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:
1994 was the first full year of operations for Questar Pipeline under the regulations of FERC Order No. 636. In this new regulatory environment Questar Pipeline's transportation, gathering and storage services are separate activities, and sales-for-resale services have been discontinued. Firm-transportation volumes do not have a significant impact on current operating results because about 96% of the cost of service is recovered equally each month in the reservation component of rates.
Most of Questar Pipeline's transportation capacity has been reserved by firm-transportation customers. Roughly 92% of firm-transportation contracts have remaining terms of at least four years. Firm-transportation 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 about 85% of the total reserved daily transportation capacity.
Throughput volumes increased 5% in 1994 reflecting increases in services provided to both firm- and interruptible-transportation customers. After $1.5 million of revenues are earned from interruptible-transportation services, 90% of remaining interruptible-transportation revenues are credited back to firm-transportation customers. Throughput volumes for Mountain Fuel, which include sales for resale in 1993 and 1992, declined 15% in 1994 because of warmer weather in Mountain Fuel's service area.
Gathering revenues increased 16% in 1994 and 14% in 1993. Gathering activities were unbundled from the sales function in 1991. Volumes of gas gathered for Mountain Fuel have remained level for 1994, 1993 and 1992. However, billings for gas gathered for Mountain Fuel in 1993 and 1992 were based on imputed volumes, which were substantially higher than volumes gathered. Gas volumes gathered for other customers have increased. Questar Pipeline has expanded its gas gathering operations in the past several years in the Birch Creek, Bruff and Henry areas of southwestern Wyoming.
Questar Pipeline began a program in 1993 to expand firm-storage service offered at its Clay Basin storage facility. Working gas storage capacity was increased to 31 Bcf in 1993 and to 41.8 Bcf beginning May 1994. Planned capacity of 46.3 Bcf is projected beginning mid-year 1995. Storage capacity at year-end 1994 was 100% subscribed with contractual terms extending from seven to 30 years. Firm-storage revenues increased 20% to $22,400,000 in 1994 as a result of increased capacity and the associated service at Clay Basin, and unbundling and reclassifying peaking storage service from sales-for-resale revenues. Peaking storage is designed to meet peak daily demand requirements of Mountain Fuel.
Questar Pipeline, through a partnership, is a 50% owner of a gas processing plant in southwestern Wyoming. The Blacks Fork Processing plant cost $19.7 million to build and will be operational in the first half of 1995.
Under the terms of Order No. 636, Questar Pipeline is no longer required to file rate cases every three years. However, with its capital expenditure program, recent adoption of new accounting rules for postemployment and postretirement costs, and loss of interruptible-transportation revenues, the Company is considering filing a rate case in 1995.
The Company did not purchase gas for resale after August 31, 1993. Natural gas purchases decreased 40% in 1993 and 25% in 1992 consistent with changes in sales-for-resale volumes. Operating and maintenance expenses decreased 12% in 1994 because of eliminating volume and fuel usage costs associated with the resale of natural gas. Operating and maintenance expenses increased 4% in 1993 because of higher labor and supplies costs. Depreciation expense was 10% higher in 1994 and 3% higher in 1993 as a result of Questar Pipeline's capital expenditure program. Interest and other income (expense) in 1994 and 1993 includes the reduction in value of certain investments.
The effective income tax rate was 33.6% in 1994, 35.6% in 1993, and 35.4% in 1992. A 1994 reversal of $1,245,000 of income tax expense previously expensed resulted in a lower effective income tax rate. The adjustment resulted from the exclusion from taxable income of the transportation revenues recorded on cushion gas transported into storage.
