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, 1997 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.)
180 East First South, P.O. Box 45360, Salt Lake City, Utah 84145-0360
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code:(801) 324-5555
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933:
9 7/8% Debentures due 2020
9 3/8% Debentures due 2021
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes [x] No
State the aggregate market value of the voting stock held by
nonaffiliates of the registrant as of March 23, 1998. $0.
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of March 23, 1998. 6,550,843
shares of Common Stock, $1.00 par value. (All shares are owned by
Questar Regulated Services Company.)
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
Storage
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, 1997
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 transportation
and storage of natural gas in the Rocky Mountain states of Utah,
Wyoming, and Colorado. The Company is an affiliate of Questar
Corporation ("Questar"), an integrated energy services holding
company. 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. 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 two partnerships,
Overthrust Pipeline Company ("Overthrust"), and TransColorado Gas
Transmission Company ("TransColorado"). During 1997, Questar Pipeline
increased its percentage interest in both partnerships.
Questar Pipeline and its affiliate Questar Gas Company (formerly
Mountain Fuel Supply Company, "Questar Gas"), comprise Questar's
Regulated Services unit. The Company's parent is Questar Regulated
Services Company ("Regulated Services"). All three companies are
managed by the same group of officers, but the Company does have a
separate general manager.
The Company has significant business relationships with its
affiliates, particularly Questar Gas, a regulated local distribution
company that serves over 641,000 customers in Utah, southwestern
Wyoming, and southeastern Idaho. Questar Gas has reserved
approximately 800,000 decatherms ("Dth") per day of firm
transportation capacity on the Company's transmission system and
reserved storage capacity at Clay Basin and smaller storage
reservoirs. (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 Questar Gas
and produced from properties operated by Wexpro Company ("Wexpro"),
another affiliate, as well as some natural gas volumes purchased
directly by Questar Gas from field producers and other suppliers. The
Company also transports volumes that are marketed by Questar Energy
Trading Company ("Questar Energy"), another affiliated entity.
The following diagram sets forth the corporate structure of the
Company and certain affiliates:
Questar Corporation
Entrada Industries, Inc.
Wexpro Company
Universal Resources Corporation
Celsius Energy Company
Questar Energy Trading Company
Questar Gas Management Company
Questar Energy Services, Inc.
Questar Regulated Services Company
Questar Pipeline Company
Questar Gas 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"); The Williams
Companies, Inc. ("Williams"); and Kern River Gas Transmission Company
("Kern River"). These connections have opened markets outside Questar
Gas's service area and allow the Company to transport gas for others.
The Company's transmission system includes 1,763 miles of
transmission lines that interconnect with other pipelines and that
link various producers of natural gas with Questar Gas'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 Questar Gas.) 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 a 54 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. Although the Overthrust segment is currently underutilized,
the Company and its remaining partners are reviewing opportunities,
including backhauling, to increase its value. The Overthrust
partnership agreement requires unanimous consent of all partners on
major operating and financial issues.
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
major 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.
During 1997, Questar Pipeline agreed to increase its ownership
interest in the TransColorado pipeline project to 50 percent. The
Company and its remaining partner, KN Energy, have ordered the pipe
and compression equipment currently intend to begin construction of
the second phase of the project during 1998 after the final
environmental clearances are obtained. The pipeline is approximately
292 miles in length and will extend from the Piceance Basin in western
Colorado, to Blanco, New Mexico, where it will connect with other
pipeline systems. (Questar Pipeline did not originally participate in
the first phase of the project, which was a 22-mile line between the
San Juan Basin and Blanco facilities, but will acquire El Paso Natural
Gas Company's 50 percent interest in the first phase upon completion
of the second phase.) As designed, the pipeline could transport up to
300 million cubic feet ("MMcf") of gas per day from western Colorado
and other producing basins to California and other markets.
TransColorado, which was first announced in 1990 and which has a
total projected cost of $240 million, involves risks associated with
the unwillingness of producers and other shippers to make long-term
transportation commitments.
Transportation Service
Questar Pipeline's largest transportation customer is its
affiliate, Questar Gas. During 1997, the Company transported 110.3
million decatherms ("MMDth") for Questar Gas, compared to 100.6 MMDth
in 1996. These transportation volumes include Questar Gas's
cost-of-service gas produced by Wexpro and volumes purchased by
Questar Gas directly from field producers and other suppliers.
Effective September 1, 1993, Questar Gas converted its firm sales
capacity to firm transportation capacity on the Company's transmission
system. Questar Gas has reserved capacity of about 800,000 Dth per
day, or approximately 70 percent of Questar Pipeline's reserved daily
capacity. Questar Gas paid an annual reservation charge of
approximately $49.6 million to the Company in 1997, which includes
reservation charges attributable to firm and "no-notice"
transportation. Questar Gas only needs its total reserved capacity
during peak-demand situations. When it is not fully utilizing its
capacity, Questar Gas releases the capacity to others, primarily
industrial transportation customers and marketing entities
Questar Pipeline's transportation agreement with Questar Gas
expires on June 30, 1999. The parties expect that the agreement will
be extended, given Questar Gas's growing firm transportation
requirements and the Company's competitive rates. Questar Gas, in
common with other retail distribution utilities, is preparing for an
environment in which transportation service may be unbundled from
sales service.
The Company recovers approximately 95 percent of its transmission
cost of service through reservation 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 effect 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 revenues may be adversely affected if the FERC
changes its basic regulatory scheme of "straight-fixed variable"
rates.
The Company's total system throughput decreased from 276.4 MMDth
in 1996 to 264.3 MMDth in 1997. Most of this decrease was
attributable to lower transportation volumes for nonaffiliated
customers, which declined from 131.9 MMDth in 1996 to 116.2 MMDth in
1997.
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 services.
Questar Pipeline will continue to develop and build new lines and
related facilities that will allow it to meet customers needs or
improve customer services. During 1997, it completed the first phase
of a project to build a 20-inch diameter line extending from Clay
Basin to Coleman Station in southwestern Wyoming. The final phase is
scheduled to be finished in 1998. The project has already
significantly expanded the Company's capacity to move gas north from
its storage facility at Clay Basin and its southern system and will
further expand it when the final phase is completed. Questar Pipeline
has expanded its capacity to transport production from the Ferron area
of eastern Utah, which is the site of a large project to produce gas
from coal seams into market areas. During 1998, the Company will
construct new compression facilities on its southern system in eastern
Utah that will add approximately 52 thousand decatherns ("MDth") per
day of firm capacity.
Storage
Questar Pipeline operates a major storage facility at Clay Basin
in northeastern Utah. This storage reservoir has been operational
since 1977 and has been providing open-access storage service 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.
The Clay Basin facility 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.) Questar Pipeline
recently completed a successful open season to offer additional
working gas capacity of 5 Bcf, which was fully subscribed. It has
filed the necessary notice with the FERC to increase the facility's
total capacity to 117 Bcf and expects to inject the additional volumes
this summer.
Clay Basin's firm storage capacity is fully subscribed by
customers under long-term agreements. Questar Gas currently has 12.5
Bcf of working gas capacity at Clay Basin. Other large customers
include Williams; Washington Natural Gas Company, a distribution
utility in the state of Washington; and BC Gas Utility Ltd., a
distribution utility in British Columbia, Canada. Storage service is
important to distribution companies that need to match annual gas
purchases with fluctuating customer demand, improve service
reliability, and avoid imbalance penalties.
Questar Pipeline offers interruptible storage service at Clay
Basin and also allows firm storage service customers the right to
transfer their injection and withdrawal rights to other parties.
The Company also owns and operates three smaller storage
reservoirs. These projects were developed specifically to serve
Questar Gas's needs, and Questar Gas reserves 100 percent of their
working gas capacity. These small reservoirs are used primarily to
supplement Questar Gas's gas supply needs on peak days.
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 does not currently plan to file a general rate
case in 1998. It, however, will continue to review its revenues and
costs as it adds new facilities that are not included in its rate base
and makes expenditures to comply with regulatory mandates.
In February of 1998, the FERC concluded an investigation of the
Company's gathering rates to Questar Gas for the period from November
1, 1988 through September 30, 1992. The FERC determined that Questar
Pipeline committed a technical violation of the applicable law, but
ruled that it was not appropriate to order refunds or assess fines.
