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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, 2000 OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM _____ TO _____
Commission File No. 1-935
QUESTAR GAS COMPANY
(Exact name of registrant as specified in its charter)
State of Utah 87-0155877
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
180 East 100 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:
Notes: Medium Term Notes, 6.85% to 8.43%,
due 2007 to 2024
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 1, 2001: $0.
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of March 1, 2001:
9,189,626 shares of Common Stock, $2.50 par value. (All shares are
owned by Questar Regulated Services Company.)
Registrant meets the conditions set forth in General
Instruction (I)(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. . . . . . . . . . . . . . . . . 1
General . . . . . . . . . . . . . . . . . . . . . . . . 1
Gas Distribution. . . . . . . . . . . . . . . . . . . . 1
Gas Supply . . . . . . . . . . . . . . . . . . . . . . 3
Competition and Growth. . . . . . . . . . . . . . . . . 4
Regulation. . . . . . . . . . . . . . . . . . . . . . . . 6
Relationships with Affiliates . . . . . . . . . . . . . . 8
Employees . . . . . . . . . . . . . . . . . . . . . . . 11
Environmental Matters . . . . . . . . . . . . . . . . . 12
Research and Development. . . . . . . . . . . . . . . . 12
Item 3. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . 12
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS . . . . . . . . . . . . . . . . . . . . 13
PART II
Item 5. MARKET FOR REGISTRANT'S EQUITY
AND RELATED STOCKHOLDER MATTERS. . . . . . . . . . . . . 13
Item 6. OMITTED. . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATION. . . . . . . . . . . . . . . . . . . . . . . . 14
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.. . . . . . . . . . . . . . . . . . . . . . . . . . .18
Item 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA . . . . . . . . . . . . . . . . . . . 18
Item 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . 18
PART III
Items OMITTED. . . . . . . . . . . . . . . . . . . . . . . . . 18
10-13
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K. . . . . . . . . . . . . . . . . 18
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
FORM 10-K
ANNUAL REPORT, 2000
PART I
ITEMS 1. and 2. BUSINESS AND PROPERTIES.
General
Questar Gas Company (the "Company" or "Questar Gas")
distributes natural gas to more than 704,600 sales and
transportation customers in Utah, southwestern Wyoming, and a small
section in southeastern Idaho. It is part of the Regulated Services
segment within Questar Corporation ("Questar"), which is a
publicly-owned and diversified energy company.
The Company, through a predecessor, began distributing natural
gas in 1929 when a pipeline was built to transport natural gas from
southwestern Wyoming to Salt Lake City, Utah. Between 1929 and the
present time, Questar Gas expanded its system to include over 90
percent of Utah's population and to capture a market share of over
90 percent for furnaces and water heaters within its service area.
When the Company closes on its expected acquisition of Utah Gas
Service Company ("Utah Gas"), it will be the only natural gas public
utility in the state of Utah.
The Company has traditionally capitalized on two competitive
advantages--owning natural gas reserves and offering services to
customers at reasonable prices. Questar Gas intends to maintain a
competitive position in its traditional service area.
Gas Distribution
As of December 31, 2000, Questar Gas was serving 704,629
residential, commercial, and industrial customers, a 2.7 percent
increase from the 686,317 customers served as of the end of 1999.
(Customers are defined in terms of active meters.) The Company
distributes gas to customers in the major populated area of Utah,
commonly referred to as the Wasatch Front, in which the Salt Lake
metropolitan area, Provo, Ogden, and Logan are located. It also
serves customers in eastern, central, and southwestern Utah with
Price, Roosevelt, Fillmore, Richfield, Cedar City, and St. George as
the primary cities. Over 96 percent of the Company's customers are in
Utah. Questar Gas serves the communities of Rock Springs, Green
River, and Evanston in southwestern Wyoming and the community of
Preston in southeastern Idaho. Questar Gas has been granted the
necessary regulatory approvals by the Public Service Commission of
Utah ("PSCU"), the Public Service Commission of Wyoming ("PSCW"),
and the Public Utilities Commission of Idaho ("PUCI") to serve these
areas. It also has long-term franchises granted by communities and
counties within its service area.
Questar Gas added 18,312 customers in 2000, compared to 22,925
customer in 1999. Most of the customer growth was attributable to
new housing, although the Company continues to add customers in its
traditional and newer service areas that are converting to natural
gas. The population of the Company's service area in Utah continues
to grow faster than the national average, although the rate of
increase is slowing down. Questar Gas expects to add 17,000-20,000
customers per year for the next several years.
The Company's sales to residential and commercial customers are
seasonal, with a substantial portion of such sales made during the
heating season. The typical residential customer in Utah (defined
as a customer using 115 decatherms ("Dth") per year) uses more than
75 percent of total gas requirements in the coldest six months of
the year. (A Dth is an amount of heat energy equal to 10 therms or
1 million Btu. In the Company's system, each thousand cubic feet
("Mcf") of gas equals approximately 1.036 Dth.) The Company's
revenue forecasts used to set rates are based on normal
temperatures. Historically, revenues and resulting net income have
been affected by temperature patterns that are below or above
normal. As measured in degree days, temperatures in the Company's
service area were four percent warmer than normal in 2000, which was
the seventh consecutive year in which temperatures have been warmer
than normal.
The Company's sensitivity to weather and temperature
conditions, however, has been ameliorated by adopting a
weather-normalization mechanism for its general service customers in
Utah and Wyoming. The mechanism, which has been in effect since
1997, adjusts the non-gas cost portion of a customer's monthly bill
as the actual degree days in the billing cycle are warmer or colder
than normal. This mechanism reduces the sometimes dramatic
fluctuations in any given customer's monthly bill from year to year
due to weather variations.
During 2000, Questar Gas sold 83.4 million decatherms ("MMDth")
of natural gas to residential and commercial customers, compared to
82.2 MMDth in 1999. General service sales to residential and
commercial customers were responsible for 87 percent of the
Company's total revenues in 2000. The increase in sales volumes
reflects colder weather and increased customers. Customers are
continuing to decrease their usage on a temperature-adjusted basis
as they make a transition to more efficient gas-burning appliances
and respond to higher commodity prices with conservation measures.
Questar Gas has designed its distribution system and annual gas
supply plan to handle design-day demand requirements. The Company
periodically updates its design-day demand, which is the volume of
gas that firm customers could use during extremely cold weather.
For the 2000-01 heating season, the Company used a design-day demand
of 999,856 Dth for firm sales customers. Questar Gas is also
obligated to have capacity, but not gas supply, for firm
transportation customers; the current combined design-day
requirement for supply and transportation capacity is 1,100,700 Dth.
The Company's management believes that the distribution system is
adequate to meet the demands of its firm customers. During the
2000-01 winter heating season, Questar Gas did curtail
transportation to some of its interruptible customers who
specifically contract for interruptible service.
The Company's tariff permits industrial customers to make
annual elections for interruptible sales or transportation service.
Questar Gas has been providing transportation service since 1986.
The Company's largest transportation customers, as measured by
revenue contributions in 2000, are the Geneva Steel plant in Orem,
Utah; the Gadsby plant owned by Scottish Power (electric utility) in
Salt Lake City; the mineral extraction operations of Magnesium
Corporation of America in Tooele County, west of Salt Lake; and the
Kennecott copper processing operations, located in Salt Lake County.
The Company's total industrial deliveries, including both sales and
transportation, increased from 61.5 MMDth in 1999 to 65.2 MMDth in
2000, reflecting the increased use of natural gas for electric
generation.
Questar Gas owns and operates distribution systems throughout
its Utah, Wyoming and Idaho service areas and has a total of 21,660
miles of street mains, service lines, and interconnecting pipelines.
The Company has consolidated many of its activities in its
operations center located in Salt Lake City, Utah. Questar Gas
continues to own field offices and service center facilities in
other parts of its service area. It has fee title to the properties
on which its operation and service centers are constructed. The
mains and service lines are constructed pursuant to franchise
agreements or rights-of-way.
Gas Supply
Questar Gas owns natural gas producing properties in Wyoming,
Utah and Colorado that are operated by Wexpro Company ("Wexpro") and
uses the gas produced from these properties for part of its
base-load demand. Questar Gas is unique among local distribution
companies because it does own gas reserves. During the last six
months as spot prices have tripled, the Company has relied on its
cost-of-service gas to keep its increases attributable to gas costs
lower than other distribution utilities.
The Company's investment in these properties is included in its
utility rate base. Questar Gas has regulatory approval to use this
"cost-of-service" gas for firm sales customers. During 2000,
approximately 48 percent of the Company's firm sales requirement was
satisfied with cost-of-service gas produced from over 630 wells in
more than 30 fields. (As defined, cost-of-service gas includes
related royalty gas.) The volumes produced from such properties are
transported for the Company by Questar Pipeline Company ("Questar
Pipeline"). See "Relationships with Affiliates." During 2000, 48.0
MMDth of gas were delivered from such properties, compared to 45.8
MMDth in 1999.
The Company estimates that it had reserves of 399.7 equivalent
billion cubic feet ("Bcfe") of natural gas and hydrocarbon liquids
as of year-end 2000 compared to 373.4 Bcfe as of year-end 1999.
(These reserve numbers do not include gas attributed to royalty
interest owners but they do include crude oil reserves. Reserve
numbers are typically reported in volumetric units, such as Bcf,
that don't reflect heating values.) The increased reserves were
attributable to revisions and extensions as a result of Wexpro's
drilling activities, which more than offset the production
associated with such properties. The average wellhead cost
associated with gas volumes produced from the Company's
cost-of-service reserves was $1.78 per Dth in 2000, which is below
the average cost of purchased volumes.
