage
facility, which involves building compression facilities and
injecting cushion gas into the reservoir. After expansion,
the storage field will have a total capacity of 110 Bcf,
including 46.3 Bcf of working-gas storage. The first phase of
the project was completed in May 1994 with an increase in
working-gas capacity to 41.8 Bcf. The final phase is
scheduled for completion by mid 1995.
Capital projects also added 14 miles of transmission lines and
42 miles of gathering lines in 1994. A major increase in
gathering lines will enable Questar Pipeline to provide
service to gas producers in the Birch Creek area of
southwestern Wyoming.
The pipeline has announced plans to expand and enhance its
southern pipeline system to meet market demand for natural gas
transportation from the productive Piceance Basin in western
Colorado. The pipeline has filed a request with the FERC to
upgrade 26.4 miles of its Main Line No. 68 west of Rifle,
Colorado. An existing 10-inch line will be replaced with
14-inch to upgrade Questar Pipeline's southern system.
Construction is planned for the summer of 1995.
During 1994, the FERC authorized construction of the
TransColorado Pipeline, a proposed $184 million, 292-mile
interstate gas transmission line that will run from producing
areas and pipeline interconnects in northwest Colorado to a
gas hub in New Mexico. Questar Pipeline is a one-third
partner in the project. Additional market support is needed
before construction can begin.
Questar Pipeline's unconsolidated affiliate, Overthrust
Pipeline, has some uncertainty caused by the bankruptcy
proceedings of a partner and firm-shipper, Columbia Gas
Transmission Corporation. Columbia Gas and Overthrust have
negotiated a buyout settlement. The settlement has recently
been submitted to the bankruptcy court and the FERC for
approval.
Financing Activities
The Company funded its 1994 capital expenditures primarily
with cash provided from operations and a capital contribution.
The Company expects to finance the 1995 capital expenditure
program with cash provided from operations and borrowings from
Questar.
The Company has a short-term line-of-credit arrangement with a
bank under which it may borrow up to $200,000, below the prime
interest rate. The arrangements are renewable on an annual
basis. At December 31, 1994, no amounts were borrowed under
this arrangement. Questar loans funds to the Company under a
short-term borrowing arrangement. Outstanding short-term
notes payable to Questar totaled $14,600,000 with an interest
rate of 6.11% at December 31, 1994.
On July 1, 1994 Questar Pipeline received a $25,000,000
capital contribution from Questar.
Questar Pipeline's capital structure was 38% long-term debt
and 62% common shareholder's equity. Moody's and Standard and
Poors have rated the Company's long-term debt A1 and A+.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's financial statements are included in Part IV, Item
14, herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
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
The Company, as the wholly owned subsidiary of a reporting person,
is entitled to omit all information requested in Part III (Items 10-13).
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 on 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.*1 Agreement of Transfer among Mountain Fuel Supply Company,
Entrada Industries, Inc. and Mountain Fuel Resources, Inc.,
dated July 1, 1984. (Exhibit No. 2. to Registration
Statement No. 2-96102 filed February 27, 1985.)
3.1.* Articles of Incorporation dated January 2, 1975; Articles of
Amendment to the Articles of Incorporation dated September
14, 1976; Articles of Amendment to the Articles of
Incorporation dated May 25, 1984. (Exhibit No. 3.1. to
Registration Statement No. 2-96102 filed February 27, 1985.)
3.2.* Articles of Amendment to the Articles of Incorporation dated
March 7, 1988. (Exhibit No. 3.2. to Form 10-K Annual Report
for 1987.)
3.3.* Bylaws (as amended on August 11, 1992). (Exhibit No. 3. to
Form 10-Q Report for quarter ended June 30, 1992.)
4.1.* Indenture dated June 1, 1990, for 9-7/8% Debentures due 2020,
with Morgan Guaranty Trust Company of New York as Trustee.
(Exhibit No. 4. to Form 10-Q Report for quarter ended June
30, 1990.)
4.2.* Indenture dated as of June 1, 1991, for 9-3/8% Debentures due
June 1, 2021, with Morgan Guaranty Trust Company of New York
as Trustee. (Exhibit No. 4. to Form 10-Q Report for quarter
ended June 30, 1991.)
10.1.*1 Overthrust Pipeline Company General Partnership Agreement
dated September 20, 1979, as amended and restated as of
October 11, 1982, and as amended August 21, 1991, among CIG
Overthrust, Inc., Columbia Gulf Transmission Company;
Mountain Fuel Resources, Inc.; NGPL-Overthrust Inc.; Northern
Overthrust Pipeline Company; and Tennessee Overthrust Gas
Company. (Exhibit No. 10.4. to Form 10-K Annual Report for
1985, except that the amendment dated August 21, 1991, is
included as Exhibit No. 10.4. to Form 10-K Annual Report for
1992.)
10.2.*1 Data Processing Services Agreement effective July 1, 1985,
between Questar Service Corporation and Mountain Fuel
Resources, Inc. (Exhibit No. 10.11. to Form 10-K Annual
Report for 1988.)
10.3.2 Questar Pipeline Company Annual Management Incentive Plan, as
amended February 14, 1995.
10.4.* Partnership Agreement for the TransColorado Gas Transmission
Company effective June 30, 1990, between KN TransColorado,
Inc., Westgas TransColorado, Inc., and Questar TransColorado,
Inc. (Exhibit No. 2.8. to Form 10-Q Report for quarter ended
June 30, 1990.)
10.5.*3 Firm Transportation Service Agreement with Mountain Fuel
Supply Company under Rate Schedule T-1 dated August 10, 1993,
for a term from November 2, 1993 to June 30, 1999. (Exhibit
No. 10.5. to Form 10-K Annual Report for 1993.)
10.6.*3 Storage Service Agreement with Mountain Fuel Supply Company
under Rate Schedule FSS, for 3.5 Bcf of working gas capacity
at Clay Basin, with term a from September 1, 1993, to August
31, 2008. (Exhibit No. 10.6. to Form 10-K Annual Report for
1993.)
10.7.*3 Storage Service Agreement with Mountain Fuel Supply Company
under Rate Schedules FSS, for 3.5 Bcf of working gas capacity
at Clay Basin with a term from September 1, 1993, to August
31, 2013. (Exhibit No. 10.7. to Form 10-K Annual Report for
1993.)
10.8.2 Questar Pipeline Company Deferred Compensation Plan for
Directors, as amended and restated April 30, 1991.
10.9. Gas Gathering Agreement between Mountain Fuel Supply Company
and Questar Pipeline Company effective September 1, 1993.
22. Subsidiary Information.
25. Power of Attorney.
27. Financial Data Schedule.
*Exhibits so marked have been filed with the Securities and Exchange
Commission as part of the indicated filing and are incorporated herein
by reference.
1 The documents listed here have not been formally amended to refer to
the Company's current name. They still refer to the Company as Mountain
Fuel Resources, Inc.
2 Exhibit so marked is management contract or compensation plan or
arrangement.
3 Agreement incorporates specified terms and conditions of Questar
Pipeline's FERC Gas Tariff, First Revised Volume No. 1. The tariff
provisions are not filed as part of the exhibit, but are available upon
request.
(b) Questar Pipeline did not file a Current Report on Form 8-K during
the last quarter of 1994.
<PAGE>
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, 1994
QUESTAR PIPELINE COMPANY
SALT LAKE CITY, UTAH
<PAGE>
FORM 10-K -- ITEM 14 (a) (1) AND (2)
QUESTAR PIPELINE COMPANY
LIST OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
The following financial statements of Questar Pipeline Company are
included in Item 8:
Statements of income -- Years ended December 31, 1994, 1993
and 1992
Balance sheets -- December 31, 1994 and 1993
Statements of cash flows -- Years ended December 31, 1994,
1993 and 1992
Statements of shareholder's equity -- Years ended December
31, 1994, 1993 and 1992
Notes to financial statements
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and
therefore have been omitted.
<PAGE>
Report of Independent Auditors
Board of Directors
Questar Pipeline Company
We have audited the accompanying balance sheets of Questar Pipeline
Company as of December 31, 1994 and 1993, and the related
statements of income, shareholder's equity, and cash flows for each
of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Questar
Pipeline Company at December 31, 1994 and 1993, and the results of
its operations and its cash flows for each of the three years in
the period ended December 31, 1994, in conformity with generally
accepted accounting principles.
As discussed in Note F to the financial statements, Questar
Pipeline Company changed its method of accounting for
postemployment benefits.
ERNST & YOUNG LLP
Salt Lake City, Utah
February 10, 1995
<PAGE>
QUESTAR PIPELINE COMPANY
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
(In Thousands)
<S> <C> <C> <C>
REVENUES
From unaffiliated customers $40,412 $41,354 $34,991
From affiliates - Note G 75,196 130,274 169,595
TOTAL REVENUES 115,608 171,628 204,586
OPERATING EXPENSES
Natural gas purchases - Note G 56,022 93,024
Operating and maintenance - Note G 42,778 48,356 46,601
Depreciation 15,453 14,084 13,699
Other taxes 4,499 3,915 3,842
TOTAL OPERATING EXPENSES 62,730 122,377 157,166
OPERATING INCOME 52,878 49,251 47,420
INCOME FROM UNCONSOLIDATED
AFFILIATES 229 128 61
INTEREST AND OTHER INCOME
(EXPENSE) - Note G (1,124) (139) 1,109
DEBT EXPENSE (13,107) (13,114) (13,829)
INCOME BEFORE INCOME TAXES
AND CUMULATIVE EFFECT 38,876 36,126 34,761
INCOME TAXES - Note D 13,047 12,851 12,298
INCOME BEFORE
CUMULATIVE EFFECT 25,829 23,275 22,463
CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING FOR INCOME
TAXES - Note D (45)
NET INCOME $25,829 $23,275 $22,418
</TABLE>
See notes to financial statements.
