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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, 1998 OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
_____ TO _____
Commission File No. 0-14147
QUESTAR PIPELINE COMPANY
(Exact name of registrant as specified in its charter)
State of Utah 87-0307414
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
180 East 100 South, P.O. Box 45360, Salt Lake City, Utah84145-0360
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code:(801) 324-5555
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933:
9 7/8% Debentures due 2020
9 3/8% Debentures due 2021
Medium Term Notes, Series A, 5.85% to 6.48% due 2008 to 2018
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 29, 1999. $0.
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of March 29, 1999. 6,550,843
shares of Common Stock, $1.00 par value. (All shares are owned by
Questar Regulated Services Company.)
Registrant meets the conditions set forth in General Instruction
(I)(1)(a) and (b) of Form 10-K and is therefore filing this Form 10-K
Report with the reduced disclosure format.
TABLE OF CONTENTS
Heading Page
PART I
Items 1.
and 2. BUSINESS AND PROPERTIES
General
Transmission System
Transportation Service
Storage
Regulatory Environment
Competition
Employees
Relationships with Affiliates
Item 3. LEGAL PROCEEDINGS
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Item 6. (Omitted)
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
Item 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
PART III
Items
10-13. (Omitted)
PART IV
Item 14.EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
SIGNATURES
FORM 10-K
ANNUAL REPORT, 1998
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
General
Questar Pipeline Company ("Questar Pipeline" or the "Company") is
an interstate pipeline company that transports and stores natural gas
in the Rocky Mountain states of Utah, Wyoming, and Colorado. The
Company is an affiliate of Questar Corporation ("Questar"), an
integrated energy services holding company. As a "natural gas
company," the Company is subject to regulation by the Federal Energy
Regulatory Commission (the "FERC") pursuant to the Natural Gas Act of
1938, as amended.
Questar Pipeline, as an open-access pipeline, transports gas for
affiliated and unaffiliated customers. It also owns and operates the
Clay Basin storage facility, which is a large underground storage
project in northeastern Utah, and other underground storage operations
in Utah and Wyoming. The Company is involved in two partnerships,
Overthrust Pipeline Company ("Overthrust"), and TransColorado Gas
Transmission Company ("TransColorado").
During 1998, the Company significantly expanded its potential
transportation capacity. As TransColorado partners, wholly-owned
subsidiaries of Questar Pipeline and KN Energy built the TransColorado
pipeline project, which is a 292-mile pipeline that runs from western
Colorado to northwestern New Mexico. The Company also acquired a
700-mile crude oil pipeline that extends from northern New Mexico to
southern California, renamed the line "Southern Trails," and commenced
the necessary regulatory and environmental proceedings to convert the
line to transport natural gas.
Questar Pipeline is a wholly-owned subsidiary of Questar
Regulated Services Company ("Regulated Services"), which is a
subholding company of Questar. Other entities within the Regulated
Services group include Questar Gas Company ("Questar Gas"), a local
distribution company, and, as of January 1, 1999, Questar Energy
Services, Inc., an entity created to market additional services to
utility customers. All Regulated Services companies are managed by a
common group of officers, which increases administrative efficiency.
The Company has significant business relationships with its
affiliates, particularly Questar Gas. To serve the needs of its
663,400 customers in Utah, southwestern Wyoming, and southeastern
Idaho, Questar Gas has reserved approximately 800,000 decatherms
("Dth") per day of firm transportation capacity on Questar Pipeline's
transmission system. (A Dth is the amount of heat energy equal to 10
therms or one million British thermal units ("Btu")). Questar Gas has
also contracted for 24 percent of the firm storage capacity available
at Clay Basin and has storage contracts at the smaller storage
reservoirs operated by Questar Pipeline.
Questar Pipeline transports natural gas owned by Questar Gas and
produced from properties operated by Wexpro Company ("Wexpro"),
another affiliate, as well as some natural gas volumes purchased
directly by Questar Gas from field producers and other suppliers. The
Company also transports volumes that are marketed by Questar Energy
Trading Company ("Questar Energy Trading"), another affiliated entity.
The following diagram sets forth the corporate structure of the
Company and certain affiliates:
Questar Corporation
Questar Market Resources, Inc.
Wexpro Company
Questar Exploration and Production Company
Celsius Energy Company
Questar Energy Trading Company
Questar Gas Management Company
Questar Regulated Services Company
Questar Pipeline
Questar Line 90 Company
Questar Transportation Services Company
Questar Southern Trails Pipeline Company
Questar TransColorado, Inc.
Questar Gas Company
Questar Energy Services, Inc.
Questar InfoComm,Inc.
The major activities of Questar Pipeline are described in more
detail below:
Transmission System
The Company's core transmission system is strategically located
in the Rocky Mountains near large reserves of natural gas. It is
referred to as a "hub and spoke" system, rather than a "long-line"
pipeline, because of its physical configuration, multiple
interconnections to other interstate pipeline systems, and access to
major producing areas. Questar Pipeline's transmission system has
connections with the pipeline systems of Colorado Interstate Gas
Company ("CIG"); the middle segment of the Trailblazer Pipeline System
("Trailblazer") owned by Wyoming Interstate Company, Ltd. ("WIC"); The
Williams Companies Inc. ("Williams"), including Kern River Gas
Transmission Company ("Kern River"); and TransColorado. These
connections have opened markets outside Questar Gas's service area and
allow the Company to transport gas for others.
The Company's transmission system includes 1,726 miles of
transmission lines that interconnect with other pipelines and that
link various producers of natural gas with Questar Gas's distribution
facilities in Utah and Wyoming. (This total transmission mileage
includes pipelines associated with the Company's storage fields and
tap lines used to serve Questar Gas.) The system includes two major
segments, often referred to as the northern and southern systems,
which are linked together. The northern segment extends from
northwestern Colorado through southwestern Wyoming into northern Utah;
the southern segment of the transmission system extends from western
Colorado to Payson, in central Utah.
The Company's pipelines, compressor stations, regulator stations,
and other transmission-related facilities are constructed on
properties held under long-term easements, rights of way, or fee
interests sufficient for the conduct of its business activities.
In addition to the transmission system described above, Questar
Pipeline has a 54 percent interest and is the operating partner in
Overthrust, a general partnership that was organized in 1979 to
construct, own, and operate the Overthrust segment of Trailblazer.
Trailblazer is a major 800-mile pipeline that transports gas from
producing areas in the Rocky Mountains to the Midwest. The 88-mile
Overthrust segment is the western-most of Trailblazer's three
segments. Although the Overthrust segment is currently underutilized,
the Company and its remaining partners are reviewing opportunities,
including backhauling, to increase its value. The Overthrust
partnership agreement requires unanimous consent of all partners on
major operating and financial issues.
Questar Pipeline owns and operates a major compressor complex
near Rock Springs, Wyoming, that compresses volumes of gas from the
Company's transmission system for delivery to the WIC segment of the
Trailblazer system and to CIG. The complex has become a major
delivery point on Questar Pipeline's system. Five of the Company's
major natural gas lines are connected to the system at the complex.
In addition, both of CIG's Wyoming pipelines and the WIC segment are
connected to the complex.
April 1, 1999 is the scheduled start-up date for the
TransColorado pipeline project, a pipeline owned by TransColorado, in
which the Company's subsidiary, Questar TransColorado, Inc., has a 50
percent interest. The $295 million project, which was originally
announced in 1990, has a design capacity of 300 million cubic feet
("MMcf"), but will operate on a reduced basis until market demand
improves and additional interconnecting facilities are constructed.
The line originates at a point on Questar Pipeline's system 25 miles
east of Rangely in northwestern Colorado and extends 292 miles to the
Blanco hub in northwestern New Mexico. It was constructed to
transport natural gas from the Rocky Mountain area that was
traditionally priced lower than other gas supplies, e.g., San Juan, to
California and Midwestern markets through interconnections with major
pipeline systems. At the present time, natural gas prices and the
resulting lack of basis differentials between Rocky Mountain
production and San Juan production require the TransColorado partners
to discount transforation rates.
Questar Pipeline acquired a 700-mile, 16-inch diameter oil
pipeline from ARCO Pipeline Company during 1998. This line extends
from the Four Corners area where the states of Arizona, New Mexico,
Colorado, and Utah meet to Long Beach, California. After acquiring
the line, the Company renamed it Southern Trails, conducted an open
season to gauge customer interest, and filed the necessary application
to obtain FERC certification. Converting the line to natural gas will
require extensive environmental review. Questar Pipeline is handling
the project on an expedited basis and expects the line to be in
service by mid-2000. The Company believes that completion of the
Southern Trails conversion will improve the ability to market capacity
on TransColorado. Questar Pipeline's activities in conjunction with
this project are conducted through its subsidiaries, Questar Line 90
Company and Questar Southern Trails Pipeline Company.
