SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____
Commission File No. 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 No
State the aggregate market value of the voting stock held by nonaffili-
ates of the registrant as of March 22, 1996. $0.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of March 22, 1996. 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.
TABLE OF CONTENTS
Heading Page
PART I
Items 1.
and 2. BUSINESS AND PROPERTIES
General
Transmission System
Transportation Service
Gathering
Storage
Processing
Regulatory Environment
Competition
Employees
Relationships with Affiliates
Item 3. LEGAL PROCEEDINGS
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Item 6. (Omitted)
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
Item 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
PART III
Items
10-13. (Omitted)
PART IV
Item 14.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
SIGNATURES
FORM 10-K
ANNUAL REPORT, 1995
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 engaged in the gathering, processing,
transportation and storage of natural gas in the Rocky Mountain states of
Utah, Wyoming, and Colorado. During 1995, the Company completed the expansion
of its base-load storage project at Clay Basin, sought regulatory approval to
spin down its gathering assets and activities to a subsidiary, filed a general
rate case, completed the construction of the Blacks Fork plant through a joint
venture, and pursued a salt cavern gas storage project. In 1995, Questar
Pipeline was also forced to withdraw from the proposed acquisition of a
one-half interest in the Kern River pipeline when the Federal Trade Commission
determined to oppose the transaction on anticompetitive grounds.
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 owns and operates the Clay Basin storage facility, which is a large
underground storage project in northeastern Utah, and other underground
storage operations in Utah and Wyoming. 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 592,700 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 British thermal units
(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 and other suppliers. The
Company also transports volumes that are marketed by Universal Resources
Corporation (Universal Resources), another affiliated entity.
The following diagram sets forth the corporate structure of the Company
and certain affiliates:
Questar Corporation
Entrada Industries
Celsius Energy Company
Wexpro Company
Universal Resources
Questar Pipeline Company
Questar TransColorado, Inc.
Questar Gas Management Company
Mountain Fuel Supply Company
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 of its physical
configuration, multiple interconnections to other interstate pipeline systems,
and 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 1,754 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. (This total transmission mileage includes pipelines associated with
the Company's storage fields and tap lines used to serve Mountain Fuel.) The
system includes two major segments, often referred to as the northern and
southern systems, which are linked together. 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 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 88-mile Overthrust segment is the western-most of
Trailblazer's three segments. Since gas production from the Overthrust area
is generally shipped on the Kern River pipeline to California, the Overthrust
segment is currently underutilized.
Columbia Gas Transmission Corporation, formerly one of the three primary
shippers on Overthrust, was permitted to pay an exit fee during 1995 in order
to terminate its obligation to pay demand costs. The settlement agreement
specifying the exit fee was approved by the FERC and the bankruptcy court.
Questar Pipeline and its partners have explored several alternatives to
enhance the value of the Overthrust line.
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 are affiliates of El Paso Natural
Gas Company (replacing Public Service Company of Colorado) and KN Energy,
Inc. The proposed pipeline is 292 miles in length and would extend from the
Piceance Basin in western Colorado to northwestern New Mexico, where it would
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 originally developed prior to the adoption of Order No. 636 and was
delayed by regulatory and environmental approval processes, needs additional
support from customers before construction will begin.
The Kern River pipeline, which was originally a joint project between
Tenneco, Inc. and The Williams Companies Inc., became operational in late
February of 1992. Built to transport gas from Wyoming to the enhanced oil
recovery projects in Kern County, California, this line runs through the major
population areas of Utah. A tap--the Hunter Park tap--has been installed on
the Kern River line in Salt Lake County. This tap makes it possible for
Mountain Fuel and its 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.
In September of 1995, the Company announced an agreement to purchase
Kern River Corporation, which was one of two equal partners in the Kern River
Gas Transmission Company, the partnership that owned and operated the Kern
River pipeline. Questar Pipeline was forced to withdraw its acquisition
proposal in late December when the Federal Trade Commission determined to
oppose the transaction based on antitrust concerns.
Transportation Service
Questar Pipeline's largest transportation customer is Mountain Fuel.
During 1995, the Company transported 79,872 thousand decatherms (Mdth) for
Mountain Fuel, compared to 75,941 Mdth in 1994. These transportation volumes
include Mountain Fuel's cost-of-service gas produced by Wexpro, as well as
some volumes purchased by Mountain Fuel directly from field producers and
other suppliers.
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
reserved capacity of about 800,000 Dth per day, or approximately 79 percent of
Questar Pipeline's reserved daily capacity. Mountain Fuel paid an annual
demand charge of approximately $49.4 million to the Company in 1995, 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 $13.0 million during the 12-month period
ending August 31, 1995.
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's transportation revenues are not
significantly affected by fluctuating demand based on the vagaries of weather
or gas prices.
The Company's total system throughput increased from 250,284 Mdth in
1994 to 270,654 Mdth in 1995. 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
nonaffiliated customers (from 129,250 Mdth in 1994 to 151,943 Mdth in 1995).
Universal Resources transported volumes on Questar Pipeline's system, but
these volumes decreased from 45,093 Mdth in 1994 to 38,839 Mdth in 1995.
Questar Pipeline's transmission system is an open-access system and has
been since September of 1988. The FERC's 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. (See "Regulatory Environment" for a description of the proposed
settlement agreement in the Company's general rate case that includes a new
allocation of revenues for 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
request capacity on such system. Questar Pipeline spent approximately $4.7
million on such equipment and expects to recover the costs of this equipment
when the settlement agreement in its general rate case is approved.
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. During 1995, the Company conducted a two-part, $10
million project to increase gas deliverability from west Colorado's Piceance
Basin by upgrading its Main Line 68 and the Fidlar Compressor Station south of
Vernal, in eastern Utah.
Gathering
During 1995, the Company provided gathering services for Mountain Fuel
and other customers, but the volumes associated with this activity decreased
as Rocky Mountain producers responded to low wellhead prices by shutting in
production. Questar Pipeline's gathering volumes decreased from 83,983 Mdth
in 1994 to 76,668 Mdth in 1995. On March 1, 1996, the Company transferred its
gathering assets and activities to Questar Gas Management Company (Questar Gas
Management) once both parties obtained the necessary regulatory approvals from
the FERC. Gathering services for Mountain Fuel are performed under an
agreement that was filed with and accepted by the FERC during 1994. Questar
Gas Management is obligated to gather gas volumes produced from Mountain
Fuel's cost-of-service properties for the life of such properties; the
contract to gather Mountain Fuel's field-purchased gas volumes expires in
1997.
Questar Pipeline spun down its gathering activities and assets to
Questar Gas Management, a nonregulated company, in order to remove such
activities from possible regulation by the FERC and to follow the example set
by other interstate pipelines. Questar Gas Management is also the named
partner in the Blacks Fork processing plant and will continue to seek new
opportunities to expand its gathering activities and to conduct other
nonregulated services such as natural gas processing, balancing and
aggregation services for producers, marketers, distribution companies, and
other end users.
Questar Gas Management owns 799 miles of gathering lines in addition to
field dehydration plants, compressor facilities, and other facilities.
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.
In 1995, the Company completed a three-year project to expand the
capacity of Clay Basin. The reservoir currently is certificated for 46.3
billion cubic feet (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 765 MMcf per day.
Clay Basin's firm storage capacity is fully subscribed by customers
under long-term agreements. Mountain Fuel currently has 12.5 Bcf of working
gas capacity at Clay Basin. Other large customers 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 reserves 100 percent of their working gas capacity. These small
reservoirs are used to supplement Mountain Fuel's gas supply needs on peak-days.
Questar Pipeline has located a salt formation in southwestern Wyoming
and has drilled a well to test the feasibility of utilizing it for a new salt
cavern gas storage project. Working gas can be cycled more frequently in a
salt cavern than in a depleted gas reservoir. Because of its location near
several pipelines, this project should help satisfy growing customer demand
for "quick-cycle" storage and load-balancing activities. Questar Pipeline is
soliciting customer interest in the project.
Processing
In mid-1995, the Blacks Fork processing plant became operational. This
project, which is located in southwestern Wyoming, was built and is operated
as a joint venture between Questar Gas Management and an affiliate of Coastal
Corporation. The plant has a capacity of 84 MMcf per day and was processing
more than 60 MMcf per day at year-end. Natural gas liquids--ethane, propane,
butane, and gasoline--are extracted from the natural gas volumes delivered to
the plant. The new plant and the expanded gathering system built in 1994
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. Questar Gas Management intends to pursue additional field
processing opportunities.
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.
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, a capacity release mechanism for
shippers and a straight fixed-variable (SFV) rate methodology. It was also
required to discontinue use of firm 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.
On July 31, 1995, the Company filed a general rate case application with
the FERC. In its application, Questar Pipeline requested regulatory approval
to increase its rates to collect an additional $23.3 million in annualized
revenues and to reflect a return on equity of 14.5 percent. The Company's
requested revenue increase included transition costs associated with Order No.
636, postemployment (retiree medical and long-term disability) costs,
increased labor costs, and the costs of facilities added since the Company's
last general rate case. Questar Pipeline began collecting the requested
rates, subject to refund, on February 1, 1996.
On March 8, 1996, the Company filed a proposed settlement agreement with
the FERC that had been accepted by the FERC staff and most intervenors. The
terms of the proposed settlement include an annualized revenue increase of
$8.3 million, a return on equity of 11.75 percent, and a new sharing
allocation for interruptible transportation revenues. The new allocation
provision would permit Questar Pipeline, to the extent it is successful in
marketing interruptible transportation services, to retain the first $800,000
in revenues associated with such service. In addition, it would be allowed to
retain 50 percent of the revenues between $800,000 and $1.2 million and 25
percent of the revenues in excess of $1.2 million. The Company's settlement
rates would be effective February 1, 1996.
On March 15, 1996, the Gas Industry Standards Board, a group
representing pipelines, distributors, end users, marketers, and service
providers, filed a set of proposed standards with the FERC. The proposed
standards, which are designed to facilitate the seamless transportation of gas
volumes on pipeline systems, deal with such issues as nominating, capacity
release, electronic delivery, and invoicing processes. The standards, when
adopted by the FERC (in a proposed or modified version), may increase the
costs for Questar Pipeline and all other pipeline systems, but should result
in more efficient service for pipeline customers.
The FERC recently relaxed its "at-risk" policy on pipeline projects. It
established specific criteria for determining when "rolled-in" rates (rather
than incremental rates) are appropriate. (The FERC's original at-risk policy
meant that shareholders, not customers, would absorb any underrecovery of
costs if incremental revenues for a new project did not cover the costs of
such project.) Under the FERC's new policy, rolled-in rates will generally be
approved if rates to existing customers will not increase by more than five
percent and if specified system-wide operational and financial benefits can be
demonstrated. The FERC, however, could still impose at-risk conditions on new
projects even if it approved rolled-in rate treatment for them.
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 and 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 Environmental Protection Agency. These compliance activities increase
the cost of planning, designing, installing and operating facilities.
Competition
Competition for Questar Pipeline's transportation, storage, and
gathering services has intensified in recent years. Regulatory changes have
significantly increased customer flexibility and customer responsibility to
directly manage their gas supplies. The Company and Questar Gas Management
actively compete with other interstate pipelines, intrastate pipelines, and
gathering companies to gather and transport gas volumes throughout the Rocky
Mountain 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 gathering
entities and marketing groups are encroaching on the Company's historic
service territory and competing with Questar Gas Management 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. The Company, to provide better
service and more flexibility, is improving its accounting processes and
electronic communications; implementing strategies to develop balancing and
pooling arrangements; and working 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
facility, a storage reservoir that has been successfully operated since 1977,
that has been expanded in response to interest from customers, and that is
fully subscribed by firm-service customers under long-term contracts. Questar
Gas Management 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, Questar Gas Management is expanding its activities and expertise.
Questar Pipeline has consistently established partnerships with other
players to acquire expertise, share risks, and expand opportunities. The
Overthrust pipeline, proposed TransColorado pipeline, and Blacks Fork plant
projects all involve partners.
Employees
As of December 31, 1995, the Company had 467 employees, compared to 478
as of the end of 1994. 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., 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--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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.
RESULTS OF OPERATIONS
Following is a summary of operating income and operating information for the
Company's operations:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
(Dollars In Thousands)
<S> <C> <C> <C>
OPERATING INCOME
Revenues
Transportation $61,749 $61,844 $51,590
Gathering 21,644 23,641 20,386
Storage 31,276 27,620 14,698
Sales for resale 81,813
Other 2,686 2,503 3,141
Total revenues 117,355 115,608 171,628
Operating expenses
Natural gas purchases 56,022
Operating and maintenance 44,634 42,778 48,356
Depreciation and amortization 16,614 15,453 14,084
Other taxes 4,170 4,499 3,915
Total expenses 65,418 62,730 122,377
Operating income $51,937 $52,878 $49,251
OPERATING STATISTICS
Natural gas volumes (in Mdth)
Transportation
For unaffiliated customers 151,943 129,250 113,589
For Mountain Fuel 79,872 75,941 65,061
For other affiliated customers 38,839 45,093 35,599
Total transportation 270,654 250,284 214,249
Sales for resale to Mountain Fuel 24,337
Total system throughput 270,654 250,284 238,586
Gathering
For unaffiliated customers 39,028 39,800 34,348
For Mountain Fuel 31,691 32,098 44,432
For other affiliated customers 5,949 12,085 13,988
Total gathering 76,668 83,983 92,768
Clay Basin storage working gas-
volumes (in Bcf) 46.3 41.8 31.0
Natural gas revenue (per dth)
Transportation $0.23 $0.25 $0.24
Gathering 0.28 0.28 0.22
Sales for resale 3.36
Natural gas purchase cost (per dth) 2.28
</TABLE>
<PAGE>
Revenues were 2% higher in 1995 compared with 1994 after decreasing 33% from
1993 to 1994. The 1995 rise was the result of increased storage activities at
Questar Pipeline's Clay Basin storage reservoir. Questar Pipeline began a
program in 1993 to expand firm-storage service offered at its Clay Basin storage
facility and completed the program in May 1995 with the signing of contracts for
an additional 4.5 Bcf of firm-storage capacity. Working-gas storage capacity
increased from 31 Bcf in 1993 to 46.3 Bcf in May 1995. Storage capacity at
year-end 1995 was 100% subscribed with contractual terms extending up to 29
years. Storage revenues increased $3,656,000 in 1995 and $12,922,000 in 1994.
