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.
ITEM 4.
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.
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 Questar. 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.
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.
ITEM 7. MANAGEMENT'S ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Following is a summary of operating income and operating information for the Company's operations:
Effective September 1, 1993, Questar Pipeline began operating in accordance with FERC Order No. 636, which restructured the operations of natural gas transmission companies. The order unbundled the sales-for-resale service from the transportation, gathering and storage services. Questar Pipeline eliminated its existing merchant function when it transferred to its affiliate, Mountain Fuel, the rights and obligations of its gas-purchase contracts. These changes affect the comparison of revenues and volumes of the sales-for-resale, transportation, and gathering functions between periods.
Order No. 636 requires a greater percentage of the cost of service to be collected through reservation charges. The percentage of costs included in the demand component of rates increased from 66% prior to implementation to about 94% after implementation. Substantially all of Questar Pipeline's transportation capacity has been reserved by firm-transportation customers. Roughly 98% of firm-transportation contracts have remaining terms of at least six years. The customers can release that capacity to third parties when it is not required for their own needs. Mountain Fuel has reserved transportation capacity from Questar Pipeline of approximately 800,000 decatherms per day, or approximately 85% of the total reserved daily transportation capacity.
As a result of these changes in the rate structure, Questar Pipeline's transportation throughput volumes do not have a significant impact on short-term operating results. Firm-transportation customers continue to pay the same reservation charges regardless of actual volumes transported. After $1.5 million in revenues are received from interruptible transportation customers, 90% of the remaining revenues from the transportation of gas for interruptible customers is credited back to firm customers. Questar Pipeline is allowed to retain all interruptible-transportation revenues from projects that have not been included in setting existing transportation rates.
Total transmission system throughput decreased 2% in 1993 and 1% in 1992. Throughput for Mountain Fuel (including sales for resale and transportation) increased 23% in 1993 and decreased 11% in 1992. The 1993 increase was primarily due to colder weather in Mountain Fuel's service area. Expiring contracts resulted in decreased throughput for other customers.
Revenues from gathering services were $20,386,000 in 1993, $17,822,000 in 1992 and $6,572,000 in 1991. The 1993 change was due largely to an 87% increase in gathering volumes for customers other than Mountain Fuel. The 1992 increase was mostly due to a change in rate structure that unbundled gathering from sales for resales. Questar Pipeline began billing separately for gas gathering service provided on sales-for-resale volumes in November 1991.
Storage revenues increased 88% in 1993 and 19% in 1992. Customers have subscribed to all available working natural gas storage at Questar Pipeline's Clay Basin storage field. A large portion of the 1993 increase was due to unbundling of storage services for Mountain Fuel that were included with the sales for resale prior to the implementation of Order No. 636.
Order No. 636 allows pipelines to receive rate coverage for all prudently incurred transition costs associated with the restructuring. Questar Pipeline incurred capital costs of approximately $9 million in conjunction with Order No. 636 implementation. Most of these costs were for electronic metering and a bulletin board system and are expected to be included in the next general rate case.
Natural gas purchases decreased 40% in 1993 and 25% in 1992, consistent with changes in sales-for-resale volumes. Operating and maintenance expenses increased 4% in 1993 after remaining level in 1992. Depreciation expense rose 3% in 1993 and 4% in 1992 due to capital expenditure programs.
The Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 106 on Employer's Accounting for Postretirement Benefits Other than Pensions effective January 1, 1993. This statement requires the Company to expense the costs of postretirement benefits, principally health-care benefits, over the service life of employees using an accrual method. The Company is amortizing the transition obligation over a 20-year period. Total cost of postretirement benefits other than pensions under SFAS No. 106 was $1,059,000 in 1993 compared with the costs based on cash payments to retirees plus the prefunding of some benefits totaling $569,000 in 1992 and $560,000 in 1991.
The FERC issued an order granting rate recovery methodology for SFAS No. 106 costs to the extent that pipeline companies contribute the amounts to an external trust. Questar Pipeline expects to receive coverage of future SFAS No. 106 costs in its next general rate case and to recover costs in excess of the amounts currently included in rates for the period from 1993 to the rate case filing if the rate case is filed prior to January 1, 1996. A regulatory asset of $487,000 was recorded in anticipation of future rate coverage.