Some of the wells on the Company's producing properties qualify
for special tax credits, commonly referred to as "Section 29" or
"tight sands" tax credits. During 2000, Questar Gas, as the party
with the economic interest in the gas produced from such wells,
claimed $1.8 million in Section 29 tax credits. To qualify for the
special tax credits, production must flow from wells that meet
specified tight sands criteria and that commenced drilling prior to
January 1, 1993. Only gas volumes produced prior to January 1,
2003, are eligible for the special tax credit.
Questar Gas stores up to 13.3 Bcf of gas at Clay Basin, a
base-load storage facility owned and operated by Questar Pipeline,
to provide flexibility for handling gas volumes produced from
cost-of-service properties. Gas volumes, as a general rule, are
injected into the Clay Basin storage reservoir during the summer and
withdrawn during the heating season.
Questar Gas has a balanced and diversified portfolio of gas
supply contracts with a variety of suppliers located in the Rocky
Mountain states of Wyoming, Colorado, and Utah. It also purchases
gas on the spot market, primarily during the heating season. The
Company's gas purchase contracts have market-based provisions and
are either of short-duration or renewable on an annual basis upon
agreement of the parties. Questar Gas's gas acquisition objective
is to obtain reliable, diversified sources of gas supply at
competitive prices. In the latest purchased gas cost filing, the
Company estimated that its 2001 average cost of purchased gas would
be $6.75 per Dth for gas delivered to the upstream pipeline,
compared to the $2.61 price it estimated a year earlier.
Several years ago, Questar Gas realized that it had a
significant problem with some gas supplies having a lower Btu
content, which was attributable to lower-Btu gas extracted from coal
seams and the stripping of liquids at processing plants. Appliances
in Questar Gas's service area have historically been set to burn gas
within a certain Btu range, and customer-safety problems can occur
if the Btu content of delivered gas falls outside this range. The
Company has reduced its recommended set point standard for
appliances. New and replacement appliances installed by heating
contractors meet this standard. Customers will be advised to have
their appliances inspected and adjusted, if necessary, to satisfy
the new standard. To provide an appropriate transition period,
Questar Gas contracted with an affiliate to construct and operate a
processing plant to remove carbon dioxide from coal-seam gas,
thereby increasing the Btu content. The plant became operational in
mid-1999. (See "Regulation" for a discussion of regulatory
proceedings involving the costs associated with this activity.)
Competition and Growth
Questar Gas has historically enjoyed a favorable price
comparison with all energy sources used by residential and
commercial customers except coal and occasionally fuel oil. This
historic price advantage, together with the convenience and handling
advantages associated with natural gas and with the services
provided in conjunction with natural gas, has permitted the Company
to serve over 90 percent of the residential space heating and water
heating market in its service area and to distribute more energy, in
terms of Btu content, than any other energy supplier to residential
and commercial markets in Utah.
The Company continues to focus marketing efforts to develop
incremental load in existing homes and new construction. Almost all
households in its service area connected to Questar Gas's system
already use natural gas for space heating and water heating.
Virtually 100 percent of the new homes constructed in its service
area that are connected to its system use natural gas for space
heating and water heating. The Company's market share for other
secondary appliances, e.g., ranges and dryers, has historically been
less than 30 percent.
Questar Gas believes that it must maintain a competitive price
advantage in order to retain its residential and commercial
customers and to build incremental load by convincing current
customers to convert additional secondary appliances to natural gas.
Historically, the Company's competitive position has been
strengthened as a result of owning natural gas producing properties
and satisfying as much as approximately 45-50 percent of its system
requirements with the cost-of-service gas produced from such
properties. Questar Gas develops an annual gas supply plan that
provides for a judicious balance between cost-of-service gas and
purchased gas. The Company believes that it is important to
continue owning gas reserves, producing them in a manner that will
serve the best short- and long-term interests of its customers, and
satisfying a significant portion of its supply requirements with gas
produced from such properties.
No other major distributor markets natural gas sales service in
direct competition with the Company in its service area, but
marketing firms are arranging direct purchase contracts between
large users in the Company's service area and producers. These
customers have not bypassed Questar Gas, but can take advantage of
the open-access status of either the pipeline systems owned by
Questar Pipeline Company (Questar Pipeline") or Kern River Gas
Transmission Company ("Kern River"). The Company's sales rates are
competitive when compared to other energy sources, but can be higher
(or lower) than the delivered price of spot-market gas volumes
transported through its system to large customers.
The Kern River pipeline, which was built to transport gas from
southwestern Wyoming to Kern County, California, runs through
portions of the Company's service area and can provide an
alternative delivery source to transportation customers. As of the
date of this Report, Questar Gas has lost no industrial load as a
result of the Kern River line. The existence of the Kern River
pipeline, however, coupled with the open-access status of Questar
Pipeline's transmission system, has changed the nature of market
conditions for the Company. Large industrial customers in Utah's
Wasatch Front area can acquire taps on Kern River's system or direct
taps on Questar Pipeline's system. The Company, itself, has taps on
the Kern River line that enable it to obtain delivery of additional
peak-day supplies to meet increasing demand. The existence and
location of the Kern River pipeline system also made it possible for
Questar Gas to extend service into new areas in rural Utah and to
develop additional sources of supply for its central and southern
Utah system.
Questar Pipeline, an affiliate in the Regulated Services
group, plans to construct a new line Mainline 104. The line, which
should be operational before the 2001-02 winter heating season, also
could change the competitive situation within the markets served by
Questar Gas. This line extends from Price, Utah, near the Ferron
area of coalbed methane gas, to the Company's system at Payson,
Utah, and the Kern River line near Elberta, Utah. Questar Gas has
contracted for firm transportation capacity on the line to enable it
to meet its design-day requirements, but the location of the line
and its connection to the Kern River line may increase the
possibilities for some customers to bypass Questar Gas's system.
In 1998, the PSCW approved a "supplier choice" program for the
Company's customers in Wyoming. Under the terms of this program,
general service customers have the option of selecting a different
supplier of natural gas while purchasing transportation and related
services from Questar Gas. However, no supplier has yet offered to
provide service under the program.
Questar Gas and all local distribution companies are faced
with the challenges and opportunities posed by the unbundling and
restructuring of traditional utility services, which have been
complicated by recent developments in other states where partial
deregulation activities have resulted in market anomalies and
demands for "reregulation." At this point, it is far too soon to
set or predict a timetable for the Company's unbundling of services
to residential and commercial customers. Questar Gas will continue
to examine its costs, take advantage of technological developments,
and improve its overall efficiency in order to take advantage of
opportunities in a deregulated environment.
Effective October 31, 2000, 262 employees and 14 disability
recipients within the Regulated Services unit retired pursuant to
the terms of an early retirement program. As the largest employer
within the Regulated Services group, Questar Gas lost 176 of the 262
employees involved. This early retirement program was the fourth
program offered to the Company's employees within the last nine
years and reflects continuing efforts to cut costs in response to
competitive pressures, to deal with financial constraints imposed by
regulatory orders, and reap the benefits associated with
technological improvements.
Regulation
As a public utility, Questar Gas is subject to the
jurisdiction of the PSCU and PSCW. (The Company's customers in
Idaho are served under the provisions of its Utah tariff. Pursuant
to a special contract between the PUCI and the PSCU, the rates for
the Company's Idaho customers are regulated by the PSCU.) The
Company's natural gas sales and transportation services are provided
under rate schedules approved by the two regulatory commissions.
Questar Gas has consistently endeavored to balance the costs
of adding close to 18,000-20,000 customers each year with the cost
savings associated with reducing labor costs, consolidating
activities and utilizing new technology. During 2000, the Company
improved its overall efficiency by closing the front offices at its
service centers, limiting in-home service visits to safety and
emergency calls, outsourcing some non-core activities, and combining
operations with Questar Pipeline.
Questar Gas's 2000 general rate case proceedings culminated
with the receipt of an "acceptable" decision from the PSCU in August
of 2000. The case began in December of 1999 when the Company filed
an application requesting an increase of $22.2 million and return on
equity of 12 percent. Effective January 1, 2000, Questar Gas was
permitted to increase its rates, on an interim basis and subject to
refund, to collect an annualized increase of $7.1 million. The
PSCU, in its August decision, granted $13.5 million in rate relief,
which included the $7.1 million, and authorized a return on equity
of 11 percent. This decision also permitted Questar Gas to collect
$5 million of annual carbon dioxide processing costs (included in
the $13.5 million increase) that the PSCU had earlier refused to
accept as part of the Company's gas costs for pass-through treatment.
Questar Gas was disappointed in the authorized return on
equity (11 percent) it was granted by the PSCU, given its testimony
concerning the need of financial markets for competitive returns and
given the increased evidence that utilities cannot earn their
allowed returns when they are growing their customer base faster
than the national average. The Company is authorized to earn a
return on equity of 11.83 percent in Wyoming.
Regulatory treatment of processing costs has been an issue of
contention for the past 18 months. As noted earlier, Questar Gas,
in order to give its customers time to adjust the combustion
settings in its service area to handle lower Btu-gas volumes,
determined to enhance the Btu of such gas by contracting to have
carbon dioxide removed from it and agreeing to pay the costs
associated with this activity.
The Company is involved in two separate cases before the Utah
Supreme Court involving the PSCU's treatment of carbon dioxide
removal costs. The first case, which has been briefed and argued,
is Questar Gas's appeal from the PSCU's order denying its
application to recover the costs in its pass-through proceedings
from June of 1999 through year-end 1999. The second case, which has
not been argued, involves an appeal taken by a state agency from the
PSCU's general rate case order allowing the Company to include the
processing costs in its rates.
The Utah state legislature voted to repeal regulatory reform
legislation that was adopted during 2000. The legislation was
designed to improve regulatory processes by consolidating two state
agencies into one, encouraging rate-case settlements without
protracted and adversarial proceedings, and requiring the PSCU to
consider "known and measurable" changes when setting rates. The
legislation received adverse reactions from consumer groups and
local media, which resulted in a political decision to repeal the
legislation before it could become effective.