Increased capacity and the associated service at Clay Basin were responsible for
all of the 1995 increase in revenues and $3,400,000 of the 1994 increase. The
remaining 1994 change in storage revenues was a result of unbundling and
reclassifying peaking-storage service from sales-for-resale revenues. Peaking
storage is designed to meet peak daily demand requirements of Mountain Fuel.
Lower revenues from gas gathering and interruptible transmission activities
partially offset the higher storage revenues in 1995 as compared with 1994.
Weak gas prices in the Rocky Mountain region caused producers to reduce gas
production. Gas gathering revenues decreased 8% in 1995 after increasing 16% in
1994. Questar Pipeline has expanded its gas gathering operations in the past
several years in the Birch Creek, Bruff and Henry areas of southwestern Wyoming.
The primary cause of a $56,020,000 decrease in Questar Pipeline's revenues
reported in 1994 compared with 1993 was the termination of sales-for-resale
activities under the regulations of FERC Order No. 636. This order unbundled
the components of sales-for-resale, transmission, gathering and storage into
separate activities. Also as a result of Order No. 636, short-term changes in
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 84% of firm-transportation capacity is
reserved for at least three 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 79% of the total reserved
daily transportation capacity. Interruptible-transportation revenues in 1995
decreased as a result of a shift by customers from interruptible-transportation
service to a higher priority capacity-release service.
Questar Pipeline filed a general rate case with the FERC on July 31, 1995,
seeking an increase in jurisdictional revenues. The request for additional
revenues was intended to recover the costs of enhanced service to customers,
meet regulatory requirements and collect costs associated with employee
postretirement benefits. By order issued August 31, 1995, Questar Pipeline's
rate filing was accepted with an effective date of February 1, 1996, subject to
refund. Questar Pipeline has submitted a settlement to the presiding
administrative law judge. The settlement would avoid a lengthy hearing process
if approved by the FERC.
Questar Pipeline concurrently filed a plan with the FERC to transfer about $53
million of gathering assets, net of accumulated depreciation, to Questar Gas
Management Company, a wholly-owned subsidiary. The FERC approved the transfer
February 28, 1996.
In December 1995, Questar Pipeline announced it would not complete the purchase
of Tennessee Gas Pipeline Company's 50% interest in the Kern River Gas
Transmission Company following a Federal Trade Commission decision to oppose
the transaction. The $1.2 million cost of the unsuccessful bid was expensed in
1995 and included in other expense.
Questar Pipeline, through a partnership, is a 50% owner of a gas processing
plant in southwestern Wyoming. The Blacks Fork Processing plant, which cost $20
million to build, began operations in the second quarter of 1995 and Questar
Pipeline's share of earnings before taxes was $314,000. Questar Pipeline
operating results also include its 18% share or $1.2 million of earnings before
income taxes reported by Overthrust Pipeline Company. A significant portion of
Overthrust Pipeline's 1995 earnings was due to a shipper's buyout of a
transportation contract.
The Company did not purchase gas for resale after August 31, 1993. Operating
and maintenance expenses increased 4% in 1995 when compared with 1994 primarily
due to the costs associated with increased transportation volumes. Operating
and maintenance expenses decreased 12% in 1994 because of eliminating volume and
fuel usage costs associated with the resale of natural gas. Depreciation expense
was 8% higher in 1995 when compared to 1994 and 10% higher in 1994 when compared
to 1993 as a result of Questar Pipeline's capital expenditures. Other expense
in 1995, 1994 and 1993 includes the reduction in value of certain investments.
The effective income tax rate was 35.3% in 1995, 33.6% in 1994 and 35.6% in
1993. A 1994 reversal of $1,245,000 of income tax expense previously expensed
resulted in a lower effective income tax rate in 1994. The adjustment resulted
from the exclusion from taxable income of the transportation revenues recorded
on cushion gas transported into storage.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of, that becomes
effective for the Company January 1, 1996. Statement No. 121 requires the
Company to review for impairment, assets that are held and used whenever events
or changes in circumstances indicate that an asset's carrying value may not be
recoverable. If impairment is indicated, the Company must reduce the carrying
value of the asset in question. The Company will adopt Statement No. 121 in 1996
and does not expect a significant effect to either operating results or
financial position.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
Net cash provided from operating activities increased 15% in 1995 after
decreasing 42% in 1994. Net cash provided from operating activities was
$45,650,000 in 1995, $39,675,000 in 1994 and $68,548,000 in 1993. The increase
in 1995 compared with 1994 was due primarily to collection of receivables. The
decrease in cash flow in 1994 compared with 1993 was due largely to changes in
business 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 1995, 1994 and a forecast of
1996 expenditures:
<TABLE>
<CAPTION>
1996
Estimated 1995 1994
(In Thousands)
<S> <C> <C> <C>
Transmission lines $22,400 $15,216 $1,878
Gathering facilities 6,200 3,050 9,392
Clay Basin cushion gas and expansion 1,300 2,500 42,196
Partnerships 4,800 2,082 614
General and other 6,200 4,924 4,147
$40,900 $27,772 $58,227
</TABLE>
Questar Pipeline's 1995 capital expenditures included replacement of sections of
gas mainlines, completion of the Clay Basin storage project and cushion-gas
injection, and expansion of the gathering system.
Financing Activities
The Company funded its 1995 capital expenditures primarily with cash provided
from operations and borrowings from Questar. Forecasted 1996 capital
expenditures of $40.9 million are expected to financed with cash provided from
operations and borrowings from Questar.
The Company has a short-term line-of-credit arrangement with a bank under which
it may borrow up to $200,000. The line has interest rates below the prime
interest rate and is renewable on an annual basis. No amounts were borrowed
under this arrangement at either December 31, 1995 or 1994. Questar loans funds
to the Company under a short-term borrowing arrangement. Outstanding short-term
notes payable to Questar totaled $15,200,000 with an interest rate of 6.01% at
December 31, 1995 and $14,600,000 with an interest rate of 6.11% at December 31,
1994.
Questar Pipeline's capital structure was 37% long-term debt and 63% common
shareholder's equity. Moody's and Standard and Poor's have rated the Company's
long-term debt A-1 and A+.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's financial statements are included in Part IV, Item 14,
herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
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. Restated Articles of Incorporation dated November 17, 1995.
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 13, 1996.
10.4. Partnership Agreement for the TransColorado Gas Transmission
Company dated June 30, 1990 and as amended and restated September
25, 1995, between KN TransColorado, Inc., El Paso TransColorado,
Inc., and Questar TransColorado, Inc.
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 a term 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.)
10.83 Storage Service Agreement with Mountain Fuel Supply Company under
Rate Schedule FSS, for 5.0 Bcf of working gas capacity at Clay
Basin, with a term from May 15, 1994 to May 14, 2019.
10.9.* Gas Gathering Agreement between Mountain Fuel Supply Company and
Questar Pipeline Company effective September 1, 1993. (Exhibit
No. 10.9 to Form 10-K Annual Report for 1994.)
10.102 Questar Pipeline Company Deferred Compensation Plan for
Directors, as amended and restated February 13, 1996.
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 filed a Current Report on Form 8-K dated December
27, 1995, during the last quarter of 1995 to report that it would not
complete the purchase of Kern River Corporation.
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, 1995
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, 1995, 1994
and 1993
Balance sheets -- December 31, 1995 and 1994
Statements of cash flows -- Years ended December 31, 1995,
1994 and 1993
Statements of shareholder's equity -- Years ended December 31,
1995, 1994 and 1993
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.
Report of Independent Auditors
Board of Directors
Questar Pipeline Company
We have audited the balance sheets of Questar Pipeline Company as of December
31, 1995 and 1994, and the related statements of income, shareholder's equity,
and cash flows for each of the three years in the period ended December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Questar Pipeline Company at
December 31, 1995 and 1994, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
As discussed in Note F to the financial statements, Questar Pipeline Company
changed its method of accounting for postemployment benefits in 1994.
Ernst & Young LLP
Salt Lake City, Utah
February 9, 1996
<PAGE>
QUESTAR PIPELINE COMPANY
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
REVENUES
From unaffiliated customers $43,316 $40,412 $41,354
From affiliates - Note G 74,039 75,196 130,274
TOTAL REVENUES 117,355 115,608 171,628
OPERATING EXPENSES
Natural gas purchases - Note G 56,022
Operating and maintenance - Note G 44,634 42,778 48,356
Depreciation 16,614 15,453 14,084
Other taxes 4,170 4,499 3,915
TOTAL OPERATING EXPENSES 65,418 62,730 122,377
OPERATING INCOME 51,937 52,878 49,251
INCOME FROM UNCONSOLIDATED
AFFILIATES 1,534 229 128
OTHER EXPENSE - NOTE G (1,886) (1,124) (139)
DEBT EXPENSE (13,472) (13,107) (13,114)
INCOME BEFORE INCOME TAXES 38,113 38,876 36,126
INCOME TAXES - Note D 13,465 13,047 12,851
NET INCOME $24,648 $25,829 $23,275
</TABLE>
See notes to financial statements.
<PAGE>
QUESTAR PIPELINE COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
December 31,
1995 1994
(In Thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and short-term investments - Note C $1,677 $1,448
Accounts receivable 7,671 13,234
Accounts receivable from affiliates 6,174 2,002
Federal income tax receivable 1,080
Inventories, at lower of average
cost or market 2,858 2,583
Prepaid expenses and deposits 2,552 2,809
TOTAL CURRENT ASSETS 20,932 23,156
PROPERTY, PLANT AND EQUIPMENT
Transmission 289,059 273,673
Storage 212,492 210,162
Gathering 81,292 80,605
General and intangible 39,118 39,061
Construction work in progress 10,432 11,812
632,393 615,313
Less allowances for depreciation 212,898 203,008
NET PROPERTY, PLANT AND EQUIPMENT 419,495 412,305
OTHER ASSETS
Investment in unconsolidated affiliates 11,010 7,988
Income taxes recoverable
from customers - Note D 3,948 3,666
Unamortized costs of reacquired debt 3,131 3,426
Other 4,834 4,502
22,923 19,582
$463,350 $455,043
</TABLE>
<PAGE>
LIABILITIES AND SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
December 31,
1995 1994
(In Thousands)
<S> <C> <C>
CURRENT LIABILITIES
Notes payable to Questar - Notes B and C $15,200 $14,600
Accounts payable and accrued expenses
Accounts payable 9,025 9,368
Accounts payable to affiliates 1,587 1,436
Federal income taxes 48
Other taxes 1,289 1,425
Accrued interest 1,076 1,076
Total accounts payable and
accrued expenses 13,025 13,305
TOTAL CURRENT LIABILITIES 28,225 27,905
LONG-TERM DEBT - Notes B and C 134,525 134,506
DEFERRED CREDITS 5,346 4,861
DEFERRED INCOME TAXES - Note D 70,649 68,814
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 82,034
Retained earnings 136,020 130,372
224,605 218,957
$463,350 $455,043
</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, 1993 $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
1995 net income 24,648
Cash dividends (19,000)
Balance at December 31, 1995 $6,551 $82,034 $136,020
</TABLE>
See notes to financial statements.
<PAGE>
QUESTAR PIPELINE COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $24,648 $25,829 $23,275
Depreciation 18,250 17,078 15,979
Deferred income taxes 1,835 1,479 1,592
Income from unconsolidated affiliates (1,534) (229) (128)
43,199 44,157 40,718
Changes in operating assets
and liabilities
Accounts receivable 1,391 (4,045) 23,815
Federal income taxes 1,128 (1,322) (1,462)
Inventories (275) (189) 25,539
Prepaid expenses and deposits 257 (541) (75)
Accounts payable and accrued expenses (328) 879 (18,466)
Purchased-gas adjustments (3,441)
Other 278 736 1,920
NET CASH PROVIDED FROM
OPERATING ACTIVITIES 45,650 39,675 68,548
INVESTING ACTIVITIES
Capital expenditures
Purchase of property, plant
and equipment (25,690) (57,613) (47,216)
Other investments (2,082) (614) (364)
Total capital expenditures (27,772) (58,227) (47,580)
Proceeds from (costs of) disposition
of property, plant and equipment 751 59 (182)
CASH USED IN INVESTING
ACTIVITIES (27,021) (58,168) (47,762)
FINANCING ACTIVITIES
Capital contribution 25,000
Change in notes payable to Questar 600 11,600 (4,500)
Payment of dividends (19,000) (18,000) (16,000)
CASH PROVIDED FROM (USED IN)
FINANCING ACTIVITIES (18,400) 18,600 (20,500)
Change in cash and
short-term investments 229 107 286
Beginning cash and
short-term investments 1,448 1,341 1,055
ENDING CASH AND SHORT-TERM
INVESTMENTS $1,677 $1,448 $1,341
</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.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts of assets and liabilities and disclosure
of contingent liabilities reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Revenue Recognition: Revenues are recognized in the period that services are
provided or products are delivered. Questar Pipeline periodically collects
revenues subject to possible refunds pending final orders from the FERC. The
Company establishes reserves for revenues collected that it estimates may be
refunded.