Debt expense decreased 5% in 1993 because of lower rates. Debt expense increased 1% in 1992.
Interest and other income (expense) in 1993 reflects the impairment of some assets.
The effective income tax rate was 35.6% in 1993, 35.4% in 1992, and 32.9% in 1991. Effective January 1, 1993, the federal income tax rate increased 1% to 35%. Questar Pipeline recorded the change in deferred income taxes resulting from the increase in the federal tax rate as an increase to income taxes recoverable from customers since the regulatory commissions have adopted procedures to include underprovided deferred taxes in rates on a systematic basis.
The Financial Accounting Standards Board (FASB) has issued SFAS No. 112, Accounting for Postemployment Benefits. This statement requires the Company to recognize the liability for postemployment benefits 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's principal liability under SFAS No. 112 is a long-term disability program. The Company is required to adopt SFAS No. 112 in the first quarter of 1994 and recognize a cumulative effect of a change in accounting method amounting to approximately $1,256,000. This amount may be recovered from customers through subsequent rate changes and a regulatory asset will be recorded. The effect on ongoing net income is not expected to be significant.
LIQUIDITY AND CAPITAL RESOURCES
The Company has met the majority of its cash needs for capital expenditures and dividend payments with cash from operations for the last three years. Net cash from operating activities was $68,548,000 in 1993, $41,479,000 in 1992, and $42,850,000 in 1991. Higher income and increased depreciation contributed to the higher 1993 amount. Changes in operating assets and liabilities also provided a source of cash in 1993. As a result of adopting FERC Order No. 636, receivables and payables decreased, and gas stored underground was transferred to Mountain Fuel.
Following is a summary of capital expenditures for 1993, and a forecast of 1994 expenditures, which is subject to board of director approval.
Questar Pipeline is expanding the capacity of its Clay Basin underground gas storage facility. After expansion, the storage field will have a total capacity of 110 Bcf, including 46 Bcf of working gas storage. Capital expenditures include the purchase of cushion gas. The first phase of the expansion project is expected to be completed in mid-1994.
Questar Pipeline is a one-third partner in the TransColorado pipeline project. The Company estimates the total cost of this project at $184 million, with Questar Pipeline's equity investment approximately $18 million. Construction of the pipeline has been delayed pending receipt of final regulatory approvals and completion of contracts with shippers.
In March 1994, the Company along with affiliate Universal Resources Corporation, Tenneco Gas and Entech Inc. announced plans to establish the first-ever full-service center for marketing natural gas. The facility, to be called The Western Market Center, will begin operations in 1994. Initial investment by the companies will be $600,000 climbing to $4 million as the center develops.
Questar Pipeline's unconsolidated affiliate, Overthrust Pipeline, has borrowings which are due and subject to refinancing July 30, 1994. There are some uncertainties associated with Overthrust caused by bankruptcy proceedings of Overthrust Pipeline firm-shipper, Columbia Gas Transmission Company. Management cannot presently predict the outcome of the bankruptcy proceedings or its impact on the refinancing of Overthrust Pipeline's debt. At December 31, 1993, the Company's 18% investment in Overthrust Pipeline amounted to $3,740,000.
The Company funded its 1993 capital expenditures primarily with cash provided from operations. The Company expects to finance the 1994 capital expenditure program with cash provided from operations, borrowing under short-term line-of-credit arrangements and issuing common equity.
The Company has a short-term line-of-credit arrangement with a bank under which it may borrow up to $200,000. This line offers interest rates generally below the prime interest rate and is renewable on an annual basis. At December 31, 1993, there were no outstanding short-term bank loans. Questar loans funds to the Company under a short-term borrowing arrangement. Outstanding short-term notes payable to Questar totaled $3,000,000 and had an interest rate of 3.59% at December 31, 1993.
Questar Pipeline's capital structure was 42% long-term debt and 58% common shareholder's equity. Two national debt-rating agencies have rated the Company's long-term debt A1 and A+.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's financial statements are included in Part IV, Item 14, herein.
ITEM 9.