The order instituting the proceedings was issued by the FERC in May of
1997, contained allegations that the Company may have violated a
provision of the Natural Gas Act and its tariff by charging gathering
rates higher than the rates specified in its tariff, and asked Questar
Pipeline why it should not be obligated to refund the alleged
overcharge of approximately $3.4 million plus interest to Questar Gas.
During 1997 and 1998, the Company expects to spend $2.8 million
to comply with the standards originally proposed by the Gas Industry
Standards Board ("GISB") and mandated by the FERC. These
requirements, commonly known as the GISB standards, are designed to
facilitate the seamless transportation of gas volumes on pipeline
systems and deal with such issues as nominations, confirmations,
priority of service, allocation, balancing, and invoicing. The
Company is complying with some GISB standards and has obtained an
extension until June 1, 1998, to be in full compliance.
The FERC has adopted specific criteria for determining when
"rolled-in" rates (rather than incremental rates) are appropriate.
Under the FERC's policy, rolled-in rates will generally be approved if
rates to existing customers will not increase by more than five
percent and if specified system-wide operational and financial
benefits can be demonstrated. The FERC, however, can impose at-risk
conditions on new projects even if it approves rolled-in rate
treatment for them and can require additional support in subsequent
rate cases to continue rolled-in treatment.
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 and other facilities for transporting or
storing natural gas are subject to extensive environmental regulation
by state and federal authorities, including state air quality control
boards, the Bureau of Land Management, the Forest Service, the Corps
of Engineers, 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 and storage
services has intensified in recent years. Regulatory changes have
significantly increased customer flexibility and responsibility to
directly manage their gas supplies. The Company actively competes
with other interstate pipelines for transportation volumes throughout
the Rocky Mountain region.
The Company has two key assets that contribute to its continued
success. It has a strategically located and integrated transmission
system with interconnections to major pipeline systems and with access
to major producing areas and markets. Questar Pipeline also 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 contracts that are generally long-term in
nature. Questar Pipeline intends to take advantage of these assets by
increasing its "intra hub" capacity or its ability to quickly and
reliably move gas volumes between receipt and delivery points and by
expanding its storage capacity and services.
Questar Pipeline has established partnerships with others to
acquire expertise, share risks, and expand opportunities. Both the
Overthrust pipeline and the proposed TransColorado pipeline involve
partners.
Employees
As of December 31, 1997, the Company had 164 employees, compared
to 352 as of the end of 1996. (This decrease reflects the transfer of
employees to Regulated Services as of January 1, 1997.) 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 Questar Gas. Some of these
relationships are described above. See Note 8 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, under the terms of a written
agreement. Regulated Services, the Company's parent, has employees
who perform engineering, accounting, marketing, budget, tax,
regulatory affairs, and legal services for both Questar Pipeline and
Questar Gas. Questar also provides certain administrative
services, benefit plans, governmental affairs, financial, and audit, 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.
The Company, Questar, Questar Gas and other affiliates are
defendants in a lawsuit that was filed by a producer in Wyoming's
federal district court. This lawsuit involves some of the same
take-or-pay and tax reimbursement claims that are the subject of a
case against Questar Gas that has not yet been reduced to a final
judgement in the same court. The second lawsuit, however, also
involves claims of antitrust violations against Questar Pipeline with
respect to storage service. It has been formally and indefinitely
stayed pending the entry of a final judgement in the first lawsuit.
See "Regulatory Environment" for a discussion of regulatory
proceedings involving the Company and the FERC.
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 Regulated Services. 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 ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Questar Pipeline conducts natural-gas transmission and storage
operations. Following is a summary of financial results and
operating information:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
(Dollars In Thousands)
<S> <C> <C> <C>
OPERATING INCOME
Revenues
Transportation $68,837 $67,656 $61,749
Storage 34,410 34,280 31,276
Other 2,190 2,242 1,747
Total revenues 105,437 104,178 94,772
Operating expenses
Operating and maintenance 37,334 39,959 34,003
Depreciation and amortization 14,797 14,206 12,911
Other taxes 2,816 2,519 3,370
Total expenses 54,947 56,684 50,284
Operating income $50,490 $47,494 $44,488
OPERATING STATISTICS
Natural gas transportation volumes (in Mdth)
For unaffiliated customers 116,215 131,895 151,943
For Questar Gas 110,311 100,161 79,872
For other affiliated customers 37,797 44,327 38,839
Total transportation 264,323 276,383 270,654
Transportation revenue (per dth) $0.26 $0.24 $0.23
Clay Basin storage, working gas-
volumes (in Bcf) 46.3 46.3 46.3
</TABLE>
Revenues increased $1,259,000 or 1% in 1997 when compared with
1996 as a result of adding firm transportation contracts. The
new contracts cover several short-haul portions of the
pipeline. The increase in revenues reported in 1996 was due
to a rate increase and expanded firm gas-storage activities.
The Federal Energy Regulatory Commission approved rates which
included a stated return on equity of 11.75%.
At December 31, 1997, approximately 82% of Questar Pipeline's
transportation system was reserved by firm-transportation
customers under contracts with varying terms and lengths. The
remaining 18% of transportation system capacity, which has
multiple delivery points, is available for interruptible
transportation. Questar Gas has reserved transportation
capacity from Questar Pipeline of approximately 800,000 dth
per day, or about 70% of the total reserved
daily-transportation capacity at December 31, 1997. This
contract, which represents 80% of the demand charges collected
by Questar Pipeline, expires June 30, 1999. Negotiations are
under way to structure an agreement that would benefit both
companies. Management believes that any new contract will not
have a material impact on the results of operations, financial
position or cash flows of Questar Pipeline.
Storage revenues were flat in 1997 compared with 1996 after
increasing by 10% in 1996 from the year earlier. In addition
to a rate increase, the higher revenues resulted when Clay
Basin's firm-storage capacity increased from 41.8 Bcf to 46.3
Bcf in May 1995. Storage capacity at year-end 1997 was 100%
subscribed and about 76% of the contractual volumes had
remaining terms of at least 10 years. Questar Gas has reserved
27% of firm-storage capacity for at least 10 years. Questar
Pipeline intends to expand working gas capacity at Clay Basin
in 1998 by 5 Bcf at an estimated cost of $4 million. In an
open season sign-up conducted in January 1998, all potential
new capacity was pledged under long-term commitments. The
expansion is expected to add about $3 million in annual
revenues.
Questar Pipeline's operating and maintenance (O & M) expenses
decreased 7% in 1997 because of cost-containment measures and
reduced labor and related costs. Questar Pipeline along with
Questar Gas initiated cost-containment measures intended to
slow the increase of O & M expenses. Questar Gas and Questar
Pipeline in 1997 combined functions common to gas-distribution
and gas-transmission operations in order to eliminate
duplications. O & M expenses increased 18% in 1996 when
compared with 1995 caused by system expansion, one-time costs
associated with the spin-down of certain assets that were
eventually transferred in 1996 and issues in Questar
Pipeline's 1996 rate settlement.
Depreciation expense was 4% higher in 1997 when compared to
1996 and 10% higher in 1996 when compared to 1995 as a result
of Questar Pipeline's capital expenditures. Settlements of
disputed tax assessments with state and local governmental
agencies in 1996 resulted in reduced property taxes.
Questar Pipeline has a 50% ownership interest in a partnership
building Phase II of the TransColorado pipeline in western
Colorado. Upon completion of Phase II, Questar Pipeline will
complete an acquisition of El Paso Energy Corporation's 50%
interest in Phase I of the pipeline project completed in 1996,
making Questar Pipeline a 50% owner of the entire project. KN
Energy owns the other 50% interest. The 292-mile pipeline will
cost about $240 million when completed. Questar Pipeline
reported pretax earnings of $4,456,000 in 1997 from
capitalizing the interest and financing costs associated with
the pipeline project.
Questar Pipeline purchased an additional 18% interest in the
Overthrust Pipeline partnership in 1997, bringing its
ownership in the transmission line to 54%. Approval of all
partners is required for all substantive policy matters.