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 3.7% in 1995. In March
1995, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No.121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of. The Company will adopt Statement
No. 121 in 1996 and does not expect a significant effect to either operating
results or financial position.
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. Management believes that its credit-review procedures and loss
reserves have adequately provided for usual and customary credit-related losses.
The carrying amount of trade receivables approximates fair value.
Investment in Unconsolidated Affiliates: The Company has an 18% partnership
interest in the Overthrust Pipeline Company, which is the operator of 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 owns 50% of the Blacks Fork
Gas Processing Company in southwestern Wyoming that operates a plant which
extracts ethane, propane, butane and gasoline from natural gas. The Company
accounts for its investment in these partnerships using the equity method.
Income Taxes: Questar Pipeline records cumulative increases in deferred taxes
as income taxes recoverable from customers. The Company has adopted procedures
with its regulatory commissions to include under-provided deferred taxes in
customer rates on a systematic basis. Questar Pipeline uses the deferral method
to account for investment tax credits as required by the FERC. 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 also receives payment for tax benefits used in the
consolidated tax return even if such benefits would not have been usable had the
Company filed a separate return.
Reacquisition of Debt: Gains and losses on the reacquisition of debt are
deferred and amortized as debt expense over the 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 $330,000 in 1995, $976,000 in 1994 and $856,000 in 1993.
Cash and Short-Term Investments: Short-term investments consist principally of
Euro-time deposits and repurchase agreements with maturities of three months or
less.
Note B - Debt
The Company has a short-term line-of-credit arrangement with a bank under which
it may borrow up to $200,000. The line has interest rates below the prime
interest rate and is renewable on an annual basis. No amounts were borrowed
under this arrangement at either December 31, 1995 or 1994. Questar loans funds
to the Company under a short-term borrowing arrangement. Outstanding short-term
notes payable to Questar totaled $15,200,000 with an interest rate of 6.01% at
December 31, 1995 and $14,600,000 with an interest rate of 6.11% at December 31,
1994. Questar Pipeline guarantees $9 million of long-term debt borrowed by
Blacks Fork Gas Processing Company.
The details of long-term debt at December 31, were as follows:
<TABLE>
<CAPTION>
1995 1994
(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 475 494
$134,525 $134,506
</TABLE>
There are no maturities of long-term debt for the five years following December
31, 1995. Cash paid for interest on debt was $13,192,000 in 1995, $13,065,000
in 1994 and $13,018,000 in 1993.
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>
1995 1994
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
(In Thousands)
<S> <C> <C> <C> <C>
Financial assets
Cash and short-term investments $1,677 $1,677 $1,448 $1,448
Financial liabilities
Short-term loans 15,200 15,200 14,600 14,600
Long-term debt 134,525 158,256 134,506 134,429
</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 components of income taxes charged to income for years ended December 31,
were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
Federal
Current $11,388 $10,571 $10,010
Deferred 1,413 1,436 1,512
State
Current 601 997 1,249
Deferred 63 43 80
$13,465 $13,047 $12,851
</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>
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
Income before income taxes $38,113 $38,876 $36,126
Federal income taxes at statutory rate $13,340 $13,607 $12,644
State income taxes, net of federal
income tax benefit 454 691 892
Prior years' tax settlement (178) (692)
Tax adjustment on revenues from cushion
gas transported into storage (1,245)
Other (151) (6) 7
Income tax expense $13,465 $13,047 $12,851
Effective income tax rate 35.3% 33.6% 35.6%
</TABLE>
Significant components of the Company's deferred tax liabilities and assets at
December 31, were as follows:
<TABLE>
<CAPTION>
1995 1994
(In Thousands)
<S> <C> <C>
Deferred tax liabilities
Property, plant and equipment $66,364 $64,002
Income taxes recoverable from customers 1,487 1,914
Unamortized debt reacquisition costs 1,159 1,267
Pension costs 519 535
Other 1,988 3,263
Total deferred tax liabilities 71,517 70,981
Deferred tax assets 868 2,167
Net deferred tax liabilities $70,649 $68,814
</TABLE>
Cash paid for income taxes was $11,946,000 in 1995, $14,404,000 in 1994 and
$12,404,000 in 1993.
Note E - Rate Matters, Litigation and Commitments
Questar Pipeline filed a general rate case with the FERC on July 31, 1995,
seeking an increase in jurisdictional revenues. The request for additional
revenues was intended to recover the costs of enhanced service to customers,
meet regulatory requirements and collect costs associated with employee
postretirement benefits. By order issued August 31, 1995, Questar Pipeline's
rate filing was accepted with an effective date of February 1, 1996, subject to
refund. Questar Pipeline has submitted a settlement to the presiding
administrative law judge. The settlement would avoid a lengthy hearing process
if approved by the FERC.
Questar Pipeline concurrently filed a plan with the FERC to transfer about $53
million of gathering assets, net of accumulated depreciation, to Questar Gas
Management Company, a wholly-owned subsidiary. The FERC approved the transfer
February 28, 1996.
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
Pension Plan: Substantially all Company employees are covered by Questar's
defined benefit pension plan. Benefits are generally based on years of service
and the employee's 36-month period of highest earnings during the ten years
preceding retirement. It is Questar's policy to make contributions to the plan
at least sufficient to meet the minimum funding requirements of applicable laws
and regulations. Plan assets consist principally of equity securities and
corporate and U.S. government debt obligations. Pension cost was $1,123,000 in
1995, $1,201,000 in 1994 and $1,372,000 in 1993.
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, 1995, Questar's fair value of
plan assets exceeded the accumulated benefit obligation.
Postretirement Benefits Other Than Pensions: The Company pays a portion of the
health-care costs and all the life insurance costs for employees who retired
prior to January 1, 1993. The plan was changed for employees retiring after
January 1, 1993, to link the health-care benefit to years of service and to
limit the Company's monthly health-care contribution per individual to 170% of
the 1992 contribution. Employees hired after December 31, 1996, will not qualify
for benefits under this plan. The Company's policy is to fund amounts allowable
for tax deduction under the Internal Revenue Code. Plan assets consist of
equity securities, corporate and U.S. government debt obligations, and insurance
company general accounts. The Company is amortizing the transition obligation
over a 20-year period. Total costs of postretirement benefits other than
pensions were $1,044,000 in 1995, $1,130,000 in 1994 and $1,059,000 in 1993. The
Company expects to receive rate coverage of the jurisdictional portion of these
costs in its current rate case and has recorded a regulatory asset of $1,730,000
at December 31, 1995. 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.
Postemployment Benefits: The Company recognizes the net present value of the
liability for postemployment benefits, such as long-term disability benefits and
health care and life insurance costs, when employees become eligible for such
benefits. Postemployment benefits are paid to former employees after employment
has been terminated but before retirement benefits are paid. The Company accrues
both current and future costs. The Company expects to receive rate coverage of
the jurisdictional portion of these costs as part of its current rate case. At
December 31, 1995, the Company had a $539,000 regulatory asset for
postemployment costs.
Employee Investment Plan: The Company participates in Questar's Employee
Investment Plan (ESOP), which allows eligible employees to purchase Questar
Corporation common stock or other investments through payroll deduction. The
Company makes contributions of Questar Corporation common stock to the ESOP of
approximately 75% of the employees' purchases and contributes an additional $200
of common stock in the name of each eligible employee. The Company's expense
and contribution to the plan was $667,000 in 1995, $591,000 in 1994 and $571,000
in 1993.
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 $69,964,000 or
60% in 1995, $70,966,000 or 61% in 1994, and $124,807,000 or 73% in 1993. The
Company also received revenues from other affiliated companies totaling
$4,075,000 in 1995, $4,230,000 in 1994 and $5,072,000 in 1993.
Natural gas purchases include $4,844,000 from affiliated companies in 1993. 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 $3,212,000
in 1995, $3,439,000 in 1994 and $3,408,000 in 1993. 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 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
$7,542,000 in 1995, $7,036,000 in 1994 and $6,607,000 in 1993.
The Company received interest income from affiliated companies of $22,000 in
1995, $225,000 in 1994 and $327,000 in 1993. The Company had debt expense to
affiliated companies of $272,000 in 1995, $134,000 in 1994 and $21,000 in 1993.
<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 28th day
of March, 1996.
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/ S. E. Parks Vice President, Treasurer, and Chief
S. E. Parks Financial 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 28, 1996 *By /s/ A. J. Marushack
Date A. J. Marushack, Attorney in Fact
<PAGE>
Exhibit List
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. Restated Articles of Incorporation dated November 17, 1995.
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 13, 1996.
10.4. Partnership Agreement for the TransColorado Gas Transmission
Company dated June 30, 1990 and as amended and restated September
25, 1995, between KN TransColorado, Inc., El Paso TransColorado,
Inc., and Questar TransColorado, Inc.
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 a term 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.)
10.83 Storage Service Agreement with Mountain Fuel Supply Company under
Rate Schedule FSS, for 5.0 Bcf of working gas capacity at Clay
Basin, with a term from May 15, 1994 to May 14, 2019.
10.9.* Gas Gathering Agreement between Mountain Fuel Supply Company and
Questar Pipeline Company effective September 1, 1993. (Exhibit
No. 10.9 to Form 10-K Annual Report for 1994.)
10.102 Questar Pipeline Company Deferred Compensation Plan for
Directors, as amended and restated February 13, 1996.
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.
RESTATED ARTICLES OF INCORPORATION
OF
QUESTAR PIPELINE COMPANY
In accordance with the provisions of the Utah Revised Business Corporation
Act and pursuant to a resolution adopted by its Board of Directors that does not
require shareholder approval, Questar Corporation hereby adopts the following
Restated Articles of Incorporation:
ARTICLE I.
NAME
The name of the Corporation is Questar Pipeline Company.
ARTICLE II.
DURATION
The period of its duration is perpetual.
ARTICLE III.
PURPOSES
The purposes for which the Corporation is organized are as follows:
(a) To produce, purchase, gather, store, compress, distribute, sell and
serve natural gas:
(b) To produce, manufacture, generate, transmit, gather, store, purchase,
distribute, sell and serve artificial gas and artificial gas by-products;
(c) To engage in and carry on the business of purchasing, leasing or
otherwise acquiring and holding, owning, controlling, operating, developing,
selling oil and gas lands, rights in oil and gas lands, and leases and
leaseholds, mining claims, and mineral rights, and working royalty and other
interests in oil, gas and mineral properties, interests and rights;
(d) To engage in and carry on the business of the exploration for,
development and marketing of oil, natural gas, petroleum products,
hydro-carbons, minerals, coal, steam, geothermal products, and all kinds of
products and by-products derived from any of said substances;
(e) Acquire, hold and own franchises, licenses, permits, certificates of
convenience and necessity or to the rights or privileges from persons,
corporations, states, cities, counties, towns or other public bodies,
commissions or agencies necessary or convenient in carrying on the business
of the Corporation;
(f) Conduct, carry on or engage in any businesses or enterprises
incidental to or useful in connection with the purposes above specified;
(g) The Corporation shall have unlimited power to engage in and to do any
lawful act concerning any lawful businesses for which corporations may be
organized under the Utah Business Corporation Act, including but not limited to
the entering into of any lawful arrangement for sharing profits, union of
interests, reciprocal association or cooperative association with any
corporation, association, partnership, individual or other legal entity for the
carrying on of any business and to enter into any general or limited partnership
for the carrying on of any business.
ARTICLE IV.
STOCK
The Corporation shall have the authority to issue up to 25,000,000 shares
of common stock having a par value of $1.00 per share and up to 5,000,000 shares
of preferred stock without par value. Shares of preferred stock may be issued
from time to time in one or more series having rights, terms and restrictions as
may be determined by the Board of Directors.
ARTICLE V.
PREEMPTIVE RIGHTS
A shareholder shall have no preemptive rights to acquire any securities of
this Corporation.
ARTICLE VI
INITIAL CAPITALIZATION
This Corporation will not commence business until consideration of a value
of at least $1,000 has been received for the issuance of shares.
ARTICLE VII.
INITIAL OFFICE AND AGENT
The address of this Corporation's initial registered office and the name
of its initial registered agent at such address is:
Mildred M. Jensen
180 East First South Street
Salt Lake City, Utah 84111
ARTICLE VIII.