<PAGE>
QUESTAR PIPELINE COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
December 31,
1994 1993
(In Thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and short-term investments - Note C $1,448 $1,341
Accounts receivable 13,234 5,653
Accounts receivable from affiliates 2,002 5,538
Federal income tax receivable 1,080
Inventories, at lower of average cost or market 2,583 2,394
Prepaid expenses and deposits 2,809 2,268
TOTAL CURRENT ASSETS 23,156 17,194
PROPERTY, PLANT AND EQUIPMENT
Transmission 273,673 270,343
Storage 210,162 155,414
General and intangible 39,061 36,375
Construction work in progress 11,812 29,400
615,313 561,108
Less allowances for depreciation 203,008 189,279
NET PROPERTY, PLANT AND EQUIPMENT 412,305 371,829
OTHER ASSETS
Investment in unconsolidated affiliates 7,988 7,145
Income taxes recoverable from customers - Note D 3,666 2,674
Unamortized costs of reacquired debt 3,426 3,719
Other 4,502 3,333
19,582 16,871
$455,043 $405,894
</TABLE>
<PAGE>
LIABILITIES AND SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
December 31,
1994 1993
(In Thousands)
<S> <C> <C>
CURRENT LIABILITIES
Notes payable to Questar - Notes B and C $14,600 $3,000
Accounts payable and accrued expenses
Accounts payable 9,368 8,005
Accounts payable to affiliates 1,436 1,996
Federal income taxes 242
Other taxes 1,425 1,349
Accrued interest 1,076 1,076
Total accounts payable and accrued expenses 13,305 12,668
TOTAL CURRENT LIABILITIES 27,905 15,668
LONG-TERM DEBT - Notes B and C 134,506 134,487
DEFERRED CREDITS 4,861 2,276
DEFERRED INCOME TAXES - Note D 68,814 67,335
COMMITMENTS AND CONTINGENCIES - Note E
SHAREHOLDER'S EQUITY
Common stock - par value $1 per share;
authorized 25,000,000 shares; issued
and outstanding 6,550,843 shares 6,551 6,551
Additional paid-in capital 82,034 57,034
Retained earnings 130,372 122,543
218,957 186,128
$455,043 $405,894
</TABLE>
See notes to financial statements.
<PAGE>
QUESTAR PIPELINE COMPANY
STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained
Stock Capital Earnings
(In Thousands)
<S> <C> <C> <C>
Balance at January 1, 1992 $6,551 $57,034 $108,850
1992 net income 22,418
Cash dividends (16,000)
Balance at December 31, 1992 6,551 57,034 115,268
1993 net income 23,275
Cash dividends (16,000)
Balance at December 31, 1993 6,551 57,034 122,543
Capital contribution 25,000
1994 net income 25,829
Cash dividends (18,000)
Balance at December 31, 1994 $6,551 $82,034 $130,372
</TABLE>
See notes to financial statements.
<PAGE>
QUESTAR PIPELINE COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
(In Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $25,829 $23,275 $22,418
Depreciation 17,078 15,979 15,562
Deferred income taxes 1,479 1,592 4,353
Income from unconsolidated affiliates (229) (128) (61)
Cumulative effect of change in
accounting for income taxes 45
44,157 40,718 42,317
Changes in operating assets
and liabilities
Accounts receivable (4,045) 23,815 (5,973)
Federal income taxes (1,322) (1,462) 875
Inventories (189) 25,539 (205)
Prepaid expenses and deposits (541) (75) 129
Accounts payable and accrued expenses 879 (18,466) (5,399)
Purchased-gas adjustments (3,441) 8,630
Other 736 1,920 1,105
Net cash provided from
operating activities 39,675 68,548 41,479
INVESTING ACTIVITIES
Capital expenditures
Purchase of property, plant
and equipment (57,613) (47,216) (36,555)
Other investments (614) (364) (1,383)
Total capital expenditures (58,227) (47,580) (37,938)
Proceeds from (costs of) disposition
of property, plant and equipment 59 (182) 81
Cash used in investing activities (58,168) (47,762) (37,857)
FINANCING ACTIVITIES
Capital contribution 25,000
Change in notes payable to Questar 11,600 (4,500) 7,500
Change in notes receivable from Questar 5,000
Payment of dividends (18,000) (16,000) (16,000)
Cash provided by (used in)
financing activities 18,600 (20,500) (3,500)
Change in cash and
short-term investments 107 286 122
Beginning cash and
short-term investments 1,341 1,055 933
Ending cash and short-term investments $1,448 $1,341 $1,055
</TABLE>
See notes to financial statements.
<PAGE>
QUESTAR PIPELINE COMPANY
NOTES TO FINANCIAL STATEMENTS
Note A - Summary of Accounting Policies
Business: Questar Pipeline Company (the Company or Questar
Pipeline) is a wholly-owned subsidiary of Questar Corporation
(Questar). The Company's primary activities are the
transportation, gathering and storage of natural gas. Prior to
September 1993, Questar Pipeline was also engaged in the sale for
resale of natural gas. Significant accounting policies are
presented below.
Regulation: The Company is regulated by the Federal Energy
Regulatory Commission (FERC) which establishes rates for the
transportation and storage of natural gas. The FERC also
regulates, among other things, the extension and enlargement or
abandonment of jurisdictional natural gas facilities. Regulation is
intended to permit the recovery, through rates, of the cost of
service including a rate of return on investment. The financial
statements are presented in accordance with regulatory
requirements. Methods of allocating costs to time periods, in
order to match revenues and expenses, may differ from those of
nonregulated businesses because of cost allocation methods used in
establishing rates.
Revenue Recognition: Revenues are recognized in the period that
services are provided or products are delivered. Questar Pipeline
periodically collects revenues subject to possible refunds pending
final orders from the FERC. The Company establishes reserves for
revenues collected subject to refund.
Credit Risk: The Company's primary market area is the Rocky
Mountain region of the United States. The Company's exposure to
credit risk may be impacted by the concentration of customers in
this region due to changes in economic or other conditions. The
Company's customers may be affected differently by changing
conditions. The Company believes that it has adequately reserved
for expected credit-related losses and that the carrying amount of
trade receivables approximates fair value.
Property, Plant and Equipment: Property, plant and equipment is
stated at cost. The provision for depreciation is based upon
rates, which will amortize costs of assets over their estimated
useful lives. The costs of property, plant and equipment are
depreciated in the financial statements using the straight-line
method, ranging from 3 to 33% per year and averaging 3.6% in 1994.
Investment in Unconsolidated Affiliates: The Company has an 18%
partnership interest in the Overthrust Pipeline Company which built
and operates the Overthrust Segment of the Trailblazer Pipeline
System. The Company is a one-third partner in the TransColorado Gas
Transmission Company, which plans to construct a pipeline from the
Piceance Basin in Colorado to connections with other pipelines in
northern New Mexico. The Company accounts for its investment in
these partnerships using the equity method.
Income Taxes: On January 1, 1992, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 109. The deferred tax
balances represent the temporary differences between book and
taxable income multiplied by the effective income tax rates. These
temporary differences relate primarily to depreciation. The Company
uses the deferral method to account for investment tax credits as
required by the FERC.
Reacquisition of Debt: Gains and losses on the reacquisition of
debt are deferred and amortized as debt expense over the remaining
life of the issue in order to match regulatory treatment.
Allowance for Funds Used During Construction: The Company
capitalizes the cost of capital during the construction period of
plant and equipment. This amounted to $976,000 in 1994, $856,000
in 1993, and $421,000 in 1992.
Cash and Short-Term Investments: Short-term investments consist
principally of Euro-time deposits and repurchase agreements with
maturities of three months or less.
Note B - Debt
The Company has a short-term line-of-credit arrangement with a bank
under which it may borrow up to $200,000, below the prime interest
rate. The arrangements are renewable on an annual basis. At
December 31, 1994, no amounts were borrowed under this arrangement.
Questar loans funds to the Company under a short-term borrowing
arrangement. Outstanding short-term notes payable to Questar
totaled $14,600,000 with an interest rate of 6.11% at December 31,
1994. Outstanding short-term notes payable to Questar totaled
$3,000,000 with an interest rate of 3.59% at December 31, 1993.
The details of long-term debt at December 31, were as follows:
<TABLE>
<CAPTION>
1994 1993
(In Thousands)
<S> <C> <C>
9 3/8% debentures due 2021 $85,000 $85,000
9 7/8% debentures due 2020 50,000 50,000
Total long-term debt outstanding 135,000 135,000
Less unamortized debt discount 494 513
$134,506 $134,487
</TABLE>
There are no maturities of long-term debt for the five years
following December 31, 1994. Cash paid for interest on debt was
$13,065,000 in 1994, $13,018,000 in 1993, and $13,573,000 in 1992.
Note C - Financial Instruments
The carrying amounts and estimated fair values of the Company's
financial instruments at December 31, were as follows:
<TABLE>
<CAPTION>
1994 1993
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
(In Thousands)
<S> <C> <C> <C> <C>
Financial assets
Cash and short-term investments $1,448 $1,448 $1,341 $1,341
Financial liabilities
Short-term loans 14,600 14,600 3,000 3,000
Long-term debt 134,506 134,429 134,487 163,265
</TABLE>
The Company used the following methods and assumptions in
estimating fair values: (1) Cash and short-term investments - the
carrying amount approximates fair value; (2) Short-term loans - the
carrying amount approximates fair value; (3) Long-term debt - the
fair value of long-term debt is based on quoted market prices.
Note D - Income Taxes
The Company's operations are consolidated with those of Questar and
its subsidiaries for income tax purposes. The income tax
arrangement between Questar Pipeline and Questar provides that
amounts paid to or received from Questar are substantially the same
as would be paid or received by the Company if it filed a separate
return. Questar Pipeline is also paid for tax benefits used in the
consolidated tax return even if such benefits would not have been
usable had the Company filed a separate return.
