QUESTAR PIPELINE CO - 10-K Annual Report

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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, 2001 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
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(Exact name of registrant as specified in its charter)

State of Utah 87-0307414
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

180 East 100 South, P.O. Box 45360, Salt Lake City, Utah 84145-0360
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(Address of principal executive offices) (Zip code)

Registrant's telephone number, including area code: (801) 324-5555
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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:

Medium Term Notes, Series A, 5.85% to 7.55% 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 1, 2002. $0.

Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of March 1, 2002: 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.

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TABLE OF CONTENTS

ii

FORM 10-K

ANNUAL REPORT, 2001

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 natural gas in the Rocky Mountain
states of Utah, Wyoming, and Colorado, and provides storage services in Utah and
Wyoming. The Company is an affiliate of Questar Corporation ("Questar"), a
diversified 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, through a
subsidiary, also owns and operates a processing plant. Questar Pipeline is
involved in two partnerships, Overthrust Pipeline Company ("Overthrust"), and
TransColorado Gas Transmission Company ("TransColorado").

Questar Pipeline is a wholly owned subsidiary of Questar Regulated Services
Company ("Regulated Services"), which is a subholding company under Questar.
Other entities within the Regulated Services group include Questar Gas Company
("Questar Gas"), a local distribution company, and Questar Energy Services, Inc.
("QES"), an entity created to market additional energy-related services and
products. 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. Questar Gas has reserved approximately 849,000
decatherms ("Dth") per day of firm transportation capacity on Questar Pipeline's
transmission system to serve the needs of its 731,900 customers in Utah,
southwestern Wyoming, and southeastern Idaho, (A Dth is the amount of heat
energy equal to 10 therms or one million British thermal units ("Btu")). Questar
Gas also contracts for additional capacity during the heating season and had
50,000 Dth per day during the period from December 1, 2001 to February 28, 2002.
Questar Gas has also contracted for firm storage capacity available at Clay
Basin and has storage contracts at the smaller peaking storage reservoirs.
Through a subsidiary, Questar Pipeline has a processing plant that extracts
carbon dioxide from gas volumes delivered to Questar Gas.

Questar Pipeline transports natural gas owned by Questar Gas and produced
from properties operated by Wexpro Company ("Wexpro"), another affiliate, as
well as 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
|
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| | |
Questar Questar Questar
Market Regulated InfoComm,
Resources, Services Inc.
Inc. Company
| |
| ----------------------|----------------------
| | | |
| Questar QUESTAR Questar
| Gas PIPELINE Energy
| Company COMPANY Services,
| Inc.
| |
| ---------------------------------------------
| | | |
| Questar Questar Questar
| Transpor- Southern TransColo
| tation Trails rado, Inc.
| Servcies Pipeline
| Company Company
|
- ---------------------------------------------------------------------------
| | | |
Wexpro Other QMR Questar Questar Gas
Company Entities Energy Management
(Questar Exploration Trading Company
and Production
Company,
Shenandoah Energy 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");
TransColorado; and Overthrust. These connections have opened markets outside
Questar Gas's service area for the Company and allow it to transport gas for
others.

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The Company's transmission system includes 1,840 miles of transmission
lines that link various producers of natural gas with Questar Gas's distribution
facilities in Utah and Wyoming and interconnect with other pipelines. (This
total transmission mileage includes pipelines associated with the Company's
storage fields and tap lines. It does not include the systems in which the
Company has a partnership interest or Southern Trails line.) 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 link between the two systems is provided by the Company's line that
runs from its Kanda/Coleman compressor station on the northern segment to its
Clay Basin storage reservoir and then on to its Fidlar compressor station on the
southern system.

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
currently has a 90 percent interest in and is the operating partner of
Overthrust, a general partnership that was organized in 1979 to construct, own,
and operate the Overthrust segment of Trailblazer. (The ownership percentage was
recently increased from 72 percent.) Trailblazer is a major 800-mile pipeline
system that transports gas from producing areas in the Rocky Mountains to the
Midwest. The 88-mile Overthrust segment is the western-most segment in
Trailblazer's system.

Questar TransColorado, Inc., which is a subsidiary of Questar Pipeline, and
KN TransColorado, Inc., a subsidiary of Kinder Morgan, Inc. (formerly KN Energy)
each have a 50 percent interest in the TransColorado pipeline project. The
Company's ownership interest in the project is subject to a complex lawsuit that
is described under "Legal Proceedings" later in this Report.

The pipeline, which was completed March 31, 1999, was built to transport
gas from the Rocky Mountain area that was traditionally priced lower than other
gas supplies to California and Midwestern markets through interconnections with
major pipeline systems. The pipeline 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.

In its first three years of operations, TransColorado incurred significant
losses because basis differentials, which reflect gas prices in different
producing basins, were not sufficient to encourage producers and market
aggregators to transport volumes on the line. The Company wrote down its
investment in TransColorado at year-end 1999 and has been recording operating
losses in TransColorado since April 1, 2001, pending the outcome of the
litigation and its ability to sell its interest to its partner.

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

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at the complex. In addition, both of CIG's Wyoming pipelines and the WIC segment
are connected to the complex.

TRANSPORTATION SERVICE

Questar Pipeline's largest single transportation customer is its affiliate,
Questar Gas. During 2001, the Company transported 110.3 million decatherms
("MMDth") for Questar Gas, compared to 108.2 MMDth in 2000. 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.

Questar Gas has reserved firm transportation capacity of about 849,000 Dth
per day on an annual basis, or about 60 percent of the Company's reserved
capacity, and has reserved an additional 50,000 Dth per day during the months of
December, January and February. The Company's primary transportation agreement
with Questar Gas was recently extended and expires June 30, 2017. Questar Gas
paid an annual reservation charge of approximately $52.1 million to the Company
in 2001, 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.

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 primarily for access to transportation capacity.
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 would vary with throughput if the
FERC changes its basic regulatory scheme of "straight fixed-variable" rates.