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.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1)(2) Financial Statements and Financial Statement Schedules. The financial statements and schedules identified on the List of Financial Statements and Financial Statement Schedules 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.)
3.1.* Articles of Incorporation dated January 2, 1975; Articles of Amendment to the Articles of Incorporation dated September 14, 1976; Articles of Amendment to the Articles of Incorporation dated May 25, 1984. (Exhibit No. 3.1. to Registration Statement No. 2-96102 filed February 27, 1985.)
3.2.* Articles of Amendment to the Articles of Incorporation dated March 7, 1988. (Exhibit No. 3.2. to Form 10-K Annual Report for 1987.)
3.3.* Bylaws (as amended on August 11, 1992). (Exhibit No. 3. to Form 10-Q Report for quarter ended June 30, 1992.)
4.1.* Indenture dated June 1, 1990, for 9-7/8% Debentures due 2020, with Morgan Guaranty Trust Company of New York as Trustee. (Exhibit No. 4. to Form 10-Q Report for quarter ended June 30, 1990.)
4.2.* Indenture dated as of June 1, 1991, for 9-3/8% Debentures due June 1, 2021, with Morgan Guaranty Trust Company of New York as Trustee. (Exhibit No. 4. to Form 10-Q Report for quarter ended June 30, 1991.)
10.1.* 1 Overthrust Pipeline Company General Partnership Agreement dated September 20, 1979, as amended and restated as of October 11, 1982, and as amended August 21, 1991, among CIG Overthrust, Inc., Columbia Gulf Transmission Company; Mountain Fuel Resources, Inc.; NGPL-Overthrust Inc.; Northern Overthrust Pipeline Company; and Tennessee Overthrust Gas Company. (Exhibit No. 10.4. to Form 10-K Annual Report for 1985, except that the amendment dated August 21, 1991, is included as Exhibit No. 10.4. to Form 10-K Annual Report for 1992.)
10.2.* 1 Data Processing Services Agreement effective July 1, 1985, between Questar Service Corporation and Mountain Fuel Resources, Inc. (Exhibit No. 10.11. to Form 10-K Annual Report for 1988.)
10.3.* 2 Questar Pipeline Company Annual Management Incentive Plan, as amended February 11, 1992. (Exhibit No. 10.10. to Form 10-K Annual Report for 1991.)
10.4.* Partnership Agreement for the TransColorado Gas Transmission Company effective June 30, 1990, between KN TransColorado, Inc., Westgas TransColorado, Inc., and Questar TransColorado, Inc. (Exhibit No. 2.8. to Form 10-Q Report for quarter ended June 30, 1990.)
10.5. 3 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 to June 30, 1999.
10.6. 3 Storage Service Agreement with Mountain Fuel Supply Company under Rate Schedule FSS, for 3.5 Bcf of working gas capacity at Clay Basin, with term a from September 1, 1993, to August 31, 2008.
10.7. 3 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, to August 31, 2013.
22. Subsidiary Information.
25. Power of Attorney.
* 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 Exhibit so marked is management contract or compensation plan or arrangement.
3 Agreement incorporates specified terms and conditions of Questar Pipeline's FERC Gas Tariff, First Revised Volume No. 1. The tariff provisions are not filed as part of the exhibit, but are available upon request.
(b) Questar Pipeline did not file a Current Report on Form 8-K during the last quarter of 1993.
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a) (1) and (2), and (d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1993
QUESTAR PIPELINE COMPANY
SALT LAKE CITY, UTAH
FORM 10-K -- ITEM 14 (a) (1) AND (2)
QUESTAR PIPELINE COMPANY
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following financial statements of Questar Pipeline Company are included in Item 8:
Statements of income -- Years ended December 31, 1993, 1992 and 1991 Balance sheets -- December 31, 1993 and 1992 Statements of cash flows -- Years ended December 31, 1993, 1992 and 1991 Statements of shareholder's equity -- Years ended December 31, 1993, 1992 and 1991 Notes to financial statements
The following financial statement schedules of Questar Pipeline Company are included in Item 14(d):
Schedule II -- Amounts receivable from related parties and underwriters, promoters, and employees other than related parties Schedule V -- Property, plant and equipment Schedule VI -- Accumulated depreciation, depletion and amortization of property, plant and equipment Schedule X -- Supplementary income statement information
All other schedules for which provision is made in the applicable accounting regulation 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, 1993 and 1992, and the related statements of income, shareholder's equity, and cash flows for each of the three years in the period ended December 31, 1993. Our audits also included the financial statement schedules listed in the Index at Item 14(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules 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, 1993 and 1992, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
As discussed in Note H to the financial statements, in 1993 Questar Pipeline changed its method of accounting for postretirement benefits other than pensions.