Effective January 1, 1992, the Company changed its method of
accounting for income taxes from the deferred method to the
liability method required by SFAS No. 109, Accounting for Income
Taxes. The Company did not restate prior years' financial
statements. The application of the new rules did not have a
significant impact on the 1992 income before cumulative effect.
Questar Pipeline records cumulative increases in deferred taxes as
income taxes recoverable from customers. The Company has adopted
procedures with the FERC to include under-provided deferred taxes
in customer rates on a systematic basis.
The components of income taxes charged to income for years ended
December 31, were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
(In Thousands)
<S> <C> <C> <C>
Federal
Current $10,571 $10,010 $7,352
Deferred 1,436 1,512 4,160
State
Current 997 1,249 593
Deferred 43 80 193
$13,047 $12,851 $12,298
</TABLE>
The difference between income tax expense and the tax computed by
applying the statutory federal income tax rate to income from
continuing operations before income taxes is explained as follows:
<TABLE>
<CAPTION>
1994 1993 1992
(In Thousands)
<S> <C> <C> <C>
Income before income taxes $38,876 $36,126 $34,761
Federal income taxes at statutory rate $13,607 $12,644 $11,819
State income taxes, net of federal
income tax benefit 691 892 519
Prior years' tax settlement (692)
Tax adjustment on revenues from cushion
gas transported into storage (1,245)
Other (6) 7 (40)
Income tax expense $13,047 $12,851 $12,298
Effective income tax rate 33.6% 35.6% 35.4%
</TABLE>
Significant components of the Company's deferred tax liabilities
and assets at December 31, were as follows:
<TABLE>
<CAPTION>
1994 1993
(In Thousands)
<S> <C> <C>
Deferred tax liabilities
Property, plant and equipment $64,002 $63,147
Unamortized debt reacquisition costs 1,267 1,376
Pension costs 535 398
Income taxes recoverable from customers 1,914 922
Other 3,263 2,667
Total deferred tax liabilities 70,981 68,510
Deferred tax assets 2,167 1,175
Net deferred tax liabilities $68,814 $67,335
</TABLE>
Cash paid for income taxes was $14,404,000 in 1994, $12,404,000 in
1993, and $7,146,000 in 1992.
Note E - Rate Matters, Litigation and Commitments
Under the terms of Order No. 636, Questar Pipeline is no longer
required to file rate cases every three years. However, with its
capital expenditure program, recent adoption of new accounting
rules for postemployment and postretirement costs, and loss of
interruptible transportation revenues, the Company is considering
filing a rate case in 1995.
There are various legal proceedings against the Company. While it
is not currently possible to predict or determine the outcome of
these proceedings, it is the opinion of management that the outcome
will not have a material adverse effect on the Company's results of
operations, financial position or liquidity.
Note F - Employment Benefits
Substantially all Company employees are covered by Questar's
defined benefit pension plan. Benefits are generally based on years
of service and the employee's 36-month period of highest earnings
during the ten years preceding retirement. It is Questar's policy
to make contributions to the plan at least sufficient to meet the
minimum funding requirements of applicable laws and regulations.
Plan assets consist principally of equity securities and corporate
and U.S. government debt obligations. Pension cost was $1,201,000
in 1994, $1,372,000 in 1993 and $1,259,000 in 1992.
Questar Pipeline's portion of plan assets and benefit obligations
is not determinable because the plan assets are not segregated or
restricted to meet the Company's pension obligations. If the
Company were to withdraw from the pension plan, the pension
obligation for the Company's employees would be retained by the
pension plan. At December 31, 1994, Questar's fair value of plan
assets exceeded the accumulated benefit obligation.
The Company participates in Questar's Employee Investment Plan,
which allows the majority of employees to purchase Questar stock or
other investments with payroll deductions. The Company makes
contributions to the plan of approximately 75% of the employee's
purchases. The Company's expense and contribution to the plan was
$503,000 in 1994, $483,000 in 1993 and $522,000 in 1992.
The Company participates in a Questar program that pays a portion
of the health-care costs and all the life insurance costs for
retired employees. . Questar's policy is to fund amounts allowable
for tax deduction under the Internal Revenue Code. Plan assets
consist of equity securities, corporate and U.S. government debt
obligations, and insurance company general accounts.
The Company adopted the provisions of SFAS No. 106 on Employer's
Accounting for Postretirement Benefits Other than Pensions
effective January 1, 1993. This statement requires the Company to
expense the costs of postretirement benefits, principally
health-care benefits, over the service life of employees using an
accrual method. Questar Pipeline is amortizing the transition
obligation over a 20-year period. The Company's cost of
postretirement benefits other than pensions under SFAS No. 106 was
$1,130,000 in 1994 and $1,059,000 in 1993 compared with the costs
based on cash payments to retirees plus the funding of some
benefits totaling $569,000 in 1992. The 1994 and 1993 amounts
recorded as regulatory assets were $558,000 and $487,000,
respectively. These amounts are expected to be recovered in a
future rate proceeding.
The impact of SFAS No. 106 on the Company's future net income will
be mitigated by recovery of these costs from customers. The FERC
issued an order granting rate recovery methodology for SFAS No. 106
costs to the extent that the Company contributes the amounts to an
external trust.
The Company's portion of plan assets and benefit obligations
related to postretirement medical and life insurance benefits is
not determinable because the plan assets are not segregated or
restricted to meet the Company's obligations.
The Company adopted SFAS No.112, Accounting for Postemployment
Benefits, on January 1, 1994, by establishing a liability of
$1,256,000 offset by a regulatory asset. This statement requires
the Company to recognize 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. SFAS No.112 requires the Company to
accrue both current and future costs which formerly had been
recorded when cash was paid. By December 1994 the total liability
had dropped to $450,000 as a result of designating Medicare as the
primary health care provider and increasing the discount rate from
7% to 8.5%. The Company expects to recover SFAS No. 112 costs in a
subsequent rate filing.
Note G - Related Party Transactions
The Company receives a substantial portion of its revenues from
Mountain Fuel Supply Company. Revenues received from Mountain Fuel
amounted to $70,966,000 or 61% of the total in 1994, $124,807,000
or 73% in 1993, and $161,900,000 or 79% in 1992. The Company also
received revenues from other affiliated companies totaling
$4,230,000 in 1994, $5,072,000 in 1993, and $6,730,000 in 1992.
Natural gas purchases include $4,844,000 in 1993 and $11,237,000 in
1992 from affiliated companies. The Company did not purchase gas
for resale after August 31, 1993.
Questar performs certain administrative functions for the Company.
The Company was charged for its allocated portion of these services
which totaled $3,439,000 in 1994, $3,408,000 in 1993, and
$3,260,000 in 1992. These costs are included in operating and
maintenance expenses and are allocated based on each company's
proportional share of revenues, net of gas costs; property, plant
and equipment; and payroll. Management believes that the allocation
method is reasonable.
The Company terminated an operating service agreement on July 1,
1993, with Wexpro Company (Wexpro), a wholly-owned subsidiary of
Questar. Under that agreement Wexpro operated certain gathering,
compressor, measurement and other production-related facilities
owned by the Company. Those functions were subsequently assumed by
Company employees. The Company reimbursed Wexpro's expenses with
respect to such services and paid a fee equal to 15% of such
expenses. The Company paid Wexpro $3,443,000 in 1993 and
$5,954,000 in 1992 for such services.
Questar InfoComm Inc is an affiliated company that provides data
processing and communication services to Questar Pipeline. The
Company paid Questar InfoComm $7,036,000 in 1994, $6,607,000 in
1993 and $5,979,000 in 1992.
The Company received interest income from affiliated companies of
$225,000 in 1994, $327,000 in 1993, and $740,000 in 1992. The
Company had debt expense to affiliated companies of $134,000 in
1994, $21,000 in 1993, and $39,000 in 1992.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized, on the 29th day of March, 1995.
QUESTAR PIPELINE COMPANY
(Registrant)
By /s/ A. J. Marushack
A. J. Marushack
President & 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/ A. J. Marushack President & Chief Executive Officer;
A. J. Marushack Director (Principal Executive Officer)
/s/ W. F. Edwards Vice President & Chief Financial
W. F. Edwards Officer (Principal Financial Officer)
/s/ R. P. Ord Controller & Assistant Treasurer
R. P. Ord (Principal Accounting Officer)
*R. D. Cash Chairman of the Board; Director
*W. F. Edwards Director
*U. Edwin Garrison Director
*A. J. Marushack Director
*Neal A. Maxwell Director
*Mary Mead Director
March 29, 1995 *By /s/ A. J. Marushack
Date A. J. Marushack, Attorney in Fact
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit
2.*1 Agreement of Transfer among Mountain Fuel Supply Company,
Entrada Industries, Inc. and Mountain Fuel Resources, Inc.,
dated July 1, 1984. (Exhibit No. 2. to Registration
Statement No. 2-96102 filed February 27, 1985.)
3.1.* Articles of Incorporation dated January 2, 1975; Articles of
Amendment to the Articles of Incorporation dated September
14, 1976; Articles of Amendment to the Articles of
Incorporation dated May 25, 1984. (Exhibit No. 3.1. to
Registration Statement No. 2-96102 filed February 27, 1985.)
3.2.* Articles of Amendment to the Articles of Incorporation dated
March 7, 1988. (Exhibit No. 3.2. to Form 10-K Annual Report
for 1987.)
3.3.* Bylaws (as amended on August 11, 1992). (Exhibit No. 3. to
Form 10-Q Report for quarter ended June 30, 1992.)
4.1.* Indenture dated June 1, 1990, for 9-7/8% Debentures due 2020,
with Morgan Guaranty Trust Company of New York as Trustee.
(Exhibit No. 4. to Form 10-Q Report for quarter ended June
30, 1990.)