The Company's total system throughput increased from 275.2 MMDth in 2000 to
312.8 MMDth in 2001. Questar Pipeline increased the volumes it transports for
nonaffiliated customers from 158.6 MMDth in 2000 to 195.6 MMDth in 2001.

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 opportunities for interruptible transportation
services.

STORAGE/PROCESSING

Questar Pipeline's Clay Basin storage facility in northeastern Utah is the
largest underground storage reservoir in the Rocky Mountains. The facility has a
total capacity of 117.5 Bcf. 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 13.4 MMDth of working gas
capacity at Clay Basin. Other large customers include Williams; Puget Sound
Energy Company, a distribution utility in the state of Washington; and Duke
Energy Trading and Marketing L.L.C. Storage service is important to distribution
companies that

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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 release their injection and withdrawal rights to other
parties.

Questar Pipeline has proposed using a salt formation located near Evanston,
Wyoming, for the first salt-cavern storage project located in the Rocky Mountain
region. Current plans envision four potential caverns, which are formed through
water leeching techniques, that would each contain 2.5 Bcf of working gas and
that could be cycled 10-12 times per year. The Company is currently completing a
well that will provide additional engineering data and is soliciting customer
support. Depending on market support and regulatory approval, some salt-cavern
storage operations could be effective by the end of 2004.

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-demand
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.

Through its subsidiary--Questar Transportation Services Company--Questar
Pipeline also owns gathering lines and a processing plant near Price, Utah, that
removes carbon dioxide from coalbed methane gas in order to raise the Btu
content enough to be safely and efficiently used in appliances in Questar Gas's
service area. The plant began operating in June of 1999.

NEW PROJECTS

In November of 2001, the Company completed its Main Line 104 project, which
is 77 miles in length and 24 inches in diameter. The line extends from Price,
Utah, near the Ferron area of coalbed methane gas, to Questar Gas's system at
Payson, Utah, and the Kern River line near Elberta, Utah. Questar Gas has
contracted for 50,000 Dth of capacity on the new line all year long and 50,000
Dth of additional capacity during the heating-season months of December, January
and February. This additional capacity allows Questar Gas to have additional
firm capacity to meet its long-term needs.

Questar Pipeline, through a subsidiary, has begun converting the 490-mile
eastern segment of the Southern Trails line that runs from the Blanco hub area
in the San Juan Basin to multiple delivery points near the California state
line. The conversion process includes adding four new compressor stations,
installing additional receipt and delivery connections, and building a line to
the TransColorado pipeline. The segment's daily capacity of 80,000 Dth is fully
subscribed under long-term transportation contracts. The line is expected to be
in service by mid-2002.

Regulatory and marketing constraints have prevented the Company from
developing the 210-mile western segment of Southern Trails that runs from the
California border to Long Beach. Specifically, the California Public Utilities
Commission (the "CPUC") has proposed a new peaking rate that penalizes new
gas-fired power plants that elect to receive lower-cost gas supplies available
from

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pipelines such as Southern Trails while continuing to receive some services from
the local California utility. The proposal would also subject such power plants
to more restrictive balancing services than captive customers and would require
them to pay more for interruptible service than plants located in other parts of
California. While continuing to aggressively pursue natural gas markets on the
California portion of Southern Trails, the Company is exploring options for the
western segment, including sale or alternative uses.

Questar Pipeline intends to offer specified hub services such as "parking,"
and "loaning" effective May 1, 2002. It plans to install an additional
compressor at Clay Basin to facilitate such services and has filed the necessary
tariff revisions with the FERC. The Company has introduced the concept of hub
services to customers and believes that its central location, connections to
multiple lines, and the accessibility of storage capacity will enable it to
increase the load factor of its lines and increase its revenues by offering such
services.

REGULATION

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
2002. 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.

Questar Pipeline and its affiliates in the Regulated Services group have
actively opposed certain portions of the FERC's efforts to broaden the scope of
its regulations that are currently limited to "marketing affiliates." The FERC
issued a Notice of Proposed Rulemaking ("NOPR") in September of 2001, in which
it proposed rules that would require pipelines to comply with certain
"nondiscriminatory" standards when dealing with "energy company affiliates," a
term that was broadly defined to pick up local distribution companies such as
Questar Gas. At the current time, local distribution company affiliates, such as
Questar Gas, that do not engage in unregulated gas sales are exempt from the
FERC's standards. The Company believes that the current exemption should be
continued. If adopted, the FERC's proposed rules would diminish the Company's
operational efficiencies and increase its costs because QRS provides gas
control, administrative, engineering, technical, accounting, legal, and
regulatory services to both Questar Pipeline and Questar Gas.

The Company is also required to comply with the FERC's Order No. 637 that
requires it, among other things, to offer capacity segmentation to its
transportation customers. Given its configuration as a hub- and spoke-pipeline,
rather than as a long line, Questar Pipeline has argued that traditional
segmentation would reduce shippers' flexibility to use their capacity on its
system and would negatively affect its own throughput capacity. The FERC denied
the Company's request of a waiver, but has acknowledged that segmentation should
be implemented in a fashion that does not negatively impact firm-capacity
customers. Questar Pipeline has until May 15, 2002, to file tariff provisions
that comply

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with the segmentation portion of Order No. 637. The Company has also filed a
request for rehearing of the FERC's decision denying its request for a waiver
from segmentation.

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

Questar Pipeline extended its footprint to other parts of the western
United States by participating in the TransColorado pipeline project and
purchasing the Southern Trails line. There are market risks associated with
these projects, as evidenced by Questar Pipeline's decision to write down its
investment in TransColorado. Questar Pipeline's efforts to complete the Southern
Trails conversion are affected by its ability to obtain market support and by
the local regulation and political climate in California.

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, low-cost 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, which 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.
The Company's announced projects to build a salt-cavern storage project and to
offer hub services capitalize on these assets.