The effective income tax rate was 38.1% in 1997, 37.2% in 1996
and 35.1% in 1995.
Year 2000 Costs: Questar Pipeline has undertaken steps to
identify areas of concern and potential remedies, prioritize
needs, estimate costs and begin work either to repair or
replace data processing software and hardware affected by Year
2000 issues. The expense, associated with addressing Year
2000 related problems, is not expected to be material.
However, measurement of the cost has not been completed. The
solutions either involve replacement or repair of the affected
software or hardware systems. Some replacement or upgrade of
systems would take place in the normal course of business.
Several systems, key to Questar Pipeline's operations, have
been scheduled to be replaced through vendor supplied systems
before 2000. The costs of repairing existing systems is
expensed as incurred, while the costs of replacing systems is
capitalized and depreciated generally over a three- to
five-year period.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
Net cash provided from operating activities was $43,236,000 in
1997, $46,710,000 in 1996 and $36,991,000 in 1995. Net cash
provided from operating activities decreased 7% in 1997 when
compared with 1996 due primarily to construction costs that
had been incurred but not yet reimbursed by partners at
December 31.
Investing Activities
Following is a summary of capital expenditures for 1997, 1996
and a forecast of 1998 expenditures:
<TABLE>
<CAPTION>
1998
Estimated 1997 1996
(In Thousands)
<S> <C> <C> <C>
Transmission system $36,700 $19,622 $18,173
Storage 5,800 1,399 1,466
Partnerships 27,700 6,214 2,890
General 5,900 5,361 1,279
$76,100 $32,596 $23,808
</TABLE>
Capital expenditures included new pipelines, replacement and
expansion of sections of existing gas mainlines and additional
investments in pipeline partnerships.
Financing Activities
Questar Pipeline funded 1997 capital expenditures and dividend
payments primarily with the proceeds from net cash provided
from operating activities and an increase in notes payable to
Questar. Forecasted 1998 capital expenditures of $76.1 million
are expected to be financed from net cash flow provided from
operations and borrowings from Questar.
Questar makes loans to Questar Pipeline under a short-term
borrowing arrangement. Outstanding short-term notes payable
to Questar at December 31 totaled $25,800,000 with an interest
rate of 6.02% in 1997 and $11,800,000 with an interest rate of
5.63% in 1996. Questar Pipeline 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 in 1998. There were no
amounts borrowed under this arrangement at either December 31,
1997 or 1996. Questar Pipeline guarantees $9 million of
long-term debt borrowed by Blacks Fork Gas Processing Company.
Questar Pipeline's capital structure at year-end 1997 was 41%
long-term debt and 59% common shareholder's equity. Moody's
and Standard and Poor's have rated the Company's long-term
debt A1 and A+, respectively.
Forward Looking Statements
This annual report contains some forward looking statements
about future operations and expectations of Questar Pipeline.
Management believes they are reasonable representations of
Questar Pipeline's expected performance at this time. Actual
results may vary from management's stated expectations and
projections.
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.
(Exhibit No. 3. to Form 10-K Annual Report for 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.* 1,2\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. 3\ Annual Management Incentive Plan adopted by Questar
Pipeline Company, Questar Gas Company, and Questar
Regulated Services Company.
10.4. Partnership Agreement for the TransColorado Gas
Transmission Company dated July 1, 1997, between KN
TransColorado, Inc. and Questar TransColorado, Inc.
10.5.* 4\ 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 through June 30,
1999. (Exhibit No. 10.5. to Form 10-K Annual Report for
1993.)
10.6.* 4\ 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,
through August 31, 2008. (Exhibit No. 10.6. to Form 10-K
Annual Report for 1993.)
10.7.* 4\ 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,
through August 31, 2013. (Exhibit No. 10.7. to Form 10-K
Annual Report for 1993.)
10.8.* 4\ Storage Service Agreement with Mountain Fuel Supply Company
under Rate Schedule FSS, for 5.5 Bcf of working gas
capacity at Clay Basin, with a term from May 15, 1994
through May 14, 2019. (Exhibit No. 10.8. to Form 10-K
Annual Report for 1995.)
10.10.* 3\ Questar Pipeline Company Deferred Compensation Plan for
Directors, as amended and restated February 13, 1996.
(Exhibit No. 10.10. to Form 10-K Annual Report for 1995.)
10.11.* Agreement for the Transfer of Assets between Questar
Pipeline Company and Questar Gas Management Company, as
amended, effective March 1, 1996. (Exhibit No. 10.11. to
Form 10-K Annual Report for 1996.)
22. Subsidiary Information.
24. 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\The Overthrust Partnership Agreement has not been formally
amended to delete the names of Columbia Gulf Transmission Company and
Tennessee Overthrust Gas Company as partners.
3\Exhibit so marked is management contract or compensation plan or
arrangement.
4\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) The Company did not file a Current Report on Form 8-K during
the last quarter of 1997.
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, 1997
QUESTAR PIPELINE COMPANY
SALT LAKE CITY, UTAH
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, 1997, 1996 and
1995
Balance sheets -- December 31, 1997 and 1996
Statements of cash flows -- Years ended December 31, 1997, 1996
and 1995
Statements of shareholder's equity -- Years ended December 31,
1997, 1996 and 1995
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 accompanying balance sheets of
Questar Pipeline Company as of December 31, 1997
and 1996, and the related statements of income and
common shareholder's equity and cash flows for each of the three
years in the period ended December 31, 1997. 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, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in
the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
Salt Lake City, Utah
February 9, 1998
<PAGE>
QUESTAR PIPELINE COMPANY
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
(In Thousands)
<S> <C> <C> <C>
REVENUES
From unaffiliated customers $36,343 $38,837 $36,780
From affiliates - Note 8 69,094 65,341 57,992
TOTAL REVENUES 105,437 104,178 94,772
OPERATING EXPENSES
Operating and maintenance - Note 8 37,334 39,959 34,003
Depreciation 14,797 14,206 12,911
Other taxes 2,816 2,519 3,370
TOTAL OPERATING EXPENSES 54,947 56,684 50,284
OPERATING INCOME 50,490 47,494 44,488
INCOME FROM UNCONSOLIDATED
AFFILIATES 4,629 182 1,220
OTHER INCOME - Note 8 1,323 1,798 524
DEBT EXPENSE (13,536) (13,416) (13,472)
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME
TAXES 42,906 36,058 32,760
INCOME TAXES - Note 5 16,338 13,415 11,492
INCOME FROM CONTINUING
OPERATIONS 26,568 22,643 21,268
DISCONTINUED OPERATIONS - Questar
Gas Management Company - Note 2 1,495 3,380
NET INCOME $26,568 $24,138 $24,648
</TABLE>
See notes to financial statements.
<PAGE>
QUESTAR PIPELINE COMPANY
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
1997 1996
(In Thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and short-term investments $7,075 $2,550
Accounts receivable 9,535 6,852
Accounts receivable from affiliates 1,316 931
Federal income tax receivable 446
Inventories, at lower of average
cost or market 2,303 2,301
Prepaid expenses and deposits 2,035 1,938
TOTAL CURRENT ASSETS 22,264 15,018
PROPERTY, PLANT AND EQUIPMENT
Transmission 306,486 297,144
Storage 213,264 211,273
General and intangible 40,093 38,274
Construction work in progress 20,760 16,020
580,603 562,711
Less allowances for depreciation 202,427 194,396
NET PROPERTY, PLANT AND EQUIPMENT 378,176 368,315
OTHER ASSETS
Investment in unconsolidated
affiliates 26,977 14,347
Income taxes recoverable from
customers 4,552 3,930
Unamortized costs of reacquired debt 2,564 2,837
Other 3,031 4,303
37,124 25,417
$437,564 $408,750
</TABLE>
LIABILITIES AND SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
December 31,
1997 1996
(In Thousands)
<S> <C> <C>
CURRENT LIABILITIES
Notes payable to Questar - Note 3 $25,800 $11,800
Accounts payable and accrued expenses
Accounts payable 14,069 10,762
Accounts payable to affiliates 3,633 2,089
Federal income taxes 62
Other taxes 1,229 896
Accrued interest 1,076 1,076
Total accounts payable and
accrued expenses 20,069 14,823
TOTAL CURRENT LIABILITIES 45,869 26,623
LONG-TERM DEBT - Notes 3 and 4 134,563 134,544
OTHER LIABILITIES 4,523 4,322
DEFERRED INCOME TAXES - Note 5 62,298 58,768
COMMITMENTS AND CONTINGENCIES - Note 6
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 101,726 95,908
190,311 184,493
$437,564 $408,750
</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, 1995 $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
1996 net income 24,138
Cash and other dividends (64,250)
Balance at December 31, 1996 6,551 82,034 95,908
1997 net income 26,568
Cash dividends (20,750)
Balance at December 31, 1997 $6,551 $82,034 $101,726
</TABLE>
See notes to financial statements.