4.2.* Indenture dated as of June 1, 1991, for 9-3/8% Debentures due
June 1, 2021, with Morgan Guaranty Trust Company of New York
as Trustee. (Exhibit No. 4. to Form 10-Q Report for quarter
ended June 30, 1991.)
10.1.*1 Overthrust Pipeline Company General Partnership Agreement
dated September 20, 1979, as amended and restated as of
October 11, 1982, and as amended August 21, 1991, among CIG
Overthrust, Inc., Columbia Gulf Transmission Company;
Mountain Fuel Resources, Inc.; NGPL-Overthrust Inc.; Northern
Overthrust Pipeline Company; and Tennessee Overthrust Gas
Company. (Exhibit No. 10.4. to Form 10-K Annual Report for
1985, except that the amendment dated August 21, 1991, is
included as Exhibit No. 10.4. to Form 10-K Annual Report for
1992.)
10.2.*1 Data Processing Services Agreement effective July 1, 1985,
between Questar Service Corporation and Mountain Fuel
Resources, Inc. (Exhibit No. 10.11. to Form 10-K Annual
Report for 1988.)
10.3.2 Questar Pipeline Company Annual Management Incentive Plan, as
amended February 14, 1995.
10.4.* Partnership Agreement for the TransColorado Gas Transmission
Company effective June 30, 1990, between KN TransColorado,
Inc., Westgas TransColorado, Inc., and Questar TransColorado,
Inc. (Exhibit No. 2.8. to Form 10-Q Report for quarter ended
June 30, 1990.)
10.5.*3 Firm Transportation Service Agreement with Mountain Fuel
Supply Company under Rate Schedule T-1 dated August 10, 1993,
for a term from November 2, 1993 to June 30, 1999. (Exhibit
No. 10.5. to Form 10-K Annual Report for 1993.)
10.6.*3 Storage Service Agreement with Mountain Fuel Supply Company
under Rate Schedule FSS, for 3.5 Bcf of working gas capacity
at Clay Basin, with term a from September 1, 1993, to August
31, 2008. (Exhibit No. 10.6. to Form 10-K Annual Report for
1993.)
10.7.*3 Storage Service Agreement with Mountain Fuel Supply Company
under Rate Schedules FSS, for 3.5 Bcf of working gas capacity
at Clay Basin with a term from September 1, 1993, to August
31, 2013. (Exhibit No. 10.7. to Form 10-K Annual Report for
1993.)
10.8.2 Questar Pipeline Company Deferred Compensation Plan for
Directors, as amended and restated April 30, 1991.
10.9. Gas Gathering Agreement between Mountain Fuel Supply Company
and Questar Pipeline Company effective September 1, 1993.
22. Subsidiary Information.
25. Power of Attorney.
27. Financial Data Schedule.
*Exhibits so marked have been filed with the Securities and Exchange
Commission as part of the indicated filing and are incorporated herein
by reference.
1 The documents listed here have not been formally amended to refer to
the Company's current name. They still refer to the Company as Mountain
Fuel Resources, Inc.
2 Exhibit so marked is management contract or compensation plan or
arrangement.
3 Agreement incorporates specified terms and conditions of Questar
Pipeline's FERC Gas Tariff, First Revised Volume No. 1. The tariff
provisions are not filed as part of the exhibit, but are available upon
request.
EXHIBIT - 10.3
QUESTAR PIPELINE COMPANY
ANNUAL MANAGEMENT INCENTIVE PLAN
(As amended effective
February 14, 1995)
Paragraph 1. Name. The name of this Plan is the Questar Pipeline
Company Annual Management Incentive Plan (the Plan).
Paragraph 2. Purpose. The purpose of the Plan is to provide an
incentive to officers and key employees of Questar Pipeline Company (the
Company) for the accomplishment of major organizational and individual
objectives designed to further the efficiency, profitability, and growth of
the Company.
Paragraph 3. Administration. The Management Performance
Committee (Committee) of the Board of Directors shall have full power and
authority to interpret and administer the Plan. Such Committee shall consist
of no less than three disinterested members of the Board of Directors.
Paragraph 4. Participation. Within 60 days after the beginning
of each year, the Committee shall nominate Participants from the officers and
key employees for such year. The Committee shall also establish a target
bonus for the year for each Participant expressed as a percentage of base
salary. Participants shall be notified of their selection and their target
bonus as soon as practicable.
Paragraph 5. Determination of Performance Objectives. Within 60
days after the beginning of each year, the Committee shall establish target,
minimum, and maximum performance objectives for the Company and for its
operating subsidiaries and shall determine the manner in which the target
bonus is allocated among the performance objectives. The Committee shall also
recommend a dollar maximum for payments to Participants for any Plan year.
The Board of Directors shall take action concerning the recommended dollar
maximum within 60 days after the beginning of the Plan year. Participants
shall be notified of the performance objectives as soon as practicable once
such objectives have been established.
Paragraph 6. Determination and Distribution of Awards. As soon
as practicable, but in no event more than 90 days after the close of each year
during which the Plan is in effect, the Committee shall compute incentive
awards for eligible participants in such amounts as the members deem fair and
equitable, giving consideration to the degree to which the Participant's
performance has contributed to the performance of the Company and its
affiliated companies and using the target bonuses and performance objectives
previously specified. Aggregate awards calculated under the Plan shall not
exceed the maximum limits approved by the Board of Directors for the year
involved. To be eligible to receive a payment, the Participant must be
actively employed by the Company or an affiliate as of the date of
distribution except as provided in Paragraph 8.
Beginning with the 1995 plan year, an assessment of individual
performance will be formally included in determining the bonus awarded to any
eligible Participant. Eligible Participants are only entitled to receive 80
percent of the bonus amounts calculated on the basis of performance objectives
The remaining 20 percent of such bonus amounts will be aggregated together in
a pool and be available for allocation among such Participants on the basis of
their individual performance.
Amounts shall be paid (less appropriate withholding taxes and FICA
deductions) according to the following schedule:
Award Distribution Schedule
Percent of
Award Date
Initial Award 75% As soon as possible after (First Year
of initial award is
Participation) determined
25 One year after initial award is
determined
100%
Subsequent Awards 50% As soon as possible after award is
determined
25 One year after award is determined
25 Two years after award is determined
100%
Paragraph 7. Restricted Stock in Lieu of Cash. For 1992 and
subsequent years, participants who have a target bonus of $10,000 or higher
shall be paid all deferred portions of such bonus with restricted shares of
the Company's common stock under the Company's Long-Term Stock Incentive Plan.
Such stock shall be granted to the participant when the initial award is
determined, but shall vest free of restrictions according to the schedule
specified above in Paragraph 6.
Paragraph 8. Termination of Employment. (a) In the event a
Participant ceases to be an employee during a year by reason of death,
disability or approved retirement, an award, if any, determined in accordance
with Paragraph 6 for the year of such event, shall be reduced to reflect
partial participation by multiplying the award by a fraction equal to the
months of participation during the applicable year through the date of
termination rounded up to whole months divided by 12.
For the purpose of this Plan, approved retirement shall mean any
termination of service on or after age 60, or, with approval of the Board of
Directors, early retirement under the Company's qualified retirement plan.
For the purpose of this Plan, disability shall mean any termination of service
that results in payments under the Company's long-term disability plan.
The entire amount of any award that is determined after the death
of a Participant shall be paid in accordance with the terms of Paragraph 11.
In the event of termination of employment due to disability or
approved retirement, a Participant shall be paid the undistributed portion of
any prior awards in his final paycheck or in accordance with the terms of
elections to voluntarily defer receipt of awards earned prior to February 12,
1991, or deferred under the terms of the Company's Deferred Compensation Plan.
In the event of termination due to disability or approved retirement, any
shares of common stock previously credited to a Participant shall be
distributed free of restrictions as of the final date of employment. The
current market value (defined as the closing price for the stock on the New
York Stock Exchange on the date in question) of such shares shall be included
in the Participant's final paycheck. Such Participant shall be paid the full
amount of any award (adjusted for partial participation) declared subsequent
to the date of such termination within 30 days of the date of declaration.
Any partial payments shall be made in cash.
(b) In the event a Participant ceases to be an employee during a
year by reason of a change of control, he shall be entitled to receive all
amounts deferred by him prior to February 12, 1991, or under the terms of the
Company's Deferred Compensation Plan, and all undistributed portions for prior
Plan years. He shall also be entitled to an award for the year of such event
as if he had been an employee throughout such year. The entire amount of any
award for such year shall be paid in a lump sum within 60 days after the end
of the year in question. Such amounts shall be paid in cash.
For the purpose of this Plan, a "change of control" shall be
defined as (i) any person (as such term is used in Sections 13(d) and 14(d) of
the Act is or becomes the beneficial owner (as such term is used in Rule 13d-3
under the Act) of securities of the Company representing 20% or more of the
combined voting power of the Company, or (ii) the stockholders of the Company
approve (A) a plan of merger or consolidation of the Company (unless,
immediately following consummation of such merger or consolidation, the
persons who held the Company's voting securities immediately prior to
consummation thereof will hold at least a majority of the total voting power
of the surviving or new company), or (B) a sale or disposition of all or
substantially all assets of the Company, or (C) plan of liquidation or
dissolution of the Company.
A change of control shall also include any act or event that, with
the passage of time, would result in a Distribution Date, within the meaning
of the Rights Agreement dated as of March 14, 1986, and as amended on May 16,
1989, between the Company and Morgan Guaranty Trust Company of New York.
Paragraph 9. Interest on Previously Deferred Amounts. Amounts
voluntarily deferred prior to February 12, 1991, shall be credited with
interest from the date the payment was first available in cash to the date of
actual payment. Such interest shall be calculated at a monthly rate using the
typical rates paid by major banks on new issues of negotiable Certificates of
Deposit in the amounts of $1,000,000 or more for one year as quoted in The
Wall Street Journal on the first day of the relevant calendar month or the
next preceding business day if the first day of the month is a non-business
day.
