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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, 1994 OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____
Commission File No. 1-935
MOUNTAIN FUEL SUPPLY 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 1st South, PO Box 45360, Salt Lake City, Utah 84145-0360
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (801)534-5555
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, 7.19% 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 20, 1995: $0.
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of March 20, 1995: 9,189,626 shares of Common Stock,
$2.50 par value. (All shares are owned by Questar Corporation.)
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 7
Relationships with Affiliates 9
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. SELECTED FINANCIAL DATA 14
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATION 15
Item 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA 19
Item 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE 19
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT 19
Item 11. EXECUTIVE COMPENSATION 20
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 26
Item 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS 28
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K 29
SIGNATURES 59
FORM 10-K
ANNUAL REPORT, 1994
PART I
ITEMS 1. and 2. BUSINESS AND PROPERTIES
General
Mountain Fuel Supply Company (Mountain Fuel or the
Company) is a wholly owned subsidiary of Questar Corporation
(Questar), with headquarters in Salt Lake City, Utah, that
distributes natural gas to more than 572,000 sales and
transportation customers in Utah, southwestern Wyoming, and a
small section in southeastern Idaho. 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, Mountain Fuel gradually expanded the boundaries of its
distribution system to include over 90 percent of Utah's
population and to capture a market share of 85-95 percent for
furnaces and water heaters.
During 1994, Mountain Fuel added a record number of
customers, expanded its market share for natural gas dryers,
fireplaces, and ranges in new construction, managed its gas
supply costs to decrease its natural gas rates, and renewed its
commitment to customer service. The Company continued to
capitalize on its two primary competitive advantages--owning
natural gas reserves and offering a full range of services to
customers.
Gas Distribution
As of December 31, 1994, Mountain Fuel was serving
572,174 residential, commercial, and industrial customers, a four
percent increase from the 550,184 customers served as of the end
of 1993. (Customers are defined in terms of active meters.)
Mountain Fuel 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. Approximately
96 percent of Mountain Fuel's customers are in Utah. The Company
also serves the communities of Rock Springs, Green River, and
Evanston in southwestern Wyoming and the community of Preston in
southeastern Idaho. Mountain Fuel 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.
The Company's customer growth in 1994 resulted from new
housing, the addition of new customers in central and
southwestern Utah, and conversions. The population of Mountain
Fuel's service area in Utah continues to grow faster than the
national average. Although the Company does not believe that it
will duplicate 1994 in terms of customer growth, it does expect
to add 15,000 to 18,000 customers per year for the next several
years.
Mountain Fuel'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 his total gas requirements in
the coldest six months of the year. The Company's revenue
forecasts used to set rates are based on normal temperatures.
Consequently, Mountain Fuel's revenues and resulting net income
may be affected by temperature patterns that are below or above
normal. As measured in degree days, temperatures in the
Company's service area were nine percent warmer than normal in
1994, after being five percent colder than normal in 1993. (See
"Regulation" for a discussion of the Company's proposed "weather
normalization adjustment.")
During 1994, Mountain Fuel sold 74,233,000 decatherms
(Dth) of natural gas to residential and commercial customers,
compared to 79,369,000 Dth in 1993. (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 1.07 Dth.) The decrease was attributable to warmer
than normal weather, which was not offset by an expanded customer
base. General service sales to residential and commercial
customers were responsible for 87 percent of Mountain Fuel's
total revenues in 1994.
Mountain Fuel has designed its distribution system and
annual gas supply plan to handle peak-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 1994-95 heating season, Mountain Fuel is
using a design-day demand of approximately 839,500 Dth. Mountain
Fuel's management believes that the distribution system is
adequate to meet the demands of its firm customers.
Mountain Fuel's total industrial deliveries, including
both sales and transportation, continued to increase during
1994, expanding from 59,619,000 Dth in 1993 to 60,264,000 Dth in
1994. Sales to industrial users increased for the second year in
a row and expanded from 6,514,000 Dth in 1993 to 8,882,000 in
1994. The increase in total industrial deliveries reflects
Utah's economic revitalization and the strength of several major
industries as well as the success of the Company's marketing
efforts.
The Company's industrial sales increased as some
smaller industrial customers moved from interruptible
transportation to interruptible sales service on Mountain Fuel's
system. The majority of these interruptible sales service
customers pay rates based on the Company's weighted average cost
of purchased gas, which is periodically lower for some customers
than the cost of purchasing volumes directly from producers and
paying transportation rates. The Company also has an
interruptible sales rate utilizing a dedicated gas portfolio.
Mountain Fuel's tariff permits industrial customers to make
annual elections for interruptible sales or transportation
service.
Mountain Fuel has been providing transportation service
since 1986. The Company has worked diligently to retain its
transportation customers and to offer them cost-based rates.
Transportation service has been attractive to customers that can
buy volumes of gas directly from producers and have such volumes
transported at aggregate prices lower than the Company's sales
rates.
Under Mountain Fuel's current rate schedules, a typical
interruptible transportation customer pays block rates ranging
from $.12 to $.02 per Dth. Mountain Fuel receives demand cost
credits from Questar Pipeline Company (Questar Pipeline) for
transportation customers who use the Company's released capacity.
These credits totaled $9.8 million for the 12-month period ending
August 31, 1994.
During 1994, the Company obtained regulatory approval
to offer a firm transportation rate schedule available to
industrial customers that transport or are obligated to pay for
the transportation of at least 120,000 Dth per year and have firm
transportation service on an upstream pipeline. Mountain Fuel
currently has 10 firm transportation customers on this schedule.
Mountain Fuel's largest transportation customers, as
measured by revenue contributions, are the Geneva Steel plant in
Orem, Utah; Utah Power, an electric utility that uses gas for an
electric generating plant in Salt Lake City; the Kennecott copper
processing operations, located in Salt Lake County; and the
mineral extraction operations of Magnesium Corporation of America
in Tooele County west of Salt Lake.
Mountain Fuel owns and operates distribution systems
throughout its Utah, Wyoming and Idaho service areas and has a
total of 17,468 miles of street mains, service lines, and
interconnecting pipelines. The Company owns a new office
building adjacent to its warehouse, garage, and operations center
in Salt Lake City, Utah. It also owns operations centers, field
offices, and service center facilities throughout other parts of
its service area. The mains and lines are constructed pursuant
to franchise agreements or rights-of-way. The Company has fee
title to the properties on which its office building and
operation and service centers are constructed.
Gas Supply
Mountain Fuel owns natural gas producing properties in
Wyoming, Utah and Colorado that are operated by Wexpro. The
Company's investment in these properties is included in its rate
base. Mountain Fuel, as part of its 1993 general rate case,
received regulatory approval to reserve "cost-of-service" gas for
firm sales customers. During 1994, approximately 53 percent of
the Company's total system requirement was satisfied with cost-
of-service gas produced from such properties. (As defined, cost-
of-service gas includes related royalty gas.) The volumes
produced from such properties are transported for Mountain Fuel
by Questar Pipeline. See "Relationships with Affiliates."
During 1994, 44,413,000 Dth were delivered from such properties
compared to 47,120,000 Dth in 1993. Mountain Fuel estimates that
it had reserves of 416,312 million cubic feet (MMcf) as of year-
end 1994 compared to 428,238 MMcf as of year-end 1993. (These
reserve numbers do not include gas attributed to royalty interest
owners.) The average wellhead cost associated with gas volumes
produced from Mountain Fuel's cost-of-service reserves was $1.37
per Dth in 1994.
Some of the wells on Mountain Fuel's producing
properties qualify for special tax credits, commonly referred to
as "Section 29" or "tight sands" tax credits. During 1994,
Mountain Fuel, as the party with the economic interest in the gas
produced from such wells, earned $4.7 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, qualify for the special tax
credit.
The Company has been directly responsible for its gas
acquisition activities since September 1, 1993. Mountain Fuel
has a balanced and diversified portfolio of gas supply contracts
with field producers located in the Rocky Mountain states of
Wyoming, Colorado, and Utah. The Company purchases gas on the
spot market and under contracts. 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. Mountain Fuel's gas acquisition objective is to obtain
reliable, diversified sources of gas supply at competitive
prices. In the Company's last semi-annual purchased gas cost
filing, Mountain Fuel estimated that its 1995 average wellhead
cost of field purchased gas would be $1.83 per Dth. (The actual
cost of purchased gas will be below this estimate if current
market prices continue.) Although Mountain Fuel has contracts
with take-or-pay provisions, it currently has no material take-
or-pay liabilities.
Competition and Growth
Mountain Fuel 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, has permitted
the Company to retain 85-95 percent of the residential space
heating and water heating markets 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.
These competitive advantages are responsible for the Company's
ability to attract residential users of alternate energy sources
to gas in its service areas in central and southwestern Utah even
though such users are temporarily required to pay higher rates
than their counterparts in the more populated areas of Utah.
(The first group of these customers will begin paying standard
rates in 1997.) During 1994, the Company added over 4,400
customers in this area, making a total of approximately 30,360
customers.
Mountain Fuel, during 1994, continued to expand the
size of its customer base in new and existing service areas as
Utah's growth rate exceeded the national average. The Company is
also focusing marketing efforts to develop incremental load in
existing homes and new construction. Most households in Mountain
Fuel's service area already 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 20 percent, which is significantly lower than its 85-95
percent market share for furnaces and water heaters.
Mountain Fuel has marketing campaigns to convince
existing customers to take advantage of natural gas's lower
prices, favorable environmental qualities, and greater efficiency
by converting other appliances to natural gas. The Company also
has marketing campaigns to convince contractors to install the
necessary lines for gas fireplaces, ranges, and dryers in new
homes. Mountain Fuel estimates that approximately 60 percent of
the new homes constructed in its service area during 1994
included piping for gas fireplaces and approximately 40 percent
of such homes had piping for gas dryers or ranges. As a result
of its contacts with appliance dealers, the Company receives
information about the sales of gas appliances and has been
pleased with the growth of sales for fireplaces, ranges and
dryers.
The Company's average temperature-adjusted sales to
residential customers continue to decrease as more efficient
furnaces are used in new homes and replace less efficient
furnaces in existing homes. The average residential customer
used 122 decatherms in 1985, compared to 110 decatherms in 1994
(on a temperature-adjusted basis). This decreased usage makes it
even more important for Mountain Fuel to market the advantages of
other appliances.
The Company 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.
Mountain Fuel's rates for general service customers in
Utah continue to be lower than they were ten years ago. Using
rates in effect as of January 1, 1995, the typical residential
customer in Utah would have an annual bill of $506.28, compared
to an annual bill of $607.07, using rates in effect as of January
1, 1985.
Historically, Mountain Fuel's competitive position has
been strengthened as a result of owning natural gas producing
properties and satisfying as much as approximately 50 percent of
its system requirements with the cost-of-service gas produced
from such properties. Mountain Fuel has developed an annual gas
supply plan that provides for a judicious balance between cost-
of-service gas and purchased gas. Mountain Fuel 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. The Company
reserves cost-of-service gas for firm sales customers.
No other 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. With
the Kern River pipeline in place, Questar Pipeline's transmission
system is no longer the only pipeline transporting gas to or
through the more populated areas of Utah. Both pipelines systems
are required to be "open-access" systems. Mountain Fuel's sales
rates are competitive when compared to other energy sources, but
are periodically higher than the delivered price of spot-market
gas volumes transported through the Company's 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 could provide
an alternative delivery source to Mountain Fuel's transportation
customers. As of the date of this report, Mountain Fuel 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,
have changed the nature of market conditions for the Company.