QUESTAR PIPELINE COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
(In Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $26,568 $24,138 $24,648
Depreciation 15,886 16,291 14,547
Deferred income taxes 1,526 388 (163)
Income from unconsolidated affililates (4,629) (182) (1,220)
Income from discontinued operations (1,495) (3,380)
39,351 39,140 34,432
Changes in operating assets and liabilities
Accounts receivable (3,068) 5,923 1,530
Federal income taxes 508 (799) 1,433
Prepaid expenses and deposits (97) 219 207
Accounts payable and accrued expense 4,851 2,783 (395)
Other 1,691 (556) (216)
NET CASH PROVIDED FROM
OPERATING ACTIVITIES 43,236 46,710 36,991
INVESTING ACTIVITIES
Capital expenditures
Purchase of property, plant
and equipment (26,382) (20,958) (22,640)
Investment in discontinued operations (1,576)
Other investments (6,214) (2,850) (506)
Total capital expenditures (32,596) (23,808) (24,722)
Proceeds from (costs of) disposition
of property, plant and equipment 635 343 (2,822)
NET CASH USED IN INVESTING
ACTIVITIES (31,961) (23,465) (27,544)
FINANCING ACTIVITIES
Change in notes receivable
from Questar Gas Management 16,692 8,518
Change in notes payable to
Questar Corp. 14,000 (3,400) 600
Payment of dividends (20,750) (35,000) (19,000)
NET CASH USED IN FINANCING
ACTIVITIES (6,750) (21,708) (9,882)
Change in cash and
short-term investments 4,525 1,537 (435)
Beginning cash and
short-term investments 2,550 1,013 1,448
ENDING CASH AND SHORT-TERM
INVESTMENTS $7,075 $2,550 $1,013
</TABLE>
Questar Pipeline transferred 100% of its ownership in Questar Gas
Management to Questar in 1996 in the form of a dividend of
shares. The $29,250,000 transfer was a noncash transaction and
was excluded from the Statements of Cash Flows.
See notes to financial statements.
<PAGE>
QUESTAR PIPELINE COMPANY
NOTES TO FINANCIAL STATEMENTS
Note 1 - Summary of Accounting Policies
Business: Questar Pipeline Company (the Company or Questar
Pipeline) is a wholly-owned subsidiary of Questar Regulated
Services Company (Regulated Services). Regulated Services is a
holding company and wholly-owned subsidiary of Questar
Corporation (Questar). Regulated Services was organized in 1996
and provides administrative, accounting and engineering functions
for its two subsidiaries, Questar Pipeline and Questar Gas
Company (Questar Gas). Significant accounting policies are
presented below.
Regulation: Questar Pipeline 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 subject to refund.
Cash and Short-Term Investments: Short-term investments consist
principally of repurchase agreements with maturities of three
months or less.
Investment in Unconsolidated Affiliates: Questar Pipeline has a
54% interest in the Overthrust Pipeline partnership, and is the
operator of the Overthrust Segment of the Trailblazer Pipeline
System. Approval of all partners is required for all substantive
policy matters. Questar Pipeline has a 50% ownership interest in
a partnership building Phase II of the TransColorado pipeline in
western Colorado. Upon completion of Phase II, Questar Pipeline
will complete an acquisition of El Paso Energy Corporation's 50%
interest in Phase I of the pipeline project completed in 1996,
making Questar Pipeline a 50% owner of the entire project. The
Company accounts for its investment in these partnerships using
the equity method.
Property, Plant and Equipment: Property, plant and equipment is
stated at cost. The provision for depreciation is based upon
rates, which will systematically charge the 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 3.5% in 1997.
Allowance for Funds Used During Construction: The Company
capitalizes the cost of capital during the construction period of
plant and equipment. This amounted to $387,000 in 1997, $542,000
in 1996 and $330,000 in 1995.
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.
Credit Risk: Questar Pipeline'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.
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-and over-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.
Reclassification: Certain reclassifications were made to the
1996 and 1995 financial statements to conform with the 1997
presentation.
Note 2 - Discontinued Operations - Gathering Division Spin Down
and Transfer
Questar Pipeline transferred approximately $55 million of
gas-gathering assets to Questar Gas Management Company, a wholly
owned subsidiary. The transfer was approved by the FERC February
28, 1996 and was effective March 1, 1996. Questar Gas Management
was subsequently transferred to the nonregulated Market Resources
group of Questar on July 1, 1996. The transaction was in the
form of a stock dividend payable to Questar with no gain or loss
recorded. Questar Pipeline's financial statements for 1996 and
1995 were restated, reflecting gas-gathering operations as a
discontinued business segment.
Note 3 - Debt
Questar makes loans to Questar Pipeline under a short-term
borrowing arrangement. Outstanding short-term notes payable to
Questar at December 31 totaled $25,800,000 with an interest rate
of 6.02% in 1997 and $11,800,000 with an interest rate of 5.63%
in 1996. Questar Pipeline 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 in 1998. There were no amounts borrowed under this
arrangement at either December 31, 1997 or 1996. 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>
1997 1996
(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 437 456
$134,563 $134,544
</TABLE>
Sinking fund redemption of the 9 7/8% debt begins in 2001 in the
amount of $2,500,000 and in 2002 for the 9 3/8% debt in the
amount of $4,250,000. There are no debt provisions restricting
the payment of dividends. Cash paid for interest was $13,351,000
in 1997, $13,227,000 in 1996 and $13,192,000 in 1995.
Note 4 - Financial Instruments
The carrying amounts and estimated fair values of the Company's
financial instruments at December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
(In Thousands)
<S> <C> <C> <C> <C>
Financial assets
Cash and short-term investments $7,075 $7,075 $2,550 $2,550
Financial liabilities
Short-term loans 25,800 25,800 11,800 11,800
Long-term debt 134,563 150,675 134,544 150,938
</TABLE>
The Company used the following methods and assumptions in
estimating fair values: (1) Cash and short-term investments and
short-term loans - the carrying amount approximates fair value;
(2) Long-term debt - the fair value of long-term debt is based on
quoted market prices.
Note 5 - Income Taxes
The components of income taxes charged to income for years ended
December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
(In Thousands)
<S> <C> <C> <C>
Federal
Current $13,247 $11,663 $10,695
Deferred 1,273 700 101
State
Current 1,542 998 684
Deferred 276 54 12
$16,338 $13,415 $11,492
</TABLE>
The difference between income tax expense and the tax computed by
applying the statutory federal income tax rate of 35% to income
from continuing operations before income taxes is explained as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
(In Thousands)
<S> <C> <C> <C>
Income from continuing operations
before income taxes $42,906 $36,058 $32,760
Federal income taxes at statutory rate $15,017 $12,620 $11,466
State income taxes, net of federal
income tax benefit 1,204 703 456
Prior years' tax settlement 134 146 (162)
Other (17) (54) (268)
Income tax expense $16,338 $13,415 $11,492
Effective income tax rate 38.1% 37.2% 35.1%
</TABLE>
Significant components of the Company's deferred tax liabilities
and assets at December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996
(In Thousands)
<S> <C> <C>
Deferred tax liabilities
Property, plant and equipment $58,131 $54,550
Other 4,767 5,026
Total deferred tax liabilities 62,898 59,576
Deferred tax assets 600 808
Net deferred tax liabilities $62,298 $58,768
</TABLE>
Cash paid for income taxes was $13,844,000 in 1997, $13,797,000
in 1996 and $10,268,000 in 1995.
