-----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, Cen6IvIY4vtzzyQRyz8Mg5sh3DBIXEFLXBfT/ESZNkjlL1FUQgVcRoQcqT8qgVHG ko/ypS1bfqVQVb6FGkK4QA== 0000068589-01-000002.txt : 20010329 0000068589-01-000002.hdr.sgml : 20010329 ACCESSION NUMBER: 0000068589-01-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUESTAR GAS CO CENTRAL INDEX KEY: 0000068589 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS TRANSMISSION & DISTRIBUTION [4923] IRS NUMBER: 870407509 STATE OF INCORPORATION: UT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 033-55866 FILM NUMBER: 1582641 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-K 1 0001.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 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.) 180 East 100 South, P.O. Box 45360, Salt Lake City, Utah 84145-0360 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (801) 324-5555 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None SECURITIES REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933: Notes: Medium Term Notes, 6.85% to 8.43%, due 2007 to 2024 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No State the aggregate market value of the voting stock held by nonaffiliates of the registrant as of March 1, 2001: $0. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of March 1, 2001: 9,189,626 shares of Common Stock, $2.50 par value. (All shares are owned by Questar Regulated Services Company.) Registrant meets the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K and is therefore filing this Form 10-K Report with the reduced disclosure format. TABLE OF CONTENTS Heading Page PART I Items 1. and 2. BUSINESS AND PROPERTIES. . . . . . . . . . . . . . . . . 1 General . . . . . . . . . . . . . . . . . . . . . . . . 1 Gas Distribution. . . . . . . . . . . . . . . . . . . . 1 Gas Supply . . . . . . . . . . . . . . . . . . . . . . 3 Competition and Growth. . . . . . . . . . . . . . . . . 4 Regulation. . . . . . . . . . . . . . . . . . . . . . . . 6 Relationships with Affiliates . . . . . . . . . . . . . . 8 Employees . . . . . . . . . . . . . . . . . . . . . . . 11 Environmental Matters . . . . . . . . . . . . . . . . . 12 Research and Development. . . . . . . . . . . . . . . . 12 Item 3. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . 12 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . . . . . . . . . . . . . 13 PART II Item 5. MARKET FOR REGISTRANT'S EQUITY AND RELATED STOCKHOLDER MATTERS. . . . . . . . . . . . . 13 Item 6. OMITTED. . . . . . . . . . . . . . . . . . . . . . . . . 13 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION. . . . . . . . . . . . . . . . . . . . . . . . 14 Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.. . . . . . . . . . . . . . . . . . . . . . . . . . .18 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . . . . . . . . . 18 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . 18 PART III Items OMITTED. . . . . . . . . . . . . . . . . . . . . . . . . 18 10-13 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. . . . . . . . . . . . . . . . . 18 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 FORM 10-K ANNUAL REPORT, 2000 PART I ITEMS 1. and 2. BUSINESS AND PROPERTIES. General Questar Gas Company (the "Company" or "Questar Gas") distributes natural gas to more than 704,600 sales and transportation customers in Utah, southwestern Wyoming, and a small section in southeastern Idaho. It is part of the Regulated Services segment within Questar Corporation ("Questar"), which is a publicly-owned and diversified energy company. The Company, through a predecessor, began distributing natural gas in 1929 when a pipeline was built to transport natural gas from southwestern Wyoming to Salt Lake City, Utah. Between 1929 and the present time, Questar Gas expanded its system to include over 90 percent of Utah's population and to capture a market share of over 90 percent for furnaces and water heaters within its service area. When the Company closes on its expected acquisition of Utah Gas Service Company ("Utah Gas"), it will be the only natural gas public utility in the state of Utah. The Company has traditionally capitalized on two competitive advantages--owning natural gas reserves and offering services to customers at reasonable prices. Questar Gas intends to maintain a competitive position in its traditional service area. Gas Distribution As of December 31, 2000, Questar Gas was serving 704,629 residential, commercial, and industrial customers, a 2.7 percent increase from the 686,317 customers served as of the end of 1999. (Customers are defined in terms of active meters.) The Company distributes gas to customers in the major populated area of Utah, commonly referred to as the Wasatch Front, in which the Salt Lake metropolitan area, Provo, Ogden, and Logan are located. It also serves customers in eastern, central, and southwestern Utah with Price, Roosevelt, Fillmore, Richfield, Cedar City, and St. George as the primary cities. Over 96 percent of the Company's customers are in Utah. Questar Gas serves the communities of Rock Springs, Green River, and Evanston in southwestern Wyoming and the community of Preston in southeastern Idaho. Questar Gas has been granted the necessary regulatory approvals by the Public Service Commission of Utah ("PSCU"), the Public Service Commission of Wyoming ("PSCW"), and the Public Utilities Commission of Idaho ("PUCI") to serve these areas. It also has long-term franchises granted by communities and counties within its service area. Questar Gas added 18,312 customers in 2000, compared to 22,925 customer in 1999. Most of the customer growth was attributable to new housing, although the Company continues to add customers in its traditional and newer service areas that are converting to natural gas. The population of the Company's service area in Utah continues to grow faster than the national average, although the rate of increase is slowing down. Questar Gas expects to add 17,000-20,000 customers per year for the next several years. The Company's sales to residential and commercial customers are seasonal, with a substantial portion of such sales made during the heating season. The typical residential customer in Utah (defined as a customer using 115 decatherms ("Dth") per year) uses more than 75 percent of total gas requirements in the coldest six months of the year. (A Dth is an amount of heat energy equal to 10 therms or 1 million Btu. In the Company's system, each thousand cubic feet ("Mcf") of gas equals approximately 1.036 Dth.) The Company's revenue forecasts used to set rates are based on normal temperatures. Historically, revenues and resulting net income have been affected by temperature patterns that are below or above normal. As measured in degree days, temperatures in the Company's service area were four percent warmer than normal in 2000, which was the seventh