Large industrial customers in Utah's Wasatch Front area could
acquire taps on Kern River's system or could take delivery of gas
through a new tap that Mountain Fuel obtained in 1994. This new
tap near the Hunter Park in Salt Lake County enables the Company
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 the Company to extend
service into new areas in rural Utah and to develop a second
source of supply for its central and southern Utah system.
Within the last several years, the Company has
increased its activities to encourage the use of natural gas as a
fuel in automobiles, trucks, and buses. Mountain Fuel has
expanded the number of its service vehicles using natural gas and
has helped convert fleet vehicles owned by several state
agencies, municipalities, commercial businesses and others.
There are a total of 74 natural gas refueling stations within the
Company's service area, including 23 that are open to the public.
Vehicles using natural gas emit less carbon monoxide and other
harmful pollutants. Consequently, the Company actively supports
federal and state legislation promoting the use of natural gas in
vehicles such as the provisions in the Energy Policy Act that
provide tax advantages for natural gas vehicles. Mountain Fuel
is actively promoting the environmental advantages of natural
gas, particularly in the portions of its service area that do not
satisfy the ambient air quality standards set by the federal
Environmental Protection Agency.
Although Mountain Fuel is a public utility and has no
direct competition from other distributors of natural gas sales
for residential and commercial customers, the Company competes
with other energy sources. Mountain Fuel continues to monitor
its competitive position, in terms of commodity costs and
efficiency of usage, with other energy sources on a short-term
and long-term basis. PacifiCorp (using the name Utah Power in
Utah) is the primary electric utility in the Company's service
area. Although its current rates for residential space heating
and water heating are more than twice as high on a Btu basis as
Mountain Fuel's rates for such service, PacifiCorp provides an
ongoing source of competition.
Mountain Fuel has adopted innovative and cost-cutting
measures to deal with competitive pressures during the last
several years. One measure of improved efficiency is the number
of customers served per employee. In 1988, the Company's ratio
of year-end customers to employees was 319 to 1; in 1994, the
ratio was 383 to 1. Mountain Fuel's 1995 goal is to increase
this ratio to greater than 400 to 1.
In early 1995, Mountain Fuel announced immediate plans
to consolidate some customer service functions such as
dispatching, telephone service, engineering and to phase out or
significantly reduce the size of 10 customer service offices in
Utah and Wyoming. The Company also determined to increase the
productivity of service technicians through technological
advances such as installing personal computers in vehicles or
providing them with paging equipment, thereby eliminating the
need to retrieve orders from a central location.
The Company also announced a special retirement window
for 169 employees who will be at least 52 years of age and have
five years of credited service as of April 30, 1995. The
election period ends April 17, 1995; Mountain Fuel cannot
forecast the number of employees that will take advantage of the
special program. The Company does expect that the cost
associated with offering retirement incentives will be more than
offset by expected labor savings. Mountain Fuel does not expect
to hire new employees to replace the employees who elect to take
advantage of the offer.
Mountain Fuel intends to maintain a competitive
position in an energy marketplace in which there is more gas-on-
gas competition and in which some traditional "utility" and
"monopoly" services are deregulated. The Company anticipates
that the "deregulation" in interstate pipelines, electrical
generation and transmission, and telecommunications may be
followed by deregulation of some local distribution activities.
Mountain Fuel is committed to keeping its costs as low as
possible, increasing the productivity of its employees, and
emphasizing the importance of providing high quality natural gas
service.
Regulation
As a public utility, Mountain Fuel 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,
Mountain Fuel's Idaho customers are regulated by the PSCU.)
Mountain Fuel's natural gas sales and transportation services are
provided under rate schedules approved by the two regulatory
commissions.
On March 3, 1995, the Company filed a general rate case
application in Utah. In the rate case, Mountain Fuel requested a
return on equity of 12.5 percent, regulatory approval of a new
weather normalization adjustment mechanism, and regulatory
approval of new rate schedules to collect an annualized revenue
deficiency of $9,559,000. The Company based its revenue
deficiency on a test year ending December 31, 1995, and estimated
that its year-end rate base in Utah would be $372,134,000. This
number is approximately $41 million more than its rate base as of
September 30, 1993, which was the date used in its last general
rate case. Under existing Utah law, the PSCU has 240 days from
March 3, 1995, to enter an order in the Company's rate case
application.
Mountain Fuel is currently authorized a return on
equity of 11.0 percent and expects return on equity to be one of
the primary issues in the case. Other major issues will be the
use of a future test year, rather than a historic test year; the
growth in rate base; and the requested weather normalization
procedure.
The Company's proposed weather normalization adjustment
would adjust 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." Mountain Fuel believes that the proposed
adjustment would benefit customers, whose bills would be less
variable, and the Company, which would have more stability in its
revenues.
The Company's last general rate case before the PSCU
resulted in an authorized return on equity of 11.0 percent and an
annualized decrease of $1.6 million in rates. As a result of a
stipulation reached by the parties, however, approximately $2.1
million of costs reflected in Mountain Fuel's general rate case
were added to its gas balancing account. These rates became
effective on January 10, 1994.
At the current time, the Company does not expect to
file a general rate case application with the PSCW in 1995.
Mountain Fuel's last Wyoming rate case was settled, with rates
that went into effect on August 1, 1993. The stipulation
approved by the PSCW included a 10.4 percent return on rate base,
but did not specify an authorized return on equity.
Both the PSCU and the PSCW have authorized the Company
to use a balancing account procedure for changes in the cost of
natural gas, including supplier non-gas costs, and to reflect
changes on a semi-annual basis. Mountain Fuel's latest semi-
annual balancing account applications were approved effective
January 1, 1995. The Company's base rates for natural gas
service in both Utah and Wyoming were decreased as a result of an
overall decrease in the cost of gas and an adjustment to offset
the overcollection in its gas balancing account.
In connection with its last gas-cost application in
Utah, Mountain Fuel also obtained regulatory approval to remove
approximately $5.6 million of gas costs associated with "unbilled
revenues" from the gas balancing account. This accounting
adjustment resulted from the PSCU's requirement that the Company
recognize revenues on an "as delivered" rather than an "as
billed" basis. Making this adjustment had a positive impact on
the Company's 1994 net income of approximately $3.5 million.
Mountain Fuel's responsibility for gas acquisition
activities involves inherent risks of regulatory scrutiny. In
the past, the Company has been involved in regulatory proceedings
in which the prudence of its gas supply activities has been
challenged.
Under Utah law, Mountain Fuel must report its common
stock dividends 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 the Company's capital or service
obligations. The PSCW and the PUCI, but not the PSCU, have
jurisdiction to review the issuance of long-term securities by
the Company.
The Company has significant relationships with its
affiliates. The PSCU and PSCW have jurisdiction to examine these
relationships and the costs paid by the Company for services
rendered by or goods purchased from its affiliates. A settlement
agreement involving Mountain Fuel's cost-of-service gas and
defining certain contractual obligations between Mountain Fuel
and Wexpro is monitored by the Utah Division of Public Utilities.
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, particularly Questar Pipeline and Wexpro.
The following diagram shows the corporate structure of the
Company and its primary affiliates:
Questar Corporation
Questar InfoComm, Inc.
Entrada Industries, Inc.
Wexpro Company
Celsius Energy Company
MOUNTAIN FUEL SUPPLY COMPANY
Questar Pipeline Company
Universal Resources Corporation
Questar Development Corporation
The Company's relationships with its primary affiliates
are described below.
Questar Pipeline Company. Questar Pipeline owns a two-
pronged transmission system running from southwestern Wyoming
into Mountain Fuel's Utah service area. Between July of 1984 and
August of 1993, Questar Pipeline was the Company's primary
supplier of natural gas. Questar Pipeline's gas purchase
contracts were transferred to Mountain Fuel effective September
1, 1993. Mountain Fuel also acquired storage capacity at Clay
Basin, Questar Pipeline's largest storage reservoir, and Questar
Pipeline's peaking storage reservoirs.
Effective September 1, 1993, the Company converted its
firm capacity entitlements on Questar Pipeline's system to firm
transportation service and has reserved approximately 800,000 Dth
per day, or approximately 85 percent, of Questar Pipeline's total
transmission capacity. Mountain Fuel transports 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 Northwest Pipeline Company and Colorado
Interstate Gas Company. As previously mentioned, Mountain Fuel
also purchases "city gate" gas supplies from transportation
customers on Kern River's system.) The Company also 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 Mountain Fuel has sufficient capacity on the
system to meet peak demand periods, it has unused capacity for
the balance of the year.
During the 12-month period ending August 31, 1994,
Mountain Fuel released an average of 457,395 Dth per day. When
the released capacity is coupled with the Company's average sales
volume of 255,255 Dth during this same period, Mountain Fuel
"used" approximately 61 percent of its reserved capacity on
Questar Pipeline's system.
During 1994, Questar Pipeline transported 75,941,000
Dth of gas for Mountain Fuel. Under Questar Pipeline's "straight
fixed-variable" rate schedules, Mountain Fuel is obligated to pay
demand charges for firm capacity, regardless of the volumes
actually transported. The Company paid approximately $46.3
million in demand charges to Questar Pipeline in 1994 for firm
transportation capacity and "no notice" transportation. Questar
Pipeline also credits Mountain Fuel with revenues it receives
from transportation customers that use the Company's released
capacity. During the 12-month period ending August 31, 1994,
Mountain Fuel received $9.8 million in revenue credits from
Questar Pipeline.
Questar Pipeline also provides the Company with
gathering services under a new gathering agreement that became
effective on September 1, 1993, after the FERC approved a joint
settlement filed by the parties. Questar Pipeline gathered
32,098,000 Dth for Mountain Fuel during 1994.
Wexpro Company. Wexpro operates certain properties
owned by Mountain Fuel. Under the terms of a settlement
agreement, which was approved by the PSCU and PSCW and upheld by
the Utah Supreme Court, Mountain Fuel 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 conducts development gas drilling for Mountain Fuel on
specified properties and is reimbursed for its costs plus a
current rate of return of 22.0 percent (adjusted annually using a
specified formula) on its net investment in such properties,
adjusted for working capital and deferred taxes, if the wells are
successful. Under the terms of the settlement agreement, the
costs of unsuccessful wells are borne by Wexpro. The settlement
agreement also permits Mountain Fuel 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 Mountain Fuel from Wexpro is used
to reduce natural gas costs to its customers.
During 1994, Wexpro, in response to demands from other
working interest owners, maintained a drilling program in
southwestern Wyoming. A total 26,085 MMcf in proved developed
reserves were added to Mountain Fuel's net reserves as a result
of drilling activities and estimate revisions, but the additional
reserves did not offset production. Wexpro's drilling activities
decreased significantly during 1994. As a result of the decline
in natural gas prices, Wexpro is not currently drilling any
wells.
Other Affiliates. Other significant affiliates of
Mountain Fuel include Questar InfoComm, Inc., formerly Questar
Service Corporation (Questar InfoComm), Questar Development
Corporation (Questar Development), Celsius Energy Company
(Celsius), and Universal Resources Corporation (Universal
Resources). Questar InfoComm provides data processing and
telecommunication services for the Company and other affiliates.
It owns and operates a network of microwave facilities, all of
which are located in Mountain Fuel's service area or near Questar
Pipeline's transmission system. Services are priced to recover
operating expenses and a return on investment. Questar InfoComm
personnel are currently assisting Mountain Fuel in a major
project to develop new customer information systems.