The Company adopted SFAS No.112, Accounting for Postemployment Benefits, on January 1, 1994, by establishing a liability of $1,256,000 offset by a regulatory asset. This statement requires the Company to recognize the net present value of the liability for postemployment benefits, such as long-term disability benefits and health care and life insurance costs, when employees become eligible for such benefits. Postemployment benefits are paid to former employees after employment has been terminated but before retirement benefits are paid. SFAS No.112 requires the Company to accrue both current and future costs which formerly had been recorded when paid. By December 1994 the total liability had dropped to $450,000 as a result of designating Medicare as the primary health care provider and increasing the discount rate from 7% to 8.5%. The Company expects to recover SFAS No.112 costs in a subsequent rate filing.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
Net cash provided from operating activities decreased 42% in 1994 after increasing 65% in 1993. Net cash provided from operating activities was $39,675,000 in 1994, $68,548,000 in 1993, and $41,479,000 in 1992. Cash flow generated by income and depreciation has grown steadily in the period from 1992 through 1994. The balance of operating assets and liabilities changed dramatically in 1993. as a result of adopting FERC Order No.636. Balances in receivables and payables decreased, and gas stored underground was transferred to Mountain Fuel.
Investing Activities
Following is a summary of capital expenditures for 1994, 1993 and a forecast of 1995 expenditures:
Questar Pipeline has completed the majority of work expanding the capacity of its Clay Basin underground gas storage facility, which involves building compression facilities and injecting cushion gas into the reservoir. After expansion, the storage field will have a total capacity of 110 Bcf, including 46.3 Bcf of working-gas storage. The first phase of the project was completed in May 1994 with an increase in working-gas capacity to 41.8 Bcf. The final phase is scheduled for completion by mid 1995.
Capital projects also added 14 miles of transmission lines and 42 miles of gathering lines in 1994. A major increase in gathering lines will enable Questar Pipeline to provide service to gas producers in the Birch Creek area of southwestern Wyoming.
The pipeline has announced plans to expand and enhance its southern pipeline system to meet market demand for natural gas transportation from the productive Piceance Basin in western Colorado. The pipeline has filed a request with the FERC to upgrade 26.4 miles of its Main Line No. 68 west of Rifle, Colorado. An existing 10-inch line will be replaced with 14-inch to upgrade Questar Pipeline's southern system. Construction is planned for the summer of 1995.
During 1994, the FERC authorized construction of the TransColorado Pipeline, a proposed $184 million, 292-mile interstate gas transmission line that will run from producing areas and pipeline interconnects in northwest Colorado to a gas hub in New Mexico. Questar Pipeline is a one-third partner in the project. Additional market support is needed before construction can begin.
Questar Pipeline's unconsolidated affiliate, Overthrust Pipeline, has some uncertainty caused by the bankruptcy proceedings of a partner and firm-shipper, Columbia Gas Transmission Corporation. Columbia Gas and Overthrust have negotiated a buyout settlement. The settlement has recently been submitted to the bankruptcy court and the FERC for approval.
Financing Activities
The Company funded its 1994 capital expenditures primarily with cash provided from operations and a capital contribution. The Company expects to finance the 1995 capital expenditure program with cash provided from operations and borrowings from Questar.
The Company has a short-term line-of-credit arrangement with a bank under which it may borrow up to $200,000, below the prime interest rate. The arrangements are renewable on an annual basis. At December 31, 1994, no amounts were borrowed under this arrangement. Questar loans funds to the Company under a short-term borrowing arrangement. Outstanding short-term notes payable to Questar totaled $14,600,000 with an interest rate of 6.11% at December 31, 1994.
On July 1, 1994 Questar Pipeline received a $25,000,000 capital contribution from Questar.
Questar Pipeline's capital structure was 38% long-term debt and 62% common shareholder's equity. Moody's and Standard and Poors 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 identified on the List of Financial Statements are filed as part of this Report.
(a)(3) Exhibits. The following is a list of exhibits required to be filed as a part of this Report in Item 14(c).
Exhibit No. Exhibit
2.*1 Agreement of Transfer among Mountain Fuel Supply Company, Entrada Industries, Inc. and Mountain Fuel Resources, Inc., dated July 1, 1984. (Exhibit No. 2. to Registration Statement No. 2-96102 filed February 27, 1985.)
3.1.* 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 14, 1995.
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. (Exhibit No. 10.5. to Form 10-K Annual Report for 1993.)
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. (Exhibit No. 10.6. to Form 10-K Annual Report for 1993.)
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. (Exhibit No. 10.7. to Form 10-K Annual Report for 1993.)
10.8.2 Questar Pipeline Company Deferred Compensation Plan for Directors, as amended and restated April 30, 1991.
10.9. Gas Gathering Agreement between Mountain Fuel Supply Company and Questar Pipeline Company effective September 1, 1993.