Both the PSCU and the PSCW have authorized Questar Gas to use
a balancing account procedure for changes in the cost of natural
gas, including supplier non-gas costs, and to reflect changes on at
least a semi-annual basis. During 2000, the Company filed three
pass-through applications with both the Utah and Wyoming commissions
to reflect increased gas costs in its rates. In the last
pass-through applications that became effective January 1, 2001,
Questar Gas was allowed to reflect annualized gas costs of
$504,865,533 in its Utah rates and $19,529,523 in its Wyoming rates.
A typical residential customer in Utah would have an annual bill of
$905.02, using rates in effect as of January 1, 2001, compared to an
annual bill of $611.19, using rates in effect as of January 1, 2000.
The PSCW and PSCU have allowed the Company to collect the increased
gas costs in rates, subject to refund. Both commissions also held
public hearings to hear public comments on the most recent
pass-through filings.
Questar Gas has reached an agreement in principle to purchase
Utah Gas and Wyoming Industrial Gas Company ("Wyoming Gas") and
immediately merge these two entities into it. It has also requested
regulatory approval of the transactions. Utah Gas is the only other
retail natural gas utility in Utah and serves the three primary
cities of Vernal, Moab, and Monticello, which are located in eastern
and southeastern Utah. Wyoming Gas supplies gas to Kemmerer,
Wyoming, which is located in western Wyoming. As a result of the
acquisition, Questar Gas would add approximately 10,500 customers.
The Company specified several conditions to its acquisition that
include receiving regulatory approval to continue charging the
acquired customers the current non-gas cost portion of rates for 10
years.
Responsibility for gas acquisition activities involves
inherent risks of regulatory scrutiny. The Company has been
periodically involved in regulatory proceedings in which the
prudence of its gas supply activities has been challenged. The PSCU
and PSCW have jurisdiction to examine the Company's relationships
with its affiliates and the costs paid by the Company for services
rendered by or goods purchased from its affiliates. A 1981
settlement agreement involving cost-of-service gas and defining
certain contractual obligations between the Company and Wexpro
continues to be monitored by the Division and its agents.
Under Utah law, Questar Gas must report dividends paid on its
common stock to the PSCU and must allow at least 30 days between
declaring and paying dividends. The PSCU can investigate any
dividend declared by the Company to determine if payment of such
dividend would impair its capital or service obligations. The PSCW
and the PUCI, but not the PSCU, have jurisdiction to review the
issuance of long-term securities by Questar Gas.
The PSCU and PSCW have adopted regulations or issued orders
that affect the Company's business practices in such areas as main
extensions, credit and collection activities, and termination of
service standards.
Relationships with Affiliates
The Company has significant business relationships with
affiliated companies. The following diagram shows the corporate
structure of the Company and its primary affiliates:
Questar Corporation
Questar Market Resources, Inc.
Wexpro Company
Questar Exploration and Production Company
Questar Energy Trading Company
Questar Gas Management Company
Questar Regulated Services Company
Questar Pipeline Company
QUESTAR GAS COMPANY
Questar Energy Services, Inc.
Questar InfoComm, Inc.
The Company's relationships with its primary affiliates are
described below.
Questar Regulated Services Company. The Company's direct
parent, Questar Regulated Services Company ("QRS"), is a subholding
company that was created to link Questar Gas and Questar Pipeline.
The same group of officers manages all entities within the group.
QRS provides various services--administrative, accounting,
engineering, regulatory, legal--for all entities within it. The
creation of the Regulated Services group allowed its members to
lower administrative costs.
Questar Pipeline Company. Questar Pipeline owns a two-pronged
transmission system running from southwestern Wyoming and western
Colorado into the Company's Utah service area. During the months of
December through February of 2000-01, Questar Gas reserved about
828,000 Dth per day or 77 percent of Questar Pipeline's reserved
capacity. On an ongoing basis, the Company has about 798,000 Dth
per day on Questar Pipeline's system.
Questar Gas transports both cost-of-service gas and purchased
gas on Questar Pipeline's transmission system. (The Company also
transports gas volumes on the transmission systems owned
by The Williams Companies, Inc. and Colorado Interstate Gas Company.
Questar Gas purchases "city gate" gas supplies from transportation
customers on Kern River's system.) The Company releases its firm
transportation capacity, pursuant to capacity release procedures
adopted by the Federal Energy Regulatory Commission ("FERC"), when
it does not need such service for its sales customers. Because
Questar Gas has sufficient capacity on the system to meet
peak-demand periods, it has unused capacity for the balance of the
year.
During 2000, Questar Pipeline transported 108.2 MMDth of gas
for Questar Gas, compared to 105.5 MMDth in 1999. Under Questar
Pipeline's "straight fixed-variable" rate schedules, Questar Gas is
obligated to pay demand charges for firm capacity, regardless of the
volumes actually transported. The Company, in 2000, paid
approximately $54.3 million in demand charges to Questar Pipeline
for firm transportation capacity and "no notice" transportation.
The Company's transportation agreement with Questar Pipeline was
extended in 1999 for three years and expires on June 30, 2002.
Questar Gas purchases storage capacity at Clay Basin, a large
base-load storage facility operated by Questar Pipeline, and also
has peaking storage capacity at three additional storage reservoirs
owned by Questar Pipeline. The Company paid Questar Pipeline $13.7
million in demand charges during 2000 in connection with storage
services.
A subsidiary of Questar Pipeline also operates the processing
plant near Price, Utah, that removes the carbon dioxide from gas
volumes delivered to Questar Gas's system. During 2000, the Company
paid $6.3 million for services provided at the plant.
After the early retirement program that was effective October
31, 2000, Questar Gas and Questar Pipeline combined operation
activities. Susan Glasmann, in her position as Vice President of
Operations, serves as the primary operations officer for both
entities. In some areas, Questar Gas and Questar Pipeline combined
their separate service centers; operations employees are being
cross-trained to handle responsibilities for both entities.
Questar Energy Services, Inc. Effective January 1, 1999,
Questar Energy Services, Inc. ("QES") was transferred from Questar's
Market Resources unit to the Regulated Services unit. QES provides
energy management equipment, installation and services for
commercial and industrial customers, home security systems, and
equipment financing to residential customers. The Company allows
QES, for a fee, to advertise its products with bills sent to
customers and to invoice its customers on utility bills.
During 2000, QES concentrated on three new business
activities that demonstrate its close relationship with Questar Gas.
It partnered with Northwest Natural Gas Company, a Portland,
Oregon-based natural gas utility, to provide residential and
commercial appliance financing for Northwest's customers after it
demonstrated its success handling these arrangements for the
Company's customers. QES developed an "infrastructure management"
business in which it works with developers to coordinate utility
installations, including the Company's, for new construction
projects. Finally, QES introduced a program to supply contractors
with a reliable and temporary heating source for winter construction
projects.
Questar Gas Management Company: Questar Gas Management
Company ("QGM") owns the gathering facilities that were originally
built to gather production from the Company's cost-of-service
properties. During 2000, QGM gathered 36.8 MMDth of natural gas for
Questar Gas, compared to 32.1 MMDth in 1999. The Company paid $4.5
million to QGM for demand charges in conjunction with 2000 gathering
services. Under the terms of the gathering agreement between the
parties, QGM will gather gas volumes produced from cost-of-service
properties for the life of such properties and charge
cost-of-service rates.
Wexpro Company: Wexpro, another company within Questar's
Market Resources segment, operates certain properties owned by
Questar Gas. Under the terms of a 1981 settlement agreement, which
was approved by the PSCU and PSCW and upheld by the Utah Supreme
Court, the Company owns gas produced from specified properties that
were productive as of August 1, 1981 (the effective date of the
settlement agreement). Such gas is reflected in rates at
cost-of-service prices based on rates of return established by the
settlement agreement. In addition, Wexpro produces gas from
specified properties for Questar Gas and is reimbursed for its costs
plus a current rate of return of 18.64 percent (adjusted annually
using a specified formula) on its net investment in such properties,
adjusted for working capital and deferred taxes. At year-end 2000,
Wexpro's investment (net of deferred taxes) in cost-of-service
operations was $124.8 million compared to $108.9 million at year-end
1999. Under the terms of the settlement agreement, the costs of
unsuccessful wells are borne by Wexpro. The settlement agreement
also permits Questar Gas to share income from hydrocarbon liquids
produced from certain properties operated by Wexpro after Wexpro
recovers its expenses and a specified rate of return. The income
received by Questar Gas from Wexpro is used to reduce natural gas
costs reflected in the Company's rates.
Questar InfoComm, Inc.: The Company receives data processing
and telecommunication services from its affiliate, Questar InfoComm.
Questar Gas utilizes a customer information system and related
software systems that are maintained by Questar InfoComm. Questar
InfoComm's services have historically been priced to recover
operating expenses and a return on investment. For 2001, Questar
Gas and Questar InfoComm have negotiated the terms of a new
relationship that will allow the Company more flexibility and
different pricing mechanisms when obtaining services from Questar
InfoComm.
Other Affiliates: In addition to QGM and Wexpro, the Market
Resources segment of Questar includes Questar Energy Trading Company
and Questar Exploration and Production Company. Questar Gas does
not have significant business relationships with these entities,
although it did purchase some gas volumes on an emergency basis
during 2000 from Questar Energy Trading.
Questar, the Company's ultimate parent, provides certain
administrative services, e.g., public and government relations,
financial, and audit, to the Company and other members of the
consolidated group. Questar also sponsors the qualified and welfare
benefit plans in which the Company's employees participate. Questar
Gas is responsible for a proportionate share of the costs associated
with these services and benefit plans.