consecutive year in which temperatures have been warmer than normal. The Company's sensitivity to weather and temperature conditions, however, has been ameliorated by adopting a weather-normalization mechanism for its general service customers in Utah and Wyoming. The mechanism, which has been in effect since 1997, adjusts the non-gas cost portion of a customer's monthly bill as the actual degree days in the billing cycle are warmer or colder than normal. This mechanism reduces the sometimes dramatic fluctuations in any given customer's monthly bill from year to year due to weather variations. During 2000, Questar Gas sold 83.4 million decatherms ("MMDth") of natural gas to residential and commercial customers, compared to 82.2 MMDth in 1999. General service sales to residential and commercial customers were responsible for 87 percent of the Company's total revenues in 2000. The increase in sales volumes reflects colder weather and increased customers. Customers are continuing to decrease their usage on a temperature-adjusted basis as they make a transition to more efficient gas-burning appliances and respond to higher commodity prices with conservation measures. Questar Gas has designed its distribution system and annual gas supply plan to handle design-day demand requirements. The Company periodically updates its design-day demand, which is the volume of gas that firm customers could use during extremely cold weather. For the 2000-01 heating season, the Company used a design-day demand of 999,856 Dth for firm sales customers. Questar Gas is also obligated to have capacity, but not gas supply, for firm transportation customers; the current combined design-day requirement for supply and transportation capacity is 1,100,700 Dth. The Company's management believes that the distribution system is adequate to meet the demands of its firm customers. During the 2000-01 winter heating season, Questar Gas did curtail transportation to some of its interruptible customers who specifically contract for interruptible service. The Company's tariff permits industrial customers to make annual elections for interruptible sales or transportation service. Questar Gas has been providing transportation service since 1986. The Company's largest transportation customers, as measured by revenue contributions in 2000, are the Geneva Steel plant in Orem, Utah; the Gadsby plant owned by Scottish Power (electric utility) in Salt Lake City; the mineral extraction operations of Magnesium Corporation of America in Tooele County, west of Salt Lake; and the Kennecott copper processing operations, located in Salt Lake County. The Company's total industrial deliveries, including both sales and transportation, increased from 61.5 MMDth in 1999 to 65.2 MMDth in 2000, reflecting the increased use of natural gas for electric generation. Questar Gas owns and operates distribution systems throughout its Utah, Wyoming and Idaho service areas and has a total of 21,660 miles of street mains, service lines, and interconnecting pipelines. The Company has consolidated many of its activities in its operations center located in Salt Lake City, Utah. Questar Gas continues to own field offices and service center facilities in other parts of its service area. It has fee title to the properties on which its operation and service centers are constructed. The mains and service lines are constructed pursuant to franchise agreements or rights-of-way. Gas Supply Questar Gas owns natural gas producing properties in Wyoming, Utah and Colorado that are operated by Wexpro Company ("Wexpro") and uses the gas produced from these properties for part of its base-load demand. Questar Gas is unique among local distribution companies because it does own gas reserves. During the last six months as spot prices have tripled, the Company has relied on its cost-of-service gas to keep its increases attributable to gas costs lower than other distribution utilities. The Company's investment in these properties is included in its utility rate base. Questar Gas has regulatory approval to use this "cost-of-service" gas for firm sales customers. During 2000, approximately 48 percent of the Company's firm sales requirement was satisfied with cost-of-service gas produced from over 630 wells in more than 30 fields. (As defined, cost-of-service gas includes related royalty gas.) The volumes produced from such properties are transported for the Company by Questar Pipeline Company ("Questar Pipeline"). See "Relationships with Affiliates." During 2000, 48.0 MMDth of gas were delivered from such properties, compared to 45.8 MMDth in 1999. The Company estimates that it had reserves of 399.7 equivalent billion cubic feet ("Bcfe") of natural gas and hydrocarbon liquids as of year-end 2000 compared to 373.4 Bcfe as of year-end 1999. (These reserve numbers do not include gas attributed to royalty interest owners but they do include crude oil reserves. Reserve numbers are typically reported in volumetric units, such as Bcf, that don't reflect heating values.) The increased reserves were attributable to revisions and extensions as a result of Wexpro's drilling activities, which more than offset the production associated with such properties. The average wellhead cost associated with gas volumes produced from the Company's cost-of-service reserves was $1.78 per Dth in 2000, which is below the average cost of purchased volumes. Some of the wells on the Company's producing properties qualify for special tax credits, commonly referred to as "Section 29" or "tight sands" tax credits. During 2000, Questar Gas, as the party with the economic interest in the gas produced from such wells, claimed $1.8 million in Section 29 tax credits. To qualify for the special tax credits, production must flow from wells that meet specified tight sands criteria and that commenced drilling prior to January 1, 1993. Only gas volumes produced prior to January 1, 2003, are eligible for the special tax credit. Questar Gas stores up to 13.3 Bcf of gas at Clay Basin, a base-load storage facility owned and operated by Questar Pipeline, to provide flexibility for handling gas volumes produced from cost-of-service properties. Gas volumes, as a general rule, are injected into the Clay Basin storage reservoir during the summer and withdrawn during the heating season. Questar Gas has a balanced and diversified portfolio of gas supply contracts with a variety of suppliers located in the Rocky Mountain states of Wyoming, Colorado, and Utah. It also purchases gas on the spot market, primarily during the heating season. The Company's gas purchase contracts have market-based provisions and are either of short-duration or renewable on an annual basis upon agreement of the parties. Questar Gas's gas acquisition objective is to obtain reliable, diversified sources of gas supply at competitive prices. In the latest