EMPLOYEES

As of December 31, 2001, the Company and a wholly owned subsidiary had 145
employees, compared to the 108 employees as of year-end 2000. Regulated
Services, the Company's parent, had 361 employees at year-end 2001, compared to
358 at year-end 2000, who perform specified services for Questar Pipeline, and
other members of the 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.

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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 9 of the Consolidated Financial Statements included under Item
14 of this Report for additional information concerning transactions between the
Company and its affiliates.

The Company obtains data processing and communication services from an
affiliate, Questar InfoComm Inc. Regulated Services, the Company's parent, has
employees who perform administrative, engineering, accounting, marketing,
budget, tax, 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.

There are various legal proceedings pending against the Company. Although
it is too early to estimate the outcome of the various cases filed against
Questar Pipeline and its affiliates, management believes that the outcome of
these cases will not have a material adverse effect on the Company's financial
position or liquidity. Significant cases are discussed below.

TRANSCOLORADO. Questar TransColorado, Inc. ("QTC"), a subsidiary of Questar
Pipeline, owns a 50 percent interest in the TransColorado Gas Transmission
Company ("TransColorado), which is the partnership that built and operates the
TransColorado pipeline project. QTC and its partner, KN TransColorado, Inc.
("KNTC") are involved in a complex lawsuit that is pending in a state district
court in Colorado. At center stage in the lawsuit is the validity of a
contractual right claimed by QTC to sell its 50 percent interest in
TransColorado to KNTC during the 12-month period beginning March 31, 2001.

KNTC originally filed the lawsuit in June of 2000 alleging that Questar
Pipeline and its affiliates breached their fiduciary duties to TransColorado and
KNTC by developing a plan to construct and operate a new pipeline (this
project--Main Line 104--is described under the section "New Projects") that
would compete with TransColorado, rendering it economically unviable. KNTC is
seeking at least $150 million plus punitive damages, a declaratory judgment that
KNTC's obligation to purchase QTC's interest in the project be declared void and
unenforceable, and a dissolution of the partnership under Colorado law.

QTC and its affiliates subsequently filed a counterclaim against KNTC and
its named affiliates, including Kinder Morgan, Inc., seeking a declaratory
judgment that its contractual right to sell its interest to Kinder Morgan is
binding and enforceable and damages of at least $185 million.

The parties have entered into a standstill agreement that preserves the
claims made by both parties pending the resolution of the litigation. On
December 31, 2000, QTC gave notice of its election to exercise its contractual
right to sell its 50 percent interest in TransColorado to KNTC, subject to the
standstill agreement. A trial before the judge is scheduled to begin April 1,
2002.

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GRYNBERG. Questar affiliates, including the Company, are named defendants
in a lawsuit filed by an independent producer (Grynberg) under the Federal False
Claims Act. This case is substantially similar to other cases filed by Grynberg
against pipelines and their affiliates have been consolidated for discovery and
pre-trial motions in Wyoming's federal district court. The cases involve
allegations of industry-wide mismeasurement and undervaluation of gas volumes on
which royalty payments are due the federal government. The complaint seeks
treble damages and imposition of civil penalties. The federal district judge
denied the motions filed by the defendants to dismiss the lawsuits, but has not
set a date for a scheduling conference.

A second case involving Grynberg is currently on appeal before the Utah
Supreme Court. The case was dismissed by a Utah state court judge after he
granted the motion for summary judgment filed by the Questar parties. Grynberg
claims that Questar Pipeline, Questar Gas Management Company and Questar Energy
Trading Company mismeasured gas volumes attributable to his working interest in
specified wells located in southwestern Wyoming. He cites mismeasurement to
support claims for breach of contract, negligent misrepresentation, fraud,
breach of fiduciary responsibilities and related causes.

GAS PIPELINES. The Company and other Questar affiliates are among the
numerous defendants in this case, which is currently styled as WILL PRICE V. GAS
PIPELINES but was formerly known as QUINQUE OPERATING COMPANY V. GAS PIPELINES,
that has been filed against the pipeline industry. Pending in a Kansas state
district court, this case is similar to the cases filed by Grynberg, but the
allegations of a conspiracy by the pipeline industry to set standards that
result in the systematic mismeasurement of natural gas volumes and resulting
underpayment of royalties are made on behalf of private and state lessors,
rather than on behalf of the federal government. The defendants, including the
Questar defendants, have filed motions to dismiss for lack of personal
jurisdiction.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

The Company did not submit any matters to a vote of its stockholder during
the last quarter of 2001.

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.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

RESULTS OF OPERATIONS
Questar Pipeline conducts natural gas transmission, storage and processing
operations. Following is a summary of financial results and operating
information:

REVENUES
Transportation volumes rose 14% in 2001 to reach 313 million dth after posting a
9% increase to 275 million dth in 2000. Not only are the volumes of gas
transportation increasing, but the proportion of firm volumes to interruptible
volumes is increasing. Firm transportation volumes, whose customers pay a fixed
rate to reserve a portion of pipeline capacity, increased to 94% of the total in
2001 compared with 92% the previous year. The increase in firm transportation
reflects a growing demand for gas for power generation and growing pipeline
capacity. Main Line 104, a 77 mile extension in central Utah with a 272,000 dth
per day capacity, began operations in November 2001 and is fully subscribed.

As of December 31, 2001, approximately 77% of Questar Pipeline's transportation
system was reserved by firm transportation customers under contracts with
varying terms and lengths. Questar Gas continues to be Questar Pipeline's single
largest transportation customer accounting for 70% of the demand charges
collected. Questar Gas has reserved transportation capacity of 899,000 dth per
day,

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representing 61% of the total reserved daily-transportation capacity as of
December 31, 2001. Questar Gas' transportation contracts have been extended with
initial terms ending in 2006 to 2017.

Revenues from storage operations remained unchanged in the three-years ending
December 31, 2001. Questar Pipeline's primary storage facility at Clay Basin has
been 100% subscribed under long-term contracts for several years. A majority of
the storage contracts have terms in excess of eight years. The Clay Basin
storage facility in eastern Utah was last expanded by 5 Bcf in May of 1998.
Questar Gas has contracted for 26% of firm-storage capacity for terms extending
from 2008 to 2019.