ERNST & YOUNG
Salt Lake City, Utah February 11, 1994
QUESTAR PIPELINE COMPANY STATEMENTS OF INCOME
See notes to financial statements.
QUESTAR PIPELINE COMPANY BALANCE SHEETS
ASSETS
LIABLILTIES AND SHAREHOLDER'S EQUITY
See notes to financial statements.
QUESTAR PIPELINE COMPANY STATEMENTS OF SHAREHOLDER'S EQUITY
See notes to financial statements.
QUESTAR PIPELINE COMPANY STATEMENTS OF CASH FLOWS
See notes to financial statements.
QUESTAR PIPELINE COMPANY NOTES TO FINANCIAL STATEMENTS
Note A - Summary of Accounting Policies
Business: Questar Pipeline Company (the Company or Questar Pipeline) is a wholly-owned subsidiary of Questar Corporation (Questar). The Company's primary activities are the transportation, gathering and storage of natural gas. Prior to September 1993, Questar Pipeline was also engaged in the sale for resale of natural gas. Significant accounting policies are presented below.
Regulation: The Company is regulated by the Federal Energy Regulatory Commission (FERC) which establishes rates for the transporation 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. See Note G.
Credit Risk: The Company's primary market area is the Rocky Mountain region of the United States. The Company's exposure to credit risk may be impacted by the concentration of customers in this region due to changes in economic or other conditions. The Company's customers include several industries that may be impacted differently by changing conditions. The Company believes that credit-related losses are unlikely.
Property, Plant and Equipment: Property, plant and equipment is stated at cost. The provision for depreciation is based upon rates, which will amortize 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 3.6% in 1993.
Investment in Unconsolidated Affiliates: The Company has an 18% partnership interest in the Overthrust Pipeline Company which built and operates the Overthrust Segment of the Trailblazer Pipeline System. The Company is a one-third partner in the TransColorado Gas Transmission Company, which plans to construct a pipeline from the Piceance Basin in Colorado to connections with other pipelines in northern New Mexico. The Company accounts for its investment in these partnerships using the equity method. The Company's investment in these affiliates equals the underlying equity in net assets.
Income Taxes: On December 31, 1992, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 109 effective January 1, 1992. The deferred tax balance represents the temporary differences between book and taxable income multiplied by the effective tax rates. These temporary differences relate primarily to depreciation. The Company uses the deferral method to account for investment tax credits as required by regulatory commissions. See Note E.
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.
Allowance for Funds Used During Construction: The Company capitalizes the cost of capital during the construction period of plant and equipment. This amounted to $856,000 in 1993, $421,000 in 1992, and $371,000 in 1991.
Reclassifications: Certain reclassifications were made to the 1992 and 1991 financial statements to conform with the 1993 presentation.
Note B - Cash and Short-Term Investments
Short-term investments at December 31, 1993, and 1992, valued at cost (approximates market), amounted to $2,406,000 and $3,153,000, respectively. Short-term investments consisted principally of Euro-time deposits and repurchase agreements with maturities of three months or less.
Note C - Debt
The Company has a short-term line-of-credit arrangement with a bank under which it may borrow up to $200,000. This line offers interest rates generally below the prime interest rate and is renewable on an annual basis. At December 31, 1993, there were no outstanding short-term bank loans. Questar loans funds to the Company under a short-term borrowing arrangement. Outstanding short-term notes payable to Questar totaled $3,000,000 and had an interest rate of 3.59% at December 31, 1993.
The details of long-term debt at December 31, were as follows:
There are no maturities of long-term debt for the five years following December 31, 1993. Cash paid for interest on debt was $13,018,000 in 1993, $13,573,000 in 1992, and $15,173,000 in 1991.