DIRECTORS
The number of directors of this Corporation shall be fixed, from time to
time, by the bylaws but shall not be less than three. The number of directors
constituting the initial Board of Directors shall be six and the names and
addresses of the persons who are to serve as directors until the first annual
meeting of the shareholders and until their successors are elected and qualified
are:
Name Address
B. Z. Kastler 180 East First South Street
Salt Lake City, Utah 84111
Joseph S. Jones 800 Walker Bank Building
Salt Lake City, Utah 84111
C. F. Coleman 180 East First South Street
Salt Lake City, Utah 84111
J. T. Simon 180 East First South Street
Salt Lake City, Utah 84111
John Crawford, Jr. 180 East First South Street
Salt Lake City, Utah 84111
R. P. Work 180 East First South Street
Salt Lake City, Utah 84111
ARTICLE IX
INCORPORATORS
The name and address of each incorporator is:
Name Address
B. Z. Kastler 180 East First South Street
Salt Lake City, Utah 84111
Joseph S. Jones 800 Walker Bank Building
Salt Lake City, Utah 84111
John Crawford, Jr. 180 East First South Street
Salt Lake City, Utah 84111
ARTICLE X.
CUMULATIVE VOTING OF SHARES
There shall be no cumulative voting in the election of directors of the
Corporation.
ARTICLE XI.
PURCHASE OF SHARES BY CORPORATION
The Corporation may purchase its own shares to the extent of unreserved and
unrestricted capital surplus available therefor in addition to any right to
purchase its own shares provided by law.
The foregoing Restated Articles of Incorporation correctly set forth
without change the corresponding provisions of the Articles of Incorporation as
previously amended and supersede the Articles of Incorporation as amended.
Dated this 24th Day of October, 1995.
QUESTAR PIPELINE COMPANY
By /s/ A. J. Marushack
A. J. Marushack
President and Chief Executive
Officer
By /s/ Connie C. Holbrook
Connie C. Holbrook
Secretary
State of Utah )
: ss
County of Salt Lake )
I, Lucille L. Curtis, a notary public, do hereby certify that on October
24, 1995, personally appeared before me A. J. Marushack and Connie C. Holbrook,
who being by me first duly sworn, severally declared that they are the persons
who signed the foregoing document, and that the statements therein contained are
true.
/s/ Lucille L. Curtis
Notary Public
Residing at Salt Lake City, Utah
My Commission Expires: 8/27/99
QUESTAR CORPORATION
ANNUAL MANAGEMENT INCENTIVE PLAN
(As amended and restated effective
February 13, 1996)
Paragraph 1. Name. The name of this Plan is the Questar
Corporation 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 Corporation (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 or specified portion of base salary. Participants shall be notified of
their selection and their target bonus as soon as practicable.
Paragraph 5. Determination of Performance Objectives. Within 60
days after the beginning of each year, the Committee shall establish target,
minimum, and maximum performance objectives for the Company and for its major
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.
Amounts shall be paid (less appropriate withholding taxes and FICA
deductions) according to the following schedule:
Award Distribution Schedule
Percent of
Award Date
Initial Award 75% As soon as possible after initial
(First Year of award is determined
Participation)
25 One year after initial award is
determined
100%
Subsequent Awards 50% As soon as possible after award is
determined
25 One year after award is determined
25 Two years after award is determined
100%
Paragraph 7. Restricted Stock in Lieu of Cash. For 1992 and
subsequent years, participants who have a target bonus of $10,000 or higher
shall be paid all deferred portions of such bonus with restricted shares of
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 during the last month of employment. The
current market value (defined as the closing price for the stock on the New
York Stock Exchange on the date in question) of such shares shall be included
in the Participant's final paycheck. Such Participant shall be paid the full
amount of any award (adjusted for partial participation) declared subsequent
to the date of such termination within 30 days of the date of declaration.
Any partial payments shall be made in cash.
(b) In the event a Participant ceases to be an employee during a
year by reason of a change in control, he shall be entitled to receive all
amounts deferred by him prior to February 12, 1991, and all undistributed
portions for prior Plan years. He shall also be entitled to an award for the
year of such event as if he had been an employee throughout such year. The
entire amount of any award for such year shall be paid in a lump sum within 60
days after the end of the year in question. Such amounts shall be paid in
cash.
For the purpose of this Plan, a "change in control" shall be
deemed to have occurred if (i) any "Acquiring Person" (as that term is used in
the Rights Agreement dated as of February 13, 1996, between the Company and
Chemical Mellon Shareholder Services, L.L.C. ("Rights Agreement")) is or
becomes the beneficial owner (as such term is used in Rule 13d-3 under the
Securities Exchange Act of 1934) of securities of the Company representing 15
percent 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) a 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.
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 Company'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.
Transcolorado Gas Transmission Company
Partnership Agreement
This Agreement, Effective on the 30th day of June, 1990, is entered into
between K N TransColorado, Inc., El Paso TransColorado Company, successor in
interest to Westgas TransColorado, Inc. as of September 25, 1995, and Questar
TransColorado, Inc.
1. Parties. The following are parties to this Agreement and each shall
have a one-third interest in the partnership.
1.1 K N TransColorado, Inc., a Colorado corporation with its principal
place of business located at 12055 West 2nd Place, Lakewood, Colorado
80228-1506.
1.2 El Paso TransColorado Company, a Delaware corporation with its
principal place of business located at 100 North Stanton, El Paso, Texas
79901.
1.3 Questar TransColorado, Inc., a Utah corporation with its principal
place of business located at 79 South State Street, Salt Lake City, Utah
84111.
2. Definitions. The terms defined in this section shall have the meanings
set out below for purposes of the Agreement.
2.1 Affiliate. An affiliate is any person which, directly or
indirectly through one or more intermediaries, controls or is controlled
by or is under common control with another person.
2.2 Capital Account. A capital account consists of the capital
contributions and profits credited to the account of a partner, less the
distributions and losses debited to the account, in accordance with
section 6. The capital accounts are maintained for purposes of
reflecting the economic arrangement among the partners and making
allocations. The capital accounts of the partners shall not be, nor
have the same meaning as, the "capital account" of the partnership under
Section 12 of the Natural Gas Act.
2.3 Capital Contribution. A capital contribution consists of the
capital contributed to the partnership by a partner.
2.4 Default. A default is a failure by a partner to make one or more
capital contributions required under section 6 on the date specified for
payment by the management committee under section 6.5.2(iii).
2.5 Defaulting Partner. A defaulting partner is a partner who is in
default.
2.6 Expansion. An expansion is any pipeline, including appurtenances
such as compression facilities, which increases the capacity of the
project that is owned by the partnership.
2.7 FERC. The FERC refers to the Federal Energy Regulatory Commission
or any federal commission, agency or other governmental body succeeding
to the powers of the Federal Energy Regulatory Commission.
2.8 Initial Line. The initial line is the proposed main trunk
pipeline proposed for the project, consisting of approximately 315 miles
of 22 and 24 inch pipe commencing at Questar Pipeline Company's system
in Rio Blanco County, Colorado and running south to Blanco, New Mexico
and including two compressor stations.
2.9 Management Committee. The management committee is the committee
provided for in section 4.
2.10 Operating Agreements. The operating agreements are the agreements
that will be entered into between the partnership and affiliates of the
partners to operate the project.
2.11 Operators. The operators are the companies designated by the
management committee in accordance with section 5.
2.12 Out-of-Pocket Costs. Out-of-pocket costs are costs paid by a
partner or its affiliate to any third party for the benefit of the
project, but do not include affiliate employee expenses for travel,
lodging and incidental items.
2.13 Partner. A partner is a company listed in Section 1 or any person
who acquires a partnership interest in accordance with the terms of this
Agreement.
2.14 Partnership. The partnership is the entity created by this
Agreement.
2.15 Partner's Percentage. A partner's percentage is the percentage
that is determined by dividing a partner's capital account by the sum
total of all partners' capital accounts. Initially, each partner's
percentage shall be one-third.
2.16 Person. A person is an individual, corporation, voluntary
association, joint stock company, business trust, partnership,
proprietorship or other legal entity, however constituted.
2.17 Project. The project is the TransColorado Gas Transmission
System, an interstate natural gas transportation pipeline and related
facilities to be designed, constructed and operated by the partnership
and extending from its proposed interconnection with the facilities of
Questar Pipeline Company located in northwestern Colorado to proposed
interconnections with other interstate or intrastate pipelines located
in Colorado and New Mexico.
2.18 Project Agreement. The project agreement is the agreement between
Rocky Mountain Natural Gas Company, Western Gas Supply Company, and
Questar Pipeline Company dated March 19, 1990, that preceded this
Agreement.
2.19 Project Manager. The project manager is the person designated by
the management committee to perform the duties described in section 5.
2.20 Project Management Agreement. The project management agreement is
the agreement to be entered into between the partnership and the project
manager to manage the design and construction of the project.
2.21 Secondary Facilities. Secondary facilities are pipelines and
attendant facilities that are connected to the project.
2.22 Shipper. A shipper is any person who has signed a letter of
intent, a precedent agreement or a similar agreement to obtain
transportation service on the project.
3. Formation, Term and Purpose. The parties form the partnership described
below for the indicated purposes.
3.1 Formation. By this Agreement the parties create a general
partnership under the Uniform Partnership Law as in force pursuant to
C.R.S. Sections 7-60-101 et seq.
3.2 Name. The name of the partnership is the TransColorado Gas
Transmission Company.
3.3 Partnership Office. The principal office of the partnership shall
be at the offices of K N TransColorado, Inc. or such other place as the
management committee may determine. The management committee may also
determine the location for other offices of the partnership.
3.4 Purpose. The partnership shall design, construct, own and operate
the project. Prior to receiving initial regulatory authorization to
construct the project, however, the partnership shall only conduct such
business as is necessary to seek regulatory approvals and acquire
interests in land and shall not acquire any assets other than interests
in land or incur any liabilities or engage in any other acts except as
determined by the management committee.
3.5 Term. The initial term of the Agreement shall be 25 years from
the date of this Agreement and thereafter from year to year unless
terminated in accordance with Section 13.
3.6 Regulatory Approvals. The partners will cooperate in seeking
authority to construct and operate the project under the FERC's optional
certificate procedures or any successor or alternate authority that is
determined to be appropriate by the management committee. The partners
will cooperate in seeking any additional authorizations, rulings,
permits and approvals from other governmental authorities having
jurisdiction that may be required to construct or to own and operate the
project.
3.7 Secondary Facilities. The right of the partners or the
partnership to acquire, construct, own or operate secondary facilities
interconnecting with the project shall be governed by this section.
3.7.1 Any partner or its affiliate shall have the right to
purchase, construct or acquire and may own any secondary facility,
which will not be considered to be part of the project and will
not be credited to the capital account of the partner.
3.7.2 If any partner or its affiliate would like the partnership
to purchase, construct, acquire or own any secondary facility, the
partner may submit a written request to the partnership. The
partner shall notify each member of the management committee of
the proposed location of the line, facility or extension, its
estimated cost, appropriate engineering data, flow diagrams and
maps and the proposed completion date. If any FERC application is
required, any additional information needed for the filing should
also be provided.
3.7.3 Within 30 days after the information described in section
3.7.2 has been provided to the management committee, it shall
either unanimously approve the proposal or advise the partner
requesting approval that it does not approve the proposal. If the
proposal is approved, the partners agree to have applications
prepared for any necessary regulatory authorizations or other
approvals and to contribute to the partnership the appropriate
portion of the cost of the proposed line, facility or extension.
3.8 Expansion of the Project. The rights and obligations of the
partners to expand the project shall be governed by the provisions of
this section.
3.8.1 Any partner that requests the partnership to construct an
expansion shall notify the management committee of the amount of
additional transportation requested, the proposed shippers who
would use the additional capacity, the likely receipt and delivery
points for the additional gas, the proposed completion date for
the expansion and such other information as is requested by the
management committee.
3.8.2 As soon as possible after receiving the proposal the
management committee shall cause the preparation of cost estimates
of the expansion and shall send them to the partners together with
appropriate engineering data, flow diagrams and maps describing
the expansion and such other information as is reasonably
necessary to evaluate the proposal.
3.8.3 Within 60 days after the information described in section
3.8.2 has been sent to each partner, the management committee
shall either unanimously approve the expansion proposed as set
forth or as modified by the management committee or inform the
partner making the proposal that it will not accept the proposal.
If the management committee accepts the proposal, it shall direct
that any necessary applications for regulatory approvals be
prepared and shall direct the partners to contribute to the
partnership the appropriate portion of the cost of the expansion
or shall arrange for such other financing as the management
committee unanimously approves.
4. Management Committee. The business of the partnership shall be managed
by the management committee, which shall have exclusive authority and full
discretion to manage the affairs of the partnership. Unless otherwise
expressly provided for in this Agreement, no partner shall have the authority
to act for or to assume any obligation or responsibility on behalf of the
partnership without the prior approval of the management committee. The
management committee shall not have authority to take any action inconsistent
with the terms of this Agreement, as it may be amended from time to time.
4.1 Management Committee Members. Each of the partners shall appoint
in writing one member of the management committee and two alternates,
either of whom may serve in the absence of the member. Any action that
a member may perform under this Agreement may be performed, in his
absence, by the alternates, and the member may delegate to the
alternates as many of his powers and duties as he determines to be
appropriate. The member and alternates shall be officers of the partner
that appointed them or of an affiliate of the partner. Members and
alternates shall serve until replaced by the partner that appointed
them.
4.2 Powers of the Management Committee. Without limiting the general
powers of the management committee described in this section, the
management committee is specifically empowered to do the following:
4.2.1 Designate a project manager for the project to serve for the
time and perform the duties specified in the project management
agreement.
4.2.2 Appoint such agents as are necessary to assist the project
manager or the operators. Appoint such technical and other
committees and individuals as necessary and direct them to
undertake all activities needed for the planning, construction,
and operation of the project.