22. Subsidiary Information.
25. Power of Attorney.
27. Financial Data Schedule.
*Exhibits so marked have been filed with the Securities and Exchange Commission as part of the indicated filing and are incorporated herein by reference.
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 1994.
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, 1994
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, 1994, 1993 and 1992 Balance sheets -- December 31, 1994 and 1993 Statements of cash flows -- Years ended December 31, 1994, 1993 and 1992 Statements of shareholder's equity -- Years ended December 31, 1994, 1993 and 1992 Notes to financial statements
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
Report of Independent Auditors
Board of Directors Questar Pipeline Company
We have audited the accompanying balance sheets of Questar Pipeline Company as of December 31, 1994 and 1993, and the related statements of income, shareholder's equity, and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Questar Pipeline Company at December 31, 1994 and 1993, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles.
As discussed in Note F to the financial statements, Questar Pipeline Company changed its method of accounting for postemployment benefits.
ERNST & YOUNG LLP
Salt Lake City, Utah February 10, 1995
QUESTAR PIPELINE COMPANY STATEMENTS OF INCOME
See notes to financial statements.
QUESTAR PIPELINE COMPANY BALANCE SHEETS
LIABILITIES 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 transportation and storage of natural gas. The FERC also regulates, among other things, the extension and enlargement or abandonment of jurisdictional natural gas facilities. Regulation is intended to permit the recovery, through rates, of the cost of service including a rate of return on investment. The financial statements are presented in accordance with regulatory requirements. Methods of allocating costs to time periods, in order to match revenues and expenses, may differ from those of nonregulated businesses because of cost allocation methods used in establishing rates.
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.
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 may be affected differently by changing conditions. The Company believes that it has adequately reserved for expected credit-related losses and that the carrying amount of trade receivables approximates fair value.
Property, Plant and Equipment: Property, plant and equipment 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 1994.
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.
Income Taxes: On January 1, 1992, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 109. The deferred tax balances represent the temporary differences between book and taxable income multiplied by the effective income tax rates. These temporary differences relate primarily to depreciation. The Company uses the deferral method to account for investment tax credits as required by the FERC.
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 $976,000 in 1994, $856,000 in 1993, and $421,000 in 1992.
Cash and Short-Term Investments: Short-term investments consist principally of Euro-time deposits and repurchase agreements with maturities of three months or less.
Note B - Debt
The Company has a short-term line-of-credit arrangement with a bank under which it may borrow up to $200,000, below the prime interest rate. The arrangements are renewable on an annual basis. At December 31, 1994, no amounts were borrowed under this arrangement. Questar loans funds to the Company under a short-term borrowing arrangement. Outstanding short-term notes payable to Questar totaled $14,600,000 with an interest rate of 6.11% at December 31, 1994. Outstanding short-term notes payable to Questar totaled $3,000,000 with 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, 1994. Cash paid for interest on debt was $13,065,000 in 1994, $13,018,000 in 1993, and $13,573,000 in 1992.
Note C - 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) Short-term loans - the carrying amount approximates fair value; (3) Long-term debt - the fair value of long-term debt is based on quoted market prices.
Note D - Income Taxes
The Company's operations are consolidated with those of Questar and its subsidiaries for income tax purposes. The income tax arrangement between Questar Pipeline and Questar provides that amounts paid to or received from Questar are substantially the same as would be paid or received by the Company if it filed a separate return. Questar Pipeline is also 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.
Questar Pipeline 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 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 $14,404,000 in 1994, $12,404,000 in 1993, and $7,146,000 in 1992.
Note E - Rate Matters, Litigation and Commitments
Under the terms of Order No. 636, Questar Pipeline is no longer required to file rate cases every three years. However, with its capital expenditure program, recent adoption of new accounting rules for postemployment and postretirement costs, and loss of interruptible transportation revenues, the Company is considering filing a rate case in 1995.
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 F - 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 $1,201,000 in 1994, $1,372,000 in 1993 and $1,259,000 in 1992.
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, 1994, Questar's fair value of plan assets exceeded the accumulated benefit obligation.