Note 6 - Rate Matters, Litigation and Commitments
There are various legal proceedings against Questar Pipeline.
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 7 - Employment Benefits
Pension Plan: Substantially all of Questar Pipeline's 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 $520,000 in
1997, $974,000 in 1996 and $867,000 in 1995.
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, 1997, Questar's fair value of plan
assets exceeded the accumulated benefit obligation.
Postretirement Benefits Other Than Pensions: Questar Pipeline
pays a portion of health-care costs and life insurance costs for
employees who retired prior to January 1, 1993. The plan changed
for employees hired after January 1, 1993, to link the
health-care benefits to years of service and to limit Questar's
monthly health care contribution per individual to 170% of the
1992 contribution. Employees hired after December 31, 1996, do
not qualify for postretirement medical 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, and corporate and U.S. government debt
obligations. The Company is amortizing the transition obligation
over a 20-year period, which began in 1992. Costs of
postretirement benefits other than pensions were $257,000 in
1997, $666,000 in 1996, and $788,000 in 1995. The FERC allows
rate-recovery of future postretirement benefits costs to the
extent that pipeline companies contribute the amounts to an
external trust. As part of its 1996 general rate settlement,
Questar Pipeline began making annual contributions of $1,187,000
to an external trust fund.
Questar Pipeline'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: Questar Pipeline 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. Beginning in 1996, the FERC allowed Questar Pipeline to
recover $138,000 per year of postemployment costs in future rates
over a three-year period if funded in an external trust.
Employee Investment Plan: The Company participates in Questar's
Employee Investment Plan (ESOP), which allows eligible employees
to purchase Questar common stock or other investments through
payroll deduction. The Company makes contributions of Questar
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 $348,000 in 1997, $531,000 in 1996
and $515,000 in 1995.
Note 8 - Related Party Transactions
Questar Regulated Services was organized in 1996 and provides
services common to its two subsidiaries, Questar Gas and Questar
Pipeline. Regulated Services began providing administrative,
technical and accounting support in 1997. Employees in these
functions from both companies were reassigned to Regulated
Services. Regulated Services charged Questar Pipeline
$12,895,000 in 1997. These costs are included in operating and
maintenance expenses, primarily, and are allocated based on
several methods dictated by the nature of the charges.
Management believes that the allocation methods are reasonable.
Questar Pipeline receives a substantial portion of its revenues
from Questar Gas Company. Revenues received from Questar Gas
amounted to $64,924,000 or 62% in 1997, $61,146,000 or 59% in
1996 and $54,096,000 or 57% in 1995. The Company also received
revenues from other affiliated companies totaling $4,166,000 in
1997, $4,195,000 in 1996 and $3,896,000 in 1995.
Questar performs certain administrative functions for Questar
Pipeline. The Company was charged for its allocated portion of
these services which totaled $2,748,000 in 1997, $3,045,000 in
1996 and $2,644,000 in 1995. These costs are included in
operating and maintenance expenses and are allocated based on
each affiliate's proportional share of revenues, net of gas
costs; property, plant and equipment; and payroll. Management
believes that the allocation method is reasonable.
Questar InfoComm Inc is an affiliated company that provides data
processing and communication services to Questar Pipeline. The
Company paid Questar InfoComm $9,458,000 in 1997, $7,155,000 in
1996 and $7,542,000 in 1995.
Questar Pipeline has a 15-year lease for space in an office
building located in Salt Lake City, Utah, that is owned by
affiliated company, Interstate Land. The annual lease payment for
the next five years, beginning in 1998, is $576,000.
The Company received interest income from affiliated companies of
$11,000 in 1997, $609,000 in 1996 and $1,998,000 in 1995. Questar
Pipeline incurred debt expense to Questar of $348,000 in 1997,
$158,000 in 1996 and $272,000 in 1995.
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 27th day
of March, 1998.
QUESTAR PIPELINE COMPANY
(Registrant)
By /s/ D. N. Rose
D. N. Rose
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/ D. N. Rose President & Chief Executive Officer;
D. N. Rose Director (Principal Executive Officer)
/s/ S. E. Parks Vice President, Treasurer and Chief
S. E. Parks Financial Officer (Principal
Financial Officer)
/s/ G. H. Robinson Vice President and Controller
G. H. Robinson (Principal Accounting Officer)
*R. D. Cash Chairman of the Board; Director
*U. Edwin Garrison Director
*Marilyn S. Kite Director
*Scott S. Parker Director
*D. N. Rose Director
March 27, 1998 *By /s/ D. N. Rose
Date D. N. Rose, Attorney in Fact
Exhibit 10.3
QUESTAR REGULATED SERVICES COMPANY,
QUESTAR GAS COMPANY, AND
QUESTAR PIPELINE COMPANY
ANNUAL MANAGEMENT INCENTIVE PLAN
Paragraph 1. Name. The name of this Plan is the Annual
Management Incentive Plan (the Plan) for Questar Regulated Services
Company, Questar Gas Company, and Questar Pipeline Company
(collectively referred to as Regulated Services).
Paragraph 2. Purpose. The purpose of the Plan is to
provide an incentive to officers and key employees of Regulated
Services for the accomplishment of major organizational and individual
objectives designed to further the efficiency, profitability, and
growth of Regulated Services.
Paragraph 3. Administration. The Management Performance
Committee (Committee) of the Board of Directors of Questar Corporation
(Questar) 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.
Recommendations made by the Committee shall be reviewed by the Boards
of Directors of participating employers.
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
Regulated Services and for its affiliates 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 Regulated Services 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 Regulated Services 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
award is (First Year determined
of 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.
Participants who have a target bonus of $10,000 or higher shall be
paid all deferred portions of such bonus with restricted shares of
Questar's common stock under Questar'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 Questar's qualified
retirement plan. For the purpose of this Plan, disability shall mean
any termination of service that results in payments under Questar'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
Questar'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 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 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 Questar'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 Boards of Directors
for the participating employers, 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 Boards
of Directors for the participating employers 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,
1997, and shall remain in effect until it is suspended or terminated
as provided by Paragraph 12. This Plan replaces the individual plans
previously adopted by Questar Gas and Questar Pipeline that became
effective January 1, 1984. Plan participants who previously received
awards under predecessor plans or any other Annual Management
Incentive Plan adopted by an affiliate shall be treated as ongoing
participants for purposes of the distribution schedule in Paragraph 6.
Exhibit 10.4
Transcolorado Gas Transmission Company
Partnership Agreement
This Agreement, Effective on the 1st day of July, 1997, is
entered into between KN TransColorado, Inc. (KN) and Questar
TransColorado, Inc. (Questar). This Agreement reflects the withdrawal
of El Paso TransColorado Company from the TransColorado Partnership in
the Agreement Concerning Withdrawal from Partnership and Release and
Indemnification dated June 30, 1997.
1. Parties. The following are Parties to this Agreement and each
shall have a one-half interest in the Partnership.
1.1 KN TransColorado, Inc., a Colorado corporation with its
principal place of business located at P.O. Box 281304, 370 Van
Gordon Street, Lakewood, Colorado 80228-8340.
1.2 Questar TransColorado, Inc., a Utah corporation with its
principal place of business located at P.O. Box 45433, 180 East
100 South, Salt Lake City, Utah 84145-0433.
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 Construction-Engineering Agreement. The
Construction-Engineering Agreement was entered into between the
Partnership and the Construction Project Manager on January 1,
1991, and amended February 28, 1995, to manage the design and
construction of the Project.
2.5 Construction Project Manager. The Construction Project
Manager is Questar Pipeline Company (Questar Pipeline) and it has
been designated by the Management Committee to perform the duties
described in section 5.
2.6 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).
2.7 Defaulting Partner. A Defaulting Partner is a Partner who
is in Default.
2.8 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.
2.9 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.
2.10 June 27, Agreement. The KN TransColorado, Inc. and Questar
TransColorado, Inc., Agreement of June 27, 1997, attached as
Exhibit A to this Agreement.
2.11 June 30, Agreement. The Agreement concerning Withdrawal
From Partnership and Release and Indemnification of June 30,
1997, between KN TransColorado, Inc., Questar TransColorado, Inc.
and El Paso TransColorado Company, attached as Exhibit B to this
Agreement.