4.2.3 Determine what FERC or other regulatory approvals or
certificates are required to construct and operate the project and
direct the preparation and filing of any needed applications.
4.2.4 Except as otherwise provided in this Agreement or as
delegated in the project management agreement or the operating
agreements, authorize all agreements needed for the project,
including but not limited to agreements with consultants and third
parties to undertake activities or studies for the benefit of the
project, financing arrangements, and commitments for
transportation services for shippers.
4.2.5 Determine all policy or other matters for the project.
4.2.6 Adopt partnership rules and amendments concerning the
conduct of the affairs of the partnership and the management
committee, including procedures for determining the rates to be
charged when the applicable FERC tariff allows discretion in
setting rates. Adopt rules for such other matters as the
management committee determines to be appropriate that are not
inconsistent with this Agreement.
4.2.7 Have prepared and adopt, amend or reject capital and
operating budgets.
4.2.8 Initiate litigation or arbitration, approve termination of
litigation, arbitration or settlement of disputes involving claims
against the partnership; approve all attorneys or agents
representing the partnership in such matters.
4.2.9 Adopt an insurance and indemnity program covering the
interest and obligations of the partnership, and, as appropriate,
the partners.
4.2.10 Approve all tax policy matters regarding the
partnership, including, but not limited to elections relating to
federal income taxes required to be made by the partnership under
Code Section 703(b), state income tax, preparation and filing of
partnership returns, the handling of and participation in tax
audits conducted by any government entity, and designation of a
tax matters partner.
4.2.11 Appoint audit committees for the partnership with such
powers and duties as are specified by the management committee.
The audit committees shall report to the management committee.
4.2.12 Have developed accounting and payment procedures
mutually acceptable to the management committee and the operators.
4.3 Management Committee Meetings. Meetings of the management
committee may be held in person or by a telephone conference call during
which each member may hear at the same time. In lieu of a meeting, the
members may act upon unanimous written consent. Each partner shall have
one vote equal to its partner's percentage at the time of the meeting.
Minutes of each meeting shall be kept and shall be approved by each
member or alternate acting at the meeting. Action by unanimous consent
shall be placed in writing and signed by the members. A quorum shall
consist of the members or their alternates representing all
nondefaulting partners.
4.4 Effect of Management Committee Decisions. Any action taken by the
partnership at the direction of the management committee shall be
binding on the partnership and on each partner, whether approved by the
regular members of the management committee or their alternates.
4.5 Voting Requirements. Unless otherwise provided in the Agreement,
matters shall be decided by a vote of the members representing not less
than a majority of the partners' percentages in the partnership. The
following matters, however, shall require the unanimous approval of all
of the partners.
4.5.1 The means of financing the project or any expansions of the
project.
4.5.2 Selection of project route and design.
4.5.3 The filing of an application for certificates or other
regulatory approvals for the initial line.
4.5.4 To proceed with the acquisition of right of way for the
initial line.
4.5.5 Acceptance of certificates authorizing the initial line that
have been granted by the FERC or other regulatory authority.
4.5.6 After receipt and acceptance of all necessary prior
regulatory approvals and authorizations, the decision to begin
construction of the project.
4.5.7 The form and content of any tariff to be used by the
project.
4.5.8 Any agreement to purchase, construct, acquire or own any
secondary facilities or expansions of the project.
4.5.9 Except as provided in sections 11.2.1 and 11.2.2, consent to
the transfer of a partner's interest.
4.5.10 Except as provided in sections 10, 11 and 12, the
decision to add a new partner to the partnership.
4.5.11 Except as otherwise provided in this Agreement, the
decision to dissolve the partnership.
4.5.12 Any amendment of this Agreement.
4.6 Officials of the Partnership. One of the members of the
management committee shall serve as chairman. A chairman shall serve
for a term of three years unless he resigns or is removed. The first
chairman shall be the management committee member representing K N
TransColorado, Inc. Subsequent chairman shall be selected by a majority
vote of the partners, and a chairman may be removed by a majority vote
of the partners. A chairman may succeed himself for one or more
subsequent terms. If the chairman's position changes to a member
representing a different partner, then the operating agreements will be
reexamined to determine if responsibilities should be reassigned to
other partners or their affiliates. If the partners agree by majority
vote, the operating agreements will be appropriately amended. The
chairman shall have the power and responsibility for the general
supervision of the business and property of the partnership in
accordance with this Agreement and shall perform other administrative
duties commonly incident to this responsibility. The chairman or his
alternate shall chair meetings of the management committee. The
management committee shall have the power to appoint officials or agents
for the partnership to perform such duties as the management committee
may direct.
4.7 Removal of Officials. Each partner may remove an official that it
previously appointed at any time and shall have the right to fill
vacancies occurring in the positions occupied by its appointees. The
management committee may remove an official previously appointed by the
management committee at any time and shall fill vacancies occurring in
the positions occupied by its appointees.
4.8. Indemnification. The partnership shall indemnify and hold
harmless the partners, the members of the management committee and those
officials and agents appointed in writing by the management committee
against all actions, claims, demands, costs and liabilities arising out
of the acts or failures to act of any of the members or officials in
good faith within the scope of their authority in the course of the
partnership's business. These persons shall not be liable for any
obligations, liabilities or commitments incurred by or on behalf of the
partnership as a result of any such acts or failure to act.
5. Project Manager and Operators.
5.1 Project Manager. The partnership shall enter into a project
management agreement with a project manager to serve during the
preconstruction and construction periods. The project manager shall
serve until it resigns or is removed by a majority vote of the
management committee.
5.2 Operators. The partnership shall enter into operating agreements
with affiliates of each of the partners to operate the project.
6. Capital Accounts and Capital Contributions.
6.1 Capital Accounts. The capital account of a partner consists of
the total capital contributions made by the partner in accordance with
sections 6.3 and 6.4, plus all profits of the partnership and less all
distributions and all losses of the partnership allocated to such
account. Capital contributions shall be made in money or property
acceptable to the management committee, other than a note or other
obligation of a partner. Profits and losses shall be determined in
accordance with the accounting rules and regulations, if any, prescribed
by the regulatory body or bodies under the jurisdiction of which the
partnership is then operating, and to the extent of matters not covered
by such rules or regulations, generally accepted accounting principles
prevailing for companies engaged in a business similar to the
partnership.
6.2 Allocation of Profits and Losses. At the end of each calendar
month, each of the partners shall share in all net profits and net
losses of the partnership for that month (determined in accordance with
section 6.1) in proportion to its partner's percentage as of the
beginning of the month for which profits and losses are being allocated,
and the amount allocated to each partner shall be debited or credited,
as the case may be, to the capital account of the partner, as provided
in section 6.1. Except as provided below, all items of income, gain,
loss (including depreciation recapture), deduction or credit for federal
income tax purposes for each month shall be allocated in accordance with
the foregoing allocation of net profits and net losses and are not
subject to any special allocation. However, income, gain, loss and
deduction for federal income tax purposes that is attributable to any
property contributed to the partnership by a partner shall be allocated
to the partners in the manner provided under Internal Revenue Code Section
704(c) and any regulations issued under that section.
6.3 Preconstruction and Construction Capital Contributions. Each
partner agrees to contribute to the capital of the partnership one-third
of the amount necessary to meet the cash requirements of the partnership
prior to and during the construction of the project. These requirements
include, but are not limited to, the costs of preparing and filing an
application for FERC approval, preparing necessary environmental impact
studies, obtaining interests in land and performing preliminary
marketing activities. The capital contributions required by this
section 6.3 shall be made in the amount and at the time specified by the
management committee.
6.4 Post Construction Capital Contributions. Each partner agrees to
contribute to the capital of the partnership one-third of the amount
determined to be necessary by the management committee for the operation
and maintenance of the project and the purchase or construction of any
secondary facilities or expansions of the project approved by the
management committee.
6.5 Payment of Capital Contributions.
6.5.1. The management committee shall cause the project
manager or the appropriate operator to prepare and deliver to each
partner budgets, cash flow projections and other financial
forecasts with respect to the partnership as may be reasonably
requested by any partner. The management committee shall cause to
be issued a written request for payment of each capital
contribution to be made in accordance with sections 6.3 and 6.4,
at such times and in such amounts as the management committee
directs. All amounts received by the partnership from a partner
on or before the date specified in section 6.5.2(iii) shall be
credited to such partner's capital account as of the specified
date and all amounts received from a partner after the date
specified in section 6.5.2(iii) shall be credited to such
partner's capital account as of the date of its receipt.
6.5.2 Each written request for payment issued pursuant to section
6.5.1 shall state: (i) the amount of the capital contribution
requested from each partner; (ii) the purposes for which the
capital contributions are to be applied, in such reasonable detail
as the management committee shall direct; and (iii) the date on
which the payments shall be made and the method of payment.
6.5.3 Each partner will make payment of its capital contributions
in accordance with the requests issued under section 6.5.1. If a
capital contribution is made 10 or more days after the date
specified for payment by the management committee under section
6.5.2(iii), interest on the delinquent amount shall accrue daily
from the date payment should have been made until the date payment
is received by the partnership. Interest shall be calculated on a
daily basis using 365 days for a year at 2% plus the base rate on
corporate loans at large U. S. money center commercial banks
(prime rate) as quoted in The Wall Street Journal under "Money
Rates" for each relevant day. A partner's payment of interest
shall not be used to increase its capital account. Any interest
paid by the defaulting partner shall be allocated as income to the
nondefaulting partners' capital accounts and distributed
immediately. In addition, if a payment is 10 or more days late,
and there has been a reduction in the allocations made under
section 6.2 to the defaulting partner, that partner must make any
necessary payments to bring its capital account into balance with
those of the nondefaulting partners, including additional capital
contributions to its own capital account, or in the case of a
disproportionate allocation of loss, contributions to increase the
capital accounts of the nondefaulting partners, whichever is
appropriate. If a payment is less than 10 days late and there has
been a reduction in the allocations made to the defaulting partner
under section 6.2, such reduction shall be reversed through an
accounting adjustment to all of the partners' capital accounts.
6.6 Unsolicited Contributions. No partner shall make any capital
contributions to the partnership except as requested by the management
committee pursuant to section 6.5.
7. Distributions of Excess Cash. The management committee will determine
the cash requirements of the partnership at least semiannually. Distributions
of any amount in excess of the cash requirements shall be made only to all
partners simultaneously in proportion to their respective partners'
percentages at the time of distribution, in such total amounts and at such
times as directed by the management committee. However, if section 10.1(c)
applies, distribution of excess cash shall be made to each nondefaulting
partner in the proportion that its partner's percentage bears to the partners'
percentages of all nondefaulting partners.
8. Records, Accounting and Taxation.
8.1 Fiscal Year. The fiscal year of the partnership shall begin on
January 1 and end on the following December 31.
8.2 Location of Records. The books of account and other records for
the partnership shall be kept and maintained at the principal office of
the partnership or at such other location as the management committee
directs. Any partner wishing to make copies of any such records of the
partnership may do so at the expense of the partner.
8.3 Books of Account. The books of account for the partnership shall
be maintained on an accrual basis in accordance with the accounting
rules and regulations, if any, prescribed by the regulatory body under
the jurisdiction of which the partnership is operating, and, to the
extent of matters not covered by such rules or regulations, generally
accepted accounting principles prevailing for companies engaged in a
business similar to that of the partnership. The books of account shall
be audited by certified public accountants selected by the management
committee following the end of each fiscal year at the expense of the
partnership and, if reasonably required by any partner, at the end of
the partner's fiscal year at the expense of the partner.
8.4 Annual Financial Statements and Tax Returns. Within 60 days
following the end of the fiscal year, the project manager or appropriate
operator shall prepare and deliver to each partner (with footnote
disclosure) an income statement, a statement of cash flows for the
fiscal year, a statement of financial position and a statement of
changes in each partner's capital account as of the end of the fiscal
year, together with an auditor's opinion by the certified public
accountants. Within 120 days following the end of the fiscal year, the
tax matters partner shall cause to be prepared the federal, state and
local income tax returns and other accounting and tax information and
schedules as shall be necessary for the preparation by each partner of
its income tax returns for the fiscal year. The tax matters partner
shall also cause to be prepared and timely filed the federal and any
state and local income tax returns of the partnership.
8.5 Interim Financial Statements. As soon as practicable after the
end of each calendar month in each fiscal year, the project manager or
appropriate operator shall prepare and deliver to each partner, together
with an appropriate certificate of the person preparing the document, an
income statement, a statement of cash flows, a statement of financial
position, a tax schedule and a statement of changes in each partner's
capital account for the month (including sufficient information to
permit the partners to calculate their tax accruals), for the portion of
the fiscal year then ended and for the 12 month period then ended.
8.6. Taxation of Partnership. The partners intend that the partnership
shall be treated as a partnership for federal, state and local income
tax purposes. The partners will take all action, including amending
this Agreement and executing other documents, needed to qualify for and
receive this tax treatment.
8.7 Government Reports. The project manager or appropriate operator
shall prepare and file all reports prescribed by the FERC and any other
regulatory or governmental agency having jurisdiction.
8.8 Inspection of Facilities and Audit by Partners. Each partner
shall have the right at reasonable times during regular business hours
to inspect the facilities of the partnership and to audit and make
copies of the books of account and other records of the partnership,
including partnership minutes, resolutions and contracts. This right
may be exercised through any agent or employee of the partner designated
in writing by it or by an independent public accountant or attorney so
designated. Each partner shall bear all expenses incurred in any
inspection or audit made at the partner's request.