During 1994, Mountain Fuel sold an office building in
Salt Lake City to Interstate Land Corporation, a subsidiary of
Questar Development. The Company, however, continues to lease
space in this office building for its general headquarters.
Questar Development is also a one-third owner of FuelMaker
Corporation, a Canadian corporation that designs, manufactures,
and markets small compressors to be used when refueling natural
gas vehicles at residences or at remote locations.
Celsius conducts oil and gas exploration and related
development activities in the Rocky Mountain area. Universal
Resources conducts oil and gas exploration and related
development activities primarily in the Midcontinent region
outside the Company's service area. It also markets gas volumes,
including the majority of volumes produced by Celsius, and is
responsible for some of the contracts providing gas to the
Company's transportation customers.
Entrada Industries, Inc. (Entrada), is a wholly owned
subsidiary of Questar and is the direct parent of Celsius and
Wexpro. While Mountain Fuel and Entrada are subject to common
control by Questar, there is no direct control of Entrada by the
Company or of the Company by Entrada. See "Legal Proceedings."
Questar, Mountain Fuel's parent, provides certain
administrative services, e.g., personnel, legal, public
relations, financial, tax, and audit, to the Company and other
members of the consolidated group. Questar also sponsors the
qualified and welfare plans in which the Company's employees
participate. Mountain Fuel is responsible for a proportionate
share of the costs associated with these services and benefit
plans.
Employees
As of December 31, 1994, the Company had 1,486
employees. None of these employees is represented under
collective bargaining agreements. Mountain Fuel participates in
Questar's comprehensive employee benefit plans and pays the share
of costs attributable to its employees covered by such plans.
Employee relations are generally deemed to be satisfactory.
The Company offered enhanced retirement benefits to 169
employees under a special retirement program announced on March
1, 1995. To take full advantage of the special offer, employees
must retire by April 30, 1995.
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 Mountain Fuel
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. See "Legal Proceedings" for
a discussion of litigation concerning liability for contamination
on property owned by a former subsidiary of the Company.
Mountain Fuel 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.
As previously noted, Mountain Fuel is emphasizing the
environmental advantages of natural gas. Several industrial
customers have converted to natural gas or plan to increase their
use of natural gas in order to lower emissions. The Company's
marketing campaigns feature 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
There are various legal and regulatory proceedings
pending that involve the Company and its affiliates. While it is
not feasible to predict or determine the outcome of these
proceedings, the Company's management believes that the outcome
will not have a material adverse effect on the Company's
financial position.
Mountain Fuel, as a result of acquiring Questar
Pipeline's gas purchase contracts, is responsible for any
judgment rendered against Questar Pipeline in a lawsuit that was
tried before a jury in 1994. The jury awarded an independent
producer compensatory damages of approximately $6,100,000 and
punitive damages of $200,000 on his claims involving take-or-pay,
tax reimbursement, contract breach, and tortious interference
with a contract. A judgment has not be entered because the
presiding judge has not issued a decision concerning the
competing forms of judgment entered by the opposing parties. The
producer's counterclaims originally exceeded $57,000,000, but
were reduced to less than $10,000,000, when the presiding judge
dismissed with prejudice some of the claims prior to the jury
trial. Mountain Fuel expects that any amounts arising from the
breach of contract claims will be included in its gas balancing
account and recovered in its rates for natural gas sales service.
As a result of its former ownership of Entrada and
Wasatch Chemical Company, Mountain Fuel has been named as a
"potentially responsible party" for contaminants located on
property owned by Entrada in Salt Lake City, Utah. Questar and
Entrada have also been named as potentially responsible parties.
(Entrada and the Company are both direct, wholly owned
subsidiaries of Questar; prior to October 2, 1984, Mountain Fuel
was the parent of Entrada.) The property, known as the Wasatch
Chemical property, was the location of chemical operations
conducted by Entrada's Wasatch Chemical division, which ceased
operation in 1978. A portion of the property is included on the
national priorities list, commonly known as the "Superfund" list.
In September of 1992, a consent order governing clean-
up activities was formally entered by the federal district court
judge presiding over the underlying litigation involving the
property. This consent order was agreed to by Questar, Entrada,
the Company, the Utah Department of Health and the Environmental
Protection Agency (the EPA).
Entrada has obtained approval for a specific design
using an in situ vitrification procedure to clean up the Wasatch
Chemical property and began remediation activities during 1994.
The clean-up procedure may take as long as three years.
Entrada has accounted for all costs spent on the
environmental claims and has also accounted for all settlement
proceeds, accruals and insurance claims. It has received cash
settlements, which together with accruals and insurance
receivables, should be sufficient for future clean-up costs.
Mountain Fuel has consistently maintained that Entrada
should be responsible for any liability imposed on the Questar
group as a result of actions involving Wasatch Chemical. The
Company has not paid any and does not expect to pay any costs
associated with the clean-up activities for the property.
Utah Power recently filed a lawsuit against Mountain
Fuel claiming that the Company is responsible for contamination
located on property adjacent to Mountain Fuel's operations center
in Salt Lake City. The operations center was the site of an
abandoned coal gasification plant. The Company (in its own name
or through a predecessor) did not own the property that is the
subject of the lawsuit and does not believe that it is
responsible for the coal tar found on the property. Cleanup
activities on the property are monitored by the EPA, but the
property is not a listed "Superfund" site.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1994, Mountain Fuel did
not submit any matters to a vote of security holders.
PART II
ITEM 5. MARKET FOR REGISTRANT'S EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's outstanding shares of common stock, $2.50 par
value, are owned by Questar. 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
Year Ended December 31,
1994 1993 1992 1991 1990
(In Thousands)
Revenues $378,260 $402,391 $373,047 $416,759 $364,747
Operating expenses
Natural gas purchases 210,507 230,139 218,123 253,111 216,396
Other expenses 128,432 125,743 110,527 108,761 103,339
Total operating expenses 338,939 355,882 328,650 361,872 319,735
Operating income $39,321 $46,509 $44,397 $54,887 $45,012
Net income $23,352 $25,069 $23,395 $25,074 $21,713
Cash dividends paid on common stock 19,500 18,000 18,000 19,000 18,000
Total assets 590,275 581,027 490,614 452,139 447,486
Capital expenditures 53,816 50,658 55,721 36,984 28,809
Capitalization
Long-term debt $175,000 $158,000 $150,126 $148,953 $148,872
Redeemable cumulative preferred stoc 6,324 7,525 8,726 9,955 11,155
Common shareholder's equity 205,461 182,200 175,826 171,231 166,061
$386,785 $347,725 $334,678 $330,139 $326,088
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Following is a summary of revenues and operating information
for the Company's operations:
Year Ended December 31,
1994 1993 1992
(Dollars In Thousands)
OPERATING INCOME
Revenues
Residential and commercial sales $329,576 $360,210 $330,920
Industrial sales 24,395 21,678 19,878
Industrial transportation 5,665 5,898 6,252
Other 18,624 14,605 15,997
Total revenues 378,260 402,391 373,047
Operating expenses
Natural gas purchases 210,507 230,139 218,123
Operating and maintenance 94,094 92,486 79,975
Depreciation and amortization 24,749 23,244 20,713
Other taxes 9,589 10,013 9,839
Total expenses 338,939 355,882 328,650
Operating income $39,321 $46,509 $44,397
OPERATING STATISTICS
Natural gas volumes (in Mdth)
Residential and commercial sales 74,233 79,369 68,635
Industrial deliveries
Sales 8,882 6,514 5,338
Transportation 51,382 53,105 51,621
Total industrial 60,264 59,619 56,959
Total deliveries 134,497 138,988 125,594
Natural gas revenue (per dth)
Residential and commercial $4.44 $4.54 $4.82
Industrial sales 2.75 3.33 3.72
Transportation for industrial
customers 0.11 0.11 0.12
Natural gas purchase price (per dth) $2.40 $2.52 $2.83
Heating degree days (normal 5,801) 5,290 6,073 5,235
Colder (warmer) than normal (9%) 5% (10%)
Number of customers at end of period 572,174 550,184 532,109
Natural gas deliveries to residential and commercial customers
dropped 6% in 1994 after increasing 16% in 1993. These
changes parallel temperatures in Mountain Fuel's service area
which were 9% warmer than normal in 1994 after being 5% colder
than normal in 1993. Temperatures for the first two months of
1995 have been 23% warmer that normal and 8% warmer than
during the same two months of 1994. The number of customers
increased by 4.0% in 1994, 3.4% in 1993 and 3.2% in 1992
reflecting record setting growth.
Gas deliveries to industrial customers improved by 1% in 1994
and 5% in 1993. Mountain Fuel's service area has experienced
strong economic growth for several successive years. The
Company has benefitted from a demand for gas for expanded
operations and environmental concerns, especially for
electricity generation.
Mountain Fuel's allowed return on equity for Utah operations
was reduced from 12.1% to 11% effective January 1, 1994, in a
general rate case order from the Public Service Commission of
Utah (PSCU). In addition, the Company also changed the
accounting for revenues for residential and commercial
customers from an "as billed" to an "as delivered" basis.
Mountain Fuel began accruing gas-distribution revenues for gas
delivered to residential and commercial customers but not
billed at the end of the reporting period starting in 1993.
The impact of these accruals on the income statement has been
deferred and is being recognized at the rate of $2,011,000 per
year over a five-year period beginning in 1994 in accordance
with a PSCU rate order. This rate order also reduces customer
rates by $2,011,000 per year over the same five-year period.
In addition Mountain Fuel recorded other income of $5,589,000
for a one-time reduction in gas costs associated with these
unbilled revenues. This transaction added about $3.5 million
to net income in 1994.
Mountain Fuel filed a general rate case in the State of Utah
on March 3, 1995 requesting a $9.6 million increase in
revenues, a 12.5% return on equity and a weather normalization
adjustment mechanism. Management believes the rate increase
is necessary to secure an appropriate allowed rate of return
and to recover the costs of record customer growth. Mountain
Fuel believes the proposed weather adjustment mechanism would
benefit customers, whose bills would be less variable, and the
Company, which would have more stability in its revenues.
Mountain Fuel announced plans in early 1995 to reorganize and
consolidate several functions in an effort to reduce costs.
In March 1995 Mountain Fuel offered an early retirement
opportunity to 169 employees resulting from consolidation of
customer service jobs. This restructuring reflects the
substantial gains in efficiency the Company is starting to
realize from its investment in customer service system
technology. Mountain Fuel expects labor cost savings will
exceed the cost of the early retirement program. Mountain
Fuel also intends to phase out four service centers beginning
in 1995, while reorganizing six others. The restructuring and
consolidation is intended to improve service to customers
while maintaining the Company's position as a low-cost energy
provider. Consolidation of sales and marketing activities was
also part of the announced restructuring.
Natural gas purchases decreased 9% in 1994 and increased 6% in
1993. These changes were consistent with changes in volumes
sold to residential and commercial customers, which were
primarily weather related.
Operating and maintenance expenses increased 2% in 1994 and
16% in 1993 primarily because of the costs associated with
more customers and an expanded service territory.
Depreciation and amortization expense increased 6% in 1994 and
12% in 1993 due to capital expenditure programs and higher
levels of natural gas production.
The Company adopted SFAS No.112, Accounting for Postemployment
Benefits, on January 1, 1994, by establishing a liability of
$1,538,000 offset by a regulatory asset. This statement
requires the Company to recognize the net present value of the
liability for postemployment benefits, such as long-term
disability benefits and health care and life insurance costs,
when employees become eligible for such benefits.