Paragraph 10. Coordination with Deferred Compensation Plan. Some
Participants are entitled to defer the receipt of their cash bonuses under the
terms of the Questar Corporation's Deferred Compensation Plan, which became
effective November 1, 1993. Any cash bonuses deferred pursuant to the
Deferred Compensation Plan shall be accounted for and distributed according to
the terms of such plan and the choices made by the Participant.
Paragraph 11. Death and Beneficiary Designation. In the event of
the death of a Participant, any undistributed portions of prior awards shall
become payable. Amounts previously deferred by the Participant, together with
credited interest to the date of death, shall also become payable. Each
Participant shall designate a beneficiary to receive any amounts that become
payable after death under this Paragraph or Paragraph 8. In the event that no
valid beneficiary designation exists at death, all amounts due shall be paid
as a lump sum to the estate of the Participant. Any shares of restricted
stock previously credited to the Participant shall be distributed to the
Participant's beneficiary or, in the absence of a valid beneficiary
designation, to the Participant's estate, at the same time any cash is paid.
Paragraph 12. Amendment of Plan. The Company's Board of
Directors, at any time, may amend, modify, suspend, or terminate the Plan, but
such action shall not affect the awards and the payment of such awards for any
prior years. The Company's Board of Directors cannot terminate the Plan in
any year in which a change of control has occurred without the written consent
of the Participants. The Plan shall be deemed suspended for any year for
which the Board of Directors has not fixed a maximum dollar amount available
for award.
Paragraph 13. Nonassignability. No right or interest of any
Participant under this Plan shall be assignable or transferable in whole or in
part, either directly or by operation of law or otherwise, including, but not
by way of limitation, execution, levy, garnishment, attachment, pledge,
bankruptcy, or in any other manner, and no right or interest of any
Participant under the Plan shall be liable for, or subject to, any obligation
or liability of such Participant. Any assignment, transfer, or other act in
violation of this provision shall be void.
Paragraph 14. Effective Date of the Plan. The Plan shall be
effective with respect to the fiscal year beginning January 1, 1984, and shall
remain in effect until it is suspended or terminated as provided by Paragraph
12.
EXHIBIT - 10.8
QUESTAR PIPELINE COMPANY
DEFERRED COMPENSATION PLAN FOR DIRECTORS
(As Amended and Restated April 30, 1991)
1. Purpose of Plan.
The purpose of the Deferred Compensation Plan for Directors
("Plan") is to provide Directors of Questar Pipeline Company (the
"Company") with an opportunity to defer compensation paid to them for
their services as Directors of the Company and to maintain a Deferred
Account Balance until they cease to serve as Directors of the Company or
its affiliates.
2. Eligibility.
Subject to the conditions specified in this Plan or otherwise set
by the Company's Board of Directors, all voting Directors of the Company
who receive compensation for their service as Directors are eligible to
participate in the Plan. Eligible Directors are referred to as
"Directors." Directors who elect to defer receipt of fees or who have
account balances are referred to as "Participants" in this Plan.
3. Administration.
The Company's Board of Directors shall administer the Plan and
shall have full authority to make such rules and regulations deemed
necessary or desirable to administer the Plan and to interpret its
provisions.
4. Election to Defer Compensation.
(a) Time of Election. A Director can elect to defer future
compensation or to change the nature of his election for future
compensation by submitting a notice prior to the beginning of the
calendar year. A newly elected Director is entitled to make a choice
within five days of the date of his election or appointment to serve as
a Director to defer payment of compensation for future service. An
election shall continue in effect until the termination of the
Participant's service as a Director or until the end of the calendar
year during which the Director serves written notice of the
discontinuance of his election.
All notices of election, change of election, or discontinuance of
election shall be made on forms prepared by the Corporate Secretary and
shall be dated, signed, and filed with the Corporate Secretary. A
notice of change of election or discontinuance of election shall operate
prospectively from the beginning of the calendar year, but any
compensation deferred shall continue to be held and shall be paid in
accordance with the notice of election under which it was withheld.
(b) Amount of Deferral. A Participant may elect to defer
receipt of all or a specified portion of the compensation payable to him
for serving as a Director and attending Board and Committee Meetings as
a Director. For purposes of this Plan, compensation does not include
any funds paid to a Director to reimburse him for expenses.
(c) Period of Deferral. When making an election to defer all or
a specified percentage of his compensation, a Participant shall elect to
receive the deferred compensation in a lump sum payment within 45 days
following the end of his service as a Director or in a number of annual
installments (not to exceed four), the first of which would be payable
within 45 days following the end of his service as a Director with each
subsequent payment payable one year thereafter. Under an installment
payout, the Participant's first installment shall be equal to a fraction
of the balance in his Deferred Compensation Account as of the last day
of the calendar month preceding such payment, the numerator of which is
one and the denominator of which is the total number of installments
selected. The amount of each subsequent payment shall be a fraction of
the balance in the Participant's Account as of the last day of the
calendar month preceding each subsequent payment, the numerator of which
is one and the denominator of which is the total number of installments
elected minus the number of installments previously paid. The term
"balance," as used herein, refers to the amount credited to a
Participant's Account or to the Fair Market Value (as defined in Section
5 (a)) of the Phantom Shares of Questar Corporation's common stock
("Common Stock") credited to his Account.
(d) Phantom Stock Option and Certificates of Deposit Option.
When making an election to defer all or a specified percentage of his
compensation, a Participant shall choose between two methods of
determining earnings on the deferred compensation. He may choose to
have such earnings calculated as if the deferred compensation had been
invested in Common Stock at the Fair Market Value (as defined in Section
5 (a)) of such stock as of the date such compensation amount would have
otherwise been payable to him ("Phantom Stock Option"). Or he may
choose to have earnings calculated as if the deferred compensation had
been invested in negotiable certificates of deposit at the time such
compensation would otherwise be payable to him ("Certificates of Deposit
Option").
The Participant must choose between the two options for all of the
compensation he elects to defer in any given year. He may change the
option for future compensation by filing the appropriate notice with the
Corporate Secretary before the first day of each calendar year, but such
change shall not affect the method of determining earnings for any
compensation deferred in a prior year.
5. Deferred Compensation Account.
A Deferred Compensation Account ("Account") shall be established
for each Participant.
(a) Phantom Stock Option Account. If a Participant elects the
Phantom Stock Option, his Account will include the number of shares and
partial shares of Common Stock (to four decimals) that could have been
purchased on the date such compensation would have otherwise been
payable to him. The purchase price for such stock is the Fair Market
Value of such stock, i.e., the closing price of such stock as reported
on the Composite Tape of the New York Stock Exchange for such date or
the next preceding day on which sales took place if no sales occurred on
the actual payable date.
The Participant's Account shall also include the dividends that
would have become payable during the deferral period if actual purchases
of Common Stock had been made, with such dividends treated as if
invested in Common Stock as of the payable date for such dividends.
(b) Certificates of Deposit Option Account. If a Participant
elects the Certificates of Deposit Option, his Account will be credited
with any compensation deferred by the Participant at the time such
compensation would otherwise be payable and with interest calculated at
a monthly rate using the typical rates paid by major banks on new issues
of negotiable Certificates of Deposit on amounts of $1,000,000 or more
for one year as quoted in The Wall Street Journal under "Money Rates" on
the first day of the relevant calendar month or the next preceding
business day if the first day of the month is a non-business day. The
interest credited to each Account shall be based on the amount held in
the Account at the beginning of each particular month.
6. Statement of Deferred Compensation Account.
Within 45 days after the end of the calendar year, a statement
will be sent to each Participant listing the balance in his Account as
of the end of the year.
7. Retirement
Upon retirement or resignation as a Director from the Board of
Directors, a Participant shall receive payment of the balance in his
Account in accordance with the terms of his prior instructions and the
terms of the Plan unless he is still serving as a voting director of
Questar Corporation ("Questar"). Upon retirement or resignation as a
Director of Questar or upon appointment as a non-voting Senior Director
of Questar, a Participant shall receive payment of the balance in his
Account in accordance with the terms of his prior instructions and the
terms of the Plan unless he is currently serving as a Director of the
Company.
8. Payment of Deferred Compensation.
(a) Phantom Stock Option. The amount payable to the Participant
choosing the Phantom Stock Option shall be the cash equivalent of the
stock using the Fair Market Value of such stock on the date of
withdrawal.
(b) Certificates of Deposit Option. The amount payable to the
Participant choosing the Certificate of Deposit Option shall include the
interest on all sums credited to the Account, with such interest
credited to the date of withdrawal.
(c) The date of withdrawal for both the Phantom Stock Option
Account and the Certificates of Deposit Option Account shall be the last
day of the calendar month preceding payment or if payment is made
because of death, the date of death.
(d) The payment shall be made in the manner (lump sum or
installment) chosen by the Participant. In the event of a Participant's
death, payment shall be made within 45 days of the Participant's death
to the beneficiary designated by the Participant or, in the absence of
such designation, to the Participant's estate.
9. Hardship Withdrawal.
Upon petition to and approval by the Company's Board of Directors,
a Participant may withdraw all or a portion of the balance in his
Account in the case of financial hardship in the nature of an emergency,
provided that the amount of such withdrawal cannot exceed the amount
reasonable necessary to meet the financial hardship. The Board of
Directors shall have sole discretion to determine the circumstances
under which such withdrawals are permitted.
10. Amendment and Termination of Plan
The Plan may be amended, modified or terminated by the Company's
Board of Directors. No amendment, modification, or termination shall
adversely affect a Participant's rights with respect to amounts accrued
in his Account. In the event that the Plan is terminated, the Board has
the right to make lump sum payments of all Account balances on such date
as it may determine.
11. Nonassignability of Plan.
The right of a Participant to receive any unpaid portion of his
Account shall not be assigned, transferred, pledged or encumbered or be
subject in any manner to alienation or attachment.
