-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LukOTyfrAKjOK9/LY+tYese+lahx8y2UuJwkzKWN88+WxslSF+DXhy1mX+tQh0Qj KtVa+fLAP3vNVlSZcI0kDQ== /in/edgar/work/20000814/0000068589-00-000012/0000068589-00-000012.txt : 20000921 0000068589-00-000012.hdr.sgml : 20000921 ACCESSION NUMBER: 0000068589-00-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUESTAR GAS CO CENTRAL INDEX KEY: 0000068589 STANDARD INDUSTRIAL CLASSIFICATION: [4923 ] IRS NUMBER: 870407509 STATE OF INCORPORATION: UT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-55866 FILM NUMBER: 699308 BUSINESS ADDRESS: STREET 1: 180 E FIRST SOUTH ST STREET 2: PO BOX 45433 CITY: SALT LAKE CITY STATE: UT ZIP: 84145-0433 BUSINESS PHONE: 8013245555 MAIL ADDRESS: STREET 1: 180 EAST FIRST SOUTH ST STREET 2: P O BOX 11150 CITY: SALT LAKE CITY STATE: UT ZIP: 84147 FORMER COMPANY: FORMER CONFORMED NAME: MOUNTAIN FUEL SUPPLY CO DATE OF NAME CHANGE: 19920703 10-Q 1 0001.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000. OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____ Commission File No. 1-935 QUESTAR GAS COMPANY (Exact name of registrant as specified in its charter) STATE OF UTAH 87-0155877 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) P.O. Box 45360, 180 East 100 South, Salt Lake City, Utah 84145-0360 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (801) 324-5555 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 Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding as of July 31, 2000 Common Stock, $2.50 par value 9,189,626 shares Registrant meets the conditions set forth in General Instruction H(a)(1) and (b) of Form 10-Q and is filing this Form 10-Q with the reduced disclosure format. PART I FINANCIAL INFORMATION Item 1. Financial Statements QUESTAR GAS COMPANY STATEMENTS OF INCOME (Unaudited)
3 Months Ended 6 Months Ended 12 Months Ended June 30, June 30, June 30, 2000 1999 2000 1999 2000 1999 (In Thousands) REVENUES $ 68,174 $ 70,174 $ 268,694 $242,476 $ 476,155 $ 453,123 OPERATING EXPENSES Natural gas purchases 35,779 36,741 158,209 135,463 280,011 256,404 Operating and maintenance 22,965 25,131 49,136 50,012 102,432 97,923 Depreciation 8,857 8,619 18,038 17,285 37,179 35,018 Other taxes 2,538 2,153 6,527 4,379 9,773 7,661 TOTAL OPERATING EXPENSES 70,139 72,644 231,910 207,139 429,395 397,006 OPERATING INCOME (LOSS) (1,965) (2,470) 36,784 35,337 46,760 56,117 INTEREST AND OTHER INCOME 684 1,466 1,113 1,971 2,122 3,509 DEBT EXPENSE (4,959) (4,743) (10,136) (9,848) (20,350) (19,944) INCOME (LOSS) BEFORE INCOME TAXES (6,240) (5,747) 27,761 27,460 28,532 39,682 INCOME TAXES (2,910) (2,911) 10,376 10,038 9,350 13,185 NET INCOME (LOSS) $ (3,330) $ (2,836) $ 17,385 $ 17,422 $ 19,182 $ 26,497
See note to financial statements QUESTAR GAS COMPANY CONDENSED BALANCE SHEETS
June 30, December 31, 2000 1999 1999 (Unaudited) (In Thousands) ASSETS Current assets Cash and short-term investments $ 1,708 Accounts receivable $ 33,216 $ 29,117 83,098 Inventories 17,483 13,357 21,680 Purchased-gas adjustments 432 Other current assets 2,465 1,593 3,168 Total current assets 53,164 44,067 110,086 Property, plant and equipment 1,041,456 965,535 1,013,599 Less allowances for depreciation 440,158 401,343 421,111 Net property, plant and equipment 601,298 564,192 592,488 Other assets 18,240 20,833 20,978 $672,702 $629,092 $ 723,552 LIABILITIES AND SHAREHOLDER'S EQUITY Current liabilities Checks outstanding in excess of cash balances $ 2,296 $ 2,398 Notes payable to Questar Corporation 46,000 5,600 $ 79,300 Accounts payable and accrued expenses 42,648 42,259 69,122 Purchased-gas adjustments 3,301 1,453 Total current liabilities 94,245 51,710 148,422 Long-term debt 225,000 225,000 225,000 Other liabilities 1,321 1,582 1,394 Deferred income taxes and investment tax credits 83,108 77,704 85,343 Common shareholder's equity Common stock 22,974 22,974 22,974 Additional paid-in capital 81,875 81,875 81,875 Retained earnings 164,179 168,247 158,544 Total common shareholder's equity 269,028 273,096 263,393 $672,702 $629,092 $ 723,552
See note to financial statements QUESTAR GAS COMPANY CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
6 Months Ended June 30, 2000 1999 (In Thousands) OPERATING ACTIVITIES Net income $ 17,385 $ 17,422 Depreciation 19,736 18,646 Deferred income taxes and investment tax credits (2,235) (2,319) 34,886 33,749 Change in operating assets and liabilities 34,706 40,342 NET CASH PROVIDED FROM OPERATING ACTIVITIES 69,592 74,091 INVESTING ACTIVITIES Capital expenditures (28,580) (19,960) Proceeds from disposition of property, plant and equipment 34 2,745 NET CASH USED IN INVESTING ACTIVITIES (28,546) (17,215) FINANCING ACTIVITIES Checks outstanding in excess of cash balances 2,296 2,398 Decrease in notes payable to Questar Corporation (33,300) (91,100) Capital contribution 40,000 Payment of dividends (11,750) (11,500) NET CASH USED IN FINANCING ACTIVITIES (42,754) (60,202) DECREASE IN CASH AND SHORT-TERM INVESTMENTS $ (1,708) $ (3,326)