Transportation Service
Questar Pipeline's largest transportation customer is its
affiliate, Questar Gas. During 1998, the Company transported 107.5
million decatherms ("MMDth") for Questar Gas, compared to 110.3 MMDth
in 1997. These transportation volumes include Questar Gas's
cost-of-service gas produced by Wexpro and volumes purchased by
Questar Gas directly from field producers and other suppliers.
Effective September 1, 1993, Questar Gas converted its firm sales
capacity to firm transportation capacity on the Company's transmission
system. Questar Gas has reserved capacity of about 800,000 Dth per
day, or 74 percent of Questar Pipeline's reserved daily capacity.
Questar Gas paid an annual reservation charge of approximately $50.7
million to the Company in 1998, which includes reservation charges
attributable to firm and "no-notice" transportation. Questar Gas only
needs its total reserved capacity during peak-demand situations. When
it is not fully utilizing its capacity, Questar Gas releases the
capacity to others, primarily industrial transportation customers and
marketing entities.
Questar Pipeline's transportation agreement with Questar Gas
expires on June 30, 1999. The parties have agreed to extend the
contract for three years, reflecting Questar Gas's growing peak-demand
requirements and the Company's competitive rates.
The Company recovers approximately 95 percent of its transmission
cost of service through reservation charges from firm transportation
customers. In other words, these customers pay for access to
transportation capacity, rather than on the basis of the volumes
actually transported. Consequently, the Company's throughput volumes
do not have a significant effect on its short-term operating results.
Questar Pipeline's transportation revenues are not significantly
affected by fluctuating demand based on the vagaries of weather or gas
prices. The Company's revenues may be adversely affected if the FERC
changes its basic regulatory scheme of "straight fixed-variable"
rates.
The Company's total system throughput decreased from 264.3 MMDth
in 1997 to 255.1 MMDth in 1998. This decrease was primarily
attributable to lower transportation volumes for affiliated customers,
which declined from 148.1 MMDth in 1997 to 134.4 MMDth in 1998.
Despite the decrease in volumes, Questar Pipeline's transportation
revenues increased by 3 percent between the two years, from $68.8
million in 1997 to $70.8 million in 1998 due to increased contract
demand.
Questar Pipeline's transmission system is an open-access system
and has been since September of 1988. The Company's tariff provisions
require it to transport gas on a nondiscriminatory basis when it has
available transportation capacity. The Company does have limited
opportunities for interruptible transportation services.
Questar Pipeline will continue to develop and build new lines and
related facilities that will allow it to meet customer needs or
improve customer services. During 1998, the Company completed a
project begun in 1997 to install a 20-inch diameter line and
associated facilities between Clay Basin and its major compressor
complex located in Rock Springs in southwestern Wyoming. This project,
which added 88 thousand decatherms ("MDth") of firm capacity,
expanded Questar Pipeline's capacity to move gas north from Clay Basin
and its southern system. The Company also installed new compression
facilities on its southern system near Price, Utah. The new
facilities, referred to as the Oak Spring compression facilities--added
approximately 52 MDth of firm capacity.
Through a special purpose subsidiary, Questar Transportation
Services Company, Questar Pipeline is building a processing facility
near Price, Utah, to extract carbon dioxide from gas produced from
coal seams in the Ferron area. The gas volumes have a lower heating
content than can be burned by appliances in Questar Gas's service
area. Extracting the carbon dioxide increases the heating content of
the volumes.
The Company is also gauging interest in a project that would
deliver coal-seam gas from the Ferron area to an interconnection on
the Kern River line in central Utah. The project involves looping
existing lines owned by Questar Pipeline.
Storage
Questar Pipeline's Clay Basin storage facility in northeastern
Utah is the largest underground storage reservoir in the Rocky
Mountains. During 1998, the storage facility at Clay Basin was
expanded by 5 billion cubic feet ("Bcf") of working gas and 2.5 Bcf of
cushion gas, bringing total storage capacity to 117.5 Bcf. (Working
gas is gas that is injected and withdrawn for customers, while cushion
gas remains in the reservoir.) Clay Basin has been operational since
1977 and has been successfully expanded several times.
Clay Basin's firm storage capacity is fully subscribed by
customers under long-term agreements. Questar Gas currently has 13.3
Bcf of working gas capacity at Clay Basin. Other large customers
include Williams; Washington Natural Gas Company, a distribution
utility in the state of Washington; and BC Gas Utility Ltd., a
distribution utility in British Columbia, Canada. Storage service is
important to distribution companies that need to match annual gas
purchases with fluctuating customer demand, improve service
reliability, and avoid imbalance penalties.
Questar Pipeline offers interruptible storage service at Clay
Basin and also allows firm storage service customers the right to
transfer their injection and withdrawal rights to other parties.
The Company also owns and operates three smaller storage
reservoirs. These projects were developed specifically to serve
Questar Gas's needs, and Questar Gas reserves 100 percent of their
working gas capacity. These small reservoirs are used primarily to
supplement Questar Gas's gas supply needs on peak days.
The Company's storage facilities are certificated by the FERC,
and its rates for storage service (based on operating costs and
investment in plant plus an allowed rate of return) are subject to
approval by the FERC.
Regulatory Environment
The Company is a natural gas company under the Natural Gas Act
and is subject to the jurisdiction of the FERC as to rates and charges
for storage and transportation of gas in interstate commerce,
construction of new storage and transmission facilities, extensions or
abandonments of service and facilities, accounts and records, and
depreciation and amortization policies. Questar Pipeline holds
certificates of public convenience and necessity granted by the FERC
for the transportation and underground storage of natural gas in
interstate commerce and for the facilities required to perform such
operations.
Questar Pipeline does not currently plan to file a general rate
case in 1999 and has no open rate case issues before the FERC. It,
however, will continue to review its revenues and costs as it adds new
facilities that are not included in its rate base and makes
expenditures to comply with regulatory mandates.
In July of 1998, the FERC issued a Notice of Proposed Rulemaking
("NOPR") in Docket No. RM98-10-000, seeking comments on a wide range
of issues relating to competition in short-term transportation
markets. The NOPR includes proposed rules requiring pipelines to
report and auction all unused daily capacity and to provide shippers
with greater operational flexibility. In a companion Notice of
Inquiry issued at the same time, the FERC proposed permitting
incentive-based rate alternatives to cost-based rates for long-term
service. Both regulatory initiatives indicate that the FERC is
continuing to push for competitive conditions within the
transportation industry and to view transportation capacity as a
commodity, even as it subjects pipelines to additional regulation.
The Company is closely monitoring the FERC's rulemaking proceedings,
but maintains that it is too early to speculate concerning final rules
and to measure the impact of any final rules on Questar Pipeline's
operation.
Questar Pipeline recently amended its FERC application for the
Southern Trails project to obtain "optional" certification because it
did not demonstrate, to the satisfaction of the FERC staff, sufficient
evidence of market support, i.e., signed contracts with shippers, for
the project and did not want to delay commencement of the necessary
regulatory and environmental review. When proposing and building new
pipeline projects under the optional-certificate process, the Company
is generally at full risk for changes in market conditions.
Under the Natural Gas Pipeline Safety Act of 1968, as amended,
the Company is subject to the jurisdiction of the Department of
Transportation ("DOT") with respect to safety requirements in the
design, construction, operation and maintenance of its transmission
and storage facilities. The Company also complies with the DOT's drug
and alcohol testing regulations.
In addition to the regulations discussed above, Questar
Pipeline's activities in connection with the operation and
construction of pipelines and other facilities for transporting or
storing natural gas are subject to extensive environmental regulation
by state and federal authorities, including state air quality control
boards, the Bureau of Land Management, the Forest Service, the Corps
of Engineers, and the Environmental Protection Agency. These
compliance activities increase the cost of planning, designing,
installing and operating facilities.
Competition
Competition for Questar Pipeline's transportation and storage
services has intensified in recent years. Regulatory changes have
significantly increased customer flexibility. The Company actively
competes with other interstate pipelines for transportation volumes
throughout the Rocky Mountain region.
The Company has two key assets that contribute to its continued
success. It has a strategically located and integrated transmission
system with interconnections to major pipeline systems and with access
to major producing areas and markets. Questar Pipeline also has the
Clay Basin storage facility, a storage reservoir that has been
successfully operated since 1977, has been expanded in response to
interest from customers, and is fully subscribed by firm-service
customers under contracts that are generally long-term in nature.
Questar Pipeline intends to take advantage of these assets by
increasing its "intra hub" capacity or its ability to quickly and
reliably move gas volumes between receipt and delivery points and by
continuing to review opportunities to increase its storage capacity
and services.