12. No Creation of Rights.
Nothing in this Plan shall confer upon any Participant the right
to continue as a Director. The right of a Participant to receive any
unpaid portion of his Account shall be an unsecured claim against the
general assets and will be subordinated to the general obligations of
the Company.
13. Effective Date.
The Plan was effective on September 1, 1982, and shall remain in
effect until it is discontinued by action of the Company's Board of
Directors. The effective date of the amendment to the Plan establishing
a Phantom Stock Option is January 1, 1983. The effective date of the
amended and restated Plan is April 30, 1991.
EXHIBIT - 10.9
GAS GATHERING AGREEMENT
This Agreement is entered into on this 11th day of October 1993,
between Mountain Fuel Supply Company (Mountain Fuel), 180 East First South
Street, Salt Lake City, Utah 84111, and Questar Pipeline Company
(Questar), 79 South State Street, Salt Lake City, Utah 84111. Mountain
Fuel and Questar are collectively referred to as the Parties.
The Parties represent that:
On October 14, 1982, Mountain Fuel, Wexpro Company, the Utah Divi-
sion of Public Utilities, the Utah Committee of Consumer Services and the
Staff of the Public Service Commission of Wyoming entered into an agree-
ment (the Wexpro Agreement) that provides for the operation and develop-
ment of certain oil-and-gas properties previously owned by Mountain Fuel
and Wexpro Company.
Pursuant to the provisions of the Wexpro Agreement, Mountain Fuel
owns or has the right to purchase certain supplies of natural gas that are
produced by Wexpro Company.
Mountain Fuel requires that certain of this Wexpro Agreement produc-
tion be gathered and transported from points at which it is made available
or produced to Mountain Fuel's retail distribution facilities.
Questar currently provides gas-gathering services for Mountain Fuel
for certain Wexpro Agreement gas in part pursuant to a Gas Gathering
Agreement, dated July 1, 1984.
Up through August 31, 1993, Mountain Fuel purchased gas from Questar
under Questar's FERC firm sales Rate Schedule CD-1. This service incorpo-
rated, among other things, the field gathering of certain gas supplies by
Questar that were necessary to support firm sales service to Mountain
Fuel. In partial support of its contractual obligation to provide CD-1
sales service, Questar has built or acquired, and maintains and operates,
a gathering system that is contiguous to its interstate transmission
system.
Pursuant to Questar's FERC gas tariff, firm sales service was pro-
vided to Mountain Fuel under two Rate Schedule CD-1 service agreements
executed by Mountain Fuel and Questar on March 1, 1991, and amended as of
December 1, 1992, with a primary term that was to expire on June 30, 1999.
Pursuant to Federal Energy Regulatory Commission (FERC) Order No.
636 and related FERC orders, Questar submitted a comprehensive restructur-
ing of its transportation, storage and gathering operations in FERC Docket
No. RS92-9. Under the restructuring, approved by the FERC in Docket No.
RS92-9, Questar has (a) restructured its various services, and (b) termi-
nated its sales function by assigning to Mountain Fuel all the gas pur-
chase agreements that supported Rate Schedule CD-1 sales service. 64 FERC
61,157 (Aug. 2, 1993).
As a result of Questar's restructuring, described above, Mountain
Fuel requires gathering services to transport gas purchased by Mountain
Fuel from its purchase points to points on Questar's transmission system.
Pursuant to the Docket No. RS92-9 restructuring, Questar transports
Mountain Fuel's gas on its transmission system under its FERC Gas Tariff.
Questar and Mountain Fuel wish to enter into a new agreement, under
which Questar will gather designated Wexpro Agreement gas and Mountain
Fuel-purchased gas, including certain gas that formerly supported the Rate
Schedule CD-1 sales service. This Agreement is intended to replace the
July 1, 1984, Gas Gathering Agreement and the gathering services formerly
provided under Rate Schedule CD-1.
Therefore, the Parties agree as follows:
Article I Dedication
Except as limited in I(b) and I(d), the following categories of
gas are dedicated under this Agreement, up to a combined maximum daily
quantity (MDQ) of 322,812 Dth: gas purchased by or produced for Mountain
Fuel pursuant to the Wexpro Agreement, and gas purchased by Mountain Fuel
at the wellhead or any other point on or near Questar's gathering system
that is upstream from the interstate transmission system into which the
gas will be delivered for Mountain Fuel's account.
The Parties acknowledge that Questar does not provide exclusive
service to Mountain Fuel in certain fields. Excluded from dedication
under this Agreement, at Mountain Fuel's discretion, is gas from (i)
wells, producing at the initial effective date [defined in IV(a)] and
gathered exclusively through facilities not owned by Questar, or (ii)
wells completed in the future that would require reimbursement when evalu-
ated under the criteria described in III(c) of this Agreement.
Subject to the physical and contractual limitations of Questar's
system, Mountain Fuel may adjust its MDQ to reflect its anticipated 12-
month service requirement upon at least 180 days' advanced written notice
to Questar to be effective the next September 1. Any reduction under this
provision will be effective no sooner than September 1, 1997.
After August 31, 1997, gas produced for or purchased by Mountain
Fuel under the Wexpro Agreement will remain subject to the terms of this
Agreement. In addition, any gas being purchased by Mountain Fuel from a
third party and dedicated to this Agreement under I(a)(2) on August 31,
1997, may, at Mountain Fuel's option, continue to be dedicated under this
Agreement from year to year (September 1 through August 31) until Mountain
Fuel's underlying gas-purchase agreement expires or until Mountain Fuel,
on 180 days' prior written notice, terminates dedication on the next
August 31. The MDQ for use under this Agreement shall be accordingly
modified to reflect the demonstrated deliverability of Wexpro Agreement
gas and such third-party purchases.
Article II Gathering Service, Receipts and Deliveries
Questar shall gather up to the MDQ of 322,812 Dth/day of gas dedi-
cated under this Agreement on a firm basis for delivery for Mountain
Fuel's account into Questar's transmission system or the pipelines of
others connected to Questar's gathering facilities.
The gathering service shall include essential wellhead gas condi-
tioning, collection and measurement through Questar's gathering laterals,
and field compression to enable delivery into connected pipelines.
At the request of Mountain Fuel, Questar shall install all necessary
facilities to connect any new well to Questar's then-existing gathering
system. If requested, Questar shall provide an estimate of the costs to
connect any new well under this Agreement. Reimbursement of Questar's
costs, if any, shall be determined under III(c). A new well is one that
was not identified on Appendix A on the initial effective date. Except
when prevented by a force majeure event, Questar shall connect each new
well from which gas is to be gathered under this Agreement within 30 days
of the later of:
Authorization from Mountain Fuel to connect the well, or
Receipt of all rights of way, permits and necessary authoriza-
tions.
Mountain Fuel shall be permitted to change or add new receipt and
delivery points, within its MDQ, upon 10 days' advance written notifica-
tion to Questar, subject to available capacity at the desired points.
Questar shall receive gas from Mountain Fuel at the receipt points
listed on Appendix A.
So long as Mountain Fuel does not exceed the MDQ under II(a), Moun-
tain Fuel may use any gathering receipt or delivery point on an
interruptible basis at any time.
Mountain Fuel shall tender gas at pressures sufficient for delivery
into Questar's facilities against the existing pressures, but not exceed-
ing the maximum allowable operating pressures (MAOPs) of Questar's facili-
ties.
Questar shall deliver equivalent quantities of gas for Mountain
Fuel's account, less fuel and lost-and-unaccounted-for gas under 6 of the
General Terms and Conditions of this Agreement. Delivery for Mountain
Fuel's account by Questar shall take place at the delivery points listed
on Appendix A. Questar shall deliver these volumes of gas at the existing
pressures, but not exceeding the MAOP in Questar's facilities at the
delivery points.
Article III Gathering Charges, Reimbursements and Credits
Gathering Rates.
Through August 31, 1995. From the initial effective date of
this Agreement until August 31, 1995, rates for gathering services and
their derivation are set forth in Appendix B and were calculated on the
basis of:
The annual cost of service assigned to Questar's
gathering function for calendar year 1992, as ad-
justed to establish rates in FERC Docket No. RS92-
9, and reduced by $2.5 million, which is represen-
tative of the value of gathering service rendered
by Questar to third parties.
An assignment of 60% of the resultant annual gath-
ering cost of service to reservation charges and
40% to usage charges.
Billing determinants. Reservation charges:
322,812 Dth/day. Usage charges: 30,336,677 Dth
(annual).
September 1, 1995 - August 31, 1997. For the period from
September 1, 1995, through August 31, 1997, rates will be determined by an
application of the methodology shown in Appendix B and will be based on:
The annual cost of service attributable to
Questar's gathering function for calendar year
1994, reduced by the actual revenues received by
Questar for providing gathering services to third
parties during 1994, and adjusted in accordance
with 1 of Appendix B.
An assignment of 60% of the resultant annual gath-
ering cost of service to reservation charges and
40% to usage charges.
Billing determinants. Reservation charge:
322,812 Dth/day, unless adjusted under I(c). Us-
age charge: the actual quantity gathered under
this Agreement during calendar 1994.
After August 31, 1997. From September 1, 1997, until the
termination of this Agreement, rates will be redetermined each year, to be
effective from September 1 through the following August 31, and will be
based on:
An allocated portion of the annual cost of service
for the prior calendar year that is attributable
to Questar's gathering function through which any
gas dedicated under I(d) flows during that year,
in accordance with the methodology shown in Appen-
dix B. The allocation under this subparagraph
shall be the ratio of the annual deliverability of
the volumes dedicated and flowing under I(d) to
total deliverability of volumes flowing through
the same facilities.
An assignment of 60% of the resultant annual gath-
ering cost of service to reservation charges and
40% to usage charges.