The Company participates in Questar's Employee Investment Plan, which allows the majority of employees to purchase Questar stock or other investments with payroll deductions. The Company makes contributions to the plan of approximately 75% of the employee's purchases. The Company's expense and contribution to the plan was $503,000 in 1994, $483,000 in 1993 and $522,000 in 1992.
The Company participates in a Questar program that pays a portion of the health-care costs and all the life insurance costs for retired employees. . Questar's policy is to fund amounts allowable for tax deduction under the Internal Revenue Code. Plan assets consist of equity securities, corporate and U.S. government debt obligations, and insurance company general accounts.
The Company adopted the provisions of SFAS No. 106 on Employer's Accounting for Postretirement Benefits Other than Pensions effective January 1, 1993. This statement requires the Company to expense the costs of postretirement benefits, principally health-care benefits, over the service life of employees using an accrual method. Questar 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 $1,130,000 in 1994 and $1,059,000 in 1993 compared with the costs based on cash payments to retirees plus the funding of some benefits totaling $569,000 in 1992. The 1994 and 1993 amounts recorded as regulatory assets were $558,000 and $487,000, respectively. These amounts are expected 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 Company adopted SFAS No.112, Accounting for Postemployment Benefits, on January 1, 1994, by establishing a liability of $1,256,000 offset by a regulatory asset. This statement requires the Company to recognize the net present value of the liability for postemployment benefits, such as long-term disability benefits and health care and life insurance costs, when employees become eligible for such benefits. Postemployment benefits are paid to former employees after employment has been terminated but before retirement benefits are paid. SFAS No.112 requires the Company to accrue both current and future costs which formerly had been recorded when cash was paid. By December 1994 the total liability had dropped to $450,000 as a result of designating Medicare as the primary health care provider and increasing the discount rate from 7% to 8.5%. The Company expects to recover SFAS No. 112 costs in a subsequent rate filing.
Note G - Related Party Transactions
The Company receives a substantial portion of its revenues from Mountain Fuel Supply Company. Revenues received from Mountain Fuel amounted to $70,966,000 or 61% of the total in 1994, $124,807,000 or 73% in 1993, and $161,900,000 or 79% in 1992. The Company also received revenues from other affiliated companies totaling $4,230,000 in 1994, $5,072,000 in 1993, and $6,730,000 in 1992.
Natural gas purchases include $4,844,000 in 1993 and $11,237,000 in 1992 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 $3,439,000 in 1994, $3,408,000 in 1993, and $3,260,000 in 1992. 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 and $5,954,000 in 1992 for such services.
Questar InfoComm Inc is an affiliated company that provides data processing and communication services to Questar Pipeline. The Company paid Questar InfoComm $7,036,000 in 1994, $6,607,000 in 1993 and $5,979,000 in 1992.
The Company received interest income from affiliated companies of $225,000 in 1994, $327,000 in 1993, and $740,000 in 1992. The Company had debt expense to affiliated companies of $134,000 in 1994, $21,000 in 1993, and $39,000 in 1992.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 29th day of March, 1995.
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 29, 1995 *By /s/ A. J. Marushack Date A. J. Marushack, Attorney in Fact
EXHIBIT INDEX
Exhibit Number Exhibit
2.*1 Agreement of Transfer among Mountain Fuel Supply Company, Entrada Industries, Inc. and Mountain Fuel Resources, Inc., dated July 1, 1984. (Exhibit No. 2. to Registration Statement No. 2-96102 filed February 27, 1985.)
3.1.* 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 14, 1995.
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. (Exhibit No. 10.5. to Form 10-K Annual Report for 1993.)
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. (Exhibit No. 10.6. to Form 10-K Annual Report for 1993.)
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. (Exhibit No. 10.7. to Form 10-K Annual Report for 1993.)
10.8.2 Questar Pipeline Company Deferred Compensation Plan for Directors, as amended and restated April 30, 1991.
10.9. Gas Gathering Agreement between Mountain Fuel Supply Company and Questar Pipeline Company effective September 1, 1993.
22. Subsidiary Information.
25. Power of Attorney.
27. Financial Data Schedule.
*Exhibits so marked have been filed with the Securities and Exchange Commission as part of the indicated filing and are incorporated herein by reference.
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.