8.9 Deposit and Withdrawal of Funds. Funds of the partnership shall
be deposited in the financial institutions designated by the management
committee. All individuals authorized as signatories for the
partnership shall be designated by the management committee. All
withdrawals of funds shall be made only by checks, wire transfer, debit
memorandum or other written instrument.
8.10 Record Retention. All records that are required by this Agreement
or other agreements of the partnership shall be retained by the
partnership for the longer of the period of time required by the FERC or
any other federal or state agency having jurisdiction or by state law
or, the period during which any state or federal tax audit may occur, or
as determined by the management committee, but in no event for less than
three years.
8.11 Section 754 Election. At the direction of the management
committee, the tax matters partner shall file an election with the
Internal Revenue Service under Section 754 of the Internal Revenue Code
in the manner prescribed in regulations issued under Section 754. The
election shall provide that the basis of partnership property shall be
adjusted in the case of a distribution of property, in the manner
provided in Code Section 734, and, in the case of a transfer of a
partnership interest, in the manner provided in Code Section 743.
8.12 Tax Matters Partner. The management committee shall designate a
tax matters partner within the meaning of Internal Revenue Code Section
6231(a)(7) in the manner required by regulations issued under that
Section.
9. Reimbursement of Costs. Certain costs incurred by the partners or their
affiliates shall be reimbursed by the partnership as provided in this section.
9.1 Out-of-Pocket Costs. Out-of-pocket costs have been or will be
incurred by the partners or their affiliates. After the execution of
this Agreement, but not more often than monthly, the partners shall
present a detailed accounting of these costs to the partnership for
reimbursement. If approved by the management committee, the partnership
shall reimburse the appropriate partner or affiliate for out-of-pocket
costs.
9.2 In-house Costs. One or more of the partners or their affiliates
may have accrued or may accrue in-house costs, as specified in Exhibit A
to this Agreement, to help with the formation of the partnership and the
design or construction of the project. Each partner that has
accumulated in-house costs shall present a detailed accounting of them
to the partnership for payment as of each April 1 and October 1. If
approved by the management committee, the partnership shall reimburse
the appropriate partner or affiliate for the amount of its accrued
in-house costs.
10. Default.
10.1 Consequences of Default. For as long as a partner is in default,
(a) the representative of the defaulting partner on the management
committee shall not have any vote as a member of the management
committee and action by the management committee shall require the
unanimous vote of the remaining members during the period of default;
(b) the defaulting partner shall continue to be liable to make capital
contributions to the partnership in accordance with section 6; and (c)
no distributions shall be made to the defaulting partner, except as
provided in section 13.3.2. A defaulting partner shall be liable to the
partnership and the other partners for all losses, damages and expenses
sustained or incurred by the partnership or the partners as a result of
the default.
10.2 Action by Management Committee. In the event of default, the
members of the management committee representing the nondefaulting
partners shall promptly vote on a course of action to be taken, which
may include requiring all of the nondefaulting partners to make capital
contributions or lend funds to the partnership proportionate to their
then-existing partners' percentages in a total amount equal to the
amount of the default.
10.3 Sale of Defaulting Partner's Interest. If any default continues
for more than 60 consecutive days, each of the nondefaulting partners
shall have the right to purchase equal percentages of the defaulting
partner's partnership interest. If any of the nondefaulting partners
elects not to purchase equal percentages of such partnership interest,
upon unanimous approval of the nondefaulting partners, they may purchase
unequal percentages of the defaulting partner's partnership interest,
including a purchase of the entire partnership interest by a single
partner, or they may sell all or part of the partnership interest to a
third party. If the nondefaulting partners cannot reach unanimous
agreement on the sale of the defaulting partner's partnership interest
in unequal percentages to the nondefaulting partners or to a third
party, the partnership shall be dissolved. Any sale or assignment of
the defaulting partner's partnership interest may be made without the
consent or other agreement of the defaulting partner.
10.4 Price for Nondefaulting Partners. The price payable by one or
both of the nondefaulting partners for the defaulting partner's
partnership interest shall be the lesser of: (a) the fair market value
of the partnership interest, as determined by the management committee,
or (b) the amount reflected in the defaulting partner's capital account
at the time of the sale. The proceeds from a sale to one or both of the
nondefaulting partners shall be paid to the partnership and applied
first in an amount equal to any losses, damages or expenses, including
attorney's fees, sustained by the partnership as a result of the
default. The proceeds shall next be applied to any nondefaulting
partner in an amount equal to the losses, damages or expenses, including
attorney's fees, incurred by such partner as a result of the default.
Any remaining proceeds shall be paid to the defaulting partner.
10.5 Price for Third Party. The management committee may sell a
defaulting partner's partnership interest to a third party at a
reasonable price, as determined by the management committee. The
proceeds from the sale of the defaulting partner's partnership interest
shall be paid to the partnership, which shall act as an escrow agent in
disbursing such proceeds. The proceeds shall be disbursed in the
following order: (a) to the partnership to the extent of any losses,
damages or expenses, including attorney's fees, sustained or incurred by
the partnership as a result of the default; (b) to any partner to the
extent of any losses, damages or expenses, including attorney's fees,
sustained or incurred by the partner as a result of the default; (c) to
the partnership up to the amount of the arrears in the defaulting
partner's capital account; and (d) to the defaulting partner up to the
balance in that partner's capital account to liquidate its interest in
the partnership. Any proceeds used to satisfy the arrears in the
defaulting partner's capital account shall be treated as a capital
contribution by the new partner and credited to its capital account. If
any proceeds remain after making the payments described in (a) through
(d), the excess proceeds shall be distributed to each nondefaulting
partner, excluding the new partner, in the proportion that its partner's
percentage bears to the partners' percentages of all such nondefaulting
partners.
10.6 Additional Remedies. Nothing in section 10 shall prevent the
partnership or any partner from recovering from a defaulting partner the
amount of any losses, damages or expenses incurred or sustained as a
result of such default and not recovered pursuant to section 10, or from
pursuing any other remedies that may be available in law or equity. The
nondefaulting partners may place a lien on the future cash distributions
to a partner who was in default to recover their losses, damages and
expenses.
10.7 Continuation of Partnership. If a defaulting partner's interest
in the partnership is assigned to a third person or purchased by one or
both of the nondefaulting partners, the partnership shall not be
dissolved and shall continue to carry out the business of the
partnership. If one or both of the nondefaulting partners purchases the
interest of a defaulting partner, the obligation to make capital
contributions pursuant to section 6, the capital accounts, the partners'
percentages, and voting rights on the management committee shall be
appropriately adjusted to reflect the reduction in the number of
partners.
10.8 Cure of Default. A defaulting partner shall have a right to cure
one or more defaults at any time prior to the time its interest in the
partnership is sold as provided in this section 10. A defaulting
partner can cure a default by doing all of the following: (a) paying to
the partnership the amount of the capital contributions it failed to
make. These capital contributions shall be paid in the manner specified
by the management committee and shall be credited to the defaulting
partner's capital account. If the nondefaulting partners were required
to make additional capital contributions due to a default, the
partnership shall make cash distributions to them in the amount of such
additional capital contributions; (b) making all payments required under
section 6.5.3; (c) paying to the partnership the amount of any losses,
damages or expenses, including attorney's fees, sustained or incurred by
the partnership as a result of the default, excluding any amounts
described in (a) and (b); and (d) paying to any partner the amount of
any losses, damages or expenses, including attorney's fees, sustained or
incurred by the partner as a result of the default, excluding any
amounts described in (a) and (b).
10.9 Status of Partner in Default as Partner. A defaulting partner
that has not been required to transfer its interest shall continue to be
a partner.
11. Sale, Transfer or Pledge of Partnership Interest. Except with the
unanimous consent of the management committee, or as permitted by section 11.2
of this Agreement, no partner may (or allow any of its affiliates to) sell,
assign, pledge, hypothecate or otherwise transfer in any manner all or any
part of its right, title or interest in the partnership or in this Agreement.
11.1 Sale of Partnership Interest. A partner may sell some or all of
its interest in the partnership to an unaffiliated party only with the
unanimous consent of the remaining partners and subject to the following
provisions.
11.1.1 If a partner wishes to sell some or all of its
interest in the partnership, it shall submit to the management
committee a notice of intent to sell containing a list of proposed
buyers unaffiliated with any partner. The management committee
must unanimously agree on the acceptability of the buyers before
the selling partner may negotiate on price and terms with those
parties that are approved. The selling partner shall provide such
information as the management committee reasonably requests about
the prospective buyers. If the management committee cannot
unanimously approve one or more of the proposed buyers, the
selling partner may withdraw from the partnership, as provided in
section 12. The management committee shall notify the selling
partner of the acceptable prospective buyers, if any, within 30
days of receiving the notice of intent to sell.
11.1.2 If the selling partner is able to reach agreement on
the terms and conditions for sale of all or part of its interest
to an approved proposed buyer, it must then give the remaining
partners a right of first refusal to purchase the interest on the
same terms and conditions. The remaining partners shall have 30
days from the date they receive the offer to exercise their right
of first refusal. Unless the remaining partners unanimously agree
otherwise, they must purchase the selling partner's partnership
interest in equal percentages.
11.1.3 If the remaining partners elect not to purchase the
selling partner's interest, the sale to the approved buyer must be
on the same terms and conditions as those offered to the remaining
partners.
11.2 Permitted Transfers by a Partner. Provided that a transfer does
not result in a termination of the partnership for federal income tax
purposes, nothing in this Agreement shall prevent:
11.2.1 The transfer by any partner of its entire right, title
and interest in the partnership and in this Agreement to an
affiliate of the partner if the affiliate assumes by express
agreement with the partnership, in a way satisfactory to the
management committee, all of the obligations of the transferor
under this Agreement and if the transfer does not relieve the
transferor of its obligations under the Agreement without the
approval of the management committee, which approval shall not be
unreasonably withheld. Upon approval, the affiliate shall be
substituted as a partner.
11.2.2 An assignment, pledge or other transfer creating a
lien or security interest in all or any portion of a partner's
right, title or interest in the profits and surplus of the
partnership or in any indebtedness of the partnership under any
mortgage, indenture or deed of trust created by such partner;
provided that the assignee, pledgee, mortgagee or trustee shall
hold the same subject to the terms of this Agreement.
11.3 Effect of Permitted Transfers or Withdrawals. No assignment,
pledge or other transfer or withdrawal pursuant to section 12 shall give
rise to a right in the transferring or withdrawing partner to dissolve
the partnership. An assignment, pledge or other transfer shall not give
rise to a right in any transferee to become a partner in the partnership
unless agreed to by unanimous vote of the management committee, except
that affiliates will be substituted as partners, as provided in section
11.2.1.
11.4 Effect of Prohibited Transfers. Any transfer of an interest in
the partnership by a partner in violation of the terms of this Agreement
shall not cause a dissolution of the partnership, but shall result in
the forfeiture of the partner's right to participate in the management
of the partnership. This section does not limit any right the
partnership or the other partners may have against the partner making
the prohibited transfer.
12. Withdrawal of a Partner. A nondefaulting partner shall have the right
to request withdrawal from the partnership if agreement on an acceptable
course of action cannot be reached at any meeting of the management committee.
The withdrawing partner shall give 60 days' notice of its intent to withdraw
to the other partners. If any of the partners gives notice of withdrawal from
the partnership, the following provisions shall apply.
12.1 Purchase by Partners. The remaining partners shall decide whether
to purchase the interest of a withdrawing partner. Unless the remaining
partners unanimously agree otherwise, each remaining partner shall
purchase equal percentages of the partnership interest at the price
provided for in section 12.4. If the remaining partners unanimously
agree to purchase unequal percentages of the withdrawing partner's
partnership interests, the new interests shall be reflected by
appropriate adjustments in the partner's capital accounts and partners'
percentages and voting rights on the management committee.
12.2 Sale to Third Party. If the remaining partners do not purchase
the partnership interest, by unanimous vote the remaining partners may
permit or direct the withdrawing partner to assign its partnership
interest to a third person who will become a partner in the partnership.
However, the withdrawing partner shall have no obligation to assign its
partnership interest to a third party for less than the price specified
in section 12.4.
12.3 Need to Agree. If the remaining partners of the management
committee do not unanimously agree either to purchase the withdrawing
partner's partnership interest or to permit its assignment, the
partnership shall be dissolved.
12.4 Price of Partnership Interest. Unless otherwise agreed, the price
to be paid to any withdrawing partner by the remaining partners as
consideration for the transfer of its interest in the partnership shall
be the amount contained in the withdrawing partner's capital account.
13. Dissolution of the Partnership. Voluntary and involuntary dissolution
of the partnership shall be governed by this section.
13.1 Voluntary Dissolution.
13.1.1 After the initial term of the Agreement, any partner
may elect to dissolve the partnership and terminate this Agreement
by giving the other partners written notice of such election not
less than 1 year prior to the date the termination is to take
place.
13.1.2 By unanimous vote of the management committee, the
partners may elect to dissolve the partnership and terminate this
Agreement at any time during or after its initial term.
13.1.3 Winding up of the partnership business shall include
securing any necessary prior approval of the FERC and, upon such
election of the management committee and receipt of any necessary
FERC approval, the partnership shall undertake sale or abandonment
of all or substantially all of the partnership's business and
assets.