Employees
As of December 31, 2000, the Company had 741 employees,
compared to 931 at year-end 1999. Regulated Services, the Company's
parent, has 358 employees (compared to 431 at year-end 1999) who
perform specified services, e.g., administrative, engineering,
legal, accounting, budget, for Questar Gas, Questar Pipeline and
QES. The significant reduction in employee numbers reflects the
impact of an early retirement program described under "Competition
and Growth." The Company's employees are nonunion employees who are
not represented under collective bargaining agreements. Employee
relations are generally deemed to be satisfactory.
Environmental Matters
The Company is subject to the National Environmental Policy
Act and other federal and state legislation regulating the
environmental aspects of its operations. Although Questar Gas does
not believe that environmental protection laws and regulations will
have any material effect on its competitive position, it does
believe that such provisions have added and will continue to add to
the Company's expenditures and annual maintenance and operating
expenses.
Questar Gas has an obligation to treat waste water and monitor
the effectiveness of an underground slurry wall that was constructed
in 1988 at its operations center in Salt Lake City, Utah. The
slurry wall was built to contain contaminants from an abandoned coal
gasification plant that operated on the site from 1908 to 1929.
Questar Gas emphasizes the environmental advantages of natural
gas. The Company's marketing campaigns have featured the
clean-burning characteristics of natural gas fireplaces. Natural
gas vehicles are also being encouraged on the basis of environmental
considerations.
Research and Development
The Company conducts studies of gas conversion equipment, gas
piping, and engines using natural gas and has funded demonstration
projects using such equipment. The total dollar amount spent by the
Company on research activities is not material.
ITEM 3. LEGAL PROCEEDINGS.
Questar Gas is involved in various legal and regulatory
proceedings. While it is currently impossible to predict or
determine the outcome of these proceedings, management believes that
the outcome will not have a material adverse effect on the Company's
financial position or liquidity.
The Company is a named defendant in two cases that have been
filed by Jack Grynberg, an independent producer that has sued
Questar Gas and its affiliates a number of times during the last
eight years. The most active case involves claims brought by Mr.
Grynberg under the Federal False Claims Act. It and the 75
substantially similar cases filed by Grynberg against pipelines and
their affiliates have been consolidated for discovery and pre-trial
discovery motions in Wyoming's federal district court. The cases
involve allegations of industry-wide mismeasurement and
undervaluation of gas volumes on which royalty payments are due the
federal government. The complaint seeks treble damages and
imposition of civil penalties. The Questar defendants in the case
have joined with other defendants to file a comprehensive motion to
dismiss, which has not yet been ruled on by the federal district judge.
Another Grynberg case was filed against Questar Gas and
several affiliates in 1997. This case involves claims of fraud and
antitrust violations in addition to some take-or-pay, breach of
contract, and intentional interference with a contract claims. The
case was stayed pending Grynberg's appeal of another case involving
the Company to the Tenth Circuit Court of Appeals, although the
district court did rule favorably on some issues before the case was
stayed. The district court has not ruled on the defendants' motions
for summary judgment.
Questar Gas and several affiliates are among the 220 named
defendants in Quinque Operating Company v. Gas Pipelines, which was
recently transferred from the Wyoming federal district court where
it had been consolidated with the Grynberg cases to the Kansas state
court where it had been originally filed. This case is very similar
to the cases filed by Mr. Grynberg against the pipeline industry,
but the allegations of systematic mismeasurement of natural gas
volumes and resulting underpayment of royalties are made on behalf
of private and state lessors, rather than on behalf of the federal
government.
See "Regulation" for a review of significant regulatory
proceedings and appeals of decisions in such proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company did not submit any matters to a vote of its
stockholder during the last quarter of 2000.
Part II
ITEM 5. MARKET FOR REGISTRANT'S EQUITY AND RELATED STOCKHOLDER
MATTERS.
All of the Company's outstanding shares of common stock, $2.50
par value, are owned by Regulated Services. Information concerning
the dividends paid on such stock and the ability to pay dividends is
reported in the Statements of Common Shareholder's Equity and the
Notes to Financial Statements included in Item 8.
ITEM 6. SELECTED FINANCIAL DATA.
The Company, as the wholly owned subsidiary of a reporting
company under the Securities Exchange Act of 1934 ("the Act"), is
entitled to omit the information requested in this Item.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Questar Gas conducts natural gas distribution operations.
Following is a summary of financial results and operating
information:
Year Ended December 31,
2000 1999 1998
(Dollars In Thousands)
OPERATING INCOME
Revenues
Residential and commercial sales $467,293 $396,882 $425,452
Industrial sales 38,993 28,938 29,555
Industrial transportation 6,968 6,594 6,480
Other 23,508 17,523 15,336
Total revenues 536,762 449,937 476,823
Natural gas purchases 334,193 257,265 281,004
Margin 202,569 192,672 195,819
Operating expenses
Operating and maintenance 101,486 103,308 96,923
Depreciation and amortization 34,450 36,426 33,261
Other taxes 10,213 7,625 8,185
Total expenses 146,149 147,359 138,369
Operating income $56,420 $45,313 $57,450
OPERATING STATISTICS
Natural gas volumes (in MDth)
Residential and commercial sales 83,373 82,201 83,231
Industrial deliveries
Sales 10,314 9,823 9,681
Transportation 54,836 51,643 55,461
Total industrial 65,150 61,466 65,142
Total deliveries 148,523 143,667 148,373
Natural gas revenue (per Dth)
Residential and commercial $5.60 $4.83 $5.11
Industrial sales 3.78 2.95 3.05
Transportation for industrial customers 0.13 0.13 0.12
System natural gas cost (per Dth) $3.54 $2.61 $2.57
Heating degree days (normal 5,609) 5,402 5,317 5,462
Warmer than normal 4% 5% 3%
Number of customers at December 31,
Residential and commercial 703,306 684,950 662,084
Industrial 1,323 1,367 1,308
704,629 686,317 663,392
Margin (Revenues less natural gas purchases)
Questar Gas' margin increased 5% in 2000 when compared with 1999
after declining by 2% in the prior year comparison. The improvement was
primarily the result of a $13.5 million annual general rate increase. A
$7.1 million portion of the Utah rate increase went into effect
January 1, 2000, with the remainder reflected in rates beginning
August 11, 2000. The rate case authorized Questar Gas to earn up
to an 11% return on equity and included $5 million for annual gas
processing costs. The rate case resolved an issue in which the
Public Service Commission of Utah (PSCU) had denied recovery of
$3.6 million of gas processing costs in 1999.
Usage per residential customer, calculated on a temperature
adjusted basis, decreased in 2000 for the third consecutive year.
Usage per residential customer was three decatherms or 3% lower
in 2000 when compared with 1999 and two decatherms or 1% lower in
1999 compared with 1998. Temperatures have been warmer than
normal for the past seven years. However, since 1995, the
financial impact of warmer weather has been minimized because of
a weather-normalization adjustment in rates. Customers served by
Questar Gas grew by 18,312 or 2.7% in 2000, following growth
rates of 3.5% in 1999 and 3.4% in 1998.
Industrial deliveries were 6% higher in 2000 due to an increase
in natural gas volumes used to generate electricity. Gas
deliveries to industrial customers decreased by 6% in 1999
because a major steel-producing customer reduced operations.
Margins from gas delivered to industrial customers, either sold
or transported, are substantially lower than from gas delivered
to residential and commercial customers.
Significant gas-cost increases in the second half of 2000 due to
rising demand for natural gas in the western U. S. did not affect
the margin. Under rate regulation in Utah and Wyoming, Questar
Gas can request authorization to recover from customers the cost
of its gas supply on a dollar-for-dollar basis. Gas costs in Utah
rates have risen from $1.72 per dth in 1999 to $2.91 at December
31, 2000. As of January 1, 2001, gas costs in rates rose to
$4.67 per dth.
Operating expenses
Operating and maintenance expenses were 2% lower in 2000 due to
decreases in legal, information technology and labor costs.
Questar Gas improved a number of its information technology
systems in 1999 as part of its year 2000 system-readiness
program. Labor costs were lower as a result of early retirement
programs effective October 31, 2000, and August 31, 1998.
Operating and maintenance expenses were 7% higher in 1999 due to
incremental costs of serving a growing customer base.
Depreciation expense was $2.8 million lower in 2000 due to
investments in several information systems being fully
depreciated. Depreciation increased 10% in 1999 because of
capital spending. Other taxes increased in 2000 because of a $1.4
million current-year adjustment of prior-year taxes and from
higher property tax rates.
Questar Regulated Services initiated an early retirement window
program effective October 31, 2000. A total of 262 employees
from Questar Gas, Questar Pipeline and Questar Regulated Services
elected to retire. The window program is projected to result in
pretax labor-cost savings for Regulated Services of $6-8 million
yearly. Questar Gas receives about two-thirds of the effect of
the early retirement window.
Acquisition of distribution systems
Questar Gas has agreed in principle to acquire two gas
distribution systems in exchange for 390,000 shares of Questar
Corporation common stock. The acquisitions, pending approval
from the PSCU and Public Service Commission of Wyoming (PSCW),
will add about 10,500 customers in Utah and Wyoming. The
transactions will be accounted for as a purchase.
Debt expense
Interest expense increased due to higher interest rates and
borrowing from Questar in 2000.