See note to financial statements QUESTAR GAS COMPANY NOTE TO FINANCIAL STATEMENTS June 30, 2000 (Unaudited) Note 1 - Basis of Presentation The interim financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. All such adjustments are of a normal recurring nature. Due to the seasonal nature of the business, the results of operations for the three- and six-month periods ended June 30, 2000, are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. For further information refer to the financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1999. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations QUESTAR GAS COMPANY June 30, 2000 (Unaudited) Operating Results Following is a summary of financial and operating information for the Company:
3 Months Ended 6 Months Ended 12 Months Ended June 30, June 30, June 30, 2000 1999 2000 1999 2000 1999 FINANCIAL RESULTS - (dollars in thousands) Revenues From unaffiliated customers $ 66,957 $ 69,952 $ 266,484 $242,045 $ 472,045 $ 451,742 From affiliates 1,217 222 2,210 431 4,110 1,381 Total revenues 68,174 70,174 268,694 242,476 476,155 453,123 Natural gas purchases 35,779 36,741 158,209 135,463 280,011 256,404 Margin $ 32,395 $ 33,433 $ 110,485 $107,013 $ 196,144 $ 196,719 Operating income (loss) $ (1,965) $ (2,470) $ 36,784 $ 35,337 $ 46,760 $ 56,117 Net income (loss) (3,330) (2,836) 17,385 17,422 19,182 26,497 OPERATING STATISTICS Natural gas volumes (in thousands of decatherms) Residential and commercial sales 9,197 14,145 43,105 46,570 78,736 82,309 Industrial sales 2,047 2,282 5,251 5,222 9,852 9,806 Transportation for industrial customers 13,865 11,800 27,882 25,151 54,374 52,665 Total deliveries 25,109 28,227 76,238 76,943 142,962 144,780 Natural gas revenue (per decatherm) Residential and commercial $ 5.93 $ 4.15 $ 5.52 $ 4.65 $ 5.31 $ 4.88 Industrial sales 2.99 2.83 3.16 2.93 3.07 3.01 Transportation for industrial customers $ 0.11 $ 0.13 $ 0.12 $ 0.13 $ 0.12 $ 0.13 Heating degree days Actual 492 946 2,845 3,242 4,920 5,413 Normal 741 741 3,484 3,484 5,801 5,801 Colder (Warmer) than normal (34%) 28% (18%) (7%) (15%) (7%) Number of customers at June 30, Residential and commercial 686,827 665,221 Industrial 1,352 1,356 Total 688,179 666,577
Questar Gas experienced a seasonal loss of $3.3 million in the 2000 period. In the comparable year-earlier quarter, the utility recorded a $2.8 million loss. The Company continued to see the impact of costs associated with strong customer growth and lower usage per customer. Questar Gas addressed these issues in a general rate case order received August 11, 2000 and discussed below. Questar Gas' margin decreased 3% in the second quarter of 2000 when compared with the second quarter of 1999. The lower margin was due primarily to a timing difference caused by a change in procedure for recording gathering costs. Gathering costs are recognized on a straight-line basis where before the costs were seasonal. The regulatory procedure did not increase gathering costs from year to year. The margin was slightly higher in the first half of 2000 compared with 1999. The higher margin was the result of interim rate relief which more than offset higher costs including costs of carbon dioxide removal. The PSCU granted Questar Gas' request for $7.1 million of interim rate relief, subject to refund, effective January 1, 2000. On August 11, 2000, the PSCU issued a final order which granted $13.5 million in general rate relief and authorized a return on equity of 11 percent. The $13.5 million increase includes the $7.1 million of interim rate relief and allows the collection of $5 million annually for carbon dioxide processing costs. The Company will be allowed to collect the full amount of the increase in its rates immediately upon the filing of tariff provisions. The number of customers served by Questar Gas grew by 21,602 or 3.2% from a year ago to 688,179. The number of customer additions for the year ending December 31, 2000 is expected to be between 20,000 to 21,000. Volumes delivered were 11% lower in the second quarter and 1% lower for the first half of 2000 when compared with the same periods in 1999. The decrease was due to warmer weather in 2000 when compared with 1999. Temperatures were warmer than normal for all periods presented in 2000. The effects of warmer weather were mitigated by the weather normalization adjustment. Questar Gas' natural gas purchase costs increased in the six-and twelve-month periods of 2000 when compared with the 1999 periods due to higher commodity costs. Commodity rates for the first half were $2.23 per Dth in 2000 and $1.72 per Dth in 1999. Gas purchases were lower in the second quarter because of lower gas sales volumes. The Company files for adjustment of purchased-gas costs with the Utah and Wyoming Public Service Commissions on a semiannual basis. Operating and maintenance expenses decreased in the three- and six-month