Billing determinants. Reservation charge: ac-
cording to the MDQ established under I(d). Usage
charge: the actual quantity gathered under this
Agreement during the prior calendar year.
Independent Facilities. Questar may construct new gathering facili-
ties that will be operated independently of systems in operation on the
initial effective date (i.e., facilities through which gas will flow that
do not require the use of any part of Questar's gathering system as it
existed on the initial effective date). To the extent these facilities
are not operated to provide service for Mountain Fuel, the costs and
revenues associated with or derived from these systems shall be excluded
when determining Mountain Fuel's gathering rates under this Agreement.
New Well Connection Reimbursement. For any new well to be connected
to Questar's gathering system at Mountain Fuel's request under this Agree-
ment that was not subject to this Agreement on the initial effective date,
Mountain Fuel shall reimburse Questar according to the formula set forth
in Appendix C of this Agreement.
Article IV Effective Date and Term
For all purposes in this Agreement, the initial effective date is
September 1, 1993, the date of implementation of Questar's restructuring
in FERC Docket No. RS92-9.
This Agreement will become effective on the initial effective date
and will remain in full force and effect so long as Mountain Fuel is
producing or purchasing gas pursuant to the Wexpro Agreement.
Upon termination of this Agreement, deliveries and receipts shall
continue for as long as necessary to eliminate any imbalance in quantities
of gas owed by either Party to the other.
Article V 1984 Gas Gathering Agreement
Upon implementation of the terms of this Agreement on the initial
effective date, the July 1, 1984, Gas Gathering Agreement shall be termi-
nated and superseded by this Agreement.
Article VI Government Authorization
The Parties shall cooperate to obtain any necessary governmental
authorization to implement this Agreement. To the extent that a govern-
mental agency with jurisdiction over the rates, facilities or services
addressed by this Agreement imposes terms or conditions on this Agreement
that materially alter the rights or obligations of either party, this
Agreement may be terminated or rescinded, as appropriate, by either party
upon 15 days' written notice to the other party.
The Parties have entered into this Agreement with the expectation
that the facilities, services and rates that are the subject of this
Agreement do not come within the jurisdiction of the FERC. The Parties
may, however, seek FERC approval of all or part of the Agreement to expe-
dite its implementation. Any such action by the Parties will not be
construed as a concession, acquiescence or waiver by either party of any
legal position concerning the regulation of gathering facilities, service
or rates.
If the rates for Questar's gathering services are deemed to be
subject to regulation by an administrative agency that prescribes rates
other than those specified in this Agreement for any period governed by
this Agreement, the rates so specified shall be substituted for the rates
provided for in Article III. Any substitution under this provision will
apply only to the extent that, and for the period during which, the admin-
istrative agency lawfully exercises rate regulation over the services.
Nothing in this provision will preclude either party from exercising its
termination rights under VI(a).
Article VII Notices
All notices required in this agreement shall be in writing and shall
be considered as having been given if delivered personally, by mail or
facsimile transmission to either Questar or Mountain Fuel at the designat-
ed address. Normal operating instructions can be delivered by telephone
or any electronic means. Notice of events of force majeure may be made by
any electronic means and confirmed in writing. Monthly statements, pay-
ments, and any communications will be considered as delivered when mailed
to the addresses listed below or to such other address as either Party
designates in writing:
Questar: Mountain Fuel:
Contract Administrator Vice President, Gas Supply
Gathering Division Mountain Fuel Supply Company
Questar Pipeline Company 141 East First South Street
79 South State Street Salt Lake City, Utah 84111
Salt Lake City, Utah 84111
This Agreement is entered into by the authorized representatives of
the Parties, whose signatures appear below.
Questar Pipeline Company: Mountain Fuel Supply Company:
/s/ J. B. Carricaburu /s/ M. E. Benefield
J. B. Carricaburu M. E. Benefield
Vice President, Gas Supply Vice President, Gas Supply
and Marketing
Signature date: Oct. 12, 1993 Signature date: Oct. 12, 1993
General Terms and Conditions
OF
Gas Gathering Agreement
Definitions
Firm, as applied to service under this Agreement, refers to Questar's
contractual obligation to render the specified service unless the obliga-
tion is otherwise waived, reduced, modified or terminated by force-majeure
events.
Interruptible means subject to reduction, suspension or termination of
the receipt or delivery of gas.
Questar's gathering system refers to all facilities owned or operated
by Questar for the purposes of conveying natural gas on all or a portion
of its movement from the production of the gas at the wellhead to the
delivery of the gas into a pipeline that provides transportation of the
gas in interstate commerce, as defined under 1 of the Natural Gas Act.
Questar's FERC Gas Tariff Vol. No. 1, as amended and revised from time
to time, will be used to define terms that are otherwise not defined in
this Agreement.
Scheduling of Gas Receipts and Deliveries
Scheduling. (All times are Mountain Standard or Daylight Time, as
applicable.) If Mountain Fuel desires to have gas gathered on gas day one
of each month, Mountain Fuel must notify Questar's nomination department
no later than 10:00 a.m. three working days prior to the commencement of
service. For all succeeding days of the month, Mountain Fuel shall notify
Questar's nomination department no later than 10:00 a.m. each day of the
quantity of natural gas it desires to have gathered from specific sources
and receipt points commencing at 12:00 noon on the succeeding calendar
day.
By electronic means or in writing by 12:00 noon of the nomination day,
Questar shall then notify Mountain Fuel of the quantity that it can re-
ceive and deliver. Starting no later than 12:00 noon on the day following
the calendar day of receipt of Mountain Fuel's nomination, Questar shall
commence to deliver an equivalent volume of natural gas. All scheduling
of deliveries of gas between Mountain Fuel and Questar shall take this
scheduled timing difference into account. Upon written agreement or
telephone agreement (to be confirmed in writing) between Questar and
Mountain Fuel, receipts and deliveries may commence earlier than provided
by this schedule.
In connection with service provided to Mountain Fuel under Questar's
FERC Rate Schedule NNT (no-notice service), Mountain Fuel may modify its
nominations under this 2 at any time.
Operating Information and Estimates. Upon request of Questar, Mountain
Fuel shall from time to time submit its best estimates of the daily,
monthly and annual quantities of gas it expects to be gathered, together
with such other operating data as Questar may require in order to schedule
its operations.
Operating Requirements.
Mountain Fuel shall use reasonable efforts to deliver and receive
gas at uniform hourly and daily rates of flow.
Mountain Fuel shall deliver gas to Questar at the receipt points at
a pressure sufficient to allow the gas to enter Questar's gathering sys-
tem. Questar shall not be required to compress natural gas into its
system. If requested by Questar, Mountain Fuel shall provide equipment
acceptable to Questar at each receipt point to prevent overpressuring
Questar's system.
Questar shall deliver gas at each transfer point to the receiving
party at the pressure in Questar's system after required measurement, flow
control or regulation.
Limitations On Questar's Gathering Obligations.
On any day, Questar shall not be obligated to deliver to Mountain
Fuel a quantity of gas different from the equivalent volume received from
Mountain Fuel during the same day, as adjusted under 6 below.
For gathering service provided under this Agreement, Questar shall
not be obligated to receive from or deliver to Mountain Fuel a quantity of
gas in excess of the MDQ, unless Mountain Fuel has requested and Questar
has agreed to provide overrun service.
Warranty
Mountain Fuel warrants title to and the right to deliver and use the
gas shipped or committed to use under this Agreement and further warrants
that the gas is free from all liens and adverse claims, including tax
liens. Mountain Fuel will have the obligation to make settlements for all
royalties due and payments owed to Mountain Fuel's mineral and royalty
owners. Mountain Fuel agrees to indemnify Questar and save it harmless
from all suits, actions, claims, debts, accounts, damages, costs, losses,
liens, license fees, and expenses which arise from Mountain Fuel's owner-
ship or control of the gas.
Quality
Questar may refuse to receive gas from Mountain Fuel if the gas does
not meet the quality specifications of the party to whom the gas is to be
delivered (including the interstate transmission facilities of Questar)
for the following: hydrogen sulfide and other forms of sulfur; inert
substances; liquids; dust, gums, gum-forming constituents, dirt, impuri-
ties or other solid or liquid matter that might interfere with the mer-
chantability of the gas; oxygen; or water vapor.
The gas tendered to Questar at each receipt point shall contain a gross
heating value of at least 950 Btu per cubic foot.
The gas tendered to Questar at each receipt point shall be at a temper-
ature between 35 degrees F. and 120 degrees F.
If the gas tendered to Questar under this Agreement fails to meet the
specifications, as described in 4.1, 4.2 and 4.3, Questar shall notify
Mountain Fuel and may, at its option, refuse to accept further receipt of
gas pending correction.
Mountain Fuel shall indemnify Questar and hold it harmless from all
suits, actions, regulatory proceedings, damages, costs, losses and expens-
es (including reasonable attorney fees) arising out of the failure of the
gas tendered by Mountain Fuel to conform to the quality specifications,
including any injury or damage done to Questar's facilities.
Acceptance of gas that does not meet quality specifications is at
Questar's option. Acceptance of the gas does not constitute any waiver of
Questar's right to refuse to accept similarly nonconforming gas.
Measurement
The volumes of gas delivered to Questar by Mountain Fuel shall be
measured by Questar according to its current FERC tariff. The meters
shall be installed and tested and any discrepancies in the volumes mea-
sured shall be resolved according to Questar's current FERC tariff.
All claims of any party as to the quantity of gas tendered and deliv-
ered must be submitted in writing by the party within 180 days from the
date of commencement of the claimed discrepancy.
Either party may, at its option and expense, install and operate check
measuring equipment, provided that the equipment is installed in a way
that does not interfere with the operations of the other party. However,
measurement of gas for the purpose of this Agreement shall be measured
under 5.1. Either party's check meters will be subject at all reasonable
times to inspection and examination by a representative of the other
party, but the reading, calibration, adjustment, and changing of charts
will be done only by the party installing the check meters.