purchased gas cost filing, the Company estimated that its 2001 average cost of purchased gas would be $6.75 per Dth for gas delivered to the upstream pipeline, compared to the $2.61 price it estimated a year earlier. Several years ago, Questar Gas realized that it had a significant problem with some gas supplies having a lower Btu content, which was attributable to lower-Btu gas extracted from coal seams and the stripping of liquids at processing plants. Appliances in Questar Gas's service area have historically been set to burn gas within a certain Btu range, and customer-safety problems can occur if the Btu content of delivered gas falls outside this range. The Company has reduced its recommended set point standard for appliances. New and replacement appliances installed by heating contractors meet this standard. Customers will be advised to have their appliances inspected and adjusted, if necessary, to satisfy the new standard. To provide an appropriate transition period, Questar Gas contracted with an affiliate to construct and operate a processing plant to remove carbon dioxide from coal-seam gas, thereby increasing the Btu content. The plant became operational in mid-1999. (See "Regulation" for a discussion of regulatory proceedings involving the costs associated with this activity.) Competition and Growth Questar Gas has historically enjoyed a favorable price comparison with all energy sources used by residential and commercial customers except coal and occasionally fuel oil. This historic price advantage, together with the convenience and handling advantages associated with natural gas and with the services provided in conjunction with natural gas, has permitted the Company to serve over 90 percent of the residential space heating and water heating market in its service area and to distribute more energy, in terms of Btu content, than any other energy supplier to residential and commercial markets in Utah. The Company continues to focus marketing efforts to develop incremental load in existing homes and new construction. Almost all households in its service area connected to Questar Gas's system already use natural gas for space heating and water heating. Virtually 100 percent of the new homes constructed in its service area that are connected to its system use natural gas for space heating and water heating. The Company's market share for other secondary appliances, e.g., ranges and dryers, has historically been less than 30 percent. Questar Gas believes that it must maintain a competitive price advantage in order to retain its residential and commercial customers and to build incremental load by convincing current customers to convert additional secondary appliances to natural gas. Historically, the Company's competitive position has been strengthened as a result of owning natural gas producing properties and satisfying as much as approximately 45-50 percent of its system requirements with the cost-of-service gas produced from such properties. Questar Gas develops an annual gas supply plan that provides for a judicious balance between cost-of-service gas and purchased gas. The Company believes that it is important to continue owning gas reserves, producing them in a manner that will serve the best short- and long-term interests of its customers, and satisfying a significant portion of its supply requirements with gas produced from such properties. No other major distributor markets natural gas sales service in direct competition with the Company in its service area, but marketing firms are arranging direct purchase contracts between large users in the Company's service area and producers. These customers have not bypassed Questar Gas, but can take advantage of the open-access status of either the pipeline systems owned by Questar Pipeline Company (Questar Pipeline") or Kern River Gas Transmission Company ("Kern River"). The Company's sales rates are competitive when compared to other energy sources, but can be higher (or lower) than the delivered price of spot-market gas volumes transported through its system to large customers. The Kern River pipeline, which was built to transport gas from southwestern Wyoming to Kern County, California, runs through portions of the Company's service area and can provide an alternative delivery source to transportation customers. As of the date of this Report, Questar Gas has lost no industrial load as a result of the Kern River line. The existence of the Kern River pipeline, however, coupled with the open-access status of Questar Pipeline's transmission system, has changed the nature of market conditions for the Company. Large industrial customers in Utah's Wasatch Front area can acquire taps on Kern River's system or direct taps on Questar Pipeline's system. The Company, itself, has taps on the Kern River line that enable it to obtain delivery of additional peak-day supplies to meet increasing demand. The existence and location of the Kern River pipeline system also made it possible for Questar Gas to extend service into new areas in rural Utah and to develop additional sources of supply for its central and southern Utah system. Questar Pipeline, an affiliate in the Regulated Services group, plans to construct a new line Mainline 104. The line, which should be operational before the 2001-02 winter heating season, also could change the competitive situation within the markets served by Questar Gas. This line extends from Price, Utah, near the Ferron area of coalbed methane gas, to the Company's system at Payson, Utah, and the Kern River line near Elberta, Utah. Questar Gas has contracted for firm transportation capacity on the line to enable it to meet its design-day requirements, but the location of the line and its connection to the Kern River line may increase the possibilities for some customers to bypass Questar Gas's system. In 1998, the PSCW approved a "supplier choice" program for the Company's customers in Wyoming. Under the terms of this program, general service customers have the option of selecting a different supplier of natural gas while purchasing transportation and related services from Questar Gas. However, no supplier has yet offered to provide service under the program. Questar Gas and all local distribution companies are faced with the challenges and opportunities posed by the unbundling and restructuring of traditional utility services, which have been complicated by recent developments in other states where partial deregulation activities have resulted in market anomalies and demands for "reregulation." At this point, it is far too soon to set or predict a timetable for the Company's unbundling of services to residential and commercial customers. Questar Gas will continue to examine its costs, take advantage of technological developments, and improve its overall efficiency in order to take advantage of opportunities