Income taxes
The effective combined federal and state rate was 34.8% in 2000,
31.9% in 1999 and 33.5% in 1998. The effective income tax rate
was below the combined federal and state statutory rate of about
38% primarily due to noncoventional fuel credits related to
production of gas from certain properties. These credits
amounted to $1,798,000 in 2000, $1,872,000 in 1999 and $2,217,000
in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
Year Ended December 31,
2000 1999 1998
(In Thousands)
Net income $24,163 $19,219 $27,408
Adjustments to net income 51,631 44,799 28,686
Changes in operating assets and liabilities (14,048) 1,108 39,505
Net cash provided from operating activities $61,746 $65,126 $95,599
Net cash provided from operating activities decreased in 2000
compared with 1999 due primarily to an increase in customer
account receivables and under collection of purchased-gas costs
in customer rates. The decrease in 1999 compared with 1998 was
due primarily to a collection of about $35 million of
purchased-gas costs in 1998.
Investing Activities
Following is a summary of capital expenditures for 2000 and 1999,
and a forecast of 2001 expenditures.
2001
Forecast 2000 1999
(In Thousands)
Distribution system
and customer additions $49,900 $49,454 $50,077
General 17,800 16,313 18,370
$67,700 $65,767 $68,447
The distribution system was extended by 964 miles of main, feeder
and service lines to accommodate the addition of 18,312
customers.
Financing Activities
Questar Gas generated sufficient net cash provided from operating
activities to fund 94% of its 2000 capital expenditures.
Forecasted 2001 capital expenditures are expected to be financed
with net cash provided from operations and borrowing from
Questar.
Questar makes loans to Questar Gas under a short-term borrowing
arrangement. Short-term notes payable to Questar totaled $105.6
million at December 31, 2000 with an average interest rate of
6.91% and $79.3 million at December 31, 1999 with an interest
rate of 6.61%.
The Company typically has negative net working capital at
December 31 because of short-term borrowing. The borrowing is
seasonal and generally peaks at the end of the year because of
cold-weather gas purchases. Negative working capital at year
end was exacerbated by rising energy prices experienced in the
second half of 2000 and extending into the first quarter of 2001.
Questar Gas' capital structure at December 31, 2000, was composed
of 46% long-term debt and 54% common equity. Moody's and Standard
and Poor's have rated the Company's long-term debt A1 and A+,
respectively.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.
All of the Company's long-term debt is borrowed at fixed rates.
As the need arises, the Company borrows funds on a short-term
basis, which bear variable interest rates.
Forward-Looking Statements
This report includes "forward-looking statements" within the
meaning of Section 27(a) of the Securities Act of 1933, as
amended, and Section 21(e) of the Securities Exchange Act of
1934, as amended. All statements other than statements of
historical facts included or incorporated by reference in this
report, including, without limitation, statements regarding the
Company's future financial position, business strategy, budgets,
projected costs and plans and objectives of management for future
operations, are forward-looking statements. In addition,
forward-looking statements generally can be identified by the use
of forward-looking terminology such as "may", "will", "could",
"expect", "intend", "project", "estimate", "anticipate",
"believe", "forecast", or "continue" or the negative thereof or
variations thereon or similar terminology. Although these
statements are made in good faith and are reasonable
representations of the Company's expected performance at the
time, actual results may vary from management's stated
expectations and projections due to a variety of factors.
Important assumptions and other significant factors that could
cause actual results to differ materially from those expressed or
implied in forward-looking statements include changes in general
economic conditions, gas and oil prices and supplies,
competition, rate-regulatory issues and other factors beyond the
control of the Company. These other factors include the rate of
inflation, quoted prices of securities available for sale, the
weather and other natural phenomena, the effect of accounting
policies issued periodically by accounting standard-setting
bodies, and adverse changes in the business or financial
condition of the Company.
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.
Questar Gas 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
company under the Act, 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 in the List of
Financial Statements are filed as part of this Report.
(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. Description
3.1.* Restated Consolidated Articles of Incorporation dated
August 15, 1980. (Exhibit No. 4(a) to Registration
Statement No. 2-70087, filed December 1, 1980.)
3.2.* Certificate of Amendment to Restated Consolidated
Articles of Incorporation dated May 13, 1982.
(Exhibit No. 3(b) to Form 10-K Annual Report for 1982.)
3.3.* Certificate of Amendment to Restated Consolidated
Articles of Incorporation dated May 10, 1983.
(Included in Exhibit No. 4.1. to Registration
Statement No. 2-84713, filed June 23, 1983.)
3.4.* Certificate of Amendment to Restated Consolidated
Articles of Incorporation dated August 16, 1983.
(Exhibit No. 3(a) to Form 8 Report amending the
Company's Form 10-Q Report for Quarter Ended September
30, 1983.)
3.5.* Certificate of Amendment to Restated Consolidated
Articles of Incorporation dated October 26, 1984.
(Exhibit No. 3.5. to Form 10-K Annual Report for 1984.)
3.6.* Certificate of Amendment to Restated Consolidated
Articles of Incorporation dated May 13, 1985.
(Exhibit No. 3.1. to Form 10-Q Report for Quarter
Ended June 30, 1985.)
3.7.* Articles of Amendment to Restated Consolidated
Articles of Incorporation dated February 10, 1988.
(Exhibit No. 3.7. to Form 10-K Annual Report for 1987.)
3.8.* Articles of Amendment to Restated Consolidated
Articles of Incorporation dated December 31, 1997.
(Exhibit No. 3.7. to Form 8-K Current Report for
December 31, 1997.)
3.9. Bylaws (as amended effective February 13, 2001)
4.*1 Indenture dated as of May 1, 1992, between the Company
and Citibank, as trustee, for the Company's Debt
Securities. (Exhibit No. 4. to Form 10-Q Report for
Quarter Ended June 30, 1992.)
10.1.*2 Stipulations and Agreement, dated October 14, 1981,
executed by Mountain Fuel Supply Company; Wexpro
Company; the Utah Department of Business
Regulations, Division of Public Utilities; the Utah
Committee of Consumer Services; and the staff of the
Public Service Commission of Wyoming. (Exhibit No.
10(a) to Form 10-K Annual Report for 1981.)
10.2*2 Gas Gathering Agreement between Mountain Fuel Supply Company
and Questar Pipeline Company effective September 1, 1993.
(This agreement has been transferred from Questar Pipeline
to Questar Gas Management Company.) (Exhibit No. 10.11. To
Form 10-K Annual Report for 1994.)
10.3.*2 Amendment to Gas Gathering Agreement between Mountain Fuel
Supply Company and Questar Gas Management Company effective
September 1, 1997.
24. Power of Attorney.
_______________________
*Exhibits so marked have been filed with the Securities and
Exchange Commission as part of the referenced filing and are
incorporated herein by reference.
1First Security Bank, N.A. serves as the successor trustee.
2This document has not been formally amended to refer to the
Company's current name.
(b) Questar Gas Company did not file any Current Reports on Form
8-K during the last quarter of 2000.
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, 2000
QUESTAR GAS COMPANY
SALT LAKE CITY, UTAH
FORM 10-K -- ITEM 14 (a) (1) AND (2)
QUESTAR GAS COMPANY
LIST OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
The following financial statements of Questar Gas Company are
included in Item 8:
Statements of income, Years ended December 31, 2000, 1999 and 1998
Balance sheets, December 31, 2000 and 1999
Statements of common shareholder's equity, Years ended December
31, 2000, 1999 and 1998
Statements of cash flows, Years ended December 31, 2000, 1999
and 1998
Notes to financial statements
Financial statement schedules, for which provision is made in the
applicable accounting regulations of the Securities and Exchange
Commission, are not required under the related instructions or are
inapplicable, and therefore have been omitted.
Report of Independent Auditors
Board of Directors
Questar Gas Company
We have audited the accompanying balance sheets of Questar Gas
Company as of December 31, 2000 and 1999, 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, 2000. 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 auditing standards
generally accepted in the United States. 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
Gas Company at December 31, 2000 and 1999, and the results of its
operations and its cash flows for each of the three years in the
period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young
Ernst & Young
Salt Lake City, Utah
March 6, 2001
QUESTAR GAS COMPANY
STATEMENTS OF INCOME
Year Ended December 31,
2000 1999 1998
(In Thousands)
REVENUES
From unaffiliated customers $531,988 $447,606 $475,754
From affiliated companies 4,774 2,331 1,069
536,762 449,937 476,823
OPERATING EXPENSES
Natural gas purchases
From affiliated companies 166,198 150,960 142,699
From unaffiliated parties 167,995 106,305 138,305
Total natural gas purchases 334,193 257,265 281,004
Operating and maintenance 101,486 103,308 96,923
Depreciation and amortization 34,450 36,426 33,261
Other taxes 10,213 7,625 8,185
TOTAL OPERATING EXPENSES 480,342 404,624 419,373
OPERATING INCOME 56,420 45,313 57,450
INTEREST AND OTHER INCOME 1,673 2,980 3,566
DEBT EXPENSE (21,041) (20,062) (19,792)
INCOME BEFORE INCOME TAXES 37,052 28,231 41,224
INCOME TAXES 12,889 9,012 13,816
NET INCOME $24,163 $19,219 $27,408
See notes to financial statements.