Note D - Estimated Fair Values of Financial Instruments
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 short-term investments - the carrying amount approximates fair value; (2) Notes payable to affiliates - the carrying amount approximates fair value; (3) Long-term debt - the fair value of long-term debt is based on quoted market prices.
Note E - Income Taxes
The Company's operations are consolidated with those of Questar and its subsidiaries for income tax purposes. The income tax arrangement between the Company 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 except that the Company is paid 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.
Effective January 1, 1992, the Company changed its method of accounting for income taxes from the deferred method to the liability method required by SFAS No. 109, Accounting for Income Taxes. The Company did not restate prior years' financial statements. The application of the new rules did not have a significant impact on the 1992 income before cumulative effect.
The Company records cumulative increases in deferred taxes as income taxes recoverable from customers. The Company has adopted procedures with the FERC to include under-provided deferred taxes in customer rates on a systematic basis. The amounts of income taxes recoverable from customers was higher in 1993 due to an increase in the federal income tax rate.
The components of income taxes charged to income for years ended December 31, were as follows:
The difference between income tax expense and the tax computed by applying the statutory federal income tax rate to income from continuing operations before income taxes is explained as follows:
Significant components of the Company's deferred tax liabilities and assets at December 31, were as follows:
Cash paid for income taxes was $12,404,000 in 1993, $7,146,000 in 1992, and $12,203,000 in 1991.
Note F - Litigation and Commitments
There are various legal proceedings against the Company. While it is not currently possible to predict or determine the outcome of these proceedings, it is the opinion of management that the outcome will not have a material adverse effect on the Company's results of operations, financial position or liquidity.
Note G - Rate Matters
On September 1, 1993, Questar Pipeline began operating in compliance with FERC Order No. 636. The order unbundled the sale-for-resale service from the transportation, gathering and storage services provided by natural gas pipelines. Questar Pipeline eliminated its merchant function. That activity was assumed by Mountain Fuel along with the gas-purchase contracts. In its order approving Questar Pipeline's Order No. 636 implementation plan, the FERC accepted Questar Pipeline's plan for the assignment of gas-purchase contracts to Mountain Fuel.
Order No. 636 requires a greater percentage of the cost of service to be collected through demand charges. The percentage of costs included in the demand component of rates increased from 66% prior to implementation to about 94% after implementation. The majority of Questar Pipeline's transportation capacity has been reserved by firm transportation customers, which, under Order No. 636, can release that capacity to third parties when it is not required for their own needs. After $1.5 million of revenues are received from interruptible transportation customers, 90% of the remaining revenues from the transportation of gas for interruptible customers is credited back to firm customers. Questar Pipeline is allowed to retain all interruptible transportation revenues on projects that have not been included in the transportation rate case.
Note H - Employment Benefits
Substantially all Company employees are covered by Questar's defined benefit pension plan. Benefits are generally based on years of service and the employee's 36-month period of highest earnings during the ten years preceding retirement. It is Questar's policy to make contributions to the plan at least sufficient to meet the minimum funding requirements of applicable laws and regulations. Plan assets consist principally of equity securities and corporate and U.S. government debt obligations. Pension cost was $1,372,000 in 1993, $1,259,000 in 1992, and $1,137,000 in 1991.
The Company's portion of plan assets and benefit obligations is not determinable because 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, 1993, Questar's fair value of plan assets exceeded the accumulated benefit obligation.
The Company participates in Questar's Employee Investment Plan, which allows the majority of employees to purchase Questar common stock or other investments through payroll deductions. The Company makes contributions to the plan of approximately 75% of the employees' purchases. The Company's expense and contribution to the plan was $483,000 in 1993, $522,000 in 1992 and $605,000 in 1991.
The Company participates in a Questar program than pays a portion of the health-care costs and all the life insurance costs for retired employees. Effective January 1, 1992, this program was changed for employees retiring after January 1, 1993, to link the health-care benefit to years of service and to limit Questar's monthly health-care contribution per individual to 170% of the 1992 contribution. Questar's policy is to fund amounts allowable for tax deduction under the Internal Revenue Code. Plan assets consist of equity securities, corporate and U.S. government debt obligations, and insurance company general accounts.