in a deregulated environment. Effective October 31, 2000, 262 employees and 14 disability recipients within the Regulated Services unit retired pursuant to the terms of an early retirement program. As the largest employer within the Regulated Services group, Questar Gas lost 176 of the 262 employees involved. This early retirement program was the fourth program offered to the Company's employees within the last nine years and reflects continuing efforts to cut costs in response to competitive pressures, to deal with financial constraints imposed by regulatory orders, and reap the benefits associated with technological improvements. Regulation As a public utility, Questar Gas is subject to the jurisdiction of the PSCU and PSCW. (The Company's customers in Idaho are served under the provisions of its Utah tariff. Pursuant to a special contract between the PUCI and the PSCU, the rates for the Company's Idaho customers are regulated by the PSCU.) The Company's natural gas sales and transportation services are provided under rate schedules approved by the two regulatory commissions. Questar Gas has consistently endeavored to balance the costs of adding close to 18,000-20,000 customers each year with the cost savings associated with reducing labor costs, consolidating activities and utilizing new technology. During 2000, the Company improved its overall efficiency by closing the front offices at its service centers, limiting in-home service visits to safety and emergency calls, outsourcing some non-core activities, and combining operations with Questar Pipeline. Questar Gas's 2000 general rate case proceedings culminated with the receipt of an "acceptable" decision from the PSCU in August of 2000. The case began in December of 1999 when the Company filed an application requesting an increase of $22.2 million and return on equity of 12 percent. Effective January 1, 2000, Questar Gas was permitted to increase its rates, on an interim basis and subject to refund, to collect an annualized increase of $7.1 million. The PSCU, in its August decision, granted $13.5 million in rate relief, which included the $7.1 million, and authorized a return on equity of 11 percent. This decision also permitted Questar Gas to collect $5 million of annual carbon dioxide processing costs (included in the $13.5 million increase) that the PSCU had earlier refused to accept as part of the Company's gas costs for pass-through treatment. Questar Gas was disappointed in the authorized return on equity (11 percent) it was granted by the PSCU, given its testimony concerning the need of financial markets for competitive returns and given the increased evidence that utilities cannot earn their allowed returns when they are growing their customer base faster than the national average. The Company is authorized to earn a return on equity of 11.83 percent in Wyoming. Regulatory treatment of processing costs has been an issue of contention for the past 18 months. As noted earlier, Questar Gas, in order to give its customers time to adjust the combustion settings in its service area to handle lower Btu-gas volumes, determined to enhance the Btu of such gas by contracting to have carbon dioxide removed from it and agreeing to pay the costs associated with this activity. The Company is involved in two separate cases before the Utah Supreme Court involving the PSCU's treatment of carbon dioxide removal costs. The first case, which has been briefed and argued, is Questar Gas's appeal from the PSCU's order denying its application to recover the costs in its pass-through proceedings from June of 1999 through year-end 1999. The second case, which has not been argued, involves an appeal taken by a state agency from the PSCU's general rate case order allowing the Company to include the processing costs in its rates. The Utah state legislature voted to repeal regulatory reform legislation that was adopted during 2000. The legislation was designed to improve regulatory processes by consolidating two state agencies into one, encouraging rate-case settlements without protracted and adversarial proceedings, and requiring the PSCU to consider "known and measurable" changes when setting rates. The legislation received adverse reactions from consumer groups and local media, which resulted in a political decision to repeal the legislation before it could become effective. Both the PSCU and the PSCW have authorized Questar Gas to use a balancing account procedure for changes in the cost of natural gas, including supplier non-gas costs, and to reflect changes on at least a semi-annual basis. During 2000, the Company filed three pass-through applications with both the Utah and Wyoming commissions to reflect increased gas costs in its rates. In the last pass-through applications that became effective January 1, 2001, Questar Gas was allowed to reflect annualized gas costs of $504,865,533 in its Utah rates and $19,529,523 in its Wyoming rates. A typical residential customer in Utah would have an annual bill of $905.02, using rates in effect as of January 1, 2001, compared to an annual bill of $611.19, using rates in effect as of January 1, 2000. The PSCW and PSCU have allowed the Company to collect the increased gas costs in rates, subject to refund. Both commissions also held public hearings to hear public comments on the most recent pass-through filings. Questar Gas has reached an agreement in principle to purchase Utah Gas and Wyoming Industrial Gas Company ("Wyoming Gas") and immediately merge these two entities into it. It has also requested regulatory approval of the transactions. Utah Gas is the only other retail natural gas utility in Utah and serves the three primary cities of Vernal, Moab, and Monticello, which are located in eastern and southeastern Utah. Wyoming Gas supplies gas to Kemmerer, Wyoming, which is located in western Wyoming. As a result of the acquisition, Questar Gas would add approximately 10,500 customers. The Company specified several conditions to its acquisition that include receiving regulatory approval to continue charging the acquired customers the current non-gas cost portion of rates for 10 years. Responsibility for gas acquisition activities involves inherent risks of regulatory scrutiny. The Company has been periodically involved in regulatory proceedings in which the prudence of its gas supply activities has been challenged. The PSCU and PSCW have jurisdiction to examine the Company's relationships with its affiliates and the costs paid by the Company for services rendered by or goods purchased from its affiliates. A 1981 settlement agreement involving cost-of-service gas and defining certain contractual obligations between the Company and Wexpro continues to be monitored by the Division and its agents. Under Utah law, Questar Gas must report dividends paid on its common stock to the PSCU and must