QUESTAR GAS COMPANY
BALANCE SHEETS
ASSETS
December 31,
2000 1999
(In Thousands)
CURRENT ASSETS
Cash and cash equivalents $882 $1,708
Accounts receivable 69,808 44,549
Unbilled gas accounts receivable 45,293 37,287
Accounts receivable from affiliates 1,262
Federal income taxes recoverable 5,019
Inventories, at lower of average
cost or market
Gas stored underground 22,444 18,497
Materials and supplies 3,542 3,183
Purchased-gas adjustments 35,565 432
Prepaid expenses and other 773 3,168
TOTAL CURRENT ASSETS 183,326 110,086
PROPERTY, PLANT AND EQUIPMENT
Distribution 818,802 725,874
Production 97,870 97,870
General 125,970 121,421
Construction in progress 24,720 68,434
1,067,362 1,013,599
Less allowances for depreciation 447,496 421,111
and amortization
NET PROPERTY, PLANT AND EQUIPMENT 619,866 592,488
OTHER ASSETS
Regulatory assets 22,359 16,353
Other noncurrent assets 4,775 4,625
TOTAL OTHER ASSETS 27,134 20,978
$830,326 $723,552
LIABILITIES AND SHAREHOLDER'S EQUITY
December 31,
2000 1999
(In Thousands)
CURRENT LIABILITIES
Notes payable to Questar $105,600 $79,300
Accounts payable and accrued expenses
Accounts and other payables 97,397 34,369
Accounts payable to affiliates 25,701 22,396
Federal income taxes 2,966
Deferred income taxes 13,515 164
Other taxes 8,502 4,915
Interest 4,583 4,476
Total accounts payable and 149,698 69,286
accrued expenses
TOTAL CURRENT LIABILITIES 255,298 148,586
LONG-TERM DEBT 225,000 225,000
DEFERRED INCOME TAXES 80,215 79,549
DEFERRED INVESTMENT TAX CREDITS 5,250 5,630
OTHER LONG-TERM LIABILITIES 507 1,394
COMMITMENTS AND CONTINGENCIES - Note 6
COMMON SHAREHOLDER'S EQUITY
Common stock - par value $2.50 per share;
authorized 50 million shares;
9,189,626 issued and outstanding 22,974 22,974
Additional paid-in capital 81,875 81,875
Retained earnings 159,207 158,544
TOTAL COMMON SHAREHOLDER'S EQUITY 264,056 263,393
$830,326 $723,552
See notes to financial statements.
QUESTAR GAS COMPANY
STATEMENTS OF COMMON SHAREHOLDER'S EQUITY
Additional
Common Paid-in Retained
Stock Capital Earnings
(In Thousands)
Balances at January 1, 1998 $22,974 $41,875 $157,417
1998 net income 27,408
Payment of common stock dividends (22,500)
Balances at December 31, 1998 22,974 41,875 162,325
1999 net income 19,219
Equity investment 40,000
Payment of common stock dividends (23,000)
Balances at December 31, 1999 22,974 81,875 158,544
2000 net income 24,163
Payment of common stock dividends (23,500)
Balances at December 31, 2000 $22,974 $81,875 $159,207
See notes to financial statements.
QUESTAR GAS COMPANY
STATEMENTS OF CASH FLOWS
Year Ended December 31,
2000 1999 1998
(In Thousand)
OPERATING ACTIVITIES
Net income $24,163 $19,219 $27,408
Adjustments to reconcile net
income to net cash provided from
operating activities
Depreciation and amortization 37,994 39,479 35,772
Deferred income taxes and
deferred investment tax credits 13,637 5,320 (7,086)
75,794 64,018 56,094
Changes in operating assets
and liabilities
Accounts receivable (32,003) (2,586) 5,975
Inventories (4,306) 616 (1,949)
Prepaid expenses and other 2,395 (330) 1,518
Accounts payable and accrued 70,027 (3,019) 7,800
expenses
Federal income taxes (7,985) 853 (999)
Purchased-gas adjustments (35,133) 1,635 35,184
Other assets (6,156) 2,875 (2,365)
Other liabilities (887) 1,064 (5,659)
NET CASH PROVIDED FROM
OPERATING ACTIVITIES 61,746 65,126 95,599
INVESTING ACTIVITIES
Capital expenditures (65,767) (68,447) (76,328)
Proceeds from disposition of property,
plant and equipment 395 2,103 3,108
NET CASH USED IN INVESTING
ACTIVITIES (65,372) (66,344) (73,220)
FINANCING ACTIVITIES
Equity investment 40,000
Change in notes payable to Questar 26,300 (17,400) (3,300)
Payment of dividends (23,500) (23,000) (22,500)
NET CASH PROVIDED FROM (USED IN)
FINANCING ACTIVITIES 2,800 (400) (25,800)
CHANGE IN CASH AND CASH EQUIVALENTS (826) (1,618) (3,421)
BEGINNING CASH AND CASH EQUIVALENTS 1,708 3,326 6,747
ENDING CASH AND CASH EQUIVALENTS $882 $1,708 $3,326
See notes to financial statements.
QUESTAR GAS COMPANY
NOTES TO FINANCIAL STATEMENTS
Note 1 - Summary of Accounting Policies
Questar Gas Company (the Company or Questar Gas), is a wholly-owned
subsidiary of Questar Regulated Services Company (Regulated
Services). Regulated Services is a holding company and a
wholly-owned subsidiary of Questar Corporation (Questar). Regulated
Services was organized in 1996 and provides administrative,
accounting, engineering, legal and regulatory functions for its three
subsidiaries, Questar Gas, Questar Pipeline Company (Questar
Pipeline) and Questar Energy Services. Significant accounting
policies are presented below.
Business and Regulation: Questar Gas distributes natural gas to
residential, commercial and industrial customers. The Company is
regulated by the Public Service Commission of Utah (PSCU) and the
Public Service Commission of Wyoming (PSCW). While Questar Gas
also serves a small area of southeastern Idaho, the Public
Utilities Commission of Idaho has deferred to the PSCU for rate
oversight of this area. These regulatory agencies establish rates
for the sale and transportation of natural gas. The regulatory
agencies also regulate, among other things, the extension of
natural gas facilities. Regulation is intended to permit the
recovery, through rates, of the cost of service including a 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.
The amounts included as regulatory assets on the balance sheet
include income taxes recoverable from customers, early retirement
window costs and gains and losses on the reacquisition of debt.
Use of Estimates: The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions
that affect the amounts of assets and liabilities and disclosure of
contingent liabilities reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
Revenue Recognition: Revenues are recognized in the period that
services are provided or products are delivered. Questar Gas
accrues gas-distribution revenues for gas delivered to residential
and commercial customers but not billed at the end of the
accounting period.
Purchased-Gas Adjustments: Questar Gas accounts for purchased-gas
costs in accordance with procedures authorized by the PSCU and PSCW
under which purchased-gas costs that are different from those
provided for in the present rates are accumulated and recovered or
credited through future rate changes.
Cash and Cash Equivalents: Cash equivalents consist principally of
repurchase agreements with maturities of three months or less. In
almost all cases, the repurchase agreements are highly liquid
investments in overnight securities made through commercial bank
accounts that result in available funds the next business day.
Property, Plant and Equipment: Property, plant and equipment are
stated at cost. The provision for depreciation and amortization is
based upon rates that will systematically charge the costs of
assets over their estimated useful lives. The costs of natural gas
distribution property, plant and equipment, excluding gas wells,
are amortized using the straight-line method ranging from 3% to 33%
per year. The average depreciation and amortization rates used for
the twelve months ended December 31, were as follows:
2000 1999 1998
Distribution plant 4.0% 4.2% 4.3%
Gas wells, per Mcf $0.15 $0.15 $0.17
Allowance for Funds Used During Construction: The Company
capitalized the cost of capital during the construction period of
plant and equipment using a method required by regulatory
authorities. Capitalized financing costs, called allowance for
funds used during construction (AFUDC), consist of debt and equity
portions. The debt portion of AFUDC is recorded as a reduction of
interest expense and the equity portion is recorded in other
income. The debt expense was reduced by $909,000 in 2000, $358,000
in 1999 and $797,000 in 1998.
Reacquisition of Debt: Gains and losses on the reacquisition of
debt are deferred and amortized as debt expense over the life of
the replacement debt in order to match regulatory treatment.
Income Taxes: The Company accounts for income tax expense on a
separate return basis. Pursuant to the Internal Revenue Code and
associated regulations, the Company's operations are consolidated
with those of Questar and its subsidiaries for income tax reporting
purposes. The Company records tax benefits as they are generated.
The Company receives payments from Questar for such tax benefits as
they are utilized on the consolidated return. The Company records
increases in deferred taxes as income taxes recoverable from
customers. The Company has adopted procedures with its regulatory
commissions to include under-provided deferred taxes in customer
rates on a systematic basis. Questar Gas uses the deferral method
to account for investment-tax credits as required by regulatory
commissions.
New Accounting Standard: The Company is required to adopt the
accounting provisions of Statement of Financial Accounting
Standards 133, as amended, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133) beginning January 1, 2001. SFAS
133 addresses the accounting for derivative instruments, including
certain derivative instruments embedded in other contracts. Under
the standard, entities are required to carry all derivative
instruments in the balance sheet at fair value. The accounting for
changes in fair value, which result in gains or losses, of a
derivative instrument would either be reported in income or
comprehensive income. The Company has identified a number of
contracts that are derivative instruments as defined by SFAS 133,
but are specifically excluded from the provisions of SFAS 133 on
the basis of normal sales and purchase transactions. The Company
does not enter into any commodity or interest rate-based derivative
instruments.
Reclassifications: Certain reclassifications were made to the 1999
and 1998 financial statements to conform with the 2000 presentation.
Note 2 - Debt
Questar makes loans to Questar Gas under a short-term borrowing
arrangement. Short-term notes payable to Questar totaled $105.6
million at December 31, 2000 with an average interest rate of 6.91%
and $79.3 million at December 31, 1999 with an interest rate of
6.61%.
Questar Gas' long-term debt consists of medium-term notes with
interest rates ranging from 6.85% to 8.43%, due 2007 to 2024. There
are no maturities of long-term debt for the five years following
December 31, 2000 and no long-term debt provisions restricting the
payment of dividends.
Cash paid for interest was $21,235,000 in 2000, $19,906,000 in 1999
and $19,963,000 in 1998.