Questar Pipeline has a strong commitment to increase its presence
in other parts of the western United States as witnessed by its
participation in the TransColorado pipeline project and by its
acquisition of direct transportation capacity that reaches California
markets. The Company's ability to compete with other pipelines is
affected by natural gas prices in the supply basins connected to its
pipeline compared to prices in other basins connected to competing
pipelines. Questar Pipeline's ability to contract with industrial
customers in California for capacity on the Southern Trails line is
affected by regulatory provisions that protect local distribution
companies in California. The Company's future success in new markets
may be affected by its ability to compete with other entities that are
often larger and possess greater resources.
Employees
As of December 31, 1998, the Company and its subsidiaries had 122
employees, compared to 164 as of the end of 1997. This decrease
reflects the early retirement program offered to eligible employees
during 1998 and some reorganization activities within the Regulated
Services group. None of these employees is represented under
collective bargaining agreements. The Company participates in the
comprehensive benefit plans of Questar and pays the share of costs
attributable to its employees covered by such plans. Questar
Pipeline's employee relations are generally deemed to be satisfactory.
Relationships with Affiliates
There are significant business relationships between the Company
and its affiliates, particularly Questar Gas. Some of these
relationships are described above. See Note 8 to the financial
statements for additional information concerning transactions between
the Company and its affiliates.
The Company obtains data processing and communication services
from another affiliate, Questar InfoComm,Inc., under the terms of a written
agreement. Regulated Services, the Company's parent, has employees
who perform administrative, engineering, accounting, marketing,
budget, tax, regulatory affairs, and legal services for all entities
within it, including Questar Pipeline. Questar also provides certain
administrative services, governmental affairs, financial, and audit, to
the Company and other members of the consolidated group. A
proportionate share of the costs associated with such services is
directly billed or allocated to Questar Pipeline.
ITEM 3. LEGAL PROCEEDINGS
Questar Pipeline is involved in various legal and regulatory
proceedings. While it is not currently possible to predict or
determine the outcome of these proceedings, it is the opinion of
management that the outcome will not have a material adverse effect on
the Company's financial position or liquidity.
The Company and some of its affiliates have been named as
defendants in a lawsuit filed under the federal false claims act by an
individual engaged in natural gas production. The case is one of 77
substantially similar cases filed contemporaneously by this producer
against pipelines and their respective affiliates, in which the
producer alleges mismeasurement of the heat content of natural gas
volumes and the understatement of the value of gas on which royalty
payments are due the federal government. The complaint also claims
treble damages and seeks imposition of civil penalties. The
producer's complaint does not include a request for any specific
damages. Management believes that the producer's allegations and
claims against Questar Pipeline do not have merit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company, as the wholly owned subsidiary of a reporting
person, is entitled to omit the information requested in this Item.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's outstanding shares of common stock, $1.00 par
value, are currently owned by Regulated Services. Information
concerning the dividends paid on such stock and the Company's ability
to pay dividends is reported in the Statements of Shareholder's Equity
and Notes to Financial Statements included in Item 8.
ITEM 6. SELECTED FINANCIAL DATA
The Company, as the wholly owned subsidiary of a reporting
person, is entitled to omit the information requested in this Item.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
*CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Natural Gas Transmission - Questar Pipeline conducts natural
gas transmission and storage operations. Following is a
summary of financial results and operating information:
Year Ended December 31,
1998 1997 1996
(Dollars In Thousands)
OPERATING INCOME
Revenues
Transportation $70,824 $68,837 $67,656
Storage 36,463 34,410 34,280
Other 1,270 2,190 2,242
Total revenues 108,557 105,437 104,178
Operating expenses
Operating and maintenance 38,832 37,334 39,959
Depreciation and amortization 13,927 14,797 14,206
Other taxes 2,600 2,816 2,519
Total expenses 55,359 54,947 56,684
Operating income $53,198 $50,490 $47,494
OPERATING STATISTICS
Natural gas transportation volumes (in Mdth)
For unaffiliated customers 120,747 116,215 131,895
For Questar Gas 107,501 110,311 100,161
For other affiliated customers 26,878 37,797 44,327
Total transportation 255,126 264,323 276,383
Transportation revenue (per dth) $0.28 $0.26 $0.24
Clay Basin storage, working gas-
capacity (in Bcf) 51.3 46.3 46.3
Revenues were $3,120,000 higher in 1998 when compared with
1997 as a result of increasing firm-transportation reservation
fees and expanding firm-storage capacity. Revenues increased
$1,259,000 or 1% in 1997 when compared with 1996 as a result
of adding firm-transportation contracts. The new contracts
cover several short-haul portions of the pipeline.
Transportation revenues were $1,987,000 higher in 1998 when
compared with 1997 as a result of higher average
firm-transportation fees. However, transportation volumes
declined by 3% from 1997. Marketing programs continue to seek
replacement of customers that leave the system. As of
December 31, 1998, approximately 76% of Questar Pipeline's
transportation system was reserved by firm-transportation
customers under contracts with varying terms and lengths. The
remaining 24% of transportation system capacity, which has
multiple delivery points, is available for interruptible or
short-term firm transportation.
Questar Gas has reserved transportation capacity from Questar
Pipeline of approximately 800,000 dth per day, representing
74% of the total reserved daily-transportation capacity at
December 31, 1998. This contract, which accounts for 79% of
the demand charges collected by Questar Pipeline, expires June
30, 1999. Management has extended the contract and does not
believe that the contract will have a material impact on the
results of operations, financial position or cash flows of
Questar Pipeline.
Questar Pipeline expanded working gas capacity at its Clay
Basin underground storage facility in 1998 by 5 Bcf to 51.3
Bcf. Questar Pipeline was able to sign-up customers for the
new capacity under long-term commitments. The expansion,
which began service in May 1998, added $2,026,000 to 1998
revenues. Customers pay a fixed fee to reserve firm-storage
capacity. Storage revenues were flat in 1997 when compared
with 1996. Storage capacity at the end of 1998 was 100%
subscribed and about 76% of the contractual volumes had
remaining terms of at least 10 years. Questar Gas has reserved
24% of firm-storage capacity for at least 10 years.
Questar Pipeline's operating and maintenance expenses
increased 4% in 1998 compared with 1997 due primarily to
expansion of data processing and telecommunications networks
and more general maintenance and repair projects. However,
labor costs were $750,000 lower in 1998 due to a reduction in
the number of employees. An early-retirement program was
offered to employees of Regulated Services effective July 31,
1998. Operating and maintenance expenses decreased 7% in 1997
because of cost-containment measures and reduced labor and
related costs. In 1997, Questar Gas and Questar Pipeline
combined functions common to gas-distribution and
gas-transmission operations in order to eliminate
duplications.
Increased investment in capital projects has resulted in
higher depreciation charges in 1998. However, the full impact
of increased investment was partially offset by a downward
adjustment of depreciation expense in the second quarter of
1998. Other taxes were lower in the 12-month period ended
December 31, 1998 compared with the same period of 1997 as a
result of property tax refunds. Other income was substantially
lower in the 1998 compared with the 1997 period due to not
repeating gains on selling properties and an adjustment of a
regulatory liability as a result of transferring the gathering
division.
Debt expense was higher in 1998 compared with 1997 because of
additional long-term borrowings. In 1998, the Company
borrowed $88.4 million under its medium-term note program with
a weighted average coupon rate of 6.14% and a weighted average
maturity of 12.6 years.
Questar Pipeline has a 50% ownership interest in a partnership
that constructed the 270-mile Phase II of the TransColorado
Pipeline in western Colorado and northwestern New Mexico.
Construction of Phase II began in July 1998 and was
substantially completed at December 31, 1998. The in-service
date for Phase II is expected to be April 1999. With
completion of Phase II, Questar Pipeline will acquire El Paso
Energy Corporation's 50% interest in Phase I of the pipeline
project completed in 1996, making Questar Pipeline a 50% owner
of the entire project with KN Energy.
The 292-mile pipeline cost approximately $295 million,
including the costs of Phase I. During its startup period,
the pipeline's capacity is expected to be about 138 MMcf per
day. Pipeline capacity will be increased to its designed
capacity of 300 MMcf per day by adding compression as load
requirements develop. The two owners have agreed to contract
for some capacity at a discounted rate during the first three
years of operation. However, the cost of operating the
pipeline during this period is expected to exceed the revenue
for transporting gas. The pipeline has a tariff rate of $.40
per dth, but likely will be required to offer discounts to
shippers during the first several years of service because of
competitive market conditions. A major factor is the
differential in gas prices between the San Juan basin and the
Rocky Mountains. The differential is generally seasonal with
higher prices occurring during the summer to meet demand for
electricity generation.
TransColorado Gas Transmission Co., a partnership in which
Questar Pipeline owns a 50% interest through a subsidiary,
entered into a $200 million, three-year revolving credit
facility on October 14, 1998. Questar Pipeline and KN Energy
have each guaranteed the repayment of their proportionate
share of the loan. Proceeds from this debt were used to
finance the construction of the TransColorado pipeline. The
partnership had borrowed $160 million under this arrangement
as of December 31, 1998.