13.2 Automatic Dissolution. The partnership shall automatically and
without notice be dissolved upon the happening of any of the following
events:
13.2.1 Ninety days have elapsed since the commencement of any
proceedings by or against any of the partners for any relief under
any bankruptcy or insolvency law, or any law relating to the
relief of debtors, readjustment of indebtedness, reorganization,
arrangement, composition or extension, and, if such proceedings
have been commenced against any of the partners, the proceedings
have not been dismissed, nullified, stayed or otherwise rendered
ineffective (but then only so long as the stay continues in
force);
13.2.2 Ninety days have elapsed since the entry of a decree
or order of a court having jurisdiction for the appointment of a
receiver or liquidator or trustee or assignee in bankruptcy or
insolvency of any of the partners or of a substantial part of a
partner's property, or for the winding up or liquidation of its
affairs, when the decree or order remains in force undischarged
and unstayed for a period of 90 days, or any substantial part of
the property of any of the partners shall be sequestered or
attached and is not returned to the possession of the partner or
released from the attachment within 90 days;
13.2.3 Any of the partners makes a general assignment for the
benefit of creditors or admits in writing its inability to pay its
debts generally as they become due;
13.2.4 The filing of a certificate of dissolution by any
partner under the laws of the state of its incorporation or the
entering of a final order dissolving any partner by any court of
competent jurisdiction;
13.2.5 The sale or abandonment of all or substantially all of
the partnership's business and assets;
13.2.6 Any event which makes it unlawful for the business of
the partnership to be carried on or for the partners to carry on
such business in a partnership; or
13.2.7 Failure of the management committee to agree to permit
or require the assignment or purchase of a withdrawing partner's
interest in the partnership as provided in section 12.3.
13.3 Winding Up and Liquidation. If the partnership is dissolved
pursuant to the provisions of section 13, the management committee shall
continue to exercise the powers vested in it by this Agreement and
continue to operate the project in the normal course to the extent
appropriate for the purpose of winding up the business of the
partnership and liquidating the assets in an orderly manner.
Partnership assets will be treated as follows:
13.3.1 Unrealized appreciation and depreciation on
partnership assets that are not sold or otherwise disposed of in
connection with the winding up and liquidation of the partnership
shall be allocated to the partners' capital accounts as if such
assets had been sold for their fair market value on the date the
partnership is liquidated. If on the date of liquidation of the
partnership any partner has a deficit in its capital account after
reflecting in its capital account (i) the items specified in
section 6.1 for the period ending on the date of liquidation of
the partnership, and (ii) the allocations required under the first
sentence of this section 13.3.1, that partner shall be required to
contribute sufficient cash to the partnership to eliminate the
deficit.
13.3.2 The net assets of the partnership remaining after the
payment or provision for payment of all of the liabilities of the
partnership shall be distributed to all of the partners in
accordance with the positive capital account balances of the
partners determined after adjustment of the partners' capital
accounts in accordance with section 13.3.1.
13.3.3 No termination or dissolution shall deprive any
partner not in default of any remedy otherwise available to it.
13.4 Termination Subject to the Natural Gas Act. The right and power
to dissolve the partnership shall at all times be subject to the
obligations and duties of the partnership as a natural gas company under
the Natural Gas Act or any successor or parallel statutes and the
jurisdiction of the FERC, and no dissolution under this section 13 shall
be accomplished unless all applicable provisions of the act and any
conditions or obligations of any certificates issued by the FERC have
been complied with or fulfilled.
14. Limitation of Liabilities and Litigation.
14.1 Claims against Partners. If a claim or cause of action is
prosecuted against a partner for a third-party liability incurred by the
partnership, the partner against whom the claim or cause of action was
prosecuted shall have the right to reimbursement of a judgment or
reasonable settlement of the claim, plus costs and attorney's fees from
and to the extent of the assets of the partnership. The management
committee may advance costs and expenses of litigation to a partner. A
partner that has a claim made against it that may result in liability to
the partnership or to any other partner shall promptly notify the
partnership and the other partners of the claim and shall provide the
partnership a reasonable opportunity to participate in any litigation.
14.2 Claims against the Partnership. The management committee shall
give each partner timely notice of all claims or litigation against the
partnership. In addition, any partner that is sued as a partner in the
partnership shall give every other partner and the partnership timely
notice of the litigation.
14.3 Contract Restrictions. Unless approved by the management
committee, the partnership or its agents or representatives shall not
enter into any contracts, leases, subleases, notes, deeds of trust or
other obligations unless the agreements or instruments contain
appropriate provisions limiting the claims of all parties to or
beneficiaries of the agreements or instruments to the assets of the
partnership and expressly waiving any rights of the parties or
beneficiaries to proceed against the partners individually.
15. Representations and Warranties of the Partners. Each partner
represents, warrants and agrees that:
15.1 It is a corporation duly incorporated and validly existing, that
it is in good standing under the laws of its jurisdiction of
incorporation and that it is or will be authorized to do business in
Colorado and other states, as necessary.
15.2 It will not voluntarily cause a dissolution or termination of the
partnership by failure to maintain its corporate existence;
15.3 The execution, delivery and performance of this Agreement have
been duly authorized by each partner's board of directors, and this
Agreement, when executed, will be valid and binding on it; and
15.4 The execution of this Agreement does not contravene any provision
of, or constitute a default under, any relevant indenture, mortgage or
other agreement binding on the partner or any valid order of any court,
commission or governmental agency to which the partner is subject.
16. Miscellaneous Provisions.
16.1 Notices. Any written notices or other communication may be mailed
by certified or registered mail, return receipt requested, postage
prepaid, or sent by overnight delivery service, fax or other electronic
means to each of the partners at the addresses below or at any other
address designated by the partner by written notice, and to the
partnership at its principal office specified in section 3.3 or at any
other address designated by written notice to each of the partners.
Notice shall be deemed given three days following mailing or upon
receipt if sent by any other means.
K N TransColorado, Inc.
12055 West 2nd Place
Lakewood, CO 80228-1506
Attn: President
Telephone: (303) 989-1740
Fax: (303) 989-0368
El Paso TransColorado Company
P.O. Box 1492
El Paso, TX 79978
Attn: A. W. Clark, Vice President
Telephone: (915) 541-2600
Fax: (915) 541-2122
Questar TransColorado, Inc.
79 South State Street
Salt Lake City, UT
84111
Attn: President
Telephone: (801) 530-2150
Fax: (801) 530-2570
16.2 Subject to Applicable Law. This Agreement and the obligations of
the partners hereunder are subject to all applicable laws, rules, court
decisions, orders and regulations of governmental authorities having
jurisdiction and in the event of conflict, said laws, rules, court
decision, order and regulations of governmental authorities having
jurisdiction shall control.
16.3 Further Assurances. Each of the partners agrees to execute and
deliver all such other and additional instruments and documents and to
do such other acts and things as may be necessary more fully to
effectuate this Agreement and the partnership created hereby and to
carry on the business of the partnership in accordance with this
Agreement.
16.4 Amendment. This Agreement may be amended, supplemented or
restated only in writing and with a written consent of each of the
partners. Except as provided in section 11.2, if any partner is added
to the partnership for any reason, this Agreement will be amended to add
the partner as a party.
16.5 Choice of Law. This Agreement and the partnership shall be
governed by and interpreted in accordance with the laws of Colorado.
16.6 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
16.7 Waiver. A waiver by any partner of any provision, condition or
requirement shall not be deemed to be a waiver or release of any other
partner from performance of any other provision, condition or
requirement in this Agreement or release of any future performance of
the same provision, condition or requirement.
16.8 Attorney's Fees. Should there be any litigation between the
partners concerning any provision of or the rights and duties under this
Agreement, the party prevailing in such litigation shall be entitled, in
addition to such other relief as may be granted in such proceeding, to a
reasonable sum from the nonprevailing partners (but not from the
partnership) for their attorney's fees in the litigation.
16.9 Entire Agreement and Termination of Prior Agreements. This
Agreement, amended and restated September 25, 1995, constitutes the
agreement between the partners concerning its subject matter and
supersedes any prior understanding or written or oral agreements
concerning the subject matter. The Project Agreement dated March 19,
1990, and the letters of intent dated August 18, 1989, and February 9,
1990, among the partners are terminated as of the effective date of this
Agreement.
16.10 Severability. Any provision of this Agreement prohibited by
applicable law shall be invalid to the extent of such prohibition unless
it is determined by unanimous consent of the management committee the
such prohibition invalidates the purposes or intent of this Agreement.
This Agreement is effective on the day first set forth above and
is entered into as of the date set forth below by the authorized
representatives whose signatures are shown below.
K N Transcolorado, Inc.
By: /s/ S. Wesley Hawn
S. Wesley Haun, Vice President
El Paso TransColorado Company
By: /s/ A. W. Clark
A. W. Clark, Vice President
Questar TransColorado, Inc.
By: /s/ A. J. Marushack
A. J. Marushack, President and
Chief Executive Officer
Date: September 25, 1995
FIRM STORAGE SERVICE AGREEMENT
Questar Pipeline Company
79 South State Street
Salt Lake City, Utah 84111 Contract No. STO46
THIS AGREEMENT is entered into this 12th day of April, 1993, by and
between QUESTAR PIPELINE COMPANY, CLAY BASIN STORAGE DIVISION, a Utah
corporation, "Seller," and MOUNTAIN FUEL SUPPLY COMPANY, "Buyer."
Buyer represents that it desires Seller to store natural gas in Seller's
Clay Basin Storage Field; and Seller represents that it is seeking FERC
authorization to expand the storage capacity available in order to provide the
storage service for Buyer on the terms specified in this agreement.
Seller and Buyer agree as follows:
AGREEMENT TERMS
The terms selected below, together with the terms and conditions of this
agreement, including the attached Appendices A and B, constitute the storage
service to be provided and the rights and obligations of the parties. Buyer
shall designate receipt and delivery points on Appendix A that are acceptable
to Seller.
1. BUYER'S STATUS (Please Check One Only):
XX Local Distribution Company
Intrastate Pipeline Company
Interstate Pipeline Company
Marketer/Broker
Producer
End-User
Other (Specify) _______________
2. VOLUMES TO BE INJECTED AND WITHDRAWN (Subject to the provisions of Section
8, below):
Firm Service (Please see note below for MRD calculation):
5,500 Annual Working Gas Volume (MMcf)
45.83 Minimum Required Deliverability Volume MMcf/day (MRD)
Note: MRD must be calculated using the formula shown below:
MRD = Annual Working Gas Volume (MMcf/year)
150 days x .80
3. RATES (Subject to the provisions of paragraph 2 of Appendix B):
Firm Storage Service - Rate Schedule FSS
DEMAND CHARGES:
Deliverability (Please Check One Only):
XX the maximum rate set forth in Seller's Statement of Rates
a discounted rate of $___________/Mcf
Inventory Capacity (Please Check One Only):
XX the maximum rate set forth in Seller's Statement of Rates
a discounted rate of $___________/Mcf
Prior to the time the terms and conditions set forth in Appendix B are
met to the sole satisfaction of Seller, demand charges under this
agreement shall be applied to the levels of Annual Working Gas Volume
and MRD that Seller, in Seller's sole judgement, can actually provide in
the event the Annual Working Gas Volume and MRD requested by Buyer and
set forth in Section 2 above cannot reasonably be commenced. Unless Seller
notifies Buyer in writing that Seller is unable to provide the service
at the requested levels, Buyer shall be responsible for all demand
charges, as set forth above in this Section 3.
COMMODITY CHARGES:
Injection: $0.00851/Mcf
Withdrawal: $0.01631/Mcf
Overrun: $0.29124/Mcf
4. ACA CHARGE:
XX yes
no
5. ADDITIONAL FACILITIES CHARGES:
Additional facilities:
XX are required
are not required
Charge:
N/A lump-sum payment of $ ____________
N/A monthly fee of $ ____________
6. TERM OF THE AGREEMENT (Subject to the provisions of Section 8, below):
(a) Initial term
May 15, 1994 to May 14, 2019
(b) Renewal term
XX none
other: __________________________
(c) Termination. This agreement shall be renewed as stated in Section
6(b) above. This agreement may be terminated during any renewal period
by either party upon 30 days' written notice to the other party
prior to each injection period.
7. NOTICE: Unless otherwise provided in Seller's FERC Gas Tariff, Volume
No. 2-A, all notices shall be given by telephone or other electronic means and
confirmed in writing at the following addresses:
Buyer:
Mountain Fuel Supply Company
141 East First South Street
Salt Lake City, Utah 84147
Attention: Vice President - Gas Supply
Telephone: (801) 530-2043
Fax: (801) 530-2970
QUESTAR PIPELINE COMPANY
79 South State Street
Salt Lake City, Utah 84111
Attn: Director, Gas Supply Planning
Telephone: (801) 530-2020
Fax: (801) 530-2570
8. COMMENCEMENT OF SERVICE: Seller shall not be obligated to commence the
requested Clay Basin expansion service under this agreement until all terms
and conditions of Appendix B are met to the sole satisfaction of Seller.
However, at any time prior to such fulfillment of the Appendix B terms and
conditions, service may, if deemed feasible solely by Seller, be made
available to Buyer using the priority determined by applying the present value
ranking procedures set forth in Section 4.2 of Seller's FERC Gas Tariff,
Original Volume No. 2-A to the effective service requests underlying the
executed expansion service agreements. Service to remaining Buyers will
commence as soon as deemed operationally practicable by Seller.