A processing plant owned by Questar Transportation Services, which removes
carbon dioxide from a portion of the gas stream, completed its second year of
operation in 2001.

OPERATING EXPENSES
Operating and maintenance (O&M) expenses increased 8% in 2001 compared with 2000
due primarily to rising legal costs and information system maintenance. These
increases more than offset labor savings from an early retirement program
offered in the fourth quarter of 2000. Higher legal costs and a full year of
expenses associated with a gas-processing plant were responsible for the 14%
increase in O&M expense in 2000 compared with 1999. The estimated useful life of
a processing plant that removes carbon dioxide from the gas stream was increased
from 10 to 20 years resulting in a $1.3 million reduction of depreciation
expense in 2000. Because processing fees are determined on a cost-of-service
basis, the lower depreciation expense resulted in a $1.3 million refund to
Questar Gas, the primary customer of processing services.

INTEREST AND OTHER INCOME
Interest and other income increased 97% in 2001 compared with 2000 mainly from
increased AFUDC (capitalized financing costs) associated with Questar Pipeline's
construction projects. Comparing the 2000 period with 1999, interest and other
income was 28% lower due primarily to a reversal of a contingency reserve in
1999 related to the completion of the TransColorado Pipeline and another
construction project.

OPERATIONS OF UNCONSOLIDATED AFFILIATES
Earnings from unconsolidated affiliates includes the Company's fifty-percent
share of operating losses from the TransColorado Pipeline partnership of $2.2
million in 2001. The Company did not report operating losses in 2000 for
TransColorado. In the 1999 period, the Company's share of the losses reported by
TransColorado Pipeline partnership amounted to $5.9 million. Earnings from the
Overthrust Pipeline partnership were $1.1 million, $1.2 million and $.8 million
in 2001, 2000, and 1999, respectively.

DEBT EXPENSE
Debt expense was 4% lower in 2001 compared to 2000 mainly from reducing interest
rates. Questar Pipeline replaced $115 million of long-term debt with a weighted
average interest rate of 9.5%, with less expensive long-term debt with a
weighted average interest rate of 7.09%.

INCOME TAXES
The effective combined federal and state income tax rate was 37.1% in 2001,
31.5% in 2000 and 38.5% in 1999. The income tax rate in 2000 was below the
combined statutory rate of about 37% primarily due to a Colorado state income
tax credit. The credit, derived from conducting business in a designated
enterprise zone, reduced state income taxes by $3.2 million in 2000.

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TRANSCOLORADO LITIGATION
Questar TransColorado, Inc. (QTC), a subsidiary of Questar Pipeline, and KN
TransColorado, Inc. (KNTC), a subsidiary of Kinder Morgan, are partners in the
TransColorado Gas Transmission Company (TransColorado). The partners are
involved in a complex lawsuit pending in a Colorado state district court. At the
center of the lawsuit is the validity of a contractual right claimed by QTC to
put its 50% interest in TransColorado to KNTC during the 12-month period
beginning March 31, 2001. QTC believes it is entitled to receive $118 million
under the put. QTC and KNTC entered a standstill agreement regarding various
issues in the litigation. QTC provided notice to KNTC that it elected to put its
interest in TransColorado as of March 31, 2001, were it not for the provisions
of the standstill agreement. The trial is scheduled to commence on April 1,
2002.

LIQUIDITY AND CAPITAL RESOURCES
Operating Activities

Net cash provided from operating activities increased 11% in 2001 compared with
2000 primarily due to the timing of payments associated with capital
expenditures in 2001, partially offset by lower collections from customer
accounts. Net cash provided from operating activities increased 342% in 2000
compared with 1999. The increase is due primarily from higher collections of
accounts receivable in 2000 from a partner in a pipeline project, while payments
on accounts payable were lower due to higher payments to vendors for
construction projects in 1999.

Investing Activities

Following is a summary of capital expenditures for 2001, 2000 and a forecast for
2002 expenditures:

-12-

Capital spending focused on expansion of the gas transmission network,
investment in transmission partnerships and conversion of a crude-oil pipeline.
Construction was completed on Main Line 104, a 77 mile pipeline in central Utah
that cost $95.4 million. Questar Pipeline borrowed $100 million and used the
proceeds to repay debt, through a wholly owned subsidiary, Questar
TransColorado, Inc. (QTC), owed by TransColorado Gas Transmission Company
(TransColorado). Capital expenditures for the Southern Trails Pipeline totaled
$32.4 million in 2001.

Financing Activities

Net cash provided from operating activities and a net increase in debt, enabled
Questar Pipeline to fund record 2001 capital expenditures and pay dividends.
Forecasted 2002 capital expenditures are expected to be financed from net cash
flow provided from operations and borrowing from Questar.

Questar Pipeline filed a Form S-3 with the Securities and Exchange Commission to
issue up to $250 million of medium-term notes, Series B, with maturities of nine
months to 30 years. During 2001, the Company issued 10-year medium-term notes
for $100 million with a coupon rate of 7.09% and $80 million with a coupon rate
of 6.57%. The funds were used to refinance debentures of $30 million at 9 7/8%
and $85 million at 9 3/8% and to finance a portion of capital expenditures and
partnership investments.

Questar Pipeline borrowed $100 million of floating rate debt from a bank for a
12-month period to repay through a wholly owned subsidiary, Questar
TransColorado, Inc., one-half of the outstanding and currently maturing debt
owed by the TransColorado Gas Transmission Company.

Questar makes loans to Questar Pipeline under a short-term borrowing
arrangement. Outstanding short-term notes payable to Questar totaled $18.3
million with an interest rate of 2.31% at December 31, 2001 and no amounts were
borrowed as of December 31, 2000.