2.12 Management Committee. The Management Committee is the
committee provided for in section 4.
2.13 Operating Agreements. The Operating Agreements are the
agreements that will be entered into between the Partnership,
Affiliates of the partners or other third parties to operate the
Project.
2.14 Operators. The Operators are the companies designated by
the Management Committee in accordance with section 5.
2.15 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.
2.16 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.
2.17 Partnership. The Partnership is the entity created by this
Agreement.
2.18 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-half.
2.19 Person. A Person is an individual, corporation, voluntary
association, joint stock company, business trust, partnership,
proprietorship or other legal entity, however constituted.
2.20 Phase I. The southern-most 22.5 mile, 24-inch diameter
segment of the Project and a 2 1/2 mile, 16-inch diameter residue
lateral connecting the Coyote Gas Treating Ltd. Liability Company
plant with the TransColorado main line segment and related
facilities.
2.21 Phase II. The extension of Phase I of the Project from
Coyote Gulch North to an interconnection with Questar Pipeline.
2.22 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 a proposed interconnection
with the facilities of Questar Pipeline located in northwestern
Colorado to proposed interconnections with other interstate or
intrastate pipelines located in Colorado and New Mexico.
2.23 Project Agreement. The Project Agreement is the agreement
between Rocky Mountain Natural Gas Company, Western Gas Supply
Company, and Questar Pipeline dated March 19, 1990, that preceded
this Agreement.
2.24 Secondary Facilities. Secondary Facilities are pipelines
and attendant facilities that are connected to the Project.
2.25 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 KN 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.
3.5 Term. The initial term of the Agreement shall commence on
its execution and shall terminate 25 years after the in-service
date of Phase II.
3.6 Regulatory Approvals. The Partners have and will continue
to 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
identified.
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 potential Shippers who would use the additional
capacity, the likely receipt and delivery points for the
additional gas, the intended 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 up
to 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 that member's absence, by the
alternate, and the member may delegate to the alternate as many
of that member's powers and duties as that member 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 Construction Project Manager for the
Project to serve for the time and perform the duties
specified in the Construction-Engineering Agreement.
4.2.2 Appoint such agents as are necessary to assist the
Construction 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 Construction-Engineering 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 Internal Revenue 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, by telephone conference call or
by video conference call. In lieu of a meeting, the members may
act upon written consent, by majority vote if there are three or
more Partners, except for those items specifically set forth in
this Agreement requiring unanimity. Each Partner shall have one
vote equal to its Partner's Percentage at the time of the meeting
on behalf of the member. 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. If the Partnership has two Partners,
then all matters are to be decided by a unanimous vote of the
Partners. If the Partnership has three or more Partners, then
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 Partners.
4.5.1 The means of financing the Project.
4.5.2 The form and content of any tariff to be used by the
Project.
4.5.3 Any agreement to purchase, construct, acquire or own
any Secondary Facilities or Expansions of the Project.
4.5.4 Except as provided in sections 12.2.1 and 12.2.2,
consent to the transfer of a Partner's interest.
4.5.5 Except as provided in sections 11, 12 and 13, the
decision to add a new Partner to the Partnership.
4.5.6 Except as otherwise provided in this Agreement, the
decision to dissolve the Partnership.
4.5.7 Any amendment of this Agreement.
4.6 Officials of the Partnership. One of the members of the
Management Committee shall serve as chairman. The chairman as of
the execution of this Agreement shall be the Management Committee
member representing KN with a term ending three years after the
in-service date of Phase II. After KN's term expires, the
chairmanship shall be open to election every two years by a
majority of the Partners with no prohibition upon a chairman
being elected to serve consecutive terms. If there are only two
Partners, the chairmanship shall rotate between Partners if the
Partner who is not Chairman at the end of KN's initial term
desires the chairmanship. A chairman may be removed by a
unanimous vote if there are two Partners or a majority vote if
there are three or more Partners. 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. Construction Project Manager, Operators and Partnership
Assignments.
5.1 Construction Project Manager. The Partnership has entered
into a Construction-Engineering Agreement with the Construction
Project Manager, Questar Pipeline, to serve during the
preconstruction and construction periods. The Construction
Project Manager shall serve until the completion of the Project,
or until it resigns or is removed by the unanimous vote of the
Management Committee.
5.2 Operators. The Partnership may enter into Operating
Agreements with Affiliates of each of the Partners, third parties
or directly employ personnel to operate various discrete
functions related to the Project.
5.3 Partnership Assignments. Attached as Exhibit C to this
Agreement is a current designation of duties related to the
construction and operation of Phase II of the Project and other
duties as related to Phase I of the Project not delegated to El
Paso in the operating agreement with El Paso for Phase I.
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 in proportion to its Partner's Percentage, 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 in
proportion to its Partner's Percentage, 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 Construction
Project Manager, during the construction of Phase II, or the
designated Operator thereafter, 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 Capital Accounts of the
nondefaulting Partner(s) 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 that of the nondefaulting Partner(s), including
additional Capital Contributions to its own Capital Account,
or in the case of a disproportionate allocation of loss,
contributions to increase the Capital Account of the
nondefaulting Partner(s), 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 the defaulting Partner's Capital
Account.
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 Partner's Percentage at the time of
distribution, in such total amounts and at such times as directed by
the Management Committee. However, if section 11.1(c) applies,
distribution of excess cash shall be made to each nondefaulting
Partner in the proportion that its Partner's Percentage bears to the
Partner's Percentage of the nondefaulting Partner(s).
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 Construction Project
Manager, during construction of Phase II or the designated
Operator thereafter, 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
Construction Project Manager, during construction of Phase II or
the designated Operator thereafter, 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), and other information
as may be requested by the Management Committee 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 Management Committee will direct
the appropriate entity to 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 D 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. Miscellaneous Agreements between KN and Questar. The Partners
agree upon the following contractual arrangements for ownership of
Phase I and Phase II of the Project, as are set forth in the June 27
Agreement and the June 30 Agreement. These agreements are
incorporated into this Agreement. To the extent that there are
conflicting provisions in the June 27 Agreement, the June 30 Agreement
and this Agreement, this Agreement shall control.
10.1 Purchase of El Paso's Phase II Interest. Notwithstanding
anything to the contrary in this Agreement, the June 27 Agreement
or the June 30 Agreement, on the in-service date of Phase II of
the Project, KN and Questar shall each pay El Paso 50% of the
balance of El Paso's then-remaining net book value of Phase II
that is currently estimated to be approximately $2,026,000.
10.2 Purchase by Questar of El Paso's Phase I Interest in
TransColorado. Notwithstanding anything to the contrary in this
Agreement, the June 27 Agreement or the June 30 Agreement, or any
contrary provisions of the TransColorado Project-Phase I
Construction, Ownership and Operation Agreement dated April 18,
1996, (April 18, 1996, Agreement), on the in-service date of
Phase II of the Project, Questar will pay to El Paso 100% of El
Paso's then net book value of Phase I and will assume 100% of El
Paso's financial obligations in connection with Phase I,
currently estimated to total approximately $8,000,000, El Paso
and El Paso Energy Corporation have agreed to continue to be
responsible for performing their obligations under the Revolving
Credit Agreement between TransColorado Gas Transmission Company
and Credit Lyonnais dated July 19, 1996, until the obligations
are assumed by Questar on the in-service date of Phase II. KN
shall be allocated all net profits from Phase I, paid by cash
disbursements, until the in-service date of Phase II. Upon the
in-service date of Phase II, the assets and operations of Phase I
will be consolidated with those of Phase II. Thereafter, net
profits from Phase I shall be combined with those from Phase II
and allocated in the same manner as is set forth in section 6.2.
10.3 Election to sell. Notwithstanding anything to the contrary
in this Agreement, the June 27 Agreement or the June 30
Agreement, Questar, beginning 24 months after the in-service date
of Phase II of the Project, will have a 12-month period (Purchase
Period) in which it may, on its own election, sell to KN its
Partnership interest in the Project at an amount equal to
Questar's Partnership interest percentage, at that time, of
TransColorado's book equity, including net working capital
(Questar's Equity). KN may negotiate with any other Partner to
allow it to acquire a portion of Questar's Partnership interest.