allow at least 30 days between declaring and paying dividends. The PSCU can investigate any dividend declared by the Company to determine if payment of such dividend would impair its capital or service obligations. The PSCW and the PUCI, but not the PSCU, have jurisdiction to review the issuance of long-term securities by Questar Gas. The PSCU and PSCW have adopted regulations or issued orders that affect the Company's business practices in such areas as main extensions, credit and collection activities, and termination of service standards. Relationships with Affiliates The Company has significant business relationships with affiliated companies. The following diagram shows the corporate structure of the Company and its primary affiliates: Questar Corporation Questar Market Resources, Inc. Wexpro Company Questar Exploration and Production Company Questar Energy Trading Company Questar Gas Management Company Questar Regulated Services Company Questar Pipeline Company QUESTAR GAS COMPANY Questar Energy Services, Inc. Questar InfoComm, Inc. The Company's relationships with its primary affiliates are described below. Questar Regulated Services Company. The Company's direct parent, Questar Regulated Services Company ("QRS"), is a subholding company that was created to link Questar Gas and Questar Pipeline. The same group of officers manages all entities within the group. QRS provides various services--administrative, accounting, engineering, regulatory, legal--for all entities within it. The creation of the Regulated Services group allowed its members to lower administrative costs. Questar Pipeline Company. Questar Pipeline owns a two-pronged transmission system running from southwestern Wyoming and western Colorado into the Company's Utah service area. During the months of December through February of 2000-01, Questar Gas reserved about 828,000 Dth per day or 77 percent of Questar Pipeline's reserved capacity. On an ongoing basis, the Company has about 798,000 Dth per day on Questar Pipeline's system. Questar Gas transports both cost-of-service gas and purchased gas on Questar Pipeline's transmission system. (The Company also transports gas volumes on the transmission systems owned by The Williams Companies, Inc. and Colorado Interstate Gas Company. Questar Gas purchases "city gate" gas supplies from transportation customers on Kern River's system.) The Company releases its firm transportation capacity, pursuant to capacity release procedures adopted by the Federal Energy Regulatory Commission ("FERC"), when it does not need such service for its sales customers. Because Questar Gas has sufficient capacity on the system to meet peak-demand periods, it has unused capacity for the balance of the year. During 2000, Questar Pipeline transported 108.2 MMDth of gas for Questar Gas, compared to 105.5 MMDth in 1999. Under Questar Pipeline's "straight fixed-variable" rate schedules, Questar Gas is obligated to pay demand charges for firm capacity, regardless of the volumes actually transported. The Company, in 2000, paid approximately $54.3 million in demand charges to Questar Pipeline for firm transportation capacity and "no notice" transportation. The Company's transportation agreement with Questar Pipeline was extended in 1999 for three years and expires on June 30, 2002. Questar Gas purchases storage capacity at Clay Basin, a large base-load storage facility operated by Questar Pipeline, and also has peaking storage capacity at three additional storage reservoirs owned by Questar Pipeline. The Company paid Questar Pipeline $13.7 million in demand charges during 2000 in connection with storage services. A subsidiary of Questar Pipeline also operates the processing plant near Price, Utah, that removes the carbon dioxide from gas volumes delivered to Questar Gas's system. During 2000, the Company paid $6.3 million for services provided at the plant. After the early retirement program that was effective October 31, 2000, Questar Gas and Questar Pipeline combined operation activities. Susan Glasmann, in her position as Vice President of Operations, serves as the primary operations officer for both entities. In some areas, Questar Gas and Questar Pipeline combined their separate service centers; operations employees are being cross-trained to handle responsibilities for both entities. Questar Energy Services, Inc. Effective January 1, 1999, Questar Energy Services, Inc. ("QES") was transferred from Questar's Market Resources unit to the Regulated Services unit. QES provides energy management equipment, installation and services for commercial and industrial customers, home security systems, and equipment financing to residential customers. The Company allows QES, for a fee, to advertise its products with bills sent to customers and to invoice its customers on utility bills. During 2000, QES concentrated on three new business activities that demonstrate its close relationship with Questar Gas. It partnered with Northwest Natural Gas Company, a Portland, Oregon-based natural gas utility, to provide residential and commercial appliance financing for Northwest's customers after it demonstrated its success handling these arrangements for the Company's customers. QES developed an "infrastructure management" business in which it works with developers to coordinate utility installations, including the Company's, for new construction projects. Finally, QES introduced a program to supply contractors with a reliable and temporary heating source for winter construction projects. Questar Gas Management Company: Questar Gas Management Company ("QGM") owns the gathering facilities that were originally built to gather production from the Company's cost-of-service properties. During 2000, QGM gathered 36.8 MMDth of natural gas for Questar Gas, compared to 32.1 MMDth in 1999. The Company paid $4.5 million to QGM for demand charges in conjunction with 2000 gathering services. Under the terms of the gathering agreement between the parties, QGM will gather gas volumes produced from cost-of-service properties for the life of such properties and charge cost-of-service rates. Wexpro Company: Wexpro, another company within Questar's Market Resources segment, operates certain properties owned by Questar Gas. Under the terms of a 1981 settlement agreement, which was approved by the PSCU and PSCW and upheld by the Utah Supreme Court, the Company owns gas produced from specified properties that were productive as of August 1, 1981 (the effective date of the settlement agreement). Such gas is reflected in rates at cost-of-service prices based on rates of return established by the settlement agreement. In addition, Wexpro produces gas from specified properties for Questar Gas and is reimbursed for its costs plus a current rate of return of 18.64 percent (adjusted annually using a specified formula) on its net investment