A subsidiary of Questar Pipeline, Questar Line 90 Company,
purchased an oil pipeline extending from the Paradox producing
basin of northwestern New Mexico to Long Beach, California, in
1998 for $38 million. The Company intends to convert this
line, named the Southern Trails Pipeline, to transport natural
gas to customers in the Los Angeles basin. At this time,
conversion and compression facilities are expected to add
approximately $117 million to the total cost of the project
and to be in-service by mid-2000. The pipeline capacity is
expected to be 120 MMdth per day after modifications. Questar
Pipeline plans to connect the Southern Trails Pipeline to the
TransColorado and other pipelines.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
Net cash provided from operating activities was $60,983,000 in
1998, $43,236,000 in 1997 and $46,710,000 in 1996. Net cash
provided from operating activities increased 41% in 1998
compared with 1997 due primarily to timing of payment of
accounts payable associated with pipeline construction.
Investing Activities
Following is a summary of capital expenditures for 1998, 1997
and a forecast of 1999 expenditures:
1999
Estimated 1998 1997
(In Thousands)
Transmission system $26,100 $21,395 $19,622
Storage 1,700 6,284 1,399
Partnerships 10,200 26,000 6,214
Southern Trails Pipeline 30,000 39,471
CO2 plant 12,800 16,259
General 8,200 4,909 5,361
$89,000 $114,318 $32,596
In 1998, transmission included the purchase of a 700-mile
pipeline, substantial completion of construction of Phase II
of the TransColorado Pipeline, initial construction of a CO2
plant, replacement and expansion projects on sections of
existing transmission lines and expansion of the Clay Basin
storage reservoir.
Financing Activities
Questar Pipeline funded 1998 capital expenditures and dividend
payments primarily with the proceeds from net cash provided
from operating activities, amounts borrowed under a
medium-term note program and an increase in notes payable to
Questar. Forecasted 1999 capital expenditures of $89 million
are expected to be financed from net cash flow provided from
operations and additional borrowings under the medium-term
note program and from Questar. The Company retired $20
million of its 9 7/8% debt in May of 1998 for a cash payment
of $23,386,000, which included a premium payment and interest
due.
Questar makes loans to Questar Pipeline under a short-term
borrowing arrangement. Outstanding short-term notes payable
to Questar at December 31 totaled $38,000,000 with an interest
rate of 5.71% in 1998 and $25,800,000 with an interest rate of
6.02% in 1997.
Questar Pipeline's capital structure at year-end 1998 was 51%
long-term debt and 49% common shareholder's equity. Moody's
and Standard and Poor's have rated the Company's long-term
debt A1 and A+, respectively.
Year 2000
Introduction
Questar Pipeline is addressing the issue of computer programs and
embedded computer chips being unable to distinguish between the year
1900 and the year 2000 ("Y2K").
In a coordinated effort with Questar Corporation's Y2K project
team, the basic approach is to provide company-wide management and
coordination combined with distributed compliance responsibility at
the various business units. The Y2K team is responsible for fostering
awareness; establishing company-wide strategy; coordinating Questar
Pipeline action items and information; and providing periodic internal
status reports. The effort is designed to be consistent with the
Questar Corporation's Y2K project and the prudent efforts of publicly
traded companies of similar size, business, and complexity.
Questar InfoComm, Inc. (an affiliate which provides information
technology services) is responsible for Y2K compatibility of all
communications systems; networks (LANs and WANs); corporate-wide
applications and operating systems; mainframe resident commercial
off-the-shelf products; and for developing, implementing and
coordinating testing procedures.
General
The Y2K team operates under a written plan (the "Plan")
addressing infrastructure, applications software (infrastructure and
applications software are sometimes collectively referred to as "IT
systems"), outside suppliers and customers, and process control and
instrumentation containing embedded chips (non-IT systems). The
Company's in-house programmers and systems analysts (including those
of Questar InfoComm, Inc.) are primarily responsible for the
conversion and testing of certain non-compliant application software
code. In addition, the services of outside consultants and programmers
were engaged to assist with project management and completion of
coding for certain software programs. The general phases common to all
business units are:
(1) Inventory
(2) Prioritization
(3) Project start-up
(4) Assessment
(5) Remediation
(6) Testing; and
(7) Project closeout.
Implementation of the Plan is generally proceeding on schedule.
Status
Inventory and Assessment. The inventory and assignment of
priority was essentially completed in April 1998. Throughout the
ongoing Y2K project, these inventory listings continue to be
monitored. Material items were defined as those the Company believed
to involve a risk to the safety of individuals; or which may cause
damage to property or the environment; or which may affect the
Company's ability to provide transportation.
Projects Planning. Based on the inventory and determined
priorities, 35 individual items have been combined into 2 projects.
Project managers have been assigned, standard project documentation
has been established, training sessions are being held with the
various project managers, and standard management reporting forms have
been devised and are being utilized. All of the foregoing activities
comprise what has been defined as "project start-up."
Applications Software. The applications software section of the
Plan addresses both the conversion of applications software that is
not Y2K compliant and the replacement of such software. The testing
phase of this section is scheduled for completion by the third quarter
of 1999. The testing phase is conducted as the software is remediated
or replaced. Currently there are 2 projects identified in this
section, both in assessment. Contingency planning for this section
began in the third quarter of 1998 and is scheduled to be completed by
mid-1999.
Non-IT Equipment. Inventory and assessment phases are in progress
for non- IT systems. This section of the Plan is considered to be one
project and addresses hardware, software and associated embedded
computer chips used in the operation of all facilities operated by the
Company. This section presents unique problems in that it is often
difficult to determine whether embedded chips have a date function
that present a Y2K problem. It is also difficult to take certain
critical systems, such as compressors and pipeline valves, off-line
for testing. Because of this, the Company has engaged the services of
a consultant, Stone & Webster, to help with this effort. The Company
believes the replacement, repair and testing of non-IT systems
equipment is on schedule to be completed by third quarter 1999. As of
December 31, 1998, the embedded chip project is active and in the
assessment phase. Contingency planning for this section began in the
third quarter of 1998 and is scheduled to be completed by year end
1999.
Testing. The testing phases of the Plan are underway. The
Company has developed a testing procedure and guidelines to help
system users and project managers develop their specific test plans
and to ensure consistency in testing. The Company has assembled a test
facility which duplicates, in essential details, the production
environment. The test facility is in operation. Responsible project
managers and system users continue to develop their test plans and
schedule testing in the facility.
Critical Third Parties. The outside vendors and customers section
of the Plan includes the process of identifying and prioritizing
critical suppliers and customers and communicating with them about
their plans and progress in addressing their Y2K problems. The various
business units have formed project teams which have begun the detailed
evaluation of the most critical third parties and to elicit required
information. The process of evaluating these external agents
commenced in the third quarter of 1998 and first contacts with vendors
have been made. This process is scheduled for completion by mid-1999,
with follow-up reviews scheduled through the remainder of 1999. This
procedure will include the development of contingency plans, scheduled
for the second quarter of 1999, with completion by late 1999. The
Company estimates that this section was on schedule at December 31,
1998.
Costs
The total cost associated with efforts to become Y2K compliant is
not expected to be material to the Company's financial position. The
current expense estimate of the Y2K project is $1.0 million. This
estimate does not include Questar Pipeline's potential share of Y2K
costs that may be incurred by partnerships and joint ventures in which
the Company participates but is not the operator. The expense estimate
is expected to change as the project progresses. Funds for the project
are included in existing operating budgets.
Risks
Failure to correct a material Y2K problem could result in an
interruption, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the
Company's results of operations, liquidity and financial condition.
Due to the general uncertainty inherent in the Y2K problem - resulting
in part from the uncertainty of the Y2K readiness of outside suppliers
and customers and the embedded chip problems - the Company is unable
to determine at this time whether the consequences of Y2K failures
will have a material impact on the Company's results of operations,
liquidity or financial condition. The Y2K project has reduced and is
expected to continue to significantly reduce the Company's level of
uncertainty about the Y2K problem and, in particular, about the Y2K
compliance and readiness of its material outside vendors and
customers. The Company believes that the possibility of significant
interruptions of normal operations is not significant.
Forward-Looking Statement
This annual report contains some forward looking statements about
future operations and expectations of Questar Pipeline. Management
believes they are reasonable representations of Questar Pipeline's
expected performance at this time. Actual results may vary from
management's stated expectations and projections.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's financial statements are included in Part IV, Item
14, herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
The Company has not changed its independent auditors or had any
disagreements with them concerning accounting matters and financial
statement disclosures within the last 24 months.
PART III
The Company, as the wholly owned subsidiary of a reporting
person, is entitled to omit all information requested in Part III
(Items 10-13).