If no other Partner negotiates successfully with KN to purchase
a portion of Questar's Partnership interest, then KN will be
obligated to purchase all of Questar's Partnership interest.
Further, if Questar elects to sell its interest in the
TransColorado Partnership to KN and any additional Partners
during the Purchase Period, KN and any other Partner who
negotiates successfully to purchase Questar's interest in the
Project will either assume or refinance all TransColorado
Partnership debt within the 90-day time frame established to
purchase Questar's Equity as is set forth in subsection 10.4 of
this Agreement and will be solely liable and obligated for any
TransColorado Partnership debt assumed or refinanced.
10.4 Notice and Payment. Notwithstanding anything to the
contrary in this Agreement, the June 27 Agreement or the June 30
Agreement, Questar may give written notice to the other Partners
to this Agreement beginning 90 days prior to the Purchase Period
up until the final day of the Purchase Period of Questar's
election to sell its interest in TransColorado to KN and any
other Partner who has negotiated successfully to purchase a
portion of Questar's Partnership interest with KN. Upon
receiving written notice from Questar that it elects to sell its
Partnership interest in TransColorado, KN and any other Partner
who has negotiated successfully with KN to acquire a portion of
Questar's Partnership interest (Purchasing Partners), shall
purchase Questar's Partnership interest in TransColorado and pay
to Questar, within 90 days by wire transfer to a bank account
designated by Questar, the value of Questar's Equity in the
Project.
10.5 Permanent Release of Capacity by Questar. If Questar elects
to exercise its option to sell its Partnership interest to KN
and/or the Purchasing Partners pursuant to this Agreement,
Questar or any affiliate, subsidiary or parent holding firm
transportation capacity (Questar Capacity Holder) on the Project
that was acquired to fulfill the terms and conditions of the
November 13, 1997, agreement between TransColorado Gas
Transmission Company and Enron Pipeline Company, attached as
Exhibit E to this Agreement, the Questar Capacity Holder may then
reduce that firm transportation contract demand on TransColorado
by an amount equal to the firm transportation capacity held by it
that is not at that time under capacity release contract to other
shippers without any further liability to TransColorado for any
reservation charges, reservation surcharges, or any other charges
associated with the capacity returned to TransColorado.
Thereafter as each capacity release contract is terminated, the
Questar Capacity Holder may further reduce its firm
transportation contract demand by the amount of the expiring
capacity release contracts without any further liability to
TransColorado for any reservation charges, reservation
surcharges, or any other charges associated with the capacity
returned to TransColorado.
10.6 Indemnification upon election. Notwithstanding anything to
the contrary in this Agreement, the June 27 Agreement or the June
30 Agreement, if during the Purchase Period Questar elects to
sell its Partnership interest in the Project to the Purchasing
Partners, then the Purchasing Partners will defend, indemnify and
hold Questar, Questar Pipeline and their respective officers,
directors, employees, agents, parent companies, Affiliates and
subsidiaries, harmless against all claims, damages (including
consequential damages), judgments, causes of action, legal
liability, attorneys' fees, accountants' fees and court costs and
all costs of debt, including, but not limited to, interest and
principal arising out of, in connection with, or in any way
related to the Project, whether fixed, occurring or coming due,
before or after Questar's notice to Purchasing Partners to sell
its Partnership interest to Purchasing Partners during the
Purchase Period, except for those claims, damages, judgments,
causes of action, legal liability, attorneys' fees, accountants'
fees, court costs and costs of debt, that are due to the gross
negligence, recklessness or intentional misconduct of Questar,
Questar Pipeline and their respective officers, directors,
employees, agents, parent companies, Affiliates and subsidiaries.
Further, this indemnification survives this Agreement and shall
exist until the end of the applicable statute of limitations
period.
10.7 Indemnification for Past Acts of KN and Questar. KN and
Questar agree to indemnify each other for past acts as follows:
10.7.1 Notwithstanding anything to the contrary in this
Agreement, the June 27 Agreement or the June 30 Agreement,
KN will defend, indemnify and hold TransColorado, Questar
and Questar Pipeline and their respective officers,
directors, employees, agents, parent companies, Affiliates
and subsidiaries, harmless against all claims, damages
(including consequential damages), judgments, causes of
action, legal liability, attorneys' fees, accountants' fees
and court costs to any Person arising out of or in
connection with any work performed by KN and its
contractors, agents or Affiliates, prior to the date of this
Agreement, and for any obligations incurred by KN and its
contractors, agents and Affiliates, prior to the date of
this Agreement, on the Project that have not been authorized
by the Management Committee and have not been specifically
ratified or assumed by Questar. Further, this
indemnification survives this Agreement and shall exist
until the end of the applicable statute of limitations
period.
10.7.2 Notwithstanding anything to the contrary in this
Agreement, the June 27 Agreement or the June 30 Agreement,
Questar will defend, indemnify and hold TransColorado and KN
and their respective officers, directors, employees, agents,
parent companies, Affiliates and subsidiaries, harmless
against all claims, damages (including consequential
damages), judgments, causes of action, legal liability,
attorneys' fees, accountants' fees and court costs to any
Person arising out of or in connection with any work
performed by Questar and its contractors, agents or
Affiliates, prior to the date of this Agreement, and for any
obligations incurred by Questar and its contractors, agents
and Affiliates, prior to the date of this Agreement, on the
Project that have not been authorized by the Management
Committee and have not been specifically ratified or assumed
by KN. Further, this indemnification survives this
Agreement and shall exist until the end of the applicable
statute of limitations period.
11. Default.
11.1 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 member(s) 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 14.3.2.
A Defaulting Partner shall be liable to the Partnership and the
other Partner(s) for all losses, damages and expenses sustained
or incurred by the Partnership or the Partner(s) as a result of
the Default.
11.2 Action by Management Committee. In the event of Default,
the member(s) of the Management Committee representing the
nondefaulting Partner(s) shall promptly vote on a course of
action to be taken, which may include requiring (all of) the
nondefaulting Partner(s) to make Capital Contributions or lend
funds to the Partnership proportionate to each then-existing
Partner' Percentage in a total amount equal to the amount of the
Default.
11.3 Sale of Defaulting Partner's Interest. If any Default
continues for more than 60 consecutive days, the nondefaulting
Partner(s) shall have the right to purchase equal percentages of
the Defaulting Partner's Partnership interest. If the
nondefaulting Partner(s) elect(s) not to purchase equal
percentages of such Partnership interest, upon unanimous approval
of the nondefaulting Partner(s), 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 Partner(s)
cannot reach unanimous agreement on the sale of the Defaulting
Partner's Partnership interest in unequal percentages to the
nondefaulting Partner(s) 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.
11.4 Price for Nondefaulting Partners. The price payable by the
nondefaulting Partner(s) for the Defaulting Partner's Partnership
interest shall be the lesser of: (a) the fair market value of the
Partnership interest, as determined by an independent third-party
valuation, 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 more of the nondefaulting Partner(s) shall
be paid to the Partnership and applied first in an amount equal
to any losses, damages or expenses, including attorneys' 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
attorneys' fees, incurred by such Partner as a result of the
Default. Any remaining proceeds shall be paid to the Defaulting
Partner.
11.5 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 an independent third-party
valuation. 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 attorneys' fees, sustained or incurred by the
Partnership as a result of the Default; (b) to any nondefaulting
Partner to the extent of any losses, damages or expenses,
including attorneys' 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 total of the Partner's Percentage of all the nondefaulting
Partner(s).
11.6 Additional Remedies. Nothing in section 11 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 11, or from pursuing any other remedies that may be
available in law or equity. The nondefaulting Partner(s) may
place a lien on the future cash distributions to a Partner who
was in Default to recover their losses, damages and expenses.
11.7 Continuation of Partnership. If a Defaulting Partner's
interest in the Partnership is assigned to a third Person or
purchased by the nondefaulting Partner(s), the Partnership shall
not be dissolved and shall continue to carry out the business of
the Partnership. If the nondefaulting Partner(s) purchase(s) 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.