Note 3 - Financial Instruments and Risk Management
The carrying amounts and estimated fair values of the Company's
financial instruments were as follows:
December 31, 2000 December 31, 1999
Book Estimated Book Estimated
Value Fair Value Value Fair Value
(In Thousands)
Financial assets
Cash and cash equivalents $882 $882 $1,708 $1,708
Financial liabilities
Short-term loans 105,600 105,600 79,300 79,300
Long-term debt 225,000 240,884 225,000 222,582
The Company used the following methods and assumptions in
estimating fair values: (1) Cash and cash equivalents, and
short-term loans - book value approximates fair value; (2)
Long-term debt - the fair value of the medium-term notes is based
on the discounted present value of cash flows using the Company's
current borrowing rates. Fair value is calculated at a point in
time and does not represent what the Company would pay to retire
the debt securities.
Credit Risk: Questar Gas' primary market area is the Rocky
Mountain region of the United States. Exposure to credit risk may
be impacted by the concentration of customers in this region due to
changes in economic or other conditions. Customers include
individuals and numerous industries that may be affected
differently by changing conditions. Management believes that its
credit-review procedures, loss reserves, customer deposits and
collection procedures have adequately provided for usual and
customary credit-related losses.
Note 4 - Income Taxes
The components of income taxes were as follows:
Year Ended December 31,
2000 1999 1998
(In Thousands)
Federal
Current ($1,999) $935 $16,773
Deferred 13,897 6,948 (5,057)
State
Current (2) 1,233 2,876
Deferred 1,373 277 (395)
Deferred investment tax credits (380) (381) (381)
$12,889 $9,012 $13,816
The difference between income tax expense and the tax computed by
applying the statutory federal income tax rate of 35% to income
before income taxes is explained as follows:
Year Ended December 31,
2000 1999 1998
(In Thousands)
Income before income taxes $37,052 $28,231 $41,224
Federal income taxes at statutory rate $12,968 $9,881 $14,428
State income taxes, net of
federal income tax benefit 891 982 1,613
Nonconventional fuel credits (1,798) (1,872) (2,217)
Investment-tax credits (380) (381) (381)
Deferred taxes related to regulated
assets for which deferred taxes were
not provided in prior years 921 921 922
Other 287 (519) (549)
Income tax expense $12,889 $9,012 $13,816
Effective income tax rate 34.8% 31.9% 33.5%
Significant components of the Company's deferred income taxes were
as follows:
December 31,
2000 1999
(In Thousands)
Deferred tax liabilities
Property, plant and equipment $78,683 $77,655
Other 5,812 6,269
Total deferred tax liabilities 84,495 83,924
Deferred tax assets
Deferred ITC and other 4,280 4,375
Net deferred income taxes - noncurrent $80,215 $79,549
Deferred income taxes - current
Purchased-gas adjustments $13,515 $164
Cash paid for income taxes was $7,570,000 in 2000, $2,133,000 in
1999 and $18,985,000 in 1998.
Note 5 - Rate Matters
On August 11, 2000, the Public Service Commission of Utah (PSCU)
issued an order in the general rate case filed by Questar Gas. The
PSCU granted $13.5 million in general rate relief and authorized an
11% return on equity. The $13.5 million in general rate relief
includes the $7.1 million in interim rate relief that Questar Gas
was authorized to collect, subject to refund, effective January 1,
2000. The PSCU's order allows Questar Gas to collect $5 million
of carbon-dioxide-processing costs yearly.
In February 2000, the Public Service Commission of Wyoming (PSCW)
reaffirmed Questar Gas's 11.83% authorized return on equity in a
general rate case filing and approved the request for a $377,000
rate reduction. Cost efficiencies and slower population growth in
Wyoming compared with Utah, enabled Questar Gas to reduce its rates
in Wyoming. The PSCW's rate-ruling also ordered the Company to
transfer the recovery of carbon dioxide gas processing costs from
gas costs to general rates beginning April 2000.
Questar Gas routinely files semi-annual applications with the PSCU
and the PSCW requesting permission to reflect annualized gas cost
increases or decreases depending on gas prices. These requests for
gas cost increases or decreases are passed on to customers on a
dollar-for-dollar basis with no markup.
On May 31, 2000, Questar Gas filed with the PSCW to reflect
annualized gas costs of $11.1 million in rates for Wyoming
customers. The filing reflected a $53,000 increase from the
previous filing. The PSCW authorized Questar Gas to reflect the
request in rates effective July 1, 2000. On June 14, 2000, Questar
Gas filed a request with the PSCU to reflect annualized gas costs
of $286.6 million in rates for Utah customers effective July 1,
2000. The request slightly decreased rates for residential and
commercial customers. However, the PSCU, by an interim order, chose
to make no adjustment in rates.
Due to the rapidly rising gas prices caused by a high demand for
energy, Questar Gas filed an out-of-period pass-on application on
September 19, 2000, with the PSCW seeking approval to reflect an
increase of annualized gas costs of $2.5 million in rates for
Wyoming customers. The PSCW authorized the requested gas-cost
increase in rates effective October 1, 2000. On September 20,
2000, Questar Gas filed a special pass-through application with the
PSCU requesting permission to reflect annualized gas cost increases
of $63.5 million in rates for Utah customers. The PSCU, by interim
order, authorized Questar Gas to reflect the increase in rates
effective October 1, 2000.
As a result of a continuing growing demand for energy and the
accompanying pressure on energy prices, Questar Gas filed on
December 19, 2000, with the PSCU to reflect a $167.5 million
increase of annualized gas cost in rates for Utah customers. The
PSCU, by interim order, authorized Questar Gas to reflect the
increase in rates effective January 1, 2001. On December 19, 2000,
Questar Gas filed an application with the PSCW to increase gas
costs in Wyoming rates by $7.1 million. The PSCW authorized the
increase in Wyoming gas rates effective January 1, 2001.
Note 6 - Litigation and Commitments
The Company is a named defendant in two cases that have been filed
by Jack Grynberg, an independent producer that has sued Questar Gas
and its affiliates a number of times during the last eight years.
The most active case involves claims brought by Mr. Grynberg under
the Federal False Claims Act. It and the 75 substantially similar
cases filed by Grynberg against pipelines and their affiliates have
been consolidated for discovery and pre-trial discovery motions in
Wyoming's federal district court. The cases involve allegations of
industry-wide mismeasurement and undervaluation of gas volumes on
which royalty payments are due the federal government. The
complaint seeks treble damages and imposition of civil penalties.
The Questar defendants in the case have joined with other
defendants to file a comprehensive motion to dismiss, which has not
yet been ruled on by the federal district judge.
A second Grynberg case was filed against Questar Gas and several
affiliates in 1997. This case involves claims of fraud and
antitrust violations in addition to some take-or-pay, breach of
contract, and intentional interference with a contract claims. The
case was stayed pending Gyrnberg's appeal of another case involving
the Company to the Tenth Circuit Court of Appeals, although the
district court did rule favorably on some issues before the case
was stayed. The district court has not ruled on the defendant's
motions for summary judgement.
Questar Gas and several affiliates are among the 220 named
defendants in the Quinque Operating Company v. Gas Pipelines, which
was recently transferred from the Wyoming federal district court
where it had been consolidated with the Grynberg cases to the
Kansas state court where it had been originally filed. This case is
very similar to the cases filed by Mr. Grynberg against the
pipeline industry, but the allegations of systematic mismeasurement
of natural gas volumes and resulting underpayment of royalties are
made on behalf of private and state lessors, rather than on behalf
of the federal government.
There are other various legal proceedings against the Company.
While it is not currently possible to predict or determine the
outcomes of these proceedings, it is the opinion of management that
the outcomes will not have a material adverse effect on the
Company's results of operations, financial position or liquidity.
Historically, 45% to 50% of Questar Gas's gas-supply portfolio has
been provided from company-owned gas reserves at the cost of
service. The remainder of the gas supply has been purchased from
various suppliers under agreements with a duration of one year or
less and index-based pricing. Generally, at the conclusion of the
heating season and after a bid process, new agreements for the
upcoming heating season are put into place. Questar Gas bought
significant quantities of natural gas under purchase agreements
amounting to $184 million, $93 million and $100 million in 2000,
1999 and 1998, respectively. In addition, Questar Gas makes use of
various storage arrangements to meet peak-gas demand during certain
times of the heating season.
Note 7 - Employee Benefits
Pension Plan: Substantially all of Questar Gas' employees are
covered by Questar's defined benefit pension plan. Benefits are
generally based on years of service and the employee's 72
pay-period interval of highest earnings during the 10 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.
Questar Gas' 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, 2000, Questar's accumulated benefit
obligation exceeded the fair value of plan assets.
Questar Regulated Services has offered early retirement windows to
eligible employees in 2000 and 1998. In 2000, a total of 276
employees and recipients of long-term disability from Questar Gas,
Questar Pipeline and Questar Regulated Services elected to retire
effective October 31. The $14.4 million cost of the early
retirement window will be amortized over a five-year period in
accordance with regulatory treatment. In 1998, Regulated Services
offered an early-retirement window that was accepted by 178
eligible employees. The $3.1 million cost of the window is being
amortized over a five-year period beginning August 1998. About
two-thirds of the early retirement window costs will be charged to
Questar Gas. Pension expense was $2,075,000 in 2000, $1,735,000 in
1999 and $1,865,000 in 1998.
Postretirement Benefits Other Than Pensions: Generally
postretirement health-care benefits and life insurance are provided
only to employees hired before January 1, 1997. Questar Gas pays a
portion of postretirement health-care costs benefits as determined
by an employee's years of service and limited to 170% of the 1992
contribution. The Company's policy is to fund amounts allowable for
tax deduction under the Internal Revenue Code. Plan assets consist
of equity securities, and corporate and U.S. government debt
obligations. The Company is amortizing the transition obligation
over a 20-year period, which began in 1992. The cost of
postretirement benefits other than pensions was $1,107,000 in 2000,
$1,150,000 in 1999 and $1,844,000 in 1998.