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a)(1)(2) Financial Statements and Financial Statement
Schedules. The financial
statements identified on the List of Financial Statements are filed as
part of this Report.
(a)(3) Exhibits. The following is a list of exhibits required
to be filed as a part of this Report in Item 14(c).
Exhibit No. Exhibit
2.*1 Agreement of Transfer among Mountain Fuel Supply Company,
Entrada Industries, Inc. and Mountain Fuel Resources, Inc.,
dated July 1, 1984. (Exhibit No. 2. to Registration
Statement No. 2-96102 filed February 27, 1985.)
3.* Restated Articles of Incorporation dated November 17, 1995.
(Exhibit No. 3. to Form 10-K Annual Report for 1995.)
3.3.* Bylaws (as amended on August 11, 1992). (Exhibit No. 3. to
Form 10-Q Report for quarter ended June 30, 1992.)
4.1.*2 Indenture dated June 1, 1990, for 9-7/8% Debentures due 2020,
with Morgan Guaranty Trust Company of New York as Trustee.
(Exhibit No. 4. to Form 10-Q Report for quarter ended June
30, 1990.)
4.2.*2 Indenture dated as of June 1, 1991, for 9-3/8% Debentures due
June 1, 2021, with Morgan Guaranty Trust Company of New York
as Trustee. (Exhibit No. 4. to Form 10-Q Report for quarter
ended June 30, 1991.)
4.3.* Indenture dated as of August 17, 1998, with First Security
Bank, N.A., as Trustee, for Debt Securities. (Exhibit No.
4.01. to Registration Statement on Form S-3 (No. 333-61621)
filed August 17, 1998.)
10.1.*1,3Overthrust Pipeline Company General Partnership Agreement
dated September 20, 1979, as amended and restated as of
October 11, 1982, and as amended August 21, 1991, among CIG
Overthrust, Inc., Columbia Gulf Transmission Company;
Mountain Fuel Resources, Inc.; NGPL-Overthrust Inc.; Northern
Overthrust Pipeline Company; and Tennessee Overthrust Gas
Company. (Exhibit No. 10.4. to Form 10-K Annual Report for
1985, except that the amendment dated August 21, 1991, is
included as Exhibit No. 10.4. to Form 10-K Annual Report for
1992.)
10.2.*4Annual Management Incentive Plan adopted by Questar Pipeline
Company, Questar Gas Company, and Questar Regulated Services
Company, as amended and restated effective May 19, 1998.
(Exhibit No. 10.7. to Form 10-Q Report for quarter ended June
30, 1998.)
10.3.* Partnership Agreement for the TransColorado Gas Transmission
Company dated July 1, 1997, between KN TransColorado, Inc.
and Questar TransColorado, Inc. (Exhibit No. 10.4. to Form
10-K Annual Report for 1997.)
10.4.* Letter of Understanding dated July 13, 1998, on Issues
Relating to Phase II of TransColorado between Questar
TransColorado, Inc. and KN TransColorado, Inc. (Exhibit No.
10.1. to Form 10-Q Report for quarter ended June 30, 1998.)
10.5.*5Firm Transportation Service Agreement with Mountain Fuel
Supply Company under Rate Schedule T-1 dated August 10, 1993,
for a term from November 2, 1993 through June 30, 1999.
(Exhibit No. 10.5. to Form 10-K Annual Report for 1993.)
10.6.*5Storage Service Agreement with Mountain Fuel Supply Company
under Rate Schedule FSS, for 3.5 Bcf of working gas capacity
at Clay Basin, with a term from September 1, 1993, through
August 31, 2008. (Exhibit No. 10.6. to Form 10-K Annual
Report for 1993.)
10.7.*5Storage Service Agreement with Mountain Fuel Supply Company
under Rate Schedules FSS, for 3.5 Bcf of working gas capacity
at Clay Basin with a term from September 1, 1993, through
August 31, 2013. (Exhibit No. 10.7. to Form 10-K Annual
Report for 1993.)
10.8.*5Storage Service Agreement with Mountain Fuel Supply Company
under Rate Schedule FSS, for 5.5 Bcf of working gas capacity
at Clay Basin, with a term from May 15, 1994 through May 14,
2019. (Exhibit No. 10.8. to Form 10-K Annual Report for
1995.)
10.9.*4Questar Pipeline Company Deferred Compensation Plan for
Directors, as amended and restated May 19, 1998. (Exhibit
No. 10.3. to Form 10-Q Report for quarter ended June 30,
1998.)
10.10.*Agreement for the Transfer of Assets between Questar Pipeline
Company and Questar Gas Management Company, as amended,
effective March 1, 1996. (Exhibit No. 10.11. to Form 10-K
Annual Report for 1996.)
10.11.*Guaranty Agreement dated as of October 14, 1998, by Questar
Pipeline Company in favor of Bank of America Trust and
Savings Association. (Exhibit No. 10.4. to Form 10-Q Report
for quarter ended September 30, 1998.)
10.12.*Asset Purchase Agreement dated October 23, 1998, between
Questar Line 90 Company, a wholly-owned subsidiary, and ARCO
Pipeline Company. (Exhibit No. 10.5. to Form 10-Q Report for
quarter ended September 30, 1998.)
12. Ratio of Earnings to Fixed Charges.
21. Subsidiary Information.
23. Consent of Independent Auditors
24. Power of Attorney.
27. Financial Data Schedule.
_______________
*Exhibits so marked have been filed with the Securities and
Exchange Commission as part of the indicated filing and are
incorporated herein by reference.
1The documents listed here have not been formally amended to
refer to the Company's current name. They still refer to the Company
as Mountain Fuel Resources, Inc.
2First Security Bank, N.A., serves as the successor trustee.
3The Overthrust Partnership Agreement has not been formally
amended to delete the names of Columbia Gulf Transmission Company and
Tennessee Overthrust Gas Company as partners.
4Exhibit so marked is management contract or compensation plan or
arrangement.
5Agreement incorporates specified terms and conditions of Questar
Pipeline's FERC Gas Tariff, First Revised Volume No. 1. The tariff
provisions are not filed as part of the exhibit, but are available
upon request.
(b) The Company did not file a Current Report on Form 8-K during
the last quarter of 1998.
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a) (1) and (2), and (d)
LIST OF FINANCIAL STATEMENTS
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
YEAR ENDED DECEMBER 31, 1998
QUESTAR PIPELINE COMPANY
SALT LAKE CITY, UTAH
FORM 10-K -- ITEM 14 (a) (1) AND (2)
QUESTAR PIPELINE COMPANY AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
The following financial statements of Questar Pipeline Company are
included in Item 8:
Consolidated statements of income -- Years ended December 31,
1998, 1997 and 1996
Consolidated balance sheets -- December 31, 1998 and 1997
Consolidated statements of cash flows -- Years ended December 31,
1998, 1997 and 1996
Consolidated statements of shareholder's equity -- Years ended
December 31, 1998, 1997 and
1996
Notes to consolidated financial statements
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable, and
therefore have been omitted.
Report of Independent Auditors
Board of Directors
Questar Pipeline Company
We have audited the accompanying balance sheets of Questar Pipeline
Company as of December 31, 1998 and 1997, and the related statements
of income and common shareholder's equity and cash flows for each of
the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Questar
Pipeline Company at December 31, 1998 and 1997, and the results of its
operations and its cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted
accounting principles.
Salt Lake City, Utah
February 8, 1999
QUESTAR PIPELINE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
1998 1997 1996
(In Thousands)
REVENUES
From unaffiliated customers $37,156 $36,343 $38,837
From affiliates 71,401 69,094 65,341
TOTAL REVENUES 108,557 105,437 104,178
OPERATING EXPENSES
Operating and maintenance 38,832 37,334 39,959
Depreciation 13,927 14,797 14,206
Other taxes 2,600 2,816 2,519
TOTAL OPERATING EXPENSES 55,359 54,947 56,684
OPERATING INCOME 53,198 50,490 47,494
OTHER INCOME 78 1,323 1,798
INCOME FROM UNCONSOLIDATED
AFFILIATES 4,011 4,629 182
DEBT EXPENSE (14,456) (13,536) (13,416)
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME
TAXES 42,831 42,906 36,058
INCOME TAXES 14,940 16,338 13,415
INCOME FROM CONTINUING
OPERATIONS 27,891 26,568 22,643
DISCONTINUED OPERATIONS - Questar
Gas Management Company 1,495
NET INCOME $27,891 $26,568 $24,138
See notes to consolidated financial statements.