The Company adopted the provisions of SFAS No. 106 on Employer's Accounting for Postretirement Benefits Other than Pensions effective January 1, 1993. This statement requires the Company to expense the costs of postretirement benefits, principally health-care benefits, over the service life of employees using an accrual method. Questar Pipeline is amortizing the transition obligation over a 20-year period. The Company's cost of postretirement benefits other than pensions under SFAS No. 106 was $1,059,000 in 1993 compared with the costs based on cash payments to retirees plus the prefunding of some benefits totaling $569,000 in 1992 and $560,000 in 1991. Of the $1,059,000 recognized in 1993, $487,000 was recorded as a regulatory asset to be recovered in a future rate proceeding.
The impact of SFAS No. 106 on the Company's future net income will be mitigated by recovery of these costs from customers. The FERC issued an order granting rate recovery methodology for SFAS No. 106 costs to the extent that the Company contributes the amounts to an external trust.
The Company's portion of plan assets and benefit obligations related to postretirement medical and life insurance benefits is not determinable because the plan assets are not segregated or restricted to meet the Company's obligations.
The Financial Accounting Standards Board (FASB) has issued SFAS No. 112, Accounting for Postemployment Benefits. This statement requires the Company to recognize the liability for postemployment benefits 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's principal liability under SFAS No. 112 is a long-term disability program. The Company is required to adopt SFAS No. 112 in the first quarter of 1994 and recognize a cumulative effect of a change in accounting method amounting to approximately $1,256,000. The Company plans to record a regulatory asset for the entire amount in anticipation of future rate recovery. The effect on ongoing net income is not expected to be significant.
Note I - Related Party Transactions
The Company receives a substantial portion of its revenues from Mountain Fuel. Revenues received from Mountain Fuel amounted to $124,807,000 or 73% of the total in 1993, $161,900,000 or 79% in 1992, and $192,748,000 or 84% in 1991. The Company also received revenues from other affiliated companies totaling $5,072,000 in 1993, $6,730,000 in 1992, and $8,020,000 in 1991.
Natural gas purchases include $4,844,000 in 1993, $11,237,000 in 1992, and $17,337,000 in 1991 from affiliated companies. The Company did not purchase gas for resale after August 31, 1993.
Questar performs certain administrative functions for the Company. The Company was charged for its allocated portion of these services which totaled $3,408,000 in 1993, $3,260,000 in 1992, and $3,316,000 in 1991. These costs are included in operating and maintenance expenses and are allocated based on each company's proportional share of revenues, net of gas costs; property, plant and equipment; and payroll. Management believes that the allocation method is reasonable.
The Company terminated an operating service agreement on July 1, 1993, with Wexpro Company (Wexpro), a wholly-owned subsidiary of Questar. Under that agreement Wexpro operated certain gathering, compressor, measurement and other production-related facilities owned by the Company. Those functions were subsequently assumed by Company employees. The Company reimbursed Wexpro's expenses with respect to such services and paid a fee equal to 15% of such expenses. The Company paid Wexpro $3,443,000 in 1993, $5,954,000 in 1992, and $5,328,000 in 1991 for such services.
Questar Service Corporation is an affiliated company that provides data processing and communication services to Questar Pipeline. The Company paid Questar Service $6,607,000 in 1993, $5,979,000 in 1992 and $6,691,000 in 1991.
The Company received interest income from affiliated companies of $327,000 in 1993, $740,000 in 1992, and $1,510,000 in 1991. The Company had debt expense to affiliated companies of $21,000 in 1993, $39,000 in 1992, and $18,000 in 1991.
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
QUESTAR PIPELINE COMPANY
SCHEDULE V - PROPERTY , PLANT AND EQUIPMENT
QUESTAR PIPELINE COMPANY
NOTE A - Other changes include the transfer of a portion of current gas stored underground to cushion gas stored underground in 1993. Remaining other changes consist of transfers to or from affiliated companies.
SCHEDULE VI- ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
QUESTAR PIPELINE COMPANY
NOTE A - Other changes consist of transfers to or from affiliated companies.