Postemployment benefits are paid to former employees after
employment has been terminated but before retirement benefits
are paid. SFAS No.112 requires the Company to accrue both
current and future costs which formerly had been recorded when
cash was paid. By December 1994 the total liability had
dropped from $1,538,000 to $1,039,000 as a result of
designating Medicare as the primary health care provider and
increasing the discount rate from 7% to 8.5%. At year-end
1994, Mountain Fuel expensed SFAS No. 112 costs, previously
recorded as a regulatory asset, in other income deductions.
The effective income tax rate was 25.3% in 1994, 23.5% in 1993
and 24.2% in 1992. Section 29 income tax credits received
from production of gas from certain properties reduced the
effective income tax rate. Credits amounted to $4,670,000 in
1994, $5,463,000 in 1993 and $4,281,000 in 1992. The three
years include credits recognized for prior years' gas
production of $1,742,000 in 1994, $1,174,000 in 1993 and
$1,116,000 in 1992. The 1993 federal income tax rate
increased to 35% and the effect of the higher tax rate on
deferred income taxes was recorded 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.
Mountain Fuel is responsible for a judgment in a lawsuit
involving the Company, Questar Pipeline and a gas producer. In
March 1994, a jury awarded the gas producer damages of
approximately $6.3 million on claims involving take-or-pay,
tax reimbursement and breach of contract. Mountain Fuel
expects that the judgment will be included in its gas
balancing account and recovered through customer rates. The
judgment is not expected to have a significant impact on the
Company's results of operations, financial position or
liquidity.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
Net cash provided from operating activities decreased 11% in
1994. Net cash provided from operating activities was
$33,143,000 in 1994, $37,139,000 in 1993 and $50,600,000 in
1992. Accounts payable and accrued expenses decreased
$16,141,000 in 1994, primarily because of lower gas purchases.
Mountain Fuel purchased gas for storage purposes in the last
quarter of 1993 when it assumed the gas-purchase function from
Questar Pipeline in response to FERC Order No. 636.
Inventories increased by $20,869,000 in 1993, primarily for
gas stored underground. Changes in the purchased-gas
adjustment account used cash of $8,656,000 in 1994 after
providing cash of $4,686,000 in 1993 and $4,586,000 in 1992.
The assumption of gas-purchase contracts and the gas-supply
purchase activity resulted in several changes to Mountain
Fuel's working capital. Mountain Fuel acquired an inventory
of gas stored underground to meet customer requirements.
Accounts payable to unaffiliated parties increased while
accounts payable to affiliates decreased because of direct
purchases from gas producers.
Investing Activities
Following is a summary of capital expenditures for 1994 and
1993, and a forecast of 1995 expenditures.
1995
Estimated 1994 1993
(In Thousands)
New-customer service equipment $23,200 $22,343 $16,749
Distribution system 12,100 7,085 9,295
Buildings 2,800 7,193 10,993
Computer software and hardware 7,200 5,849 4,702
General and other 4,700 11,346 8,919
$50,000 $53,816 $50,658
Mountain Fuel's capital spending is primarily in response to a
record increase in the number of customers, amounting to
21,990 in 1994, 18,075 in 1993 and 16,284 in 1992, due to
population growth and construction activity in its service
area. Mountain Fuel extended its system by 539 miles of main,
feeder and service lines in 1994. The 1995 capital
expenditures anticipate a slightly lower level of customer
growth.
Mountain Fuel transferred a building with a net book value of
$8,915,000 to an affiliate in the third quarter of 1994.
Financing Activities
The Company funded 1994 capital expenditures with cash
provided from operations, a capital contribution and
borrowings under a medium-term note program. The 1995 capital
expenditures are expected to be financed with cash provided
from operations and borrowings from Questar.
The Company has a short-term line-of-credit arrangement with a
bank under which it may borrow up to $500,000, below the prime
interest rate. The arrangement is renewable on an annual
basis. At December 31, 1994, no amounts were borrowed under
this arrangement. Questar loans funds to the Company under a
short-term borrowing arrangement. Outstanding short-term
notes payable to Questar totaled $53,500,000 with an interest
rate of 6.11% at December 31, 1994.
During the second quarter of 1994 Mountain Fuel issued $17
million of 30-year notes at an 8.12% interest rate. Mountain
Fuel used proceeds from these notes for capital expenditures
and operations.
On July 1, 1994, Mountain Fuel received a $20,000,000 capital
contribution from Questar.
The Company typically has negative net working capital at the
end of the year because of short-term borrowings. These
borrowings are seasonal and generally peak at the end of
December because of cold-weather gas purchases.
Mountain Fuel has a capital structure of 45% long-term debt,
2% preferred stock and 53% common equity. Moody's and Standard
and Poors have rated Mountain Fuel's long-term debt A1 and A+.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's financial statements are included in Part IV, Item 14,
herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Mountain Fuel 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
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the Company's directors and executive officers
is located in the following chart:
Business Experience and Positions Held
Name Age With the Company and Affiliates
M. E. Benefield 55 Vice President, Gas Supply, May 1992; Vice
President, Planning and Corporate Development,
Questar (March 1989 to May 1992.)
R. D. Cash 52 Director, May 1977; Chairman of the Board, May 1985;
Director, President and Chief Executive Officer,
Questar, May 1984; Chairman of the Board, Questar,
May 1985. Director, Zions First National Bank and
Zions Bancorporation and Associated Electric and Gas
Insurance Servicing Limited; Trustee, Southern Utah
University.
W. F. Edwards 49 Vice President and Chief Financial Officer, May
1984; Senior Vice President and Chief Financial
Officer, Questar, February 1989; Vice President and
Chief Financial Officer, Questar, May 1984 to
February 1989.
Susan Glasmann 47 Vice President, Marketing, February 1994; General
Manager, Marketing, April 1991 to February 1994;
Manager, Corporate Communications, Questar, October
1989 to April 1991.
Robert E. Kadlec 61 Director, March 1987; Director, Questar, March 1987;
President and Chief Executive Officer, BC Gas Inc.
(Vancouver, British Columbia); Director, BC Gas
Inc., Trans Mountain Pipe Line Company Ltd., Bank of
Montreal, British Pacific Properties Ltd.; and
International Forest Products Limited.
Dixie L. Leavitt 65 Director, May 1987; Director, Questar, May 1987;
Chairman of the Board, Leavitt Group Agency
Association (a group of approximately 45 separate
insurance agencies); President and Chairman of
entities engaged in dairy, cattle, agriculture, and
real estate operations in Utah and southern Nevada;
Director, Zions First National Bank.
Gary G. Michael 54 Director, February 1994; Director, Questar, February
1994; Chairman and Chief Executive Officer,
Albertson's; Director, Albertson's and member of
Board of Directors of the Federal Reserve Bank of
San Francisco.
D. N. Rose 50 President and Chief Executive Officer, October 1984;
Director, May 1984; Director, Questar, May 1984;
Director, Key Bank of Utah; Trustee, Westminster
College.
G. H. Robinson 44 Vice President and Controller, April 1991; Vice
President, Marketing, March 1985 to April 1991.
Roy W. Simmons 79 Director, May 1968; Senior Director, Questar, May
1992; Director, Questar, May 1984 to May 1992;
Chairman, Zions Bancorporation (commercial bank
holding company) and Chairman, Zions First National
Bank (commercial bank); Chief Executive Officer,
Zions First National Bank to January 1989; Chief
Executive Officer, Zions Bancorporation to January
1991; Director, Beneficial Life Insurance Company
and Ellison Ranching Company.
S. C. Yeager 47 Vice President, Customer Service, April 1991; Vice
President, Retail Operations, March 1985 to April
1991.
Except as otherwise indicated, the executive officers and directors have held
the principal occupations described above for more than the past five years.
There are no family relationships among the directors and executive officers
of the Company. Directors of the Company are elected to serve three-year
terms. Executive officers of the Company serve at the pleasure of the Board
of Directors.
ITEM 11. EXECUTIVE COMPENSATION
The following Summary Compensation Table lists annual and long-term
compensation earned by Mr. D. N. Rose, the Company's President and Chief
Executive Officer, and the other four most highly compensated officers during
1992, 1993, and 1994:
Summary Compensation Table
Annual Compensation Long-Term Compensation
Name and Restricted
Principal Base Stock All Other
Position Year Salary(4) Bonus($) Awards(4)2 Options(#)3 Comp.($)4
D. N. Rose 1994 $209,500 $36,061 36,053 19,000 21,713
President 1993 200,417 38,572 38,525 19,000 18,786
Chief 1992 190,833 31,388 31,358 19,000 17,002
Executive
Officer
R. D. Cash5 1994 138,337 38,770 38,767 30,000 17,467
Chairman 1993 128,835 37,406 37,406 30,000 14,946
of the 1992 123,553 35,883 35,870 30,000 13,587
Board
M. E. 1994 139,500 15,862 15,850 9,000 9,888
Benefield 1993 134,050 17,163 17,136 9,000 8,743
VP, Gas 1992 98,153 17,415 17,412 8,500 5,187
Supply
G. H. 1994 133,083 15,114 15,084 9,000 9,118
Robinson 1993 127,533 16,223 16,223 9,000 8,107
VP and 1992 121,667 14,426 12,878 8,500 6,794
Controller
S. C. Yeager 1994 133,083 15,114 15,084 9,000 9,118
VP, Customer 1993 127,533 16,223 16,223 9,000 8,031
Service 1992 121,667 12,926 12,878 9,000 6,794
1/Amounts listed under this heading are cash payments earned under the Annual
Management Incentive Plans (AMIPs) for the Company and Questar (for Mr. Cash).
The amounts listed for Mr. Cash are the amounts allocated to Mountain Fuel.
2/Amounts under this heading include the value (as of the grant date) of any
restricted shares of Questar's common stock used in 1993, 1994 and 1995, in
lieu of cash, as partial payment of bonuses earned under the Company's Annual
Management Incentive Plans and the Company's allocated portion of the value
of restricted shares granted to Mr. Cash under Questar's AMIP. All shares of
restricted stock vest in two equal, annual installments with the first
installment occurring on the first anniversary of the grant date. Dividends
are paid on the restricted shares at the same rate dividends are paid on other
shares of Questar's common stock. As of year-end 1994, Mr. Rose had 1,766
shares of restricted stock having a market value of $48,565; Mr. Cash had
4,279 shares worth $117,673; Mr. Benefield had 845 shares worth $23,238;
Messrs. Robinson and Yeager each had 738 shares worth $20,295.
3/Mountain Fuel's executive officers are granted nonqualified stock options to
purchase shares of Questar's common stock under Questar's Long-Term Stock
Incentive Plan.
4/Amounts listed under this heading include employer matching and nonmatching
contributions, matching "contributions" to the Deferred Share Plan, and
directors' fees paid by the Company. The figures opposite Mr. Rose's name
include $8,435 in contributions to the Employee Investment Plan for 1994,
$12,228 in contributions to the Employee Stock Purchase Plan for 1993, and
$10,499 for 1992. They also include directors' fees amounting to $6,100 for
1994, $5,200 for 1993, and $5,600 for 1992, and "contributions" to the
Deferred Share Plan of $7,268 for 1994, $1,358 for 1993, and $903 for 1992.
The figures opposite Mr. Cash's name include the Company's allocated portion
of the matching and nonmatching contributions to the Employee Investment Plan
of $3,057 for 1994, $4,334 for 1993, and $3,728 for 1992. They also include
directors' fees amounting to $6,200 for 1994, $5,200 for 1993, and $5,600 for
1992, and the Company's allocated portion of "contributions" to the Deferred
Share Plan of $8,310 for 1994, $5,412 for 1993, and $4,259 for 1992. The 1994
figure listed opposite Mr. Benefield includes $8,345 in contributions to the
Employee Investment Plan and matching "contributions" of $1,543 to the
Deferred Share Plan. The 1994 figures for Messrs. Robinson and Yeager include
$8,345 in contributions to the Employee Investment Plan and $773 in "matching"
contributions to the Deferred Share Plan. The 1992 and 1993 figures opposite
the names of Messrs. Benefield, Robinson and Yeager include only the
contributions made by (or allocated to) the Company to the Employee Investment
Plan (formerly the Employee Stock Purchase Plan) for their respective
accounts.
5/Mr. Cash also serves as an executive officer of Questar and other affiliated
companies. The base salary shown for Mr. Cash is the combination of the
amount directly paid by the Company and the amount allocated to the Company.
6/Mr. Benefield did not become an executive officer of the Company until May
19, 1992. The base salary and the "other compensation" information reported
for him for 1992 include the amount that the Company paid directly and the
amount allocated to the Company when Mr. Benefield served as an officer of
Questar.
The following table lists information concerning the incentive stock options
to purchase shares of Questar's common stock that were granted to Mountain
Fuel's five highest paid officers during 1994 under Questar's Long-Term Stock
Incentive Plan. No stock appreciation rights were granted during 1994.
Option Grants in Last Fiscal Year
% of Total
Options Granted
Options to Employee Exercise Expiration
Name Granted#1 in Last Fiscal or Base Date Grant Date
Year Price($) Value ($)2
D. N. Rose 19,000 5.0 31.50 2/08/2004 128,678
R. D. Cash 30,000 8.0 31.50 2/08/2004 203,175
M. E. Benefield 9,000 2.4 31.50 2/08/2004 60,953
G. H. Robinson 9,000 2.4 31.50 2/08/2004 60,953
S. C. Yeager 9,000 2.4 31.50 2/08/2004 60,953
1/These incentive stock options vest in four annual, equal installments,
with the first installment exercisable as of August 8, 1994. Participants
can use cash or previously-owned shares as consideration for option shares.
Options expire when a participant terminates his employment, unless
termination is caused by an approved retirement, death, or disability.
Options can be exercised for three months following a participant's approved
retirement and 12 months following a participant's death or disability.
2/When calculating the present value of options granted in 1994, Questar
used the Black-Scholes option pricing model. Questar assumed a volatility of
22.27 percent, a risk free interest rate of 6.5 percent, a dividend yield of
4.4 percent and a vesting discount of 5.7 percent. The real value of the
listed options depends upon the actual performance of Questar stock. There
can be no assurance that the values shown in this table will be achieved.
The following table lists information concerning the incentive stock
options to purchase shares of Questar's common stock that were exercised by
the officers named above during 1994 and the total options and their value
held by each at year-end 1994:
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Options/SAR Values
Number of Value of Unexercised,
Options/SARS in-the-Money
Shares at Year-End Options/SARs at Year-End
Acquired Value (#)2 ($)2
or exercised Realized1
Name (#) ($) Exer. Unexer. Exer. Unexerc.
D. N. Rose 0 0 26,950 28,500 100,213 37,406
R. D. Cash 0 0 39,373 45,000 132,875 59,063
M. E. Benefield 0 0 6,625 13,375 16,734 16,734
G. H. Robinson 0 0 6,625 13,375 16,734 16,734
S. C. Yeager 0 0 9,000 13,500 17,719 17,719
1/The "value" is calculated by subtracting the fair market value of the shares
purchased on the date of exercise minus the option price. The value is equal
to the amount of ordinary income recognized by each officer. The current
value of the shares may be higher or lower than the aggregate value reported
in the table.
2/Stock appreciation rights (SARs) have not been granted since February of
1989. At year-end 1994, there were no SARs outstanding.
Retirement Plan
Company employees (including executive officers)
participate in the employee benefit plans of Questar. The Company has agreed
to pay its share of the costs associated with the plans that are described
below. Questar maintains a noncontributory Retirement Plan that is funded
actuarially and does not involve specific contributions for any one
individual. The following table lists the estimated annual benefits payable
under the Retirement Plan as of December 31, 1994, and, if necessary, the
Supplemental Executive Retirement Plan (described below). The benefits shown
are based on earnings and years of service reaching normal retirement age of
65 in 1994 and do not include Social Security benefits. Benefits under the
Retirement Plan are not reduced or offset by Social Security benefits.
PENSION PLAN TABLE
Highest Consecutive Years of Service
Three-Year Average
Annual Compensation 15 20 25 30 35
$125,000 $33,581 $44,774 $55,968 $59,093 $62,218
150,000 40,706 54,274 67,843 71,593 75,343
175,000 47,831 63,774 79,718 84,093 88,468
200,000 54,956 73,274 91,593 96,593 101,593
225,000 62,081 82,774 103,468 109,093 114,718
250,000 69,206 92,274 115,343 121,593 127,843
275,000 76,331 101,774 127,218 134,093 140,968
Questar's Retirement Plan, as of January 1, 1989, has a "step rate/excess"
benefit formula. The formula provides for a basic benefit that is calculated
by multiplying the employee's final average earnings by a specified base
benefit factor and by subsequently multiplying such sum by the employee's
years of service (up to a maximum of 25). This basic benefit is increased for
each year of service in excess of 25 and is reduced for retirement prior to
age 62. Employees also receive a supplemental benefit calculated by
multiplying the difference between the employee's final average earnings and
his "covered compensation" by a supplemental factor that varies by age. (The
term covered compensation refers to the 35-year average Social Security wage
base tied to year of an employee's birth.) Employees who retire prior to age
62 also receive a temporary supplement that is tied to years of service until
they are eligible to receive Social Security benefits.
Effective March 1, 1995, the Retirement Plan was amended to provide an
enhanced retirement benefit for Company employees who were at least 52 years
of age and had at least five years of service as of April 30, 1995. The
enhanced benefits were calculated by adding five years of service and five
years of age and increasing the basic benefit factor from 1.30 percent to 1.35
percent. Employees who elect to retire during the window period will also
receive a benefit that is not reduced from age 62 for early retirement and
have an option to receive the benefits in a lump sum. Mr. Benefield was in
the group of eligible employees, but has elected not to retire.
The "final average earnings" (average annual earnings for the last three
years) for purposes of calculating retirement benefits for the executive
officers named above in the table as of December 31, 1994, is as follows:
$265,082 for Mr. Rose; $165,910 for Mr. Benefield; $155,270 for Mr. Robinson;
and $154,770 for Mr. Yeager. (No figure is given for Mr. Cash because his
final average earnings for purposes of the Retirement Plan would include
compensation paid by the Company's affiliates.) The officer's base salary,
cash bonus payments, and value of restricted stock (paid in lieu of cash)
reported in the Summary Compensation Table would be included in the
calculation of the officer's final average earnings. The amounts reported in
the Summary Compensation Table are somewhat different than the final average
earnings because the latter figures include cash payments when made, not when
earned, and the value of restricted stock when granted, not distributed.
Dividends on the restricted shares are also included in the officer's final
average earnings, but are not reported in the table. The years of credited
service for the individuals listed in the compensation table are: 19 years
for Mr. Cash; 26 years for Mr. Rose; 17 years for Mr. Benefield; 21 years for
Mr. Robinson; and 19 years for Mr. Yeager.
The Company also participates in Questar's Executive Incentive Retirement Plan
(the EIRP). Under the terms of this nonqualified plan, a participant will
receive monthly payments upon retirement until death equal to 10 percent of
the highest average monthly compensation (excluding incentive compensation)
paid to the officer during any period of 36 consecutive months of employment.
The plan also provides for a family benefit in the event of the death of an
officer. Although not required to do so, Questar and its affiliates have
purchased life insurance on the life of each participant, with Questar named
as owner and beneficiary. The covered officers have no rights under or to
such insurance policies. All of the Company's officers listed in the
compensation table have been nominated to participate in the plan, have
satisfied the 15 years of service requirement and have a vested right to
receive benefits under the EIRP. The annual benefits payable to the named
officers under this plan as of December 31, 1994, are as follows: Mr. Rose,
$20,025; Mr. Benefield, $13,396 and Messrs. Robinson and Yeager, $12,743.
(No figure is given for Mr. Cash because his compensation for purposes of
calculating benefits under the EIRP would include compensation paid by the
Company's affiliates.)
Any benefits payable under the SERP are offset against payments for the EIRP.
Consequently, an officer would not receive any benefits for the SERP unless
his benefit under the EIRP was less than the difference between what he could
be paid under Questar's Retirement Plan at the date of retirement and what he
had earned under such plan absent federal tax limitations. Given this
relationship between the two nonqualified plans, the amounts listed in the
table above do not include benefits payable under the EIRP.
Executive Severance Compensation Plan
Questar has an Executive Severance Compensation Plan that covers the Company's
executive officers. Under this plan, participants, following a change in
control of Questar, are eligible to receive compensation equal to up to two
years' salary and miscellaneous benefits upon a voluntary or involuntary
termination of their employment, provided that they have continued working
or agree to continue working for six months following a potential change in
control of Questar. This plan was adopted in 1983 by Mountain Fuel, was
assumed by Questar as of October 2, 1984, and was amended and restated
effective January 1, 1986. The amended plan also contains a provision that
limits compensation and benefits payable under the plan to amounts that can
be deducted under Section 280G of the Internal Revenue Code of 1986.
The dollar amounts payable to the Company's executive officers
(based on current salaries paid by the Company) in the event of termination of
employment following a change in control of Questar are as follows: $480,000
to Mr. Rose; $293,000 to Mr. Benefield; and $268,000 each to Messrs. Yeager
and Robinson. (The amount payable to Mr. Cash is not given since such amount
is based on each officer's total salary.) The Company's executive officers
would also receive certain supplemental retirement benefits, welfare benefits,
and cash bonuses.
Under the plan, a change in control is defined to include any change in
control required to be reported under Item 6(e) of Schedule 14A of the
Securities Exchange Act of 1934, as amended. A change in control is also
deemed to occur once any person becomes the beneficial owner, directly or
indirectly, of securities representing 20 percent or more of Questar's
outstanding shares of common stock.
Directors' Fees
All directors receive an annual fee of $4,800 payable in 12 monthly
installments and fees of $500 for each meeting of the Board of Directors that
they attend. (The annual fee paid to directors was increased from $3,600 as
of June 1, 1994, and the meeting fee was increased from $400 per meeting as of
the same date.)
The Company has a Deferred Compensation Plan for Directors under
which directors can elect to defer all or any portion of the fees received for
service as directors until their retirement from such service and can choose
to have the deferred amounts earn interest as if invested in long-term
certificates of deposit or be accounted for with "phantom shares" of Questar's
common stock. Upon retirement, the phantom shares of stock are "converted" to
their fair market cash equivalent. During 1994, several directors of the
Company chose to defer receipt of all or a portion of the compensation earned
by them for their service. (Any shares of phantom stock credited to directors
are not included in the number of shares listed opposite their names below.)
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company is a direct, wholly owned subsidiary of Questar. The
following table sets forth information, as of December 31, 1994, with respect
to each person known or believed by Questar to be the beneficial owner of 5
percent or more of its common stock:
Shares and
Name and Nature of
Address of Beneficial Percent
Beneficial Owner Ownership of Class
First Security Bank of Utah 4,232,694 10.5
N.A., 79 South Main Street Trustee for
Salt Lake City, Utah 84111 Company Employee
Benefit Plans
and Bank/1
Delaware Management Company, Inc. 2,441,300 6.0
1818 Market Street Investment Advisor/2
Philadelphia, Pennsylvania 19103
1/Of this total, First Security beneficially owns 4,122,159 shares in its
role as trustee of employee benefit plans sponsored by Questar. Participating
employees control the voting of such shares.
2/In an initial Schedule 13G dated as of December 31, 1994, Delaware
Management Company reported sole voting power for 2,322,500 shares, shared
voting power for 30,800 shares, and sole dispositive power for 2,341,300
shares and shared dispositive power for 100,000 shares.
The following table sets forth information, as of March 1, 1995,
concerning the shares of Questar's common stock beneficially owned by each of
the Company's named executive officers and directors and by the Company's
executive officers and directors as a group:
Shares Owned Percent of
Name of Beneficial Owner Beneficially Outstanding Shares
Directors
Robert H. Bischoff 8,729 *1
R. D. Cash2,3,4,5,6 205,279 .51%
W. Whitley Hawkins7 5,120 *1
Robert E. Kadlec7,8 15,350 *1
Dixie L. Leavitt6,7 16,503 *1
Gary G. Michael7 1,400 *1
D. N. Rose2,3,4 60,865 .15%
Roy W. Simmons 14,800 *1
Nondirector Executive Officers
M. E. Benefield2,3,4 31,307 *1
G. H. Robinson2,3,4 21,331 *1
S. C. Yeager2,3,4 23,965 *1
All directors and executive 487,904 1.2%1
officers (13 individuals)/9
1/Unless otherwise listed, the percentage of shares owned is less than
.1 percent. The percentages of beneficial ownership have been calculated in
accordance with Rule 13d-3(d)(1) under the Securities Exchange Act of 1934,
as amended.
2/The Company's executive officers own shares through their
participation in Questar's Employee Investment Plan. The number of shares
owned through this plan as of December 31, 1994, is as follows for the named
officers: Mr. Benefield, 3,916 shares; Mr. Cash, 27,855 shares; Mr. Robinson,
6,887 shares; Mr. Rose, 14,850 shares; and Mr. Yeager, 7,649 shares.
3/The Company's executive officers have been granted nonqualified stock
options under Questar's Stock Option Plan and Long-Term Stock Incentive Plan.
The number of shares listed opposite the named officers attributable to vested
options as of March 1, 1995, is as follows: Mr. Benefield, 6,625; Mr. Cash,
39,373 shares; Mr. Robinson, 6,625; Mr. Rose, 26,950 shares; and Mr. Yeager,
9,000 shares.
4/The Company's executive officers acquired restricted shares of
Questar's common stock in partial payment of bonuses earned in the 1993 and
1994 bonus plans. The number of restricted shares beneficially owned by each
of the named officers as of March 1, 1995, is as follows: Mr. Benefield, 851
shares; Mr. Cash, 4,683 shares; Mr. Robinson, 808 shares; Mr. Rose, 1,928
shares; and Mr. Yeager, 808 shares.
5/Mr. Cash is the Chairman of the Board of Trustees of the Questar
Corporation Educational Foundation and the Questar Corporation Arts
Foundation, two nonprofit corporations that own an aggregate of 55,776 shares
of Questar's common stock. As the Chairman, Mr. Cash has voting control for
such shares, but disclaims any beneficial ownership of them.
6/Of the total shares reported for Mr. Cash, 3,270 shares are owned
jointly with his wife and 4,720 are controlled by him as custodian for his
son. Messrs. Leavitt and Yeager own their shares of record with their
respective wives.
7/Messrs. Hawkins, Kadlec, Leavitt, and Michael, as nonemployee voting
directors of Questar, have been granted nonqualified stock options to purchase
shares of Questar's common stock as follows: Mr. Hawkins, 4,900 shares; Mr.
Kadlec, 11,550 shares; Mr. Leavitt, 10,500 shares, and Mr. Michael, 700
shares. These shares are included in the numbers listed opposite their
respective names.
8/Mr. Kadlec's wife owns 200 shares of common stock. Mr. Kadlec has
voting control and investment control over such shares. Such shares are
included in the shares listed opposite his name.
9/The total number of shares reported for this group includes vested
options to purchase 171,473 shares of Questar's common stock.
Committee Interlocks and Insider Participation
The Company itself has no formal "Compensation Committee." Questar's
Board of Directors has a Management Performance Committee that makes
recommendations to the Company's Board of Directors concerning base salary and
bonus payments. (Questar's Board approves all stock options.) Messrs. Cash
and Rose, as directors and officers of the Company, are formally excused from
all discussions by the Company's Board involving their compensation.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There are no relationships or transactions involving the Company's
directors and executive officers.
As described above, there are significant business relationships between
the Company and its affiliates, particularly Wexpro and Questar Pipeline.
Questar, the Company's parent, also provides certain administrative services,
e.g., personnel, legal, public relations, financial, tax, and audit to the
Company and other members of the consolidated group. The costs of performing
such services are allocated to the Company. Questar InfoComm, another
affiliate, provides data processing and communication services for the
Company; the charges for such services are based on cost of service plus a
specified return on assets.
See Note I to the financial statements for additional information
concerning transactions between the Company and its affiliates.
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. Exhibit
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.* Bylaws (as amended effective August 11, 1992). (Exhibit No. 3.8.
to Form 10-K Annual Report for 1992.)
4.* 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.* 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.)
10.7.* Data Processing Services Agreement effective July 1, 1985, between
Questar Service Corporation and Mountain Fuel Supply Company.
(Exhibit 10.7. to Form 10-K Annual Report for 1988.)
10.8. 1 Mountain Fuel Supply Company Annual Management Incentive Plan as
amended and restated effective February 14, 1995.
10.9.*1 Mountain Fuel Supply Company Window Period Supplemental Executive
Retirement Plan effective January 24, 1991. (Exhibit No. 10.9. to
Form 10-K Annual Report for 1990.)
10.10.1 Mountain Fuel Supply Company Deferred Compensation Plan for
Directors as amended and restated effective April 30, 1991.
10.11. Gas Gathering Agreement between Mountain Fuel Supply Company and
Questar Pipeline Company effective September 1, 1993.
25. Power of Attorney.
27. Financial Data Schedule.
*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 Exhibits so marked are management contracts or compensation plans or
arrangements.
(b) Mountain Fuel did not file any Current Reports on Form 8-K during the
last quarter of 1994.
ANNUAL REPORT ON FORM 10-K
ITEM 8. ITEM 14 (a) (1) and (2), (c) and (d)
LIST OF FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
YEAR ENDED DECEMBER 31, 1994
MOUNTAIN FUEL SUPPLY COMPANY
SALT LAKE CITY, UTAH
FORM 10-K--ITEM 14 (a) (1) and (2)
MOUNTAIN FUEL SUPPLY COMPANY
LIST OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
The following financial statements of Mountain Fuel Supply Company
are included in Item 8:
Statements of income -- Years ended December 31, 1994, 1993 and
1992
Balance sheets -- December 31, 1994 and 1993
Statements of common shareholder's equity -- Years ended December
31, 1994, 1993 and 1992
Statements of cash flows -- Years ended December 31, 1994, 1993 and
1992
Notes to financial statements
Financial 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
Mountain Fuel Supply Company
We have audited the accompanying balance sheets of Mountain Fuel
Supply Company as of December 31, 1994 and 1993, and the related
statements of income, common shareholder's equity, and cash flows
for each of the three years in the period ended December 31, 1994.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of
Mountain Fuel Supply Company at December 31, 1994 and 1993, and the
results of its operations and its cash flows for each of the three
years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles.
As discussed in Note H to the financial statements, Mountain Fuel
Supply Company changed its method of accounting for postemployment
benefits.
ERNST & YOUNG LLP
Salt Lake City, Utah
February 10, 1995, except for Note G
as to which the date is March 5, 1995
MOUNTAIN FUEL SUPPLY COMPANY
STATEMENTS OF INCOME
Year Ended December 31,
1994 1993 1992
(In Thousands)
REVENUES - Note I $378,260 $402,391 $373,047
OPERATING EXPENSES
Natural gas purchases
From affiliates - Note I 132,889 174,401 210,911
From unaffiliated parties 77,618 55,738 7,212
Total natural gas purchases 210,507 230,139 218,123
Operating and maintenance - Note I 94,094 92,486 79,975
Depreciation and amortization 24,749 23,244 20,713
Other taxes 9,589 10,013 9,839
TOTAL OPERATING EXPENSES 338,939 355,882 328,650
OPERATING INCOME 39,321 46,509 44,397
INTEREST AND OTHER INCOME 7,820 1,692 1,703
DEBT EXPENSE (15,886) (15,423) (15,254)
INCOME BEFORE INCOME TAXES 31,255 32,778 30,846
INCOME TAXES - Note E 7,903 7,709 7,451
NET INCOME $23,352 $25,069 $23,395
See notes to financial statements.
MOUNTAIN FUEL SUPPLY COMPANY
BALANCE SHEETS
ASSETS
[CAPTION]
December 31,
1994 1993
(In Thousands)
[S] [C] [C]
CURRENT ASSETS
Cash and short-term investments - Note D $2,529 $2,312
Accounts receivable 47,146 52,540
Unbilled gas accounts receivable - Note F 26,456 27,313
Accounts receivable from affiliates 618 1,815
Inventories, at lower of average cost or market
Gas stored underground 21,439 20,239
Materials and supplies 3,502 3,733
Total inventories 24,941 23,972
Prepaid expenses and deposits 4,279 4,739
TOTAL CURRENT ASSETS 105,969 112,691
PROPERTY, PLANT AND EQUIPMENT
Production - Note I 97,380 98,076
Distribution 551,461 511,105
General 75,153 83,995
Construction in progress 15,951 16,924
739,945 710,100
Less allowances for depreciation and amortization 280,162 267,314
NET PROPERTY, PLANT AND EQUIPMENT 459,783 442,786
OTHER ASSETS
Income taxes recoverable from customers - Note E 10,578 11,576
Unamortized costs of reacquired debt 10,584 11,077
Other 3,361 2,897
TOTAL OTHER ASSETS 24,523 25,550
$590,275 $581,027
LIABILITIES AND SHAREHOLDER'S EQUITY
December 31,
1994 1993
(In Thousands)
CURRENT LIABILITIES
Notes payable to Questar - Notes B and D $53,500 $57,800
Accounts payable and accrued expenses
Accounts payable 22,566 27,207
Accounts payable to affiliates 11,677 19,010
Federal income taxes payable 1,649 1,186
Other taxes 36 5,684
Accrued interest 3,730 3,377
Other 9,412 8,284
Total accounts payable and accrued expenses 49,070 64,748
Purchased-gas adjustments 17,071 25,727
TOTAL CURRENT LIABILITIES 119,641 148,275
LONG-TERM DEBT - Notes B and D 175,000 158,000
OTHER LIABILITIES
Unbilled gas revenues - Note F 20,721 26,489
Other 562 674
TOTAL OTHER LIABILITIES 21,283 27,163
DEFERRED INVESTMENT TAX CREDITS 7,541 7,941
DEFERRED INCOME TAXES - Note E 55,025 49,923
COMMITMENTS AND CONTINGENCIES - Note F
REDEEMABLE CUMULATIVE PREFERRED STOCK
- Notes C and D 6,324 7,525
COMMON SHAREHOLDER'S EQUITY
Common stock - par value $2.50 per share;
authorized 50,000,000 shares; issued and
outstanding 9,189,626 shares 22,974 22,974
Additional paid-in capital 41,875 21,875
Retained earnings 140,612 137,351
TOTAL COMMON SHAREHOLDER'S EQUITY 205,461 182,200
$590,275 $581,027
See notes to financial statements.
MOUNTAIN FUEL SUPPLY COMPANY
STATEMENTS OF COMMON SHAREHOLDER'S EQUITY
Additional
Common Paid-in Retained
Stock Capital Earnings
(In Thousands)
Balances at January 1, 1992 $22,974 $21,875 $126,382
1992 net income 23,395
Payment of dividends
Preferred stock (800)
Common stock (18,000)
Balances at December 31, 1992 22,974 21,875 130,977
1993 net income 25,069
Payment of dividends
Preferred stock (695)
Common stock (18,000)
Balances at December 31, 1993 22,974 21,875 137,351
Capital contribution 20,000
1994 net income 23,352
Payment of dividends
Preferred stock (591)
Common stock (19,500)
Balances at December 31, 1994 $22,974 $41,875 $140,612
See notes to financial statements.
MOUNTAIN FUEL SUPPLY COMPANY
STATEMENTS OF CASH FLOWS
Year Ended December 31,
1994 1993 1992
(In Thousand)
OPERATING ACTIVITIES
Net income $23,352 $25,069 $23,395
Depreciation and amortization 27,337 25,492 22,922
Deferred income taxes 5,102 (1,906) 2,973
Deferred investment tax credits (400) (412) (453)
55,391 48,243 48,837
Changes in operating assets
and liabilities
Accounts receivable 7,448 38 5,045
Inventories (969) (20,869) 903
Prepaid expenses and deposits 460 336 (888)
Accounts payable and accrued expenses (16,141) 10,668 (5,581)
Federal income taxes 463 1,706 525
Purchased-gas adjustments (8,656) 4,686 4,586
Other (4,853) (7,669) (2,827)
Net cash provided from
operating activities 33,143 37,139 50,600
INVESTING ACTIVITIES
Capital expenditures (53,816) (50,658) (55,721)
Proceeds from disposition and transfer
of property, plant and equipment 9,482 991 915
Cash used in investing activities (44,334) (49,667) (54,806)
FINANCING ACTIVITIES
Capital contribution 20,000
Redemption of preferred stock (1,201) (1,201) (1,229)
Issuance of long-term debt 17,000 91,000 67,000
Redemption of long-term debt (99,126) (49,827)
Change in notes payable to Questar (4,300) 38,900 5,900
Payment of dividends (20,091) (18,695) (18,800)
Cash provided from financing
activities 11,408 10,878 3,044
Change in cash and short-term
investments 217 (1,650) (1,162)
Beginning cash and short-term investments 2,312 3,962 5,124
Ending cash and short-term investments $2,529 $2,312 $3,962
NONCASH TRANSACTION
Recording of unbilled revenues $27,313
See notes to financial statements.
MOUNTAIN FUEL SUPPLY COMPANY
NOTES TO FINANCIAL STATEMENTS
Note A - Summary of Accounting Policies
Mountain Fuel Supply Company (the Company or Mountain Fuel) is a
wholly-owned subsidiary of Questar Corporation (Questar).
Business and Regulation: The Company's business consists of
natural gas distribution operations for industrial, residential and
commercial customers. Mountain Fuel is regulated by the Public
Service Commission of Utah (PSCU) and the Public Service Commission
of Wyoming (PSCW). These regulatory agencies establish rates for
the sale and transportation of natural gas. The regulatory
agencies also regulate, among other things, the extension and
enlargement or abandonment of jurisdictional natural gas
facilities. Regulation is intended to permit the recovery, through
rates, of the cost of service including, a rate of return on
investment.
The financial statements are presented in accordance with
regulatory requirements. Methods of allocating costs to time
periods, in order to match revenues and expenses, may differ from
those of nonregulated businesses because of cost allocation methods
used in establishing rates.
Revenue Recognition: Revenues are recognized in the period that
services are provided or products are delivered. In 1993,
Mountain Fuel began accruing gas distribution revenues for gas
delivered to residential and commercial customers but not billed at
the end of the accounting period. Mountain Fuel periodically
collect revenues subject to possible refunds pending final orders
from regulatory agencies. In these situations the Company
establishes reserves for revenues collected subject to refund.
Purchased-Gas Adjustments: Mountain Fuel accounts for
purchased-gas costs in accordance with procedures authorized by the
PSCU and PSCW whereby purchased-gas costs that are different from
those provided for in the present rates are accumulated and
recovered or credited through future rate changes.
Credit Risk: The Company's primary market area is the Rocky
Mountain region of the United States. The Company's exposure to
credit risk may be impacted by the concentration of customers in
this region due to changes in economic or other conditions. The
Company's customers include individuals and numerous industries
that may be affected differently by changing conditions. The
Company believes that it has adequately reserved for expected
credit-related losses and that the carrying amount of trade
receivables approximates fair value.
Property, Plant and Equipment: Property, plant and equipment are
stated at cost. The provision for depreciation and amortization is
based upon rates which will amortize 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. The costs of gas wells were
amortized using the unit-of-production method at $.17 per Mcf of
natural gas production during 1994.
Income Taxes: On January 1, 1992, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 109. The deferred tax
balances represent the temporary differences between book and
taxable income multiplied by the effective income tax rates. These
temporary differences relate primarily to depreciation, unbilled
revenues and purchased-gas adjustments. The Company uses the
deferral method to account for investment tax credits as required
by regulatory commissions.
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.
Allowance for Funds Used During Construction: The Company
capitalizes the cost of capital during the construction period of
plant and equipment using a method required by regulatory
authorities. This amounted to $397,000 in 1994, $528,000 in 1993
and $588,000 in 1992.
Cash and Short-Term Investments: Short-term investments consist
principally of Euro-time deposits and repurchase agreements with
maturities of three months or less.
Note B - Debt
The Company has a short-term line-of-credit arrangement with a bank
under which it may borrow up to $500,000, below the prime interest
rate. The arrangements are renewable on an annual basis. At
December 31, 1994, no amounts were borrowed under this arrangement.
Questar loans funds to the Company under a short-term borrowing
arrangement. Outstanding short-term notes payable to Questar
totaled $53,500,000 with an interest rate of 6.11% at December 31,
1994. Outstanding short-term notes payable to Questar totaled
$57,800,000 with an interest rate of 3.59% at December 31, 1993.
Mountain Fuel's long-term debt consists of medium-term notes with
interest rates ranging from 7.19% to 8.43%, due 2007 to 2024. The
balances at December 31 were $175 million in 1994 and $158 million
in 1993. During the second quarter of 1994 Mountain Fuel issued $17
million of 30-year notes at an 8.12% interest rate. Mountain Fuel
used proceeds from these notes for capital expenditures and
operations.
There are no maturities of long-term debt for the five years
following December 31, 1994 nor long-term debt provisions
restricting the payment of dividends. Cash paid for interest was
$15,290,000 in 1994, $14,698,000 in 1993 and $15,970,000 in 1992.
Note C - Redeemable Cumulative Preferred Stock
Mountain Fuel has authorized 4,000,000 shares of nonvoting
redeemable cumulative preferred stock with no par value. The two
current outstanding issues of stock have a stated and redemption
value of $100 per share.
8% Series $8.625 Series
(In Thousands)
Balance at January 1, 1992 $5,155 $4,800
1992 redemption of stock (29) (1,200)
1993 redemption of stock (1) (1,200)
1994 redemption of stock (1) (1,200)
Balance at December 31, 1994 $5,124 $1,200
Redemption requirements for the five years following December 31,
1994, are as follows:
(In Thousands)
1995 $685
1996 780
1997 180
1998 180
1999 180
Note D - Financial Instruments
The carrying amounts and estimated fair values of the Company's
financial instruments were as follows:
December 31, 1994 December 31, 1993
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
(In Thousands)
Financial assets
Cash and short-term investments $2,529 $2,529 $2,312 $2,312
Financial liabilities
Short-term loans 53,500 53,500 57,800 57,800
Long-term-debt 175,000 163,952 158,000 175,825
Redeemable cumulative preferred stock 6,324 6,377 7,525 7,654
The Company used the following methods and assumptions in
estimating fair values: (1) Cash and short-term investments - the
carrying amount approximates fair value; (2) Short-term loans - the
carrying amount approximates fair value; (3) Long-term debt - the
fair value of the medium-term notes is based on the discounted
present value of cash flows using the Company's current borrowing
rates; (4) Redeemable cumulative preferred stock - the fair value
is based on the discounted present value of cash flows using
current preferred stock rates. Fair value is calculated at a point
in time and does not represent what the Company would pay to retire
the debt securities.
Note E - Income Taxes
The Company's operations are consolidated with those of Questar and
its subsidiaries for income tax purposes. The income tax
arrangement between Mountain Fuel and Questar provides that amounts
paid to or received from Questar are substantially the same as
would be paid or received by the Company if it filed a separate
return. Mountain Fuel also receives payment for tax benefits used
in the consolidated tax return even if such benefits would not have
been usable had the Company filed a separate return.
Mountain Fuel records cumulative increases in deferred taxes as
income taxes recoverable from customers. The Company has adopted
procedures with its regulatory commissions to include
under-provided deferred taxes in customer rates on a systematic
basis.
The components of income taxes were as follows:
Year Ended December 31,
1994 1993 1992
(In Thousands)
Federal
Current $2,717 $9,301 $4,037
Deferred 4,527 (2,739) 2,581
State
Current 484 1,428 894
Deferred 575 131 392
Deferred investment tax credits (400) (412) (453)
$7,903 $7,709 $7,451
The difference between income tax expense and the tax computed by
applying the statutory federal income tax rate to income before
income taxes is explained as follows:
Year Ended December 31,
1994 1993 1992
(In Thousands)
Income before income taxes $31,255 $32,778 $30,846
Federal income taxes at statutory rate $10,939 $11,472 $10,488
State income taxes, net of federal income
tax benefit 890 1,059 849
Tight-sands gas production credits (4,670) (5,463) (4,281)
Investment tax credits (400) (412) (453)
Deferred taxes related to regulated assets
for which deferred taxes were not
provided in prior years 921 921 921
Other 223 132 (73)
Income tax expense $7,903 $7,709 $7,451
Effective income tax rate 25.3% 23.5% 24.2%
Significant components of the Company's deferred tax liabilities
and assets were as follows:
December 31,
1994 1993
(In Thousands)
Deferred tax liabilities
Property, plant and equipment $70,496 $67,530
Unamortized debt reacquisition costs 4,022 4,211
Pension costs 360 1,242
Income taxes recoverable from customers 3,430 4,428
Other 3,023 3,347
Total deferred tax liabilities 81,331 80,758
Deferred tax assets
Purchased-gas adjustments 8,486 11,477
Unbilled revenues 7,574 9,780
Deferred investment tax credits 2,874 3,274
Alternative minimum tax and production
credit carryovers 5,701 4,035
Other 1,671 2,269
Total deferred tax assets 26,306 30,835
Net deferred tax liabilities $55,025 $49,923
Cash paid for income taxes was $6,404,000 in 1994, $8,631,000 in
1993 and $6,805,000 in 1992.
Note F - Rate Matters, Litigation and Commitments
The PSCU issued a rate order in January 1994 granting Mountain Fuel
a $1.6 million decrease in general rates and a $2.1 million
increase in costs allowed through the purchase-gas adjustment
account for a net increase in rates of $500,000. The PSCU allowed
a return on equity of 11%, required Mountain Fuel to reduce rates
over a five-year period for unbilled revenues, and disallowed rate
coverage for certain incentive compensation and advertising costs.
Mountain Fuel requested rehearing of the PSCU's decision regarding
return on equity and unbilled revenues. In a ruling issued December
1, 1994, the PSCU reaffirmed its position on the allowed return on
equity and the treatment of unbilled revenues.
In 1993 Mountain Fuel began accruing revenues for gas delivered to
residential and commercial customers but not billed at the end of
the year. The impact of these accruals on the income statement has
been deferred and is being recognized at the rate of $2,011,000 per
year over a five-year period beginning in 1994 in accordance with a
rate order received from the PSCU. This rate order also reduces
customer rates by $2,011,000 per year over the same five-year
period. In addition, Mountain Fuel recorded other income of
$5,589,000 for a one-time reduction of gas costs associated with
these unbilled revenues. This transaction added about $3.5 million
to net income in 1994.
Each year Mountain Fuel purchases significant quantities of natural
gas under numerous gas- purchase contracts with varying terms and
conditions. Purchases under these agreements totalled $73,682,000
in 1994, $85,909,000 in 1993 and $104,032,000 in 1992. Some of the
agreements have terms that obligate Mountain Fuel to purchase
specific quantities on a periodic basis into the future, while a
few contracts have take-or-pay provisions that obligate Mountain
Fuel to take delivery of a minimum amount of gas on an annual
basis.
Projected natural gas purchase commitments for the next five years
are reported in the table below. These commitments are based upon
current market conditions. Future changes will occur as a result
of negotiations with suppliers and changes in market conditions.
(In Millions)
1995 $24.4
1996 9.6
1997 5.4
1998 3.3
1999 3.1
The Company has received notice that it may be partially liable in
several environmental clean-up actions on sites that involve
numerous other parties. Management believes that the Company's
responsibility for remediation will be minor and that any potential
liability will not be significant to the results of operations or
its financial position.
Mountain Fuel is responsible for a judgment in a lawsuit involving
the Company, Questar Pipeline and a gas producer. In March 1994, a
jury awarded the gas producer damages of approximately $6.3 million
on claims involving take-or-pay, tax reimbursement and breach of
contract. Mountain Fuel expects that the judgment will be included
in its gas balancing account and recovered through customer rates.
The judgment is not expected to have a significant impact on the
Company's results of operations, financial position or liquidity.
There are various legal proceedings against the Company. While it
is not currently possible to predict or determine the outcome of
these proceedings, it is the opinion of management that the outcome
will not have a material adverse effect on the Company's results of
operations, financial position or liquidity.
Note G - Subsequent Event
Mountain Fuel filed a general rate case in the State of Utah on
March 3, 1995 requesting a $9.6 million increase in revenues, a
12.5% return on equity and a weather normalization adjustment
mechanism. Management believes the rate increase is necessary to
secure an appropriate allowed rate of return and to recover the
costs of record customer growth. Mountain Fuel believes the
proposed weather adjustment mechanism would benefit customers,
whose bills would be less variable, and the Company, which would
have more stability in its revenues.
Note H - Employee Benefits
Substantially all Company employees are covered by Questar's
defined benefit pension plan. Benefits are generally based on years
of service and the employee's 36-month period of highest earnings
during the ten years preceding retirement. It is Questar's policy
to make contributions to the plan at least sufficient to meet the
minimum funding requirements of applicable laws and regulations.
Plan assets consist principally of equity securities and corporate
and U.S. government debt obligations. Pension cost was $2,962,000
in 1994, $3,251,000 in 1993 and $2,991,000 in 1992.
Mountain Fuel's portion of plan assets and benefit obligations is
not determinable because the plan assets are not segregated or
restricted to meet the Company's pension obligations. If the
Company were to withdraw from the pension plan, the pension
obligation for the Company's employees would be retained by the
pension plan. At December 31, 1994, Questar's fair value of plan
assets exceeded the accumulated benefit obligation.
The Company participates in Questar's Employee Investment Plan,
which allows the majority of employees to purchase Questar stock or
other investments with payroll deductions. The Company makes
contributions to the plan of approximately 75% of the employee's
purchases. The Company's expense and contribution to the plan was
$1,274,000 in 1994, $1,167,000 in 1993 and $1,194,000 in 1992.
The Company participates in a Questar program that pays a portion
of the health-care costs and all the life insurance costs for
retired employees. Questar's policy is to fund amounts allowable
for tax deduction under the Internal Revenue Code. Plan assets
consist of equity securities, corporate and U.S. government debt
obligations, and insurance company general accounts.
The Company adopted the provisions of SFAS No. 106 on Employer's
Accounting for Postretirement Benefits Other than Pensions
effective January 1, 1993. This statement requires the Company to
expense the costs of postretirement benefits, principally
health-care benefits, over the service life of employees using an
accrual method. Questar is amortizing the transition obligation
over a 20-year period. Total costs of postretirement benefits
other than pensions under SFAS No. 106 was $3,584,000 in 1994 and
$3,350,000 in 1993 compared with the cost based on cash payments to
retirees totaling $876,000 in 1992.
The impact of SFAS No. 106 on the Company's future net income will
be mitigated by recovery of these costs from customers. Both the
PSCU and the PSCW allowed Mountain Fuel to recover future SFAS No.
106 costs in the 1993 rate cases if the amounts are funded in an
external trust.
The Company's portion of plan assets and benefit obligations
related to postretirement medical and life insurance benefits is
not determinable because the plan assets are not segregated or
restricted to meet the Company's obligations.
The Company adopted SFAS No.112, Accounting for Postemployment
Benefits, on January 1, 1994, by establishing a liability of
$1,538,000 offset by a regulatory asset. This statement requires
the Company to recognize the net present value of the liability for
postemployment benefits, such as long-term disability benefits and
health care and life insurance costs, when employees become
eligible for such benefits. Postemployment benefits are paid to
former employees after employment has been terminated but before
retirement benefits are paid. SFAS No.112 requires the Company to
accrue both current and future costs which formerly had been
recorded when cash was paid. By December 1994 the total liability
had dropped from $1,538,000 to $1,039,000 as a result of
designating Medicare as the primary health care provider and
increasing the discount rate from 7% to 8.5%. At year-end 1994,
Mountain Fuel expensed SFAS No. 112 costs previously recorded as a
regulatory asset.
Note I - Related Party Transactions
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,
was $3,391,000 in 1994, $1,028,000 in 1993 and $3,389,000 in 1992.
The Company paid Wexpro for the operation of Company-owned gas
properties. These costs are included in natural gas purchases and
amounted to $57,870,000 in 1994, $49,595,000 in 1993 and
$43,324,000 in 1992.
Mountain Fuel purchased gas from Questar Pipeline amounting to
$81,813,000 in 1993 and $135,779,000 in 1992. The Company did not
purchase gas from Questar Pipeline subsequent to September 1, 1993
when Questar Pipeline began operating in accordance with FERC Order
No. 636. Also included in natural gas purchases are amounts paid
to Questar Pipeline for the transportation, storage and gathering
of Company-owned gas and purchased gas. These costs were
$70,945,000 in 1994, $38,862,000 in 1993 and $31,808,000 in 1992.
Mountain Fuel began paying for storage as a separate service
subsequent to the implementation of FERC Order No. 636.
Mountain Fuel has reserved transportation capacity on Questar
Pipeline's system of approximately 800,000 decatherms per day and
pays an annual demand charge of approximately $46.3 million for
this reservation. Mountain Fuel 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 InfoComm Inc. is an affiliated company that provides data
processing and communication services to Mountain Fuel. The
Company paid Questar InfoComm $15,996,000 in 1994, $14,847,000 in
1993 and $12,437,000 in 1992.
Questar charges Mountain Fuel for certain administrative functions
amounting to $5,814,000 in 1994, $5,609,000 in 1993 and $5,517,000
in 1992. These costs are included in operating and maintenance
expenses and are allocated based on each affiliated company's
proportional share of revenues less gas costs; property, plant and
equipment; and labor costs. Management believes that the allocation
method is reasonable.
The Company received interest income from affiliated companies of
$225,000 in 1994, $327,000 in 1993, and $740,000 in 1992. The
Company had debt expense to affiliated companies of $134,000 in
1994, $21,000 in 1993, and $39,000 in 1992.
Note J - Oil and Gas Producing Activities (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. Mountain Fuel has not incurred any costs for
oil and gas producing activities for the three years ended December
31, 1993. Wexpro develops and produces gas reserves owned by the
Company. See Note I for the amounts paid by Mountain Fuel 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. Mountain Fuel 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, 1992 379,771 814
Revisions of estimates 5,891 68
Extensions and discoveries 43,682 5
Sale of reserves in place (34)
Production (29,699) (100)
Balance at December 31, 1992 399,611 787
Revisions of estimates (1,158) 57
Extensions and discoveries 65,293 9
Production (35,508) (81)
Balance at December 31, 1993 428,238 772
Revisions of estimates (576) (13)
Extensions and discoveries 26,085 13
Production (37,435) (65)
Balance at December 31, 1994 416,312 707
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 28th day
of March, 1995.
MOUNTAIN FUEL SUPPLY 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/ W. F. Edwards Vice President and Chief
W. F. Edwards Financial Officer (Principal
Financial Officer)
/s/ G. H. Robinson Vice President and Controller
G. H. Robinson (Principal Accounting Officer)
*Robert H. Bischoff Director
*R. D. Cash Chairman of the Board
*W. Whitley Hawkins Director
*Robert E. Kadlec Director
*Dixie L. Leavitt Director
*Gary G. Michael Director
*D. N. Rose Director
March 28, 1995 *By /s/ D. N. Rose
Date D. N. Rose, Attorney in
Fact
EXHIBIT INDEX
Exhibit
Number Exhibit
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.* Bylaws (as amended effective August 11, 1992).
(Exhibit No. 3.8. to Form 10-K Annual Report for
1992.)
4.* 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.* 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.)
10.7.* Data Processing Services Agreement effective July 1,
1985, between Questar Service Corporation and
Mountain Fuel Supply Company. (Exhibit 10.7. to Form
10-K Annual Report for 1988.)
10.8. 1 Mountain Fuel Supply Company Annual Management
Incentive Plan as amended and restated effective
February 14, 1995.
10.9.* 1 Mountain Fuel Supply Company Window Period
Supplemental Executive Retirement Plan effective
January 24, 1991. (Exhibit No. 10.9. to Form 10-K
Annual Report for 1990.)
10.10. 1 Mountain Fuel Supply Company Deferred Compensation
Plan for Directors as amended and restated effective
April 30, 1991.
10.11. Gas Gathering Agreement between Mountain Fuel Supply
Company and Questar Pipeline Company effective
September 1, 1993.
25. Power of Attorney.
27. Financial Data Schedule.
*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 Exhibits so marked are management contracts or compensation
plans or arrangements.