QUESTAR PIPELINE COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
1998 1997
(In Thousands)
CURRENT ASSETS
Cash and short-term investments $9,990 $7,075
Accounts receivable 20,234 9,535
Accounts receivable from affiliates 1,070 1,316
Inventories, at lower of average
cost or market 2,203 2,303
Prepaid expenses and deposits 1,714 2,035
TOTAL CURRENT ASSETS 35,211 22,264
PROPERTY, PLANT AND EQUIPMENT
Transmission 323,953 306,486
Storage 221,220 213,264
General and intangible 44,428 40,093
Construction work in progress 80,855 20,760
670,456 580,603
Less allowances for depreciation 215,589 202,427
NET PROPERTY, PLANT AND EQUIPMENT 454,867 378,176
INVESTMENT IN UNCONSOLIDATED
AFFILIATES 54,712 26,977
OTHER ASSETS
Income taxes recoverable from customers 4,359 4,552
Unamortized costs of reacquired debt 4,717 2,564
Other 3,430 3,031
TOTAL OTHER ASSETS 12,506 10,147
$557,296 $437,564
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Notes payable to Questar $38,000 $25,800
Accounts payable and accrued expenses
Accounts and other payable 42,882 14,069
Accounts payable to affiliates 3,744 3,633
Federal income taxes 383 62
Other taxes 3,039 1,229
Accrued interest 999 1,076
Total accounts payable and
accrued expenses 51,047 20,069
TOTAL CURRENT LIABILITIES 89,047 45,869
LONG-TERM DEBT 202,991 134,563
OTHER LIABILITIES 4,546 4,523
DEFERRED INCOME TAXES 63,510 62,298
COMMITMENTS AND CONTINGENCIES - Note 6
COMMON SHAREHOLDER'S EQUITY
Common stock - par value $1 per share;
authorized 25,000,000 shares; issued
and outstanding 6,550,843 shares 6,551 6,551
Additional paid-in capital 82,034 82,034
Retained earnings 108,617 101,726
TOTAL COMMON SHAREHOLDER'S EQUITY 197,202 190,311
$557,296 $437,564
See notes to consolidated financial statements.
QUESTAR PIPELINE COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
Additional
Common Paid-in Retained
Stock Capital Earnings
(In Thousands)
Balance at January 1, 1996 $6,551 $82,034 $136,020
1996 net income 24,138
Cash and other dividends (64,250)
Balance at December 31, 1996 6,551 82,034 95,908
1997 net income 26,568
Cash dividends (20,750)
Balance at December 31, 1997 6,551 82,034 101,726
1998 net income 27,891
Cash dividends (21,000)
Balance at December 31, 1998 $6,551 $82,034 $108,617
See notes to consolidated financial statements.
QUESTAR PIPELINE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
1998 1997 1996
(In Thousands)
OPERATING ACTIVITIES
Net income $27,891 $26,568 $24,138
Depreciation 14,977 15,886 16,291
Deferred income taxes 1,212 1,526 388
Income from unconsolidated affiliates,
net of cash distributions (1,735) (4,413) (182)
Income from discontinued operations (1,495)
42,345 39,567 39,140
Changes in operating assets and liabilities
Accounts receivable (10,453) (3,068) 5,923
Federal income taxes 321 508 (799)
Prepaid expenses and deposits 321 (97) 219
Accounts payable and accrued expenses 28,847 4,851 2,783
Other (398) 1,475 (556)
NET CASH PROVIDED FROM
OPERATING ACTIVITIES 60,983 43,236 46,710
INVESTING ACTIVITIES
Capital expenditures
Purchase of property, plant
and equipment (88,318) (26,382) (20,958)
Other investments (26,000) (6,214) (2,850)
Total capital expenditures (114,318) (32,596) (23,808)
Proceeds from (costs of) disposition
of property, plant and equipment (3,350) 635 343
NET CASH USED IN INVESTING
ACTIVITIES (117,668) (31,961) (23,465)
FINANCING ACTIVITIES
Change in notes receivable
from Questar Gas Management 16,692
Change in notes payable to Questar 12,200 14,000 (3,400)
Long-term debt issued 88,400
Long-term debt repaid (20,000)
Payment of dividends (21,000) (20,750) (35,000)
NET CASH PROVIDED FROM (USED IN)
FINANCING ACTIVITIES 59,600 (6,750) (21,708)
Change in cash and
short-term investments 2,915 4,525 1,537
Beginning cash and
short-term investments 7,075 2,550 1,013
ENDING CASH AND SHORT-TERM
INVESTMENTS $9,990 $7,075 $2,550
See notes to consolidated financial statements.
QUESTAR PIPELINE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Accounting Policies
Principles of Consolidation: The consolidated financial
statements contain the accounts of Questar Pipeline Company and
subsidiaries (the Company or Questar Pipeline). The Company is a
wholly-owned subsidiary of Questar Regulated Services Company
(Regulated Services). Regulated Services is a holding company and
wholly-owned subsidiary of Questar Corporation (Questar).
Regulated Services was organized in 1996 and provides
administrative, accounting, engineering, legal and regulatory
functions for its three subsidiaries, Questar Pipeline, Questar
Gas Company (Questar Gas) and Questar Energy Services. Questar
Pipeline provides storage and interstate transportation of natural
gas. All significant intercompany balances and transactions have
been eliminated in consolidation.
Investment in Unconsolidated Affiliates: Questar Pipeline has a
54% interest in the Overthrust Pipeline partnership, and is the
operator of the Overthrust Segment of the Trailblazer Pipeline
System. Approval of all partners is required for all substantive
policy matters. Questar Pipeline has a 50% ownership interest in
a partnership that constructed Phase II of the TransColorado
pipeline in western Colorado. With completion of Phase II, Questar
Pipeline will acquire El Paso Energy Corporation's 50% interest in
Phase I of the pipeline project completed in 1996, making Questar
Pipeline a 50% owner of the entire project. The Company uses the
equity method to account for investments in which it does not have
control. Generally, its investments in affiliates equal the
underlying equity in net assets.
Regulation: Questar Pipeline is regulated by the Federal Energy
Regulatory Commission (FERC) which establishes rates for the
transportation and storage of natural gas. The FERC also
regulates, among other things, the extension and enlargement or
abandonment of jurisdictional natural gas facilities. Regulation
is intended to permit the recovery, through rates, of the cost of
service including a rate of return on investment. The financial
statements are presented in accordance with regulatory
requirements. Methods of allocating costs to time periods, in
order to match revenues and expenses, may differ from those of
nonregulated businesses because of cost allocation methods used in
establishing rates.
Use of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
amounts of assets and liabilities and disclosure of contingent
liabilities reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Revenue Recognition: Revenues are recognized in the period that
services are provided or products are delivered. Questar Pipeline
periodically collects revenues subject to possible refunds pending
final orders from the FERC. The Company establishes reserves for
revenues collected subject to refund.
Cash and Short-Term Investments: Short-term investments consist
principally of repurchase agreements with maturities of three
months or less.
Property, Plant and Equipment: Property, plant and equipment is
stated at cost. The provision for depreciation is based upon
rates, which will systematically charge the costs of assets over
their estimated useful lives. The costs of property, plant and
equipment are depreciated in the financial statements using the
straight-line method, ranging from 3% to 33% per year and
averaging 3.2% in 1998.
Allowance for Funds Used During Construction: The Company
capitalized the cost of capital during the construction period of
plant and equipment, which amounted to $686,000 in 1998, $387,000
in 1997 and $542,000 in 1996.
Reacquisition of Debt: Gains and losses on the reacquisition of
debt are deferred and amortized as debt expense over the remaining
life of the issue in order to match regulatory treatment.
Income Taxes: Questar Pipeline records cumulative increases in
deferred taxes as income taxes recoverable from customers. The
Company has adopted procedures with its regulatory commissions to
include under-and over-provided deferred taxes in customer rates
on a systematic basis. Questar Pipeline uses the deferral method
to account for investment tax credits as required by the FERC.
The Company's operations are consolidated with those of Questar
and its subsidiaries for income tax purposes. The income tax
arrangement between Questar Pipeline and Questar provides that
amounts paid to or received from Questar are substantially the
same as would be paid or received by the Company if it filed a
separate return. Questar Pipeline also receives payment for tax
benefits used in the consolidated tax return even if such benefits
would not have been usable had the Company filed a separate
return.
Reclassification: Certain reclassifications were made to the 1997
and 1996 financial statements to conform with the 1998
presentation.
Note 2 - Investment in Unconsolidated Affiliates
Questar Pipeline, through its subsidiaries, has interests in
partnerships accounted for on the equity basis. Transportation of
natural gas is the primary business activity of these
partnerships. Summarized information of the partnerships follow:
1998 1997 1996
(In Thousands)
Year Ended December 31,
Revenues $7,958 $6,302 $4,179
Operating income 3,209 1,927 870
Income 8,601 10,122 552
At December 31,
Current assets $12,933 $5,291 $5,358
Total assets 293,034 75,370 57,455
Current liabilities 21,751 20,333 13,579
Total liabilities 181,967 20,504 13,749
Note 3 - Debt
Questar makes loans to Questar Pipeline under a short-term
borrowing arrangement. Outstanding short-term notes payable to
Questar at December 31 totaled $38,000,000 with an interest rate
of 5.71% in 1998 and $25,800,000 with an interest rate of 6.02% in
1997.