Questar Pipeline also invests excess cash balances with Questar. The funds are
centrally managed by Questar and earn an interest rate that is identical to the
interest rate paid by the subsidiaries borrowing from Questar. Notes receivable
from Questar as of December 31, 2000 amounted to $20.7 million with an interest
rate of 6.91% at December 31, 2000 and no amounts loaned as of December 31,
2001.

The Company has negative working capital of $134.1 million at December 31, 2001.
Questar Pipeline borrowed $100 million of floating rate debt for a 12-month
period to refinance 50% of a loan held by the TransColorado partnership that
matured in October 2001. The Company intends to repay the debt through the
settlement of the lawsuit, KN TransColorado, Inc. v. Questar Corporation, as
described in note 7 to the financial statements. In addition, the record capital
expenditures for the Company in 2001, caused additional short-term obligations.

Questar Pipeline's capital structure at year-end 2001 was 56% long-term debt and
44% common shareholder's equity. Moody's and Standard and Poor's have rated the
Company's long-term debt A1 and A+, respectively.

Critical Accounting Policy

The Company's consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States. Management
believes the following accounting policy may involve a higher degree of
judgement.

-13-

RATE REGULATION
Rate regulatory agencies establish rates for the storage 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 return on investment. The financial statements of
Questar Pipeline are presented in accordance with regulatory requirements.
Methods of allocating cost to time periods, in order to match revenues and
expenses, may differ from those of other businesses because of cost- allocation
methods used to establish rates.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

All of the Company's long-term debt is borrowed at fixed rates. As the need
arises, the Company borrows funds on short-term basis, which bear
variable-interest rates.

Forward-Looking Statements

This report includes "forward-looking statements" within the meaning of Section
27(a) of the Securities Act of 1933, as amended, and Section 21(e) of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical facts included or incorporated by reference in this
report, including, without limitation, statements regarding the Company's future
financial position, business strategy, budgets, projected costs and plans and
objectives of management for future operations, are forward-looking statements.
In addition, forward-looking statements generally can be identified by the use
of forward-looking terminology such as "may", "will", "could", "expect",
"intend", "project", "estimate", "anticipate", "believe", "forecast", or
"continue" or the negative thereof or variations thereon or similar terminology.
Although these statements are made in good faith and are reasonable
representations of the Company's expected performance at the time, actual
results may vary from management's stated expectations and projections due to a
variety of factors.

Important assumptions and other significant factors that could cause actual
results to differ materially from those expressed or implied in forward-looking
statements include changes in general economic conditions, gas prices and
supplies, competition, rate-regulatory issues and other factors beyond the
control of the Company. These other factors include the rate of inflation, the
effect of natural phenomena, the effect of accounting policies issued
periodically by accounting standard-setting bodies, and adverse changes in the
business or financial condition of the Company.

-14-

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 company under
the Securities and Exchange Act of 1934, as amended, 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).

- ----------

* Exhibits so marked have been filed with the Securities and Exchange
Commission as part of the indicated filing and are incorporated herein by
reference.

(1) The documents listed here have not been formally amended to refer to
the Company's current name. They still refer to the Company as Mountain Fuel
Resources, Inc.

(2) Wells Fargo Bank Northwest, N.A., serves as the successor trustee.

(3) The Overthrust Partnership Agreement has not been formally amended to
delete the names of Columbia Gulf Transmission Company, Tennessee Overthrust Gas
Company, and Northern Overthrust Pipeline Company and NGPL-Overthrust Inc. as
partners.

(4) Questar Line 90 Company has been merged with Questar Southern Trails
Company and no longer exists as an entity.

(b) The Company did not file a Current Report on Form 8-K during the fourth
quarter of 2001.

-16-

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, 2001

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, 2001, 2000
and 1999

Consolidated balance sheets -- December 31, 2001 and 2000

Consolidated statements of cash flows -- Years ended December 31, 2001,
2000 and 1999

Consolidated statements of shareholder's equity -- Years ended December 31,
2001, 2000 and 1999

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.

-17-

Report of Independent Auditors

Board of Directors
Questar Pipeline Company

We have audited the accompanying consolidated balance sheets of Questar Pipeline
Company and subsidiaries as of December 31, 2001 and 2000, and the related
consolidated statements of income, common shareholder's equity and cash flows
for each of the three years in the period ended December 31, 2001. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Questar Pipeline
Company and subsidiaries at December 31, 2001 and 2000, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States.

/s/ Ernst & Young LLP
-------------------------
Ernst & Young LLP

Salt Lake City, Utah
February 8, 2002

-18-

QUESTAR PIPELINE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

See notes to consolidated financial statements.

-19-

QUESTAR PIPELINE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

-20-

See notes to consolidated financial statements.

-21-

QUESTAR PIPELINE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY

See notes to consolidated financial statements.

-22-

QUESTAR PIPELINE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

See notes to consolidated financial statements.

-23-

QUESTAR PIPELINE COMPANY AND SUBSIDIARIES
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 the 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. A subsidiary,
Questar Transportation Services, operates a plant designed to remove excess
carbon dioxide from a portion of a pipeline. A subsidiary, Questar Southern
Trails Pipeline Company, has acquired an oil pipeline that will be converted to
transport natural gas. All significant intercompany balances and transactions
have been eliminated in consolidation.

INVESTMENT IN UNCONSOLIDATED AFFILIATES: Questar Pipeline uses the equity method
to account for investments in affiliates in which it does not have control. The
principal affiliates are: Overthrust Pipeline Company and TransColorado Gas
Transmission Company. Questar Pipeline is the operator of the Overthrust Segment
of the Trailblazer Pipeline System. Approval of all partners is required for all
substantive policy matters. Generally, the Company's investment in these
affiliates equals the underlying equity in net assets, except for TransColorado
where the investment was written down in 1999. The Company experienced an
other-than-temporary decline in its partnership investment caused by low volumes
resulting from unfavorable regional transportation economics.

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 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.