11.8 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
11. 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 Partner(s) was
(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 attorneys' 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 attorneys'
fees, sustained or incurred by the Partner as a result of the
Default, excluding any amounts described in (a) and (b).
11.9 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.
12. Sale, Transfer or Pledge of Partnership Interest. Except with
the unanimous consent of the Management Committee, or as permitted by
section 12.2 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.
12.1 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 Partner(s), and
subject to the following provisions.
12.1.1 If a Partner wishes to sell some or all of its
interest in the Partnership, it shall notify the other
Partner(s) to allow it (them) to purchase the selling
Partner's interest. If more than one Partner desires to
purchase a selling Partner's interest, then such sale shall
be on a pro rata basis based on the Partner's Percentage of
the acquiring Partners. If no Partner(s) express(es)
interest within 30 days to purchase the selling Partner's
interest, the selling Partner shall submit to the Management
Committee a notice of intent to sell containing a list of
proposed buyers unaffiliated with any Partner(s). 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 13. 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.
12.1.2 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 Partner(s) a right of first refusal to
purchase the interest on the same terms and conditions. The
remaining Partner(s) shall have 30 days from the date each
Partner receives the offer to exercise their right of first
refusal.
12.1.3 If the remaining Partner(s) elects 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 Partner(s).
12.2 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:
12.2.1The 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 transfer 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.
12.2.2 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.
12.3 Effect of Permitted Transfers or Withdrawals. No
assignment, pledge or other transfer or withdrawal pursuant to
section 13 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 12.2.1.
12.4 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 Partner may
have against the Partner making the prohibited transfer.
13. 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 Partner(s). If any
Partner gives notice of withdrawal from the Partnership, the following
provisions shall apply.
13.1 Purchase by Partners. The remaining Partner(s) shall decide
whether to purchase the interest of a withdrawing Partner.
Unless the remaining Partner(s) unanimously agree(s) otherwise,
each remaining Partner shall purchase equal percentages of the
Partnership interest at the price provided for in section 13.4.
If the remaining Partner(s) unanimously agree(s) to purchase
unequal percentages of the withdrawing Partner's Partnership
interest, the new interest(s) shall be reflected by appropriate
adjustments to the Capital Account(s), Partner's Percentage and
voting rights on the Management Committee of each remaining
Partner(s).
13.2 Sale to Third Party. If the remaining Partner(s) does (do)
not purchase the Partnership interest, by unanimous vote the
remaining Partner(s) 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 13.4.
13.3 Need to Agree. If the remaining Partner(s) of the
Management Committee does (do) not unanimously agree either to
purchase the withdrawing Partner's Partnership interest or to
permit its assignment, the Partnership shall be dissolved.
13.4 Price of Partnership Interest. Unless otherwise agreed, the
price to be paid to any withdrawing Partner by the remaining
Partner as consideration for the transfer of its interest in the
Partnership shall be the amount contained in the withdrawing
Partner's Capital Account.
14. Dissolution of the Partnership. Voluntary and involuntary
dissolution of the Partnership shall be governed by this section.
14.1 Voluntary Dissolution.
14.1.1 After the initial term of the Agreement, any Partner
may elect to dissolve the Partnership and terminate this
Agreement by giving the other Partner(s) written notice of
such election not less than 1 year prior to the date the
termination is to take place.
14.1.2 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.
14.1.3 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.
14.2 Automatic Dissolution. The Partnership shall automatically
and without notice be dissolved upon the happening of any of the
following events:
14.2.1 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);
14.2.2 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;
14.2.3 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;
14.2.4 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;
14.2.5 The sale or abandonment of all or substantially all of
the Partnership's business and assets;
14.2.6 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
14.2.7 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.
14.3 Winding Up and Liquidation. If the Partnership is dissolved
pursuant to the provisions of section 14, 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:
14.3.1 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 14.3.1, that Partner shall be
required to contribute sufficient cash to the Partnership to
eliminate the deficit.
14.3.2 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
14.3.1.
14.3.3 No termination or dissolution shall deprive any
Partner not in Default of any remedy otherwise available to
it.
14.4 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 14 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.
15. Limitation of Liabilities and Litigation.
15.1 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.
5.2 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.
15.3 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.
16. Representations and Warranties of the Partners. Each Partner
represents, warrants and agrees that:
16.1 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.
16.2 It will not voluntarily cause a dissolution or termination
of the Partnership by failure to maintain its corporate
existence;
16.3 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
16.4 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.
17. Miscellaneous Provisions.
17.1 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.
KN TransColorado, Inc. Questar TransColorado, Inc.
P.O. Box 281304 P.O. Box 45433
370 Van Gordon Street 180 East 100 South
Lakewood, CO 80228-8340 Salt Lake City, UT 84145-0433
Attn: Vice President Attn: Vice President and General
Manager
Telephone: (303) 989-1740 Telephone: (801) 324-2551
Fax: (303) 989-0368 Fax: (801) 324-2678
17.2 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 decisions, orders and
regulations of governmental authorities having jurisdiction shall
control.
17.3 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.
17.4 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 12.2, if any Partner
is added to the Partnership for any reason, this Agreement will
be amended to add the Partner as a Party.
17.5 Choice of Law. This Agreement and the Partnership shall be
governed by and interpreted in accordance with the laws of
Colorado.
17.6 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
17.7 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.
17.8 Attorneys' 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
attorneys' fees in the litigation.
17.9 Entire Agreement and Termination of Prior Agreements. This
Agreement, amended and restated July 1, 1997, constitutes the
agreement between the Partners concerning its subject matter and
supersedes any prior understanding or written or oral agreements
concerning the subject matter, with the exception of the June 30
Agreement. This Agreement incorporates within all provisions of
the June 27 Agreement. The Project Agreement dated March 19,
1990, and the letters of intent dated August 18, 1989, and
February 9, 1990, among the Partners were terminated as of the
effective date of the amended and restated September 25, 1995,
Partnership Agreement.
17.10 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.
KN Transcolorado, Inc.
By: ______________________________________
H. Rickey Wells, Vice President
Questar TransColorado, Inc.
By: ______________________________________
D. N. Rose, President and
Chief Executive Officer
Date: _____________ 1997
Partnership Agreement
between
KN TransColorado, Inc.,
and
Questar TransColorado, Inc.
As Amended and Restated
JULY 1, 1997
EXHIBIT B
PARTNERSHIP ASSIGNMENT AND DUTIES
Questar:
Construction Project Manager.
Regulatory Affairs
Accounting
Tax Matters
KN:
Finance
Marketing
Exhibit 22
SUBSIDIARY INFORMATION
Registrant Questar Pipeline Company has one subsidiary, Questar
TransColorado, Inc., which is a Utah corporation.
Exhibit 24
POWER OF ATTORNEY
We, the undersigned directors of Questar Pipeline Company, hereby
severally constitute D. N. Rose 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 1997 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 1997 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 2-10-98
R. D. Cash
/s/ D. N. Rose President & Chief 2-10-98
D. N. Rose Executive Officer
/s/ U. E. Garrison Director 2-10-98
U. E. Garrison
/s/ Marilyn S. Kite Director 2-10-98
Marilyn S. Kite
/s/ Scott S. Parker Director 2-10-98
Scott S. Parker
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The following schedule contains summarized information extracted from the
Questar Pipeline Company Balance Sheet and Income Statement for the period
ended December 31, 1997, and is qualified in its entirety to such audited
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 7,075
<SECURITIES> 0
<RECEIVABLES> 10,851
<ALLOWANCES> 0
<INVENTORY> 2,303
<CURRENT-ASSETS> 22,264
<PP&E> 580,603
<DEPRECIATION> 202,427
<TOTAL-ASSETS> 437,564
<CURRENT-LIABILITIES> 45,869
<BONDS> 134,563
0
0
<COMMON> 6,551
<OTHER-SE> 183,760
<TOTAL-LIABILITY-AND-EQUITY> 437,564
<SALES> 0
<TOTAL-REVENUES> 105,437
<CGS> 0
<TOTAL-COSTS> 37,334
<OTHER-EXPENSES> 17,613
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,536
<INCOME-PRETAX> 42,906
<INCOME-TAX> 16,338
<INCOME-CONTINUING> 26,568
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,568
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