Each party shall, upon request, furnish to the other party at the
earliest possible time all charts upon which it has based any statement.
Each party shall return to the other party all charts after a 30-day
period. Each party shall have access to the other party's records and
books at all reasonable business hours so far as they affect measurement
and settlement for the gas received or delivered.
Questar shall integrate the charts and data obtained by the metering
and measurement of the gas gathered under this Agreement. Upon written
request, Questar shall furnish Mountain Fuel copies of measurement charts
used in compiling any monthly statements. Mountain Fuel may compute the
volume of gas from Questar's charts and data. If Mountain Fuel's computa-
tion of the volume of gas varies from Questar's computation by less than
the greater of 2% or 50 Dth, Questar's computation will be deemed correct.
If Mountain Fuel's computation differs from Questar's by more than the
greater of 2% or 50 Dth, then Questar shall reintegrate and redetermine
the volume of gas purchased. If Questar's second computation varies from
Mountain Fuel's computation by less than the greater of 2% or 50 Dth,
Mountain Fuel's computation will be deemed correct. However, if Questar's
second computation still varies from Mountain Fuel's computation by more
than the greater of 2% or 50 Dth, then Questar's initial computation will
be deemed correct.
Fuel Gas Reimbursement
Fuel Reimbursement. For all gas tendered by Mountain Fuel under this
Agreement, Mountain Fuel shall reimburse Questar with gas provided in-kind
for:
The actual fuel used to treat or condition the gas to permit
compliance with any quality requirements under 4 and compressor fuel
required to effect receipt or delivery of the gas, and
Mountain Fuel's proportionate share of lost-and-unaccounted-
for gas on Questar's gathering system.
Nomination Adjustment. Mountain Fuel's total nominations into
Questar's gathering system must include the amount of gas required to
reimburse Questar for fuel use and lost-and-unaccounted-for gas.
Billing and Payment
Monthly Bill.
On the 20th day of each month, Questar shall bill Mountain Fuel any
applicable reservation charges for the current month.
By the 25th day of each month, Questar shall bill Mountain Fuel
usage charges for all volumes of gas gathered for delivery during the
immediately previous month as well as any other applicable charges. If
actual quantities are not reasonably available, Questar may use estimates
of the quantity of gas gathered for Mountain Fuel in computing the amounts
due. Any necessary adjustment shall be made in later billings for differ-
ences between the estimated and actual quantities.
Access to Billing Data. Both Parties will have the right to examine at
reasonable times books, records and charts of the other to the extent
necessary to verify the accuracy of any statement, charge or computation
made under or pursuant to any of the provisions of such statement.
Payment. Mountain Fuel shall pay Questar on or before the last day of
each month or within 10 days of the date the bill is received by Mountain
Fuel under this section, whichever is later.
Late Payments.
Should Mountain Fuel fail to make timely payment of any part of the
amount of any bill, the unpaid amount will be deemed late, and Questar
shall charge interest from the date payment is due until the actual date
of receipt of payment. The interest will be compounded quarterly until
paid.
Interest will be calculated at the rate prescribed for the applica-
ble period by 18 C.F.R. 154.67(c).
Questar shall bill Mountain Fuel for any interest due in its next
billing to Mountain Fuel, and Mountain Fuel shall pay the amount due
according to this section. Questar may waive the interest on late payment
made within five days of the due date. If an uncontested bill remains
unpaid for 30 days or more after payment is due, Questar, in addition to
any other remedy it may have, may, after giving Mountain Fuel 15 days'
written notice, suspend further receipt and delivery of gas for Mountain
Fuel until full payment for all service rendered to date is made.
Contested Bills. Any billing or statement may be contested within 180
days from its receipt by Mountain Fuel. If Mountain Fuel (i) contests all
or any part of a bill in good faith, (ii) pays to Questar the amounts it
concedes to be correct, and (iii) within 30 days of a demand made by
Questar furnishes a surety bond guaranteeing payment in the amount of the
disputed portion of the bill, then Questar may not suspend further deliv-
ery of gas unless default has occurred under the conditions of the bond.
No payment by Mountain Fuel of the amount of a disputed bill will preju-
dice its right to claim an adjustment of the disputed bill. Mountain Fuel
shall pay interest on disputed portions of a bill for which it has with-
held payment, and which ultimately are found due.
Billing Errors. If an error is discovered in the amount of any bill,
the error shall be adjusted within 30 days of the determination that an
adjustment is required, provided that the claim for adjustment will have
been made within 180 days from the date of the bill. If it is determined
that Mountain Fuel has been overcharged and has paid the statement con-
taining the overcharge, then, within 30 days after the final determina-
tion, Questar shall refund the amount overcharged with interest. If it is
determined that Mountain Fuel has been undercharged, Mountain Fuel shall
pay the amount undercharged with interest. The rate of any interest to be
paid by either party under this provision will be governed by 18 C.F.R.
154.67(c). In the event that any portion of a statement is in dispute,
payment of the disputed portion will not be deemed a waiver of the right
to contest such disputed portion in any forum having jurisdiction.
Liability
Each party assumes full responsibility and liability arising from the
operation of the facilities it owns and agrees to hold the other party
harmless from any liability whatever arising from the owning party's
installation, ownership or operation of its facilities.
Force Majeure
Definition. The term force majeure as employed in this agreement will
mean acts of God, strikes, lockouts or other labor or industrial distur-
bances, acts of the public enemy, wars, blockades, insurrections, riots,
epidemics, landslides, lightning, earthquakes, fires, tornadoes, severe
weather, storms floods, washouts, arrest and restraint from rulers of
people, necessity for compliance with any court order, law ordinance or
regulations promulgated by a governmental authority having jurisdiction,
civil disturbances, explosions, breakage or accident to machinery, instru-
mentation, or lines of pipe, sudden partial or sudden entire failure of
wells, freezing of wells or pipelines, inability to secure right-of-way,
materials, supplies or labor, including inability or failure to obtain
materials and supplies due to governmental regulations, and causes of like
or different kind, whether enumerated in this agreement or not, and not
within the control of the party claiming force majeure, and which by the
exercise of due diligence such party is unable to overcome.
Notice. If either party is rendered wholly or partially unable to
carry out its obligations under this Agreement due to force majeure, the
party shall give written notice describing the event of force majeure as
soon as is reasonably possible after the occurrence. The obligations of
the Parties, other than to make payments of amounts due so far as they are
affected by such force majeure, will be suspended during the continuance
of the event of force majeure, but for no longer period. The affected
party shall remedy the event of force majeure in a commercially reasonable
manner. Nothing in this Agreement shall be construed to require either
party to settle a strike or labor dispute againstits better judgment.
Assignment
All rights and duties under this Agreement shall inure to and be bind-
ing upon the successors and assignees of the Parties. No conveyance or
transfer of any interest of either party, except a transfer to an affili-
ate, will be binding upon the other party until the other party has been
furnished with notice and a true copy of the conveyance or transfer. The
successor or assignee agrees in writing to be bound by all the terms and
conditions of the agreement and that the successor or assignee assumes all
the obligations under this Agreement.
Miscellaneous
A waiver by either party of any one or more defaults by the other party
shall not operate as a waiver of any future default.
This Agreement, including any appendices and these General Terms and
Conditions, contains the entire understanding of the Parties and may only
be amended by an instrument in writing signed by the Parties.
In interpreting this Agreement, the recitals will be considered as part
of this Agreement and not as surplusage.
This Agreement shall be construed under the laws of Utah.
EXHIBIT - 22
SUBSIDIARY INFORMATION
Registrant Questar Pipeline Company has two subsidiaries, Questar
TransColorado, Inc., and Questar Gas Management Company, both of which are
Utah corporations. Questar Pipeline Company and Universal Resources
Corporation, an affiliate, each have a 50 percent ownership position in
Questar WMC Corporation, a Utah corporation.
EXHIBIT - 25
POWER OF ATTORNEY
We, the undersigned directors of Questar Pipeline Company, hereby
severally constitute A. J. Marushack and W. F. Edwards, and each of them
acting alone, our true and lawful attorneys, with full power to them and each
of them to sign for us, and in our names in the capacities indicated below,
the Annual Report on Form 10-K for 1994 and any and all amendments to be filed
with the Securities and Exchange Commission by Questar Pipeline Company,
hereby ratifying and confirming our signatures as they may be signed by the
attorneys appointed herein to the Annual Report on Form 10-K for 1994 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 2-14-95
R. D. Cash
/s/ A. J. Marushack President & Chief 2-14-95
A. J. Marushack Executive Officer
/s/ W. F. Edwards Director 2-14-95
W. F. Edwards
/s/ U. E. Garrison Director 2-14-95
U. E. Garrison
/s/ Neal A. Maxwell Director 2-14-95
Neal A. Maxwell
/s/ Mary Mead Director 2-14-95
Mary Mead
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summarized financial information extracted from the
Questar Pipeline Company Statements of Income and Balance Sheet for the
period ended December 31, 1994, 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-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 1,448
<SECURITIES> 0
<RECEIVABLES> 16,316
<ALLOWANCES> 0
<INVENTORY> 2,583
<CURRENT-ASSETS> 23,156
<PP&E> 615,313
<DEPRECIATION> 203,008
<TOTAL-ASSETS> 455,043
<CURRENT-LIABILITIES> 27,905
<BONDS> 134,506
<COMMON> 6,551
0
0
<OTHER-SE> 212,406
<TOTAL-LIABILITY-AND-EQUITY> 455,043
<SALES> 0
<TOTAL-REVENUES> 115,608
<CGS> 0
<TOTAL-COSTS> 42,778
<OTHER-EXPENSES> 19,952
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,107
<INCOME-PRETAX> 38,876
<INCOME-TAX> 13,047
<INCOME-CONTINUING> 25,829
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,829
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