OTHER REGULATORY ASSETS AND LIABILITIES: Gains and losses on the reacquisition
of debt by rate-regulated affiliates are deferred and amortized as debt expense
over the would-be remaining life of the retired debt or the life of the
replacement debt in order to match regulatory treatment. The cost of the early
retirement windows offered to employees of rate-regulated subsidiaries is
capitalized and amortized over a five-year period in accordance with regulatory
treatment. Rate-regulated operations record cumulative increases in deferred
taxes as income taxes recoverable from customers. The Company has adopted
procedures with the FERC 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.

USE OF ESTIMATES: The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts of assets
and liabilities and disclosure of contingent liabilities reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates.

REVENUE RECOGNITION: Revenues are recognized in the period that services are
provided or products are delivered. Questar Pipeline periodically collects
revenues subject to possible refunds pending final orders from the FERC. The
Company establishes reserves for revenues collected subject to refund.

-24-

CASH AND CASH EQUIVALENTS: Cash equivalents consist principally of repurchase
agreements with maturities of three months or less. In almost all cases, the
repurchase agreements are highly liquid investments in overnight securities made
through commercial bank accounts that result in available funds the next
business day.

NOTES RECEIVABLE FROM QUESTAR: Notes receivable from Questar represent interest
bearing demand notes for cash loaned to Questar until needed in the Company's
operations. The funds are centrally managed by Questar and earn an interest rate
that is identical to the interest rate paid by the Company for borrowings from
Questar.

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 2.9%,
3.2% and 3.4% in 2001, 2000 and 1999 respectively.

ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION: The Company capitalizes the cost
of capital during the construction period of plant and equipment in accordance
with FERC guidelines. Capitalized financing costs, called allowance for funds
used during construction (AFUDC), consist of debt and equity portions. The debt
portion of AFUDC is recorded as a reduction of interest expense and the equity
portion is recorded in other income. Debt expense was reduced by $3.7 million in
2001, $3.3 million in 2000 and $2.7 million in 1999. AFUDC included in interest
and other income amounted to $4.8 million in 2001, $2.3 million in 2000 and $1.7
million in 1999.

INCOME TAXES: The Company accounts for income tax expense on a separate return
basis. Pursuant to the Internal Revenue Code and associated regulations, the
Company 's operations are consolidated with those of Questar and its
subsidiaries for income tax reporting purposes. The Company records tax benefits
as they are generated. The Company receives payments from Questar for such tax
benefits as they are utilized on the consolidated return. Questar Pipeline
records cumulative increases in deferred taxes as income taxes recoverable from
customers.

ENERGY-PRICE FINANCIAL INSTRUMENTS: On January 1, 2001, the Company adopted the
accounting provisions of Statement of Financial Accounting Standards 133, as
amended, "Accounting for Derivative Instruments and Hedging Activities" (SFAS
133). SFAS 133 addresses the accounting for derivative instruments, including
certain derivative instruments embedded in other contracts. Under the standard,
entities are required to carry all derivative instruments in the balance sheet
at fair value. The accounting for changes in fair value, which result in gains
or losses, of a derivative instrument would either be reported in income or
comprehensive income. The Company has not entered into any commodity or
interest-based derivative instruments. There is no financial impact on the
Company since adopting this accounting standard.

NEW ACCOUNTING STANDARDS: In June 2001, the Financial Accounting Standards Board
("FASB") issued SFAS 141, "Business Combinations," which addresses financial
accounting and reporting for business combinations. SFAS 141 is effective for
all business combinations initiated after June 30, 2001 and for all business
combinations accounted for under the pooling method initiated before but
completed after June 30, 2001. The Company has not entered into any business
combinations transactions since adopting this accounting standard.

In June 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible Assets,"
which addresses, among other things, the financial accounting and reporting for
goodwill subsequent to an acquisition. The new standard eliminates the
requirement to amortize acquired goodwill; instead, such goodwill shall be
reviewed

-25-

at least yearly for impairment or sooner if a specific trigger occurs. Goodwill
acquired after July 1, 2001, is exempt from amortization. At December 31, 2001,
the Company did not have any goodwill or other intangible assets that qualify
for the accounting treatment under SFAS 142.

In June 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement
Obligations," which addresses, among other things, the financial accounting and
reporting of the fair value of legal obligations associated with the retirement
of tangible long-lived assets. The new standard requires that retirement costs
be estimated at fair value, capitalized and depreciated over the life of the
assets. The new standard may affect the cost basis of rate-regulated assets.
SFAS 143 is effective for 2003. The Company has not evaluated the impact of SFAS
143.

In August 2001, the FASB issued SFAS 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." The new standard addresses financial accounting
and reporting for the impairment or disposal of long-lived assets, specifically,
for a segment of a business accounted for as a discontinued operation, and
modifies the provisions of SFAS 121. SFAS 144 is effective for 2002. The Company
has not evaluated the impact of SFAS 144.

RECLASSIFICATIONS: Certain reclassifications were made to the 2000 and 1999
financial statements to conform with the 2001 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. As of December 31, 2001, these
affiliates did not have debt obligations with third-party lenders. The principal
partnerships and percentage ownership were as follows: Overthrust Pipeline Co.
(72%) and TransColorado Gas Transmission Co. (50%). Questar Pipeline acquired an
additional 18% of Overthrust Pipeline in January 2002 bringing its ownership
percentage to 90%.

Summarized information of the partnerships follows:

Note 3 - Debt

Questar makes loans to Questar Pipeline under a short-term borrowing
arrangement. Outstanding short-term notes payable to Questar totaled $18.3
million with an interest rate of 2.31% at December 31, 2001 and no amounts were
borrowed as of December 31, 2000.

-26-

Questar Pipeline also invests excess cash balances with Questar. The funds are
centrally managed by Questar and earn an interest rate that is identical to the
interest rate paid by the subsidiaries borrowing from Questar. Notes receivable
from Questar as of December 31, 2000, amounted to $20.7 million with an interest
rate of 6.91%, and no amounts loaned as of December 31, 2001.