periods ended June 30 when compared with the same periods in 1999. The decrease was due mainly to lower information-technology costs which were partially offset by the higher costs associated with strong customer growth and increased costs for the collection of receivables. Depreciation expenses were higher in the second quarter and first half of 2000 as a result of investment in property, plant and equipment, particularly technology related which has a shorter useful life. Other taxes increased in the three- and six-months comparisons because of a current year adjustment of prior year taxes. Gains from the sales of surplus properties added to earnings in the second quarters of both 2000 and 1999. However, the gain in 2000 was $649,000 smaller than the 1999 gain. The effective income tax rate for the six month period was 37.4% in 2000 and 36.6% in 1999. The Company realized $916,000 of tight-sands gas-production credits in the 2000 period and $939,000 in the 1999 period causing a decrease from an expected 38% effective income tax rate. Liquidity and Capital Resources Operating Activities Net cash provided from operating activities in the first six months of 2000 was $4,499,000 less than was generated in the same period of 1999. The decrease in cash flow resulted primarily from less cash generated from the changes in operating assets and liabilities. A tight-sands gas-production tax credit carryover amounting to $4.1 million and a $2 million overpayment of federal income taxes in 1998 were applied toward 1999 tax payments. Investing Activities Capital expenditures were $28.5 million in the first half of 2000. Capital expenditures for calendar year 2000 are estimated at $63.3 million. Financing Activities Cash generated from operating activities was used to fund capital expenditures, repay loans to Questar and pay dividends. Loan balances owed to Questar as of June 30, amounted to $46 million in 2000 and $45.6 million in 1999. Capital expenditures for the remainder of 2000 are expected to be financed with net cash flow provided from operating activities and borrowings from Questar. Regulatory Matters Questar Gas filed a general rate case December 17, 1999 requesting approximately $22 million of general rate relief. Higher costs of serving customers, inclusion of charges for the removal of carbon dioxide from part of the gas supply and lower gas usage per customer were among the reasons for requesting rate relief. The PSCU issued a final order on August 11, 2000 which granted $13.5 million of annualized rate relief and approved an 11% return on equity. The $13.5 million includes the $7.1 million interim rate relief and $5 million of annual carbon dioxide processing costs. Revenue Recognition Guideline Issued by the Securities and Exchange Commission (SEC) In December 1999, the SEC issued Staff Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial Statements." The SAB raised issues concerning the timing of recording revenues given that sales transactions may contain some conditions allowing customers to return products or receive refunds. The effect of adopting this accounting guideline is not known at this time because the Company has not completed its evaluation. The SEC has postponed the effective date of this ruling from the second quarter of 2000 to the fourth quarter. Forward-Looking Statements This 10-Q contains forward-looking statements about future operations, capital spending, regulatory matters and expectations of Questar Gas. According to management, 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 discussed in forward-looking statements include changes in: general economic conditions, gas prices and availability of gas supplies, competition, regulatory issues, weather conditions and other factors beyond the control of the Company. These other factors include the rate of inflation and adverse changes in the business or financial condition of the Company. These factors are not necessarily all of the important factors that could cause actual results to differ significantly from those expressed in any forward-looking statements. Other unknown or unpredictable factors could also have a significant adverse effect on future results. The Company does not undertake an obligation to update forward-looking information contained herein or elsewhere to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking information. PART II OTHER INFORMATION Item 1. Legal Proceedings. a. On August 11, 2000, the Public Service Commission of Utah (the "PSCU") issued an order in the general rate case filed by Questar Gas Company ("Questar Gas" or the "Company"). See the Company's Form 10-Q Report for March 31, 2000, Item 1. Legal Proceedings. Specifically, the PSCU granted $13.5 million in general rate relief and approved a return on equity of 11 percent. (The $13.5 million includes the $7.1 million in interim rate relief that Questar Gas was authorized to collect, subject to refund, effective