The Company's portion of plan assets and benefit obligations
related to postretirement medical and life insurance benefits is
not determinable because the plan assets are not segregated or
restricted to meet the Company's obligations.
Postemployment Benefits: The Company recognizes the net present
value of the liability for postemployment benefits, such as
long-term disability benefits and health-care and life-insurance
costs, when employees become eligible for such benefits.
Postemployment benefits are paid to former employees after
employment has been terminated but before retirement benefits are
paid. The Company accrues both current and future costs. The PSCU
and the PSCW have allowed Questar Gas to recover postemployment
costs that were accumulated through December 31, 1994 in future
rates. At December 31, 2000, the Company had a $253,000 regulatory
liability that it is amortizing over the next five years.
Employee Investment Plan: Questar Gas participates in Questar's
Employee Investment Plan (Plan), 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 Plan of approximately 80%, 75% prior to 1999, of the
employees' eligible 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 $1,657,000 in 2000,
$1,596,000 in 1999 and $1,616,000 in 1998.
Note 8 - Related Party Transactions
Regulated Services provides administrative, technical and
accounting support to Questar Gas. The cost of this support was
$34,022,000 in 2000, $37,534,000 in 1999 and $24,935,000 in 1998.
The majority of these costs are allocated and included in operating
and maintenance expenses. The allocation methods are based on
several methods dictated by the nature of the charges. Management
believes that the allocation methods are reasonable.
Questar Gas has reserved transportation capacity on Questar
Pipeline's system of approximately 828,000 dth per day and paid an
annual demand charge of approximately $54.3 million for this
reservation. Questar Gas releases excess capacity to its industrial
transportation or other customers and receives a credit from
Questar Pipeline for the released-capacity revenues and a portion
of Questar Pipeline's interruptible-transportation revenues.
Questar Gas paid for transportation, storage and processing
services provided by Questar Pipeline and a subsidiary amounting to
$73,742,000 in 2000, $71,636,000 in 1999 and $67,528,000 in 1998,
which included demand charges. The costs of these services were
included in natural gas purchases.
Wexpro, an affiliated company, operates certain properties owned by
Questar Gas under the terms of the Wexpro Settlement Agreement.
The Company receives a portion of Wexpro's income from oil
operations after recovery of Wexpro's operating expenses and a
return on investment. This amount, which is included in revenues
and reduces amounts billed to gas distribution customers, was
$4,758,000 in 2000, $2,306,000 in 1999 and $1,050,000 in 1998.
Questar Gas paid Wexpro for the operation of gas properties owned
by Questar Gas. These costs are included in natural gas purchases
and amounted to $73,692,000 in 2000, $62,299,000 in 1999 and
$58,482,000 in 1998.
Also included in natural gas purchases are amounts paid to Questar
Gas Management, an affiliate, for gathering of Company-owned gas
and purchased gas. These costs amounted to $8,542,000 in 2000,
$9,045,000 in 1999 and $9,047,000 in 1998. Questar Gas purchased
various other field-related services from Questar Gas Management
amounting to $864,000 in 2000, $755,000 in 1999 and $418,000 in
1998.
Questar Gas purchased gas from Questar Energy Trading amounting to
$9,329,000 in 2000, $7,190,000 in 1999 and $7,125,000 in 1998.
Questar Gas has an 11-year lease with an option to renew with an
affiliate for some space in an office building located in Salt Lake
City, Utah. Rent expense was $1,300,000 in 2000 and $1,155,000 in
1999 and 1998. The annual lease payment for the five years
following 2000 are scheduled as follows: $1,315,000 in 2001,
$1,346,000 in 2002 and $1,378,000 in 2003 through 2005.
Questar InfoComm Inc. is an affiliated company that provides data
processing and communication services to Questar Gas. Direct
charges paid by the Company to Questar InfoComm were $15,372,000 in
2000, $13,700,000 in 1999 and $16,480,000 in 1998.
Questar charged Questar Gas for certain administrative functions
amounting to $6,198,000 in 2000, $4,981,000 in 1999 and $4,714,000
in 1998. These costs are included in operating and maintenance
expenses and are allocated based on each affiliated company's
proportional share of revenues less product costs; property, plant
and equipment; and labor costs. Management believes that the
allocation method is reasonable.
Questar Gas incurred debt expense to Questar of $3,470,000 in
2000, $1,922,000 in 1999 and $2,403,000 in 1998.
Note 9 - Supplemental Oil and Gas Information (Unaudited)
The following information discusses the Company's oil and gas
producing activities. All of the properties are cost-of-service
properties with the return on investment established by state
regulatory agencies. Questar Gas has not incurred any costs for oil
and gas producing activities for the three years ended December 31,
2000. See Note 8 for the amounts paid by Questar Gas to Wexpro.
Estimated Quantities of Proved Oil and Gas Reserves: The following
estimates were made by Questar's reservoir engineers. Reserve
estimates are based on a complex and highly interpretive process
which is subject to continuous revision as additional production
and development drilling information becomes available. The
quantities are based on existing economic and operating conditions
using current prices and operating costs. All oil and gas reserves
reported are located in the United States. Questar Gas does not
have any long-term supply contracts with foreign governments or
reserves of equity investees. No estimates are available for proved
undeveloped reserves that may exist.
Natural Gas Oil
(In Million (In Thousands
Cubic Feet) of Barrels)
Proved Developed Reserves
Balance at January 1, 1998 337,179 3,049
Revisions of estimates 15,017 (46)
Extensions and discoveries 25,077 333
Production (37,138) (613)
Balance at December 31, 1998 340,135 2,723
Revisions of estimates 5,699 976
Extensions and discoveries 46,739 213
Production (38,890) (623)
Balance at December 31, 1999 353,683 3,289
Revisions of estimates 16,523 504
Extensions and discoveries 50,351 234
Production (41,546) (579)
Balance at December 31, 2000 379,011 3,448
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, 2001.
QUESTAR GAS COMPANY
(Registrant)
By /s/ D. N. Rose
D. N. Rose
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the date
indicated.
/s/ D. N. Rose President and Chief Executive
D. N. Rose Officer; Director (Principal
Executive Officer)
/s/ S. E. Parks Vice President, Treasurer and Chief
S. E. Parks Financial Officer (Principal Financial
Officer)
/s/ D. M. Curtis Controller
D. M. Curtis (Principal Accounting Officer)
*R. D. Cash Chairman of the Board
*W. Whitley Hawkins Director
*Robert E. Kadlec Director
*Dixie L. Leavitt Director
*Gary G. Michael Director
*K. O. Rattie Director
*D. N. Rose Director
*Harris H. Simmons Director
March 27, 2001 *By /s/ D. N. Rose
Date D. N. Rose, Attorney in Fact
EXHIBIT INDEX
Exhibit
Number Description
3.1.* Restated Consolidated Articles of
Incorporation dated August 15, 1980. (Exhibit
No. 4(a) to Registration Statement No.
2-70087, filed December 1, 1980.)
3.2.* Certificate of Amendment to Restated
Consolidated Articles of Incorporation dated
May 13, 1982. (Exhibit No. 3(b) to Form 10-K
Annual Report for 1982.)
3.3.* Certificate of Amendment to Restated
Consolidated Articles of Incorporation dated
May 10, 1983. (Included in Exhibit No. 4.1.
to Registration Statement No. 2-84713, filed
June 23, 1983.)
3.4.* Certificate of Amendment to Restated
Consolidated Articles of Incorporation dated
August 16, 1983. (Exhibit No. 3(a) to Form 8
Report amending the Company's Form 10-Q Report
for Quarter Ended September 30, 1983.)
3.5.* Certificate of Amendment to Restated
Consolidated Articles of Incorporation dated
October 26, 1984. (Exhibit No. 3.5. to Form
10-K Annual Report for 1984.)
3.6.* Certificate of Amendment to Restated
Consolidated Articles of Incorporation dated
May 13, 1985. (Exhibit No. 3.1. to Form 10-Q
Report for Quarter Ended June 30, 1985.)
3.7.* Articles of Amendment to Restated Consolidated
Articles of Incorporation dated February 10,
1988. (Exhibit No. 3.7. to Form 10-K Annual
Report for 1987.)
3.8.* Articles of Amendment to Restated Consolidated
Articles of Incorporation dated December 31,
1997. (Exhibit No. 3.7. to Form 8-K Current
Report for December 31, 1997.)
3.9. Bylaws (as amended effective February 13, 2001)
4.*1 Indenture dated as of May 1, 1992, between the
Company and Citibank, as trustee, for the
Company's Debt Securities. (Exhibit No. 4. to
Form 10-Q Report for Quarter Ended June 30,
1992.)
10.1.*2 Stipulations and Agreement, dated October 14,
1981, executed by Mountain Fuel Supply
Company; Wexpro Company; the Utah Department
of Business Regulations, Division of Public
Utilities; the Utah Committee of Consumer
Services; and the staff of the Public Service
Commission of Wyoming. (Exhibit No. 10(a) to
Form 10-K Annual Report for 1981.)
10.2*2 Gas Gathering Agreement between Mountain Fuel Supply
Company and Questar Pipeline Company effective September
1, 1993. (This agreement has been transferred from
Questar Pipeline to Questar Gas Management Company.)
(Exhibit No. 10.11. To Form 10-K Annual Report for 1994.)
10.3.*2 Amendment to Gas Gathering Agreement between Mountain Fuel
Supply Company and Questar Gas Management Company
effective September 1, 1997.
24. Power of Attorney.
_______________________
*Exhibits so marked have been filed with the Securities and
Exchange Commission as part of the referenced filing and are
incorporated herein by reference.
1 First Security Bank, N.A. serves as the successor trustee.
2 This document has not been formally amended to refer to the
Company's current name.