On October 12, 2001, Questar Pipeline borrowed $100 million of short-term debt
with a variable rate of interest. The weighted average interest rate at December
31, 2001 was 2.831%. The proceeds were used to repay through a wholly-owned
subsidiary, Questar TransColorado, Inc. (QTC), debt owed by TransColorado Gas
Transmission Company (TransColorado).
The details of long-term debt at December 31 are as follows:

On May 11, 2001, Questar Pipeline filed a Form S-3 with the Securities and
Exchange Commission to issue up to $250 million of medium-term notes, Series B,
with maturities of nine months to 30 years. On May 29, 2001, Questar Pipeline
issued $100 million of ten-year notes with a 7.09% coupon rate. On September 26,
2001, Questar Pipeline issued $80 million of ten-year medium-term notes with a
coupon rate of 6.57%.

On March 30, 2001, Questar Pipeline redeemed the remaining $30 million of its
9 7/8% debentures. The redemption price was equal to 104.67% of the principal
amount plus interest from December 1, 2000. In addition, Questar Pipeline
redeemed all $85 million of its 9 3/8% debentures on June 25, 2001. The
redemption price was equal to 104.51% of the principal amount plus interest for
twenty-four days.

Cash paid for interest was $19.1 million in 2001, $20.4 million in 2000 and $19
million in 1999.

Note 4 - Financial Instruments and Risk Management

The carrying amounts and estimated fair values of the Company's financial
instruments at December 31 were as follows:

The Company used the following methods and assumptions in estimating fair
values: (1) Cash and cash

-27-

equivalents and short-term loans - the carrying amount approximates fair value;
(2) Long-term debt - the fair value of long-term debt is based on discounted
present value of cash flows using the Company's current borrowing rates. Fair
value is calculated at a point in time and does not represent the amount the
Company would pay to retire the debt securities.

CREDIT RISK: Questar Pipeline's primary market is the Rocky Mountain region in
the United States, and will include the southwestern region once Questar
Pipline's subsidiary, Questar Southern Trails, puts its pipeline into service.
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, loss reserves and
collection procedures 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:

The difference between the statutory federal income tax rate and the Company's
effective income tax rate is explained as follows:

-28-

Significant components of the Company's deferred income taxes at December 31
were as follows:

A Colorado state income tax credit derived from conducting business in a
designated enterprise zone reduced state income taxes by $3.2 million in 2000.
The tax credit has a 3-year carryback and a 12-year carryforward provision. As
of December 31, 2001, the balance of the tax credit carryforward was $2.5
million.

Cash paid for income taxes was $5.3 million in 2001, $1.8 million in 2000 and
$7.4 million in 1999.

Note 6 - Rate Matters and Other

FEDERAL RATE REGULATION
On September 27, 2001, the Federal Energy Regulatory Commission (FERC) issued a
Notice of Proposed Rule making on Standards of Conduct for Transmission
Providers (NOPR) that would significantly broaden the scope of the FERC's
affiliate regulations for pipelines. The NOPR would require all transmission
providers to comply with standards of conduct dealing with affiliated energy
companies. Those standards include the separation of functions and
non-discriminatory treatment of transmission customers. The NOPR would
essentially diminish operational efficiencies and increase costs by mandating a
complete separation of operations. Questar Regulated Services supplies
administrative, technical, accounting, legal and regulatory support for both
Questar Pipeline and Questar Gas.

Questar Gas, Questar Pipeline, industry associations and other companies have
filed written and verbal comments with the FERC about the problems this NOPR
would create for the industry and its customers and asked the FERC to reconsider
its proposal.

CPUC DECISION AND SOUTHERN TRAILS
A ruling from the California Public Utilities Commission (CPUC) on Residential
Load Service tariff has adverse effects on new pipelines attempting to enter the
California market. Under the CPUC's proposed new peaking rate, new gas fired
power plants wanting natural gas service from both Southern California Gas
Company (SoCal) and the Southern Trails Pipeline will pay a higher rate for
SoCal's service than customers taking service entirely from SoCal. In addition,
new power plants would be subject to more restrictive balancing services than
captive customers and would pay even more for interruptible service than
California power plants in other parts of the state. While the Company continues
to actively pursue natural gas markets on the California portion of its Southern
Trails Pipeline, the Company is considering alternative uses as well.

-29-

Note 7 - Litigation and Commitments

KN TRANSCOLORADO, INC. V. QUESTAR CORPORATION
Questar TransColorado, Inc. (QTC) and its partner, KN TransColorado, Inc.,
(KNTC) in the TransColorado Gas Transmission Company (TransColorado) are
involved in a complex lawsuit that is pending in a state district court in
Colorado. At the center of the lawsuit is the validity of a contractual right
claimed by QTC to put its 50% interest in TransColorado to KNTC during the
12-month period beginning March 31, 2001. The current value of the put is $118
million.

KNTC filed a lawsuit in June of 2000 alleging that Questar Pipeline and its
affiliates breached their fiduciary duties to TransColorado and KNTC by
constructing and operating a pipeline (Questar Pipeline's Main Line 104) that
would compete with TransColorado, rendering TransColorado economically unviable.
KNTC is seeking damages in excess of $150 million plus punitive damages; a
declaratory judgment that KNTC's obligation to purchase QTC's interest in the
project be declared void and unenforceable; and a dissolution of the partnership
under Colorado law. QTC and its affiliates subsequently filed a counterclaim and
third-party complaint against KNTC and named affiliates, including Kinder
Morgan, Inc., seeking a declaratory judgement that its contractual right to
exercise the put is binding and enforceable, and damages of at least $185
million.

The parties entered into a standstill agreement that preserves the claims made
by Questar and KNTC pending the resolution of the litigation. On December 31,
2000, QTC gave notice of its election to exercise its contractual right to sell
its 50% interest in TransColorado to KNTC.

The parties have engaged in extensive discovery proceedings and used a special
master to review some issues raised in discovery. The trial is scheduled to
begin April 1, 2002.