Questar Pipeline filed a registration statement with the
Securities and Exchange Commission for the issuance of up to $175
million in medium-term notes effective September 2, 1998.
Questar Pipeline issued $88.4 million of medium-term notes in
1998. The notes have a weighted average coupon rate of 6.14% and
a weighted average maturity of 12.6 years.
The details of long-term debt at December 31 were as follows:
1998 1997
(In Thousands)
Medium-term notes 5.85% to 6.48%,
due 2008 to 2018 $88,400
9 3/8% debentures due 2021 85,000 $85,000
9 7/8% debentures due 2020 30,000 50,000
Total long-term debt outstanding 203,400 135,000
Less unamortized debt discount 409 437
$202,991 $134,563
The Company repurchased $20 million of its 9 7/8% debt in 1998.
Sinking fund redemption of the 9 3/8% debt begins in 2002 in the
amount of $4,250,000. There are no debt provisions restricting
the payment of dividends. Cash paid for interest was $14,761,000
in 1998, $13,351,000 in 1997 and $13,227,000 in 1996.
At December 31, 1998, Questar Pipeline guaranteed $80 million of
long-term debt borrowed by TransColorado Gas Transmission Company.
Note 4 - Financial Instruments
The carrying amounts and estimated fair values of the Company's
financial instruments at December 31 were as follows:
1998 1997
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
(In Thousands)
Financial assets
Cash and short-term investments $9,990 $9,990 $7,075 $7,075
Financial liabilities
Short-term loans 38,000 38,000 25,800 25,800
Long-term debt 202,991 218,309 134,563 150,675
The Company used the following methods and assumptions in
estimating fair values: (1) Cash and short-term investments and
short-term loans - the carrying amount approximates fair value;
(2) Long-term debt - the fair value of long-term debt is based on
quoted market prices. Fair value is calculated at a point in time
and does not represent the amount the Company would pay to retire
the debt securities.
Credit Risk: Questar Pipeline's primary market areas are
the Rocky Mountain and southwestern regions of the United States.
The Company's exposure to credit risk may be impacted by the
concentration of customers in these regions due to changes in
economic or other conditions. The Company's customers may be
affected differently by changing conditions. Management believes
that its credit-review procedures and loss reserves have
adequately provided for usual and customary credit-related losses.
Note 5 - Income Taxes
The components of income taxes for years ended December 31 were as
follows:
1998 1997 1996
(In Thousands)
Federal
Current $12,341 $13,247 $11,663
Deferred 1,257 1,273 700
State
Current 1,108 1,542 998
Deferred 234 276 54
$14,940 $16,338 $13,415
The difference between income tax expense and the tax computed by
applying the statutory federal income tax rate of 35% to income
from continuing operations before income taxes is explained as
follows:
1998 1997 1996
(In Thousands)
Income from continuing operations
before income taxes $42,831 $42,906 $36,058
Federal income taxes at statutory rate $14,991 $15,017 $12,620
State income taxes, net of federal
income tax benefit 872 1,204 703
Prior years' tax settlement (388) 134 146
Other (535) (17) (54)
Income tax expense $14,940 $16,338 $13,415
Effective income tax rate 34.9% 38.1% 37.2%
Significant components of the Company's deferred tax liabilities
and assets at December 31 were as follows:
1998 1997
(In Thousands)
Deferred tax liabilities
Property, plant and equipment $57,033 $58,131
Other 6,879 4,767
Total deferred tax liabilities 63,912 62,898
Deferred tax assets 402 600
Net deferred tax liabilities $63,510 $62,298
Cash paid for income taxes was $13,004,000 in 1998, $13,844,000 in
1997 and $13,797,000 in 1996.
Note 6 - Rate Matters, Litigation and Commitments
Questar Pipeline last filed a general rate case in 1995. The
Company was granted an 11.75% return on equity in its last FERC
rate proceeding. Currently, Questar Pipeline does not plan to
file a general rate case in 1999.
A subsidiary of Questar Pipeline, Questar Southern Trails Pipeline
Company, filed an application with the FERC in January 1999
requesting permission to convert a 700-mile crude oil pipeline,
extending from New Mexico to Long Beach, California, to carry
natural gas. The application also seeks authority to install
required compression equipment and to upgrade the system to carry
120 MMdth of gas per day.
In an order issued March 2, 1998, in FERC Docket No. IN97-1, the
FERC found that Questar Pipeline was not liable for any refunds
related to charges paid by Questar Gas to Questar Pipeline for
rendering gathering services from 1988 through 1992. The FERC had
investigated whether Questar Pipeline may have violated a
provision of the Natural Gas Act and its tariff by charging
gathering rates higher than the rates specified in Questar
Pipeline's tariff.
Questar Pipeline and some of its affiliates have been named as
defendants in a lawsuit filed under the federal false claims act
by an individual who is engaged in natural gas production. The
case is one of 77 substantially similar cases filed
contemporaneously by this producer against pipelines and their
respective affiliates, in which the producer alleges
mismeasurement of the heat content of natural gas volumes and
understatement of the value of gas on which royalty payments are
due the federal government. The complaint also claims treble
damages and seeks imposition of civil penalties. The producer's
complaint does not include a request for any specific monetary
damages. Management believes that the producer's allegations and
claims against the Company do not have merit. The outcome of the
case cannot be predicted at this time.
There are various other legal proceedings against Questar
Pipeline. While it is not currently possible to predict or
determine the outcomes of these proceedings, it is the opinion of
management that the outcomes will not have a material adverse
effect on the Company's results of operations, financial position
or liquidity.
Note 7 - Employment Benefits
Pension Plan: Substantially all of Questar Pipeline's employees
are covered by Questar's defined benefit pension plan. Benefits
are generally based on years of service and the employee's 72-pay
period interval 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.
Questar Pipeline's portion of plan assets and benefit obligations
is not determinable because the plan assets are not segregated or
restricted to meet the Company's pension obligations. If the
Company were to withdraw from the pension plan, the pension
obligation for the Company's employees would be retained by the
pension plan. At December 31, 1998, Questar's fair value of plan
assets exceeded the net benefit obligation.
Eligible employees in Regulated Services were offered an
early-retirement program that was effective July 31, 1998.
Enhanced benefits were paid to 178 employees taking advantage of
the offer. Costs associated with the early-retirement program
are being amortized over a five-year period in accordance with
anticipated regulatory treatment.
Pension cost was $382,000 in 1998, $520,000 in 1997 and $974,000
in 1996.
Postretirement Benefits Other Than Pensions: Generally
postretirement health-care benefits and life insurance are
provided only to employees hired before January 1, 1997. Questar
Pipeline pays a portion of postretirement health-care costs
benefits as determined by an employee's years of service and
limited to 170% of the 1992 contribution. The Company's policy is
to fund amounts allowable for tax deduction under the Internal
Revenue Code. Plan assets consist of equity securities, and
corporate and U.S. government debt obligations. The Company is
amortizing the transition obligation over a 20-year period, which
began in 1992. Costs of postretirement benefits other than
pensions were $69,000 in 1998, $257,000 in 1997 and $666,000 in
1996. The FERC allows rate-recovery of future postretirement
benefits costs to the extent that contributions are made to an
external trust.
Questar Pipeline's portion of plan assets and benefit obligations
related to postretirement medical and life insurance benefits is
not determinable because the plan assets are not segregated or
restricted to meet the Company's obligations.
Postemployment Benefits: Questar Pipeline recognizes the net
present value of the liability for postemployment benefits, such
as long-term disability benefits and health-care and
life-insurance costs, when employees become eligible for such
benefits. Postemployment benefits are paid to former employees
after employment has been terminated but before retirement
benefits are paid. The Company accrues both current and future
costs. The FERC allowed Questar Pipeline to recover $138,000 per
year in 1996, 1997 and 1998 on the condition that the amounts were
deposited in an external trust.
Employee Investment Plan: The Company participates in Questar's
Employee Investment Plan (ESOP), which allows eligible employees
to purchase Questar common stock or other investments through
payroll deduction. The Company makes matching contributions of
Questar common stock to the ESOP of approximately 75%, increasing
to 80% in 1999, of the employees' purchases and contributes an
additional $200 of common stock in the name of each eligible
employee. The Company's expense and contribution to the plan was
$302,024 in 1998, $348,000 in 1997and $531,000 in 1996.
Note 8 - Related Party Transactions
Regulated Services began providing administrative, technical and
accounting support in 1997 and legal and regulatory support in
1998. Regulated Services charged Questar Pipeline $15,271,000 in
1998 and $12,895,000 in 1997. The majority of these costs are
allocated and included in operating and maintenance expenses. The
allocation methods are based on several methods dictated by the
nature of the charges. Management believes that the allocation
methods are reasonable.