January 1, 2000.) To reach its rate increase figure, the PSCU adopted the stipulation that was entered into by the Company and the Division of Public Utilities (the "Division") that allows Questar Gas to collect $5 million of annual carbon dioxide ("CO2") processing costs. The PSCU's order authorizes the Company to reflect the full amount of the increase in its rates effective immediately upon the filing of tariff provisions. The Company originally requested a general rate increase of $22.2 million and a return on equity of 12 percent. Prior to the public hearings that were held in June before the PSCU, Questar Gas, the Division, and the Committee of Consumer Services settled on all revenue requirement issues except return on equity, postage costs allocated to affiliates, and the CO2 costs. The stipulations, when coupled with decisions to be made by the PSCU on the contested issues, produced a range of potential outcomes from $7.2 million to $17.8 million. b. Questar Gas, on May 31, 2000, filed a semi-annual application with the Public Service Commission of Wyoming (the "PSCW"), requesting permission to reflect annualized gas costs of $11,134,000 in rates for Wyoming customers effective July 1, 2000. The pass-on filing reflected slightly lower commodity costs to core customers and higher commodity costs to interruptible sales customers. The PSCW authorized the Company to reflect the request in rates effective July 1, 2000. c. On June 14, 2000, Questar Gas filed a semi-annual pass-through application with the PSCU, seeking approval to reflect annualized gas costs of $286,612,760 in rates for Utah customers effective July 1, 2000. The application reflected a slight decrease in commodity costs for general service customers and a significant increase in commodity costs for interruptible sales customers. In its application, Questar Gas emphasized that approximately one-half of its gas supply for general service customers comes from Company-owned wells and warned that it may be required to request coverage for higher costs later in the year if the price of purchased gas continues at record high levels. The Division recommended that the Company be authorized to adjust its rates for interruptible sales customers, but not be authorized to reflect lower prices for general service customers. Questar Gas did not oppose this recommendation. The PSCU, by an interim order, authorized the Company to adjust its rates effective July 1, 2000 consistent with the Division's recommendation. d. The Company and the PSCU have both filed briefs with the Supreme Court of Utah in the appeal taken by Questar Gas of the PSCU's decision denying its application to reflect certain gas-processing costs in its pass-through application. See Questar Gas's Form 10-K Report for 1999, Items 1 and 2. Business and Properties, "Regulation." The Company, in its brief, argued that the CO2-processing costs are costs that are eligible for pass-through treatment under Utah's statutory provisions and the PSCU's regulatory precedents. Questar Gas also claimed that the PSCU can take necessary action to deal with special items outside general rate cases. After denying the Company's application to reflect the costs in its pass-through applications, the PSCU granted interim rate relief in Questar Gas's general rate case application of $7.065 million, which is equal to the approximate amount of the annual disallowance for CO2 processing costs, effective January 1, 2000. The Company's appeal involves the 1999 costs that it was not allowed to recover. No hearing date has been set for oral argument before the Supreme Court. Item 5. Other Information. Effective August 1, 2000, David M. Curtis, age 45, was appointed to serve as Controller for Questar Gas and its affiliates in the Regulated Services unit. Mr. Curtis, as Controller, is the Company's primary accounting officer; he has over 17 years of service with the Company and its affiliates. He replaces Mr. Glenn H. Robinson, who was named to serve as an executive officer of Questar Corporation, the Company's parent, as of August 1, 2000. SIGNATURES Pursuant to the requirements 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. QUESTAR GAS COMPANY (Registrant) August 14, 2000 /s/ D. N. Rose D. N. Rose President and Chief Executive Officer August 14, 2000 /s/ S. E. Parks S. E. Parks Vice President, Treasurer, and Chief Financial Officer EX-27 2 0002.txt
5 EXHIBIT 27 The schedule contains summarized financial information extracted from the Questar Gas Company Statements of Income and Balance Sheet for the period ended June 30, 2000, and is qualified in its entirety by reference to such unaudited financial statements. 1,000 6-MOS DEC-31-2000 JUN-30-2000 0 0 33,216 0 17,483 53,164 1,041,456 440,158 672,702 94,245 225,000 0 0 22,974 246,054 672,702 0 268,694 0 207,345 24,565 0 10,136 27,761 10,376 17,385 0 0 0 17,385 0 0
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