in such properties, adjusted for working capital and deferred taxes. At year-end 2000, Wexpro's investment (net of deferred taxes) in cost-of-service operations was $124.8 million compared to $108.9 million at year-end 1999. Under the terms of the settlement agreement, the costs of unsuccessful wells are borne by Wexpro. The settlement agreement also permits Questar Gas to share income from hydrocarbon liquids produced from certain properties operated by Wexpro after Wexpro recovers its expenses and a specified rate of return. The income received by Questar Gas from Wexpro is used to reduce natural gas costs reflected in the Company's rates. Questar InfoComm, Inc.: The Company receives data processing and telecommunication services from its affiliate, Questar InfoComm. Questar Gas utilizes a customer information system and related software systems that are maintained by Questar InfoComm. Questar InfoComm's services have historically been priced to recover operating expenses and a return on investment. For 2001, Questar Gas and Questar InfoComm have negotiated the terms of a new relationship that will allow the Company more flexibility and different pricing mechanisms when obtaining services from Questar InfoComm. Other Affiliates: In addition to QGM and Wexpro, the Market Resources segment of Questar includes Questar Energy Trading Company and Questar Exploration and Production Company. Questar Gas does not have significant business relationships with these entities, although it did purchase some gas volumes on an emergency basis during 2000 from Questar Energy Trading. Questar, the Company's ultimate parent, provides certain administrative services, e.g., public and government relations, financial, and audit, to the Company and other members of the consolidated group. Questar also sponsors the qualified and welfare benefit plans in which the Company's employees participate. Questar Gas is responsible for a proportionate share of the costs associated with these services and benefit plans. Employees As of December 31, 2000, the Company had 741 employees, compared to 931 at year-end 1999. Regulated Services, the Company's parent, has 358 employees (compared to 431 at year-end 1999) who perform specified services, e.g., administrative, engineering, legal, accounting, budget, for Questar Gas, Questar Pipeline and QES. The significant reduction in employee numbers reflects the impact of an early retirement program described under "Competition and Growth." The Company's employees are nonunion employees who are not represented under collective bargaining agreements. Employee relations are generally deemed to be satisfactory. Environmental Matters The Company is subject to the National Environmental Policy Act and other federal and state legislation regulating the environmental aspects of its operations. Although Questar Gas does not believe that environmental protection laws and regulations will have any material effect on its competitive position, it does believe that such provisions have added and will continue to add to the Company's expenditures and annual maintenance and operating expenses. Questar Gas has an obligation to treat waste water and monitor the effectiveness of an underground slurry wall that was constructed in 1988 at its operations center in Salt Lake City, Utah. The slurry wall was built to contain contaminants from an abandoned coal gasification plant that operated on the site from 1908 to 1929. Questar Gas emphasizes the environmental advantages of natural gas. The Company's marketing campaigns have featured the clean-burning characteristics of natural gas fireplaces. Natural gas vehicles are also being encouraged on the basis of environmental considerations. Research and Development The Company conducts studies of gas conversion equipment, gas piping, and engines using natural gas and has funded demonstration projects using such equipment. The total dollar amount spent by the Company on research activities is not material. ITEM 3. LEGAL PROCEEDINGS. Questar Gas is involved in various legal and regulatory proceedings. While it is currently impossible to predict or determine the outcome of these proceedings, management believes that the outcome will not have a material adverse effect on the Company's financial position or liquidity. The Company is a named defendant in two cases that have been filed by Jack Grynberg, an independent producer that has sued Questar Gas and its affiliates a number of times during the last eight years. The most active case involves claims brought by Mr. Grynberg under the Federal False Claims Act. It and the 75 substantially similar cases filed by Grynberg against pipelines and their affiliates have been consolidated for discovery and pre-trial discovery motions in Wyoming's federal district court. The cases involve allegations of industry-wide mismeasurement and undervaluation of gas volumes on which royalty payments are due the federal government. The complaint seeks treble damages and imposition of civil penalties. The Questar defendants in the case have joined with other defendants to file a comprehensive motion to dismiss, which has not yet been ruled on by the federal district judge. Another Grynberg case was filed against Questar Gas and several affiliates in 1997. This case involves claims of fraud and antitrust violations in addition to some take-or-pay, breach of contract, and intentional interference with a contract claims. The case was stayed pending Grynberg's appeal of another case involving the Company to the Tenth Circuit Court of Appeals, although the district court did rule favorably on some issues before the case was stayed. The district court has not ruled on the defendants' motions for summary judgment. Questar Gas and several affiliates are among the 220 named defendants in Quinque Operating Company v. Gas Pipelines, which was recently transferred from the Wyoming federal district court where it had been consolidated with the Grynberg cases to the Kansas state court where it had been originally filed. This case is very similar to the cases filed by Mr. Grynberg against the pipeline industry, but the allegations of systematic mismeasurement of natural gas volumes and resulting underpayment of royalties are made on behalf of private and state lessors, rather than on behalf of the federal government. See "Regulation" for a review of significant regulatory proceedings and appeals of decisions in such proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The Company did not submit any matters to a vote of its stockholder during the last quarter of 2000. Part II ITEM 5. MARKET FOR REGISTRANT'S EQUITY AND RELATED STOCKHOLDER MATTERS. All of the Company's outstanding shares of common stock, $2.50 par value, are owned by Regulated Services. Information concerning the dividends paid on such stock and the ability to pay dividends is reported in the Statements of Common Shareholder's Equity and the Notes to Financial Statements included in Item 8. ITEM 6. SELECTED FINANCIAL DATA. The Company, as the wholly owned subsidiary of a reporting company under the Securities Exchange Act of 1934 ("the Act"), is entitled to omit the information requested in this Item. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Questar Gas conducts natural gas distribution operations. Following is a summary of financial results and operating information:
Year Ended December 31, 2000 1999 1998 (Dollars In Thousands) OPERATING INCOME Revenues Residential and commercial sales $467,293 $396,882 $425,452 Industrial sales 38,993 28,938 29,555 Industrial transportation 6,968 6,594 6,480 Other 23,508 17,523 15,336 Total revenues 536,762 449,937 476,823 Natural gas purchases 334,193 257,265 281,004 Margin 202,569 192,672 195,819 Operating expenses Operating and maintenance 101,486 103,308 96,923 Depreciation and amortization 34,450 36,426 33,261 Other taxes 10,213 7,625 8,185 Total expenses 146,149 147,359 138,369 Operating income $56,420 $45,313 $57,450 OPERATING STATISTICS Natural gas volumes (in MDth) Residential and commercial sales 83,373 82,201 83,231 Industrial deliveries Sales 10,314 9,823 9,681 Transportation 54,836 51,643 55,461 Total industrial 65,150 61,466 65,142 Total deliveries 148,523 143,667 148,373 Natural gas revenue (per Dth) Residential and commercial $5.60 $4.83 $5.11 Industrial sales 3.78 2.95 3.05 Transportation for industrial customers 0.13 0.13 0.12 System natural gas cost (per Dth) $3.54 $2.61 $2.57 Heating degree days (normal 5,609) 5,402 5,317 5,462 Warmer than normal 4% 5% 3% Number of customers at December 31, Residential and commercial 703,306 684,950 662,084 Industrial 1,323 1,367 1,308 704,629 686,317 663,392
Margin (Revenues less natural gas purchases) Questar Gas' margin increased 5% in 2000 when compared with 1999 after declining by 2% in the prior year comparison. The improvement was primarily the result of a $13.5 million annual general rate increase. A $7.1 million portion of the Utah rate increase went into effect January 1, 2000, with the remainder reflected in rates beginning August 11, 2000. The rate case authorized Questar Gas to earn up to an 11% return on equity and included $5 million for annual gas processing costs. The rate case resolved an issue in which the Public Service Commission of Utah (PSCU) had denied recovery of $3.6 million of gas processing costs in 1999. Usage per residential customer, calculated on a temperature adjusted basis, decreased in 2000 for the third consecutive year. Usage per residential customer was three decatherms or 3% lower in 2000 when compared with 1999 and two decatherms or 1% lower in 1999 compared with 1998. Temperatures have been warmer than normal for the past seven years. However, since 1995, the financial impact of warmer weather has been minimized because of a weather-normalization adjustment in rates. Customers served by Questar Gas grew by 18,312 or 2.7% in 2000, following growth rates of 3.5% in 1999 and 3.4% in 1998. Industrial deliveries were 6% higher in 2000 due to an increase in natural gas volumes used to generate electricity. Gas deliveries to industrial customers decreased by 6% in 1999 because a major steel-producing customer reduced operations. Margins from gas delivered to industrial customers, either sold or transported, are substantially lower than from gas delivered to residential and commercial customers. Significant gas-cost increases in the second half of 2000 due to rising demand for natural gas in the western U. S. did not affect the margin. Under rate regulation in Utah and Wyoming, Questar Gas can request authorization to recover from customers the cost of its gas supply on a dollar-for-dollar basis. Gas costs in Utah rates have risen from $1.72 per dth in 1999 to $2.91 at December 31, 2000. As of January 1, 2001, gas costs in rates rose to $4.67 per dth. Operating expenses Operating and maintenance expenses were 2% lower in 2000 due to decreases in legal, information technology and labor costs. Questar Gas improved a number of its information technology systems in 1999 as part of its year 2000 system-readiness program. Labor costs were lower as a result of early retirement programs effective October 31, 2000, and August 31, 1998. Operating and maintenance expenses were 7% higher in 1999 due to incremental costs of serving a growing customer base. Depreciation expense was $2.8 million lower in 2000 due to investments in several information systems being fully depreciated. Depreciation increased 10% in 1999 because of capital spending. Other taxes increased in 2000 because of a $1.4 million current-year adjustment of prior-year taxes and from higher property tax rates. Questar Regulated Services initiated an early retirement window program effective October 31, 2000. A total of 262 employees from Questar Gas, Questar Pipeline and Questar Regulated Services elected to retire. The window program is projected to result in pretax labor-cost savings for Regulated Services of $6-8 million yearly. Questar Gas receives about two-thirds of the effect of the early retirement window. Acquisition of distribution systems Questar Gas has agreed in principle to acquire two gas distribution systems in exchange for 390,000 shares of Questar Corporation common stock. The acquisitions, pending approval from the PSCU and Public Service Commission of Wyoming (PSCW), will add about 10,500 customers in Utah and Wyoming. The transactions will be accounted for as a purchase. Debt expense Interest expense increased due to higher interest rates and borrowing from Questar in 2000. Income taxes The effective combined federal and state rate was 34.8% in 2000, 31.9% in 1999 and 33.5% in 1998. The effective income tax rate was below the combined federal and state statutory rate of about 38% primarily due to noncoventional fuel credits related to production of gas from certain properties. These credits amounted to $1,798,000 in 2000, $1,872,000 in 1999 and $2,217,000 in 1998. LIQUIDITY AND CAPITAL RESOURCES Operating Activities
Year Ended December 31, 2000 1999 1998 (In Thousands) Net income $24,163 $19,219 $27,408 Adjustments to net income 51,631 44,799 28,686 Changes in operating assets and liabilities (14,048) 1,108 39,505 Net cash provided from operating activities $61,746 $65,126 $95,599
Net cash provided from operating activities decreased in 2000 compared with 1999 due primarily to an increase in customer account receivables and under collection of purchased-gas costs in customer rates. The decrease in 1999 compared with 1998 was due primarily to a collection of about $35 million of purchased-gas costs in 1998. Investing Activities Following is a summary of capital expenditures for 2000 and 1999, and a forecast of 2001 expenditures.