GRYNBERG LAWSUITS
Questar affiliates are named defendants in a lawsuit filed by independent gas
producer Jack J. Grynberg under the Federal False Claims Act. This case and all
substantially similar cases filed by Grynberg against pipelines and their
affiliates have been consolidated for discovery and pre-trial rulings in Wyoming
federal district court. The cases involve allegations of industry wide
mismeasurement and undervaluation of gas on which royalty payments are due the
federal government. The complaint seeks treble damages and imposition of civil
penalties. The Wyoming district court judge denied the defendant's initial
motion to dismiss. No motions are currently pending.

Grynberg has filed a case against Questar Pipeline, Questar Energy Trading and
Questar Gas Management in Utah state district court, alleging mismeasurement of
gas volumes attributable to his working ownership interest in a specified
property in southwestern Wyoming. Grynberg alleges breach of contract, negligent
misrepresentation, fraud, breach of fiduciary duty, etc. On March 13, 2001, the
trial judge granted defendants' motion to dismiss a case by Grynberg and
Grynberg appealed that ruling to the Utah State Supreme Court. Briefing of the
case is currently taking place.

It is too early to estimate the outcome of the cases filed by Grynberg against
Questar affiliates.

WILL PRICE V. GAS PIPELINES ET AL. (FORMERLY QUINQUE OPERATING CO. V. GAS
PIPELINES)
Questar Pipeline and Questar's subsidiaries are named defendants in a
purported nationwide class action alleging mismeasurement of volumes and heating
content of gas produced from private and state lands. The plaintiffs are
alleging a conspiracy among the defendants to set industry standards that
undermeasure gas. The defendants have filed motions to dismiss the pending
actions for lack of personal jurisdiction and for failure to state a claim. The
producer's complaint does not include a request for any specific monetary
damages.

-30-

OTHER LEGAL PROCEEDINGS
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 8 - 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, 2001, Questar's net benefit
obligation exceeded the fair value of plan assets.

Questar Regulated Services offered early retirement windows to eligible
employees in 2000. In 2000, a total of 276 employees and recipients of long-term
disability from Questar Gas, Questar Pipeline and Questar Regulated Services
elected to retire effective October 31. The $14.4 million cost of the early
retirement window will be amortized over a five-year period in accordance with
regulatory treatment. Pension cost was $1.2 million in 2001, $.4 million in 2000
and $.4 million in 1999.

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 as determined by an employee's years of service and limited to
170% of the 1992 contribution. The Company's policy is to fund amounts allowable
for tax deduction under the Internal Revenue Code. Plan assets consist of equity
securities, and corporate and U.S. government debt obligations. The Company is
amortizing the transition obligation over a 20-year period, which began in 1992.
The FERC allows rate-recovery of future postretirement benefits costs to the
extent that contributions are made to an external trust. Questar Pipeline has
recorded a $2.3 million regulatory liability as of December 31, 2001. As a
result of returns earned on investments, the Company recorded expense reductions
of $.3 million, $.4 million and $.2 million in 2001, 2000, and 1999,
respectively. At December 31, 2001, Questar's net benefit obligation exceeded
the fair value of plan assets.

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 Company has a regulatory
asset amounting to $.4 million as of December 31, 2001.

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EMPLOYEE INVESTMENT PLAN: The Company participates in Questar's Employee
Investment Plan (Plan), which allows eligible employees to purchase shares of
Questar common stock or other investments through payroll deduction. The Company
matches 80% of employees'-pretax purchases up to a maximum of 6% and contributes
an additional $200 of common stock in the name of each eligible employee. The
Company's expense equals its matching contribution. The Company's expense to the
plan was $.4 million in 2001, $.3 million in 2000 and $.3 million in 1999.

Note 9 - Related-Party Transactions

Regulated Services provides administrative, technical, accounting, legal and
regulatory support to Questar Pipeline at its cost. Regulated Services also
obtains data processing and communication services from an affiliate, Questar
InfoComm Inc., which are allocated to Questar Pipeline. Regulated Services
charged Questar Pipeline $21 million in 2001, $18.8 million in 2000, and $22.6
million in 1999. 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 $72.9 million in 2001,
$73.7 million in 2000 and $71.6 million in 1999. The Company also received
revenues from other affiliated companies totaling $2.6 million in 2001, $2.8
million in 2000 and $3.6 million in 1999.

Questar performs certain administrative functions for Questar Pipeline. The
Company was charged for its allocated portion of these services that totaled
$2.6 million in 2001, $3 million in 2000 and $2.4 million in 1999. 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. Direct charges paid by the Company
to Questar InfoComm amounted to $4.3 million in 2001, $9 million in 2000 and
$8.3 million in 1999.

Questar Pipeline has a 10-year lease with an option for renewal with an
affiliate for some space in an office building located in Salt Lake City, Utah.
Rent expense was $.7 million, $.6 million and $.6 million in 2001, 2000, and
1999, respectively. The annual lease payment for the five years following 2001
are scheduled as $.7 million per year from 2002 through 2006.

The Company incurred debt expense payable to Questar of $.3 million in 2001, $.8
million in 2000 and $2.1 million in 1999 and received interest income amounting
to $.7 million in 2001 and $.2 million in 2000.

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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 26th day of
March, 2002.

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;
- ----------------------- Director (Principal Executive Officer)
D. N. Rose

/s/ S. E. Parks Vice President, Treasurer and Chief
- ----------------------- Financial Officer (Principal
S. E. Parks Financial Officer)

/s/ D. M. Curtis Controller
- ----------------------- (Principal Accounting Officer)
D. M. Curtis

*R. D. Cash Chairman of the Board; Director
*U. Edwin Garrison Director
*Scott S. Parker Director
*K. O. Rattie Director
*D. N. Rose Director

MARCH 26, 2002 *By /s/ D. N. Rose
- -------------- -----------------------------------------
Date D. N. Rose, Attorney in Fact

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