If the FERC authorizes only a portion of the total expansion capacity
requested by Seller and the authorized capacity is oversubscribed by Buyers
who have executed a tendered firm storage service agreement, then the capacity
so approved will be made available to such Buyers using the priority
determined by applying the present value ranking procedure set forth in Section
4.2 of Seller's FERC Gas Tariff, Original Volume No. 2-A to the respective
executed service agreements. Service agreements receiving no allocation of
capacity under this methodology, and the respective underlying requests for
service, shall be considered void for all purposes.
9. TARIFF: This agreement shall be subject to the terms and conditions
attached to and made part of this agreement as Appendix B and all the
applicable rate schedules and the General Terms and Conditions of Seller's
FERC Gas Tariff, Original Volume No. 2-A, as it may be amended or superseded
from time to time.
10. RESTRUCTURING TARIFF: Upon implementation by Seller of tariff changes
required by the FERC to comply with restructuring under Order No. 636 in
Docket No. RS92-9, this agreement will be reformed to conform to Seller's
tariff. The reformed agreement will be issued to Buyer according to the
procedures set forth in Seller's tariff, as it may be amended or superseded
from time to time.
The parties have executed this agreement to be effective the first day of its
term.
BUYER: Mountain Fuel Supply Co. QUESTAR PIPELINE COMPANY
By: /s/ M. E. Benefield By: /s/ J. B. Carricaburu
Title: Vice President Gas Supply Title: V. P., Gas Supply & Marketing
Date: March 25, 1993 Date: April 12, 1993
APPENDIX A
1. Receipt Points
Description Quantity/Mcf
2. Delivery Points
Description Quantity/Mcf
APPENDIX B
CONDITIONS PRECEDENT TO SERVICE
1. Seller shall not be obligated to provide expanded firm storage service
at Clay Basin under this agreement until the following conditions are met to
the sole satisfaction of Seller:
a. Receipt by Seller of signed firm storage service agreements from
one or more Buyers for sufficient capacity and upon terms and conditions
acceptable to Seller that justify construction of the Clay Basin
expansion;
b. Receipt and acceptance by Seller of all approvals required to
expand the capacity at Clay Basin as requested by Seller and to
construct the facilities necessary to provide all expanded firm storage
service requested by all expansion Buyers and to commence the service,
including all necessary authorizations from federal, state and local
municipal agencies and other government authorities, in final form and
substance satisfactory to Seller, permitting or authorizing the service;
c. Receipt and acceptance by Seller of all necessary rights of way,
easements and permits, if any, required to construct, operate and
maintain the Clay Basin expansion facilities;
d. Completion of construction and commencement of actual operation of
all facilities, including injection of all required cushion gas,
necessary to provide firm storage service to all expansion buyers.
2. Should the FERC approve Clay Basin storage rates for firm service above
the rates in effect on February 12, 1993, and such increase is due solely to
costs associated directly with the expansion of Clay Basin, Buyer may
terminate this agreement.
3. Buyer's creditworthiness shall remain a continuing condition precedent
to Seller's obligation to perform. Seller may require Buyer to reverify its
creditworthiness as Seller deems necessary.
QUESTAR PIPELINE COMPANY
DEFERRED COMPENSATION PLAN FOR DIRECTORS
(As Amended and Restated February 13, 1996)
1. Purpose of Plan.
The purpose of the Deferred Compensation Plan for Directors
("Plan") is to provide Directors of 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 discontinu-
ance of his election.
All notices of election, change of election, or discontinuance of
election shall be made on forms prepared by the Corporate Secretary and
shall be dated, signed, and filed with the Corporate Secretary. A
notice of change of election or discontinuance of election shall operate
prospectively from the beginning of the calendar year, but any
compensation deferred shall continue to be held and shall be paid in
accordance with the notice of election under which it was withheld.
(b) Amount of Deferral. A Participant may elect to defer
receipt of all or a specified portion of the compensation payable to him
for serving as a Director and attending Board and Committee Meetings as
a Director. For purposes of this Plan, compensation does not include
any funds paid to a Director to reimburse him for expenses.
(c) Period of Deferral. When making an election to defer all or
a specified percentage of his compensation, a Participant shall elect to
receive the deferred compensation in a lump sum payment within 45 days
following the end of his service as a Director or in a number of annual
installments (not to exceed four), the first of which would be payable
within 45 days following the end of his service as a Director with each
subsequent payment payable one year thereafter. Under an installment
payout, the Participant's first installment shall be equal to a fraction
of the balance in his Deferred Compensation Account as of the last day
of the calendar month preceding such payment, the numerator of which is
one and the denominator of which is the total number of installments
selected. The amount of each subsequent payment shall be a fraction of
the balance in the Participant's Account as of the last day of the
calendar month preceding each subsequent payment, the numerator of which
is one and the denominator of which is the total number of installments
elected minus the number of installments previously paid. The term
"balance," as used herein, refers to the amount credited to a
Participant's Account or to the Fair Market Value (as defined in Section
5 (a)) of the Phantom Shares of Questar Corporation's common stock
("Common Stock") credited to his Account.
(d) Phantom Stock Option and Certificates of Deposit Option.
When making an election to defer all or a specified percentage of his
compensation, a Participant shall choose between two methods of
determining earnings on the deferred compensation. He may choose to
have such earnings calculated as if the deferred compensation had been
invested in Common Stock at the Fair Market Value (as defined in Section
5 (a)) of such stock as of the date such compensation amount would have
otherwise been payable to him ("Phantom Stock Option"). Or he may
choose to have earnings calculated as if the deferred compensation had
been invested in negotiable certificates of deposit at the time such
compensation would otherwise be payable to him ("Certificates of Deposit
Option").
The Participant must choose between the two options for all of the
compensation he elects to defer in any given year. He may change the
option for future compensation by filing the appropriate notice with the
Corporate Secretary before the first day of each calendar year, but such
change shall not affect the method of determining earnings for any
compensation deferred in a prior year.
5. Deferred Compensation Account.
A Deferred Compensation Account ("Account") shall be established
for each Participant.
(a) Phantom Stock Option Account. If a Participant elects the
Phantom Stock Option, his Account will include the number of shares and
partial shares of Common Stock (to four decimals) that could have been
purchased on the date such compensation would have otherwise been
payable to him. The purchase price for such stock is the Fair Market
Value of such stock, i.e., the closing price of such stock as reported
on the Composite Tape of the New York Stock Exchange for such date or
the next preceding day on which sales took place if no sales occurred on
the actual payable date.
The Participant's Account shall also include the dividends that
would have become payable during the deferral period if actual purchases
of Common Stock had been made, with such dividends treated as if
invested in Common Stock as of the payable date for such dividends.
(b) Certificates of Deposit Option Account. If a Participant
elects the Certificates of Deposit Option, his Account will be credited
with any compensation deferred by the Participant at the time such
compensation would otherwise be payable and with interest calculated at
a monthly rate using the typical rates paid by major banks on new issues
of negotiable Certificates of Deposit on amounts of $1,000,000 or more
for one year as quoted in The Wall Street Journal under "Money Rates" on
the first day of the relevant calendar month or the next preceding
business day if the first day of the month is a non-business day. The
interest credited to each Account shall be based on the amount held in
the Account at the beginning of each particular month.
6. Statement of Deferred Compensation Account.
Within 45 days after the end of the calendar year, a statement
will be sent to each Participant listing the balance in his Account as
of the end of the year.
7. Retirement
Upon retirement or resignation as a Director from the Board of
Directors, a Participant shall receive payment of the balance in his
Account in accordance with the terms of his prior instructions and the
terms of the Plan unless he is still serving as a voting director of
Questar Corporation ("Questar"). Upon retirement or resignation as a
Director of Questar or upon appointment as a non-voting Senior Director
of Questar, a Participant shall receive payment of the balance in his
Account in accordance with the terms of his prior instructions and the
terms of the Plan unless he is currently serving as a Director of the
Company.
8. Payment of Deferred Compensation.
(a) Phantom Stock Option. The amount payable to the Participant
choosing the Phantom Stock Option shall be the cash equivalent of the
stock using the Fair Market Value of such stock on the date of
withdrawal.
(b) Certificates of Deposit Option. The amount payable to the
Participant choosing the Certificate of Deposit Option shall include the
interest on all sums credited to the Account, with such interest
credited to the date of withdrawal.
(c) The date of withdrawal for both the Phantom Stock Option
Account and the Certificates of Deposit Option Account shall be the last
day of the calendar month preceding payment or if payment is made
because of death, the date of death.
(d) The payment shall be made in the manner (lump sum or
installment) chosen by the Participant. In the event of a Participant's
death, payment shall be made within 45 days of the Participant's death
to the beneficiary designated by the Participant or, in the absence of
such designation, to the Participant's estate.
9. Payment, Change in Control.
Notwithstanding any other provisions of this Plan or deferred
elections made pursuant to Section 4 of this Plan, a Director, in the
event of a Change in Control of Questar, shall be entitled to elect a
distribution of his account balance within 60 days following the date
upon which Questar obtained actual knowledge of a Change in Control. As
used herein, a Change in Control of Questar shall be deemed to have
occurred if (i) any "Acquiring Person" (as that term is used in the
Rights Agreement dated as of February 13, 1996, between Questar and
Chemical Mellon Shareholder Services, L.L.C. ("Rights Agreement")) is or
becomes the beneficial owner (as such term is used in Rule 13d-3 under
the Securities Exchange Act of 1934) of securities of Questar
representing 15 percent or more of the combined voting power of Questar,
or (ii) the stockholders of Questar approve (A) a plan of merger or
consolidation of Questar (unless immediately following consummation of
such merger or consolidation, the persons who held Questar's voting
securities immediately prior to consummation thereof will hold at least
a majority of the total voting power of the surviving or new company, or
(B) a sale or disposition of all or substantially all assets of Questar,
or (C) a plan of liquidation or dissolution of Questar. A Change in
Control shall also include any act or event that, with the passage of
time, would result in a Distribution Date, within the meaning of the
Rights Agreement.
10. Hardship Withdrawal.
Upon petition to and approval by the Company's Board of Directors,
a Participant may withdraw all or a portion of the balance in his
Account in the case of financial hardship in the nature of an emergency,
provided that the amount of such withdrawal cannot exceed the amount
reasonable necessary to meet the financial hardship. The Board of
Directors shall have sole discretion to determine the circumstances
under which such withdrawals are permitted.
11. Amendment and Termination of Plan
The Plan may be amended, modified or terminated by the Company's
Board of Directors. No amendment, modification, or termination shall
adversely affect a Participant's rights with respect to amounts accrued
in his Account. In the event that the Plan is terminated, the Board of
Directors has the right to make lump-sum payments of all Account
balances on such date as it may determine.
12. Nonassignability of Plan.
The right of a Participant to receive any unpaid portion of his
Account shall not be assigned, transferred, pledged or encumbered or be
subject in any manner to alienation or attachment.
13. No Creation of Rights.
Nothing in this Plan shall confer upon any Participant the right
to continue as a Director. The right of a Participant to receive any
unpaid portion of his Account shall be an unsecured claim against the
general assets and will be subordinated to the general obligations of
the Company.
14. Effective Date.
The Plan was effective on June 1, 1982, and shall remain in effect
until it is discontinued by action of the Company's Board of Directors.
The effective date of the amendment to the Plan establishing a Phantom
Stock Option is January 1, 1983. The Plan was amended and restated
effective April 30, 1991, and was further amended and restated effective
February 13, 1996.
SUBSIDIARY INFORMATION
Registrant Questar Pipeline Company has two subsidiaries, Questar
TransColorado, Inc., and Questar Gas Management Company, both of which are Utah
corporations.
POWER OF ATTORNEY
We, the undersigned directors of Questar Pipeline Company, hereby
severally constitute A. J. Marushack and S. E. Parks, and each of them acting
alone, our true and lawful attorneys, with full power to them and each of them
to sign for us, and in our names in the capacities indicated below, the Annual
Report on Form 10-K for 1995 and any and all amendments to be filed with the
Securities and Exchange Commission by 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 1995 and any and all
amendments to such Report.
Witness our hands on the respective dates set forth below.
Signature Title Date
/s/ R. D. Cash Chairman of the Board 2-13-96
R. D. Cash
/s/ A. J. Marushack President & Chief 2-13-96
A. J. Marushack Executive Officer
Director
/s/ W. F. Edwards Director 2-13-96
W. F. Edwards
/s/ U. E. Garrison Director 2-13-96
U. E. Garrison
/s/ Neal A. Maxwell Director 2-13-96
Neal A. Maxwell
/s/ Mary Mead Director 2-13-96
Mary Mead
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summarized financial information extracted from the
Questar Pipeline Company Statement of Income and Balance Sheet for the year
end December 31, 1995, 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-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 1677
<SECURITIES> 0
<RECEIVABLES> 13845
<ALLOWANCES> 0
<INVENTORY> 2858
<CURRENT-ASSETS> 20932
<PP&E> 632393
<DEPRECIATION> 212898
<TOTAL-ASSETS> 463350
<CURRENT-LIABILITIES> 28225
<BONDS> 134525
0
0
<COMMON> 6551
<OTHER-SE> 218054
<TOTAL-LIABILITY-AND-EQUITY> 463350
<SALES> 0
<TOTAL-REVENUES> 117355
<CGS> 0
<TOTAL-COSTS> 65418
<OTHER-EXPENSES> 1886
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13472
<INCOME-PRETAX> 38113
<INCOME-TAX> 13465
<INCOME-CONTINUING> 24648
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24648
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