2001 Forecast 2000 1999 (In Thousands) Distribution system and customer additions $49,900 $49,454 $50,077 General 17,800 16,313 18,370 $67,700 $65,767 $68,447
The distribution system was extended by 964 miles of main, feeder and service lines to accommodate the addition of 18,312 customers. Financing Activities Questar Gas generated sufficient net cash provided from operating activities to fund 94% of its 2000 capital expenditures. Forecasted 2001 capital expenditures are expected to be financed with net cash provided from operations and borrowing from Questar. Questar makes loans to Questar Gas under a short-term borrowing arrangement. Short-term notes payable to Questar totaled $105.6 million at December 31, 2000 with an average interest rate of 6.91% and $79.3 million at December 31, 1999 with an interest rate of 6.61%. The Company typically has negative net working capital at December 31 because of short-term borrowing. The borrowing is seasonal and generally peaks at the end of the year because of cold-weather gas purchases. Negative working capital at year end was exacerbated by rising energy prices experienced in the second half of 2000 and extending into the first quarter of 2001. Questar Gas' capital structure at December 31, 2000, was composed of 46% long-term debt and 54% common equity. Moody's and Standard and Poor's have rated the Company's long-term debt A1 and A+, respectively. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. All of the Company's long-term debt is borrowed at fixed rates. As the need arises, the Company borrows funds on a short-term basis, which bear variable interest rates. Forward-Looking Statements This report includes "forward-looking statements" within the meaning of Section 27(a) of the Securities Act of 1933, as amended, and Section 21(e) of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included or incorporated by reference in this report, including, without limitation, statements regarding the Company's future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as "may", "will", "could", "expect", "intend", "project", "estimate", "anticipate", "believe", "forecast", or "continue" or the negative thereof or variations thereon or similar terminology. Although these statements are made in good faith and are reasonable representations of the Company's expected performance at the time, actual results may vary from management's stated expectations and projections due to a variety of factors. Important assumptions and other significant factors that could cause actual results to differ materially from those expressed or implied in forward-looking statements include changes in general economic conditions, gas and oil prices and supplies, competition, rate-regulatory issues and other factors beyond the control of the Company. These other factors include the rate of inflation, quoted prices of securities available for sale, the weather and other natural phenomena, the effect of accounting policies issued periodically by accounting standard-setting bodies, and adverse changes in the business or financial condition of the Company. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The Company's financial statements are included in Part IV, Item 14, herein. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Questar Gas has not changed its independent auditors or had any disagreements with them concerning accounting matters and financial statement disclosures within the last 24 months. PART III The Company, as the wholly owned subsidiary of a reporting company under the Act, is entitled to omit all information requested in PART III (Items 10-13). PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1)(2) Financial Statements and Financial Statement Schedules. The financial statements identified in the List of Financial Statements are filed as part of this Report. (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. Description 3.1.* Restated Consolidated Articles of Incorporation dated August 15, 1980. (Exhibit No. 4(a) to Registration Statement No. 2-70087, filed December 1, 1980.) 3.2.* Certificate of Amendment to Restated Consolidated Articles of Incorporation dated May 13, 1982. (Exhibit No. 3(b) to Form 10-K Annual Report for 1982.) 3.3.* Certificate of Amendment to Restated Consolidated Articles of Incorporation dated May 10, 1983. (Included in Exhibit No. 4.1. to Registration Statement No. 2-84713, filed June 23, 1983.) 3.4.* Certificate of Amendment to Restated Consolidated Articles of Incorporation dated August 16, 1983. (Exhibit No. 3(a) to Form 8 Report amending the Company's Form 10-Q Report for Quarter Ended September 30, 1983.) 3.5.* Certificate of Amendment to Restated Consolidated Articles of Incorporation dated October 26, 1984. (Exhibit No. 3.5. to Form 10-K Annual Report for 1984.) 3.6.* Certificate of Amendment to Restated Consolidated Articles of Incorporation dated May 13, 1985. (Exhibit No. 3.1. to Form 10-Q Report for Quarter Ended June 30, 1985.) 3.7.* Articles of Amendment to Restated Consolidated Articles of Incorporation dated February 10, 1988. (Exhibit No. 3.7. to Form 10-K Annual Report for 1987.) 3.8.* Articles of Amendment to Restated Consolidated Articles of Incorporation dated December 31, 1997. (Exhibit No. 3.7. to Form 8-K Current Report for December 31, 1997.) 3.9. Bylaws (as amended effective February 13, 2001) 4.*1 Indenture dated as of May 1, 1992, between the Company and Citibank, as trustee, for the Company's Debt Securities. (Exhibit No. 4. to Form 10-Q Report for Quarter Ended June 30, 1992.) 10.1.*2 Stipulations and Agreement, dated October 14, 1981, executed by Mountain Fuel Supply Company; Wexpro Company; the Utah Department of Business Regulations, Division of Public Utilities; the Utah Committee of Consumer Services; and the staff of the Public Service Commission of Wyoming. (Exhibit No. 10(a) to Form 10-K Annual Report for 1981.) 10.2*2 Gas Gathering Agreement between Mountain Fuel Supply Company and Questar Pipeline Company effective September 1, 1993. (This agreement has been transferred from Questar Pipeline to Questar Gas Management Company.) (Exhibit No. 10.11. To Form 10-K Annual Report for 1994.) 10.3.*2 Amendment to Gas Gathering Agreement between Mountain Fuel Supply Company and Questar Gas Management Company effective September 1, 1997. 24. Power of Attorney. _______________________ *Exhibits so marked have been filed with the Securities and Exchange Commission as part of the referenced filing and are incorporated herein by reference. 1First Security Bank, N.A. serves as the successor trustee. 2This document has not been formally amended to refer to the Company's current name. (b) Questar Gas Company did not file any Current Reports on Form 8-K during the last quarter of 2000. 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, 2000 QUESTAR GAS COMPANY SALT LAKE CITY, UTAH FORM 10-K -- ITEM 14 (a) (1) AND (2) QUESTAR GAS COMPANY LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES The following financial statements of Questar Gas Company are included in Item 8: Statements of income, Years ended December 31, 2000, 1999 and 1998 Balance sheets, December 31, 2000 and 1999 Statements of common shareholder's equity, Years ended December 31, 2000, 1999 and 1998 Statements of cash flows, Years ended December 31, 2000, 1999 and 1998 Notes to financial statements Financial statement 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 Gas Company We have audited the accompanying balance sheets of Questar Gas Company as of December 31, 2000 and 1999, and the related statements of income and common shareholder's equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Questar Gas Company at December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young Ernst & Young Salt Lake City, Utah March 6, 2001 QUESTAR GAS COMPANY STATEMENTS OF INCOME
Year Ended December 31, 2000 1999 1998 (In Thousands) REVENUES From unaffiliated customers $531,988 $447,606 $475,754 From affiliated companies 4,774 2,331 1,069 536,762 449,937 476,823 OPERATING EXPENSES Natural gas purchases From affiliated companies 166,198 150,960 142,699 From unaffiliated parties 167,995 106,305 138,305 Total natural gas purchases 334,193 257