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
QUESTAR PIPELINE COMPANY
The company has no depreciation and amortization of intangible assets, advertising costs, or royalties.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 28th day of March, 1994.
QUESTAR PIPELINE COMPANY (Registrant)
By /s/ A. J. Marushack A. J. Marushack 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/ A. J. Marushack President & Chief Executive Officer; A. J. Marushack Director (Principal Executive Officer)
/s/ W. F. Edwards Vice President & Chief Financial W. F. Edwards Officer (Principal Financial Officer)
/s/ R. P. Ord Controller & Assistant Treasurer R. P. Ord (Principal Accounting Officer)
*R. D. Cash Chairman of the Board; Director *W. F. Edwards Director *U. Edwin Garrison Director *A. J. Marushack Director *Neal A. Maxwell Director *Mary Mead Director
March 28, 1994 *By /s/ A. J. Marushack Date A. J. Marushack, Attorney in Fact
EXHIBIT INDEX
Sequential Exhibit Page Number 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.)
3.1.* Articles of Incorporation dated January 2, 1975; Articles of Amendment to the Articles of Incorporation dated September 14, 1976; Articles of Amendment to the Articles of Incorporation dated May 25, 1984. (Exhibit No. 3.1. to Registration Statement No. 2-96102 filed February 27, 1985.)
3.2.* Articles of Amendment to the Articles of Incorporation dated March 7, 1988. (Exhibit No. 3.2. to Form 10-K Annual Report for 1987.)
3.3.* Bylaws (as amended on August 11, 1992). (Exhibit No. 3. to Form 10-Q Report for quarter ended June 30, 1992.)
4.1.* Indenture dated June 1, 1990, for 9- 7/8% Debentures due 2020, with Morgan Guaranty Trust Company of New York as Trustee. (Exhibit No. 4. to Form 10-Q Report for quarter ended June 30, 1990.)
4.2.* Indenture dated as of June 1, 1991, for 9-3/8% Debentures due June 1, 2021, with Morgan Guaranty Trust Company of New York as Trustee. (Exhibit No. 4. to Form 10-Q Report for quarter ended June 30, 1991.)
10.1.* 1 Overthrust Pipeline Company General Partnership Agreement dated September 20, 1979, as amended and restated as of October 11, 1982, and as amended August 21, 1991, among CIG Overthrust, Inc., Columbia Gulf Transmission Company; Mountain Fuel Resources, Inc.; NGPL-Overthrust Inc.; Northern Overthrust Pipeline Company; and Tennessee Overthrust Gas Company. (Exhibit No. 10.4. to Form 10-K Annual Report for 1985, except that the amendment dated August 21, 1991, is included as Exhibit No. 10.4. to Form 10-K Annual Report for 1992.)
10.2.* 1 Data Processing Services Agreement effective July 1, 1985, between Questar Service Corporation and Mountain Fuel Resources, Inc. (Exhibit No. 10.11. to Form 10-K Annual Report for 1988.)
10.3.* 2 Questar Pipeline Company Annual Management Incentive Plan, as amended February 11, 1992. (Exhibit No. 10.10. to Form 10-K Annual Report for 1991.)
10.4.* Partnership Agreement for the TransColorado Gas Transmission Company effective June 30, 1990, between KN TransColorado, Inc., Westgas TransColorado, Inc., and Questar TransColorado, Inc. (Exhibit No. 2.8. to Form 10-Q Report for quarter ended June 30, 1990.)
10.5. 3 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 to June 30, 1999.
10.6. 3 Storage Service Agreement with Mountain Fuel Supply Company under Rate Schedule FSS, for 3.5 Bcf of working gas capacity at Clay Basin, with term a from September 1, 1993, to August 31, 2008.
10.7. 3 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, to August 31, 2013.
22. Subsidiary Information.
25. Power of Attorney.
* 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 Exhibit so marked is management contract or compensation plan or arrangement.
3 Agreement incorporates specified terms and conditions of Questar Pipeline's FERC Gas Tariff, First Revised Volume No. 1. The tariff provisions are not filed as part of the exhibit, but are available upon request.