Questar Pipeline receives a substantial portion of its revenues
from Questar Gas Company. Revenues received from Questar Gas
amounted to $67,528,000 in 1998, $64,924,000 in 1997 and
$61,146,000 in 1996. The Company also received revenues from other
affiliated companies totaling $3,873,000 in 1998, $4,170,000 in
1997 and $4,195,000 in 1996.
Questar performs certain administrative functions for Questar
Pipeline. The Company was charged for its allocated portion of
these services which totaled $2,173,000 in 1998, $2,748,000 in
1997 and $3,045,000 in 1996. These costs are included in operating
and maintenance expenses and are allocated based on each
affiliate's proportional share of revenues, net of gas costs;
property, plant and equipment; and payroll. Management believes
that the allocation method is reasonable.
Questar InfoComm Inc is an affiliated company that provides data
processing and communication services to Questar Pipeline. The
Company paid Questar InfoComm $10,548,000 in 1998, $9,458,000 in
1997 and $7,155,000 in 1996.
Questar Pipeline has a 13-year lease with Interstate Land, an
affiliate, for some space in an office building located in Salt
Lake City, Utah. The annual lease payment for the next five years
is $1,155,000.
The Company received interest income from Questar of $11,000 in
1997 and $609,000 in 1996 and incurred debt expense to Questar of
$2,420,000 in 1998, $348,000 in 1997and $158,000 in 1996.
Note 9 - Discontinued Operations - Gathering Division Spin Down
and Transfer
Questar Pipeline transferred approximately $55 million of
gas-gathering assets to Questar Gas Management Company, a wholly
owned subsidiary. The transfer was approved by the FERC on
February 28, 1996 and was effective March 1, 1996. Questar Gas
Management was subsequently transferred to the nonregulated Market
Resources group of Questar on July 1, 1996. The transaction was
in the form of a stock dividend payable to Questar with no gain or
loss recorded. Questar Pipeline's financial statements for 1996
and 1995 were restated, reflecting gas-gathering operations as a
discontinued business segment.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized, on the 29th day of March, 1999.
QUESTAR PIPELINE COMPANY
(Registrant)
By /s/ D. N. Rose
D. N. Rose
President & Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the date
indicated.
/s/ D. N. Rose President & Chief Executive Officer;
D. N. Rose Director (Principal Executive Officer)
/s/ S. E. Parks Vice President, Treasurer and Chief
S. E. Parks Financial Officer (Principal
Financial Officer)
/s/ G. H. Robinson Vice President and Controller
G. H. Robinson (Principal Accounting Officer)
*R. D. Cash Chairman of the Board; Director
*U. Edwin Garrison Director
*Marilyn S. Kite Director
*Scott S. Parker Director
*D. N. Rose Director
March 29, 1998 *By /s/ D. N. Rose
Date D. N. Rose, Attorney in Fact
EXHIBIT INDEX
Exhibit
Number Exhibit
2.*1 Agreement of Transfer among Mountain Fuel Supply Company,
Entrada Industries, Inc. and Mountain Fuel Resources, Inc.,
dated July 1, 1984. (Exhibit No. 2. to Registration
Statement No. 2-96102 filed February 27, 1985.)
3.* Restated Articles of Incorporation dated November 17, 1995.
(Exhibit No. 3. to Form 10-K Annual Report for 1995.)
3.3.* Bylaws (as amended on August 11, 1992). (Exhibit No. 3. to
Form 10-Q Report for quarter ended June 30, 1992.)
4.1.*2 Indenture dated June 1, 1990, for 9-7/8% Debentures due
2020, with Morgan Guaranty Trust Company of New York as
Trustee. (Exhibit No. 4. to Form 10-Q Report for quarter
ended June 30, 1990.)
4.2.*2 Indenture dated as of June 1, 1991, for 9-3/8% Debentures
due June 1, 2021, with Morgan Guaranty Trust Company of New
York as Trustee. (Exhibit No. 4. to Form 10-Q Report for
quarter ended June 30, 1991.)
4.3.* Indenture dated as of August 17, 1998, with First Security
Bank, N.A., as Trustee, for Debt Securities. (Exhibit No.
4.01. to Registration Statement on Form S-3 (No. 333-61621)
filed August 17, 1998.)
10.1.*1,3Overthrust Pipeline Company General Partnership Agreement
dated September 20, 1979, as amended and restated as of
October 11, 1982, and as amended August 21, 1991, among CIG
Overthrust, Inc., Columbia Gulf Transmission Company;
Mountain Fuel Resources, Inc.; NGPL-Overthrust Inc.;
Northern Overthrust Pipeline Company; and Tennessee
Overthrust Gas Company. (Exhibit No. 10.4. to Form 10-K
Annual Report for 1985, except that the amendment dated
August 21, 1991, is included as Exhibit No. 10.4. to Form
10-K Annual Report for 1992.)
10.2.*4 Annual Management Incentive Plan adopted by Questar
Pipeline Company, Questar Gas Company, and Questar
Regulated Services Company, as amended and restated
effective May 19, 1998. (Exhibit No. 10.7. to Form 10-Q
Report for quarter ended June 30, 1998.)
10.3.* Partnership Agreement for the TransColorado Gas
Transmission Company dated July 1, 1997, between KN
TransColorado, Inc. and Questar TransColorado, Inc.
(Exhibit No. 10.4. to Form 10-K Annual Report for 1997.)
10.4.* Letter of Understanding dated July 13, 1998, on Issues
Relating to Phase II of TransColorado between Questar
TransColorado, Inc. and KN TransColorado, Inc. (Exhibit
No. 10.1. to Form 10-Q Report for quarter ended June 30,
1998.)
10.5.*5 Firm Transportation Service Agreement with Mountain Fuel
Supply Company under Rate Schedule T-1 dated August 10,
1993, for a term from November 2, 1993 through June 30,
1999. (Exhibit No. 10.5. to Form 10-K Annual Report for
1993.)
10.6.*5 Storage Service Agreement with Mountain Fuel Supply Company
under Rate Schedule FSS, for 3.5 Bcf of working gas
capacity at Clay Basin, with a term from September 1, 1993,
through August 31, 2008. (Exhibit No. 10.6. to Form 10-K
Annual Report for 1993.)
10.7.*5 Storage Service Agreement with Mountain Fuel Supply Company
under Rate Schedules FSS, for 3.5 Bcf of working gas
capacity at Clay Basin with a term from September 1, 1993,
through August 31, 2013. (Exhibit No. 10.7. to Form 10-K
Annual Report for 1993.)
10.8.*5 Storage Service Agreement with Mountain Fuel Supply Company
under Rate Schedule FSS, for 5.5 Bcf of working gas
capacity at Clay Basin, with a term from May 15, 1994
through May 14, 2019. (Exhibit No. 10.8. to Form 10-K
Annual Report for 1995.)
10.9.*4 Questar Pipeline Company Deferred Compensation Plan for
Directors, as amended and restated May 19, 1998. (Exhibit
No. 10.3. to Form 10-Q Report for quarter ended June 30,
1998.)
10.10.* Agreement for the Transfer of Assets between Questar
Pipeline Company and Questar Gas Management Company, as
amended, effective March 1, 1996. (Exhibit No. 10.11. to
Form 10-K Annual Report for 1996.)
10.11.* Guaranty Agreement dated as of October 14, 1998, by Questar
Pipeline Company in favor of Bank of America Trust and
Savings Association. (Exhibit No. 10.4. to Form 10-Q
Report for quarter ended September 30, 1998.)
10.12.* Asset Purchase Agreement dated October 23, 1998, between
Questar Line 90 Company, a wholly-owned subsidiary, and
ARCO Pipeline Company. (Exhibit No. 10.5. to Form 10-Q
Report for quarter ended September 30, 1998.)
12. Ratio of Earnings to Fixed Charges.
21. Subsidiary Information.
23. Consent of Independent Auditors
24. Power of Attorney.
27. Financial Data Schedule.
_______________
*Exhibits so marked have been filed with the Securities and
Exchange Commission as part of the indicated filing and are
incorporated herein by reference.
1The documents listed here have not been formally amended to
refer to the Company's current name. They still refer to the Company
as Mountain Fuel Resources, Inc.
2First Security Bank, N.A., serves as the successor trustee.
3The Overthrust Partnership Agreement has not been formally
amended to delete the names of Columbia Gulf Transmission Company and
Tennessee Overthrust Gas Company as partners.
4Exhibit so marked is management contract or compensation plan or
arrangement.
5Agreement incorporates specified terms and conditions of Questar
Pipeline's FERC Gas Tariff, First Revised Volume No. 1. The tariff
provisions are not filed as part of the exhibit, but are available
upon request.
(b) The Company did not file a Current Report on Form 8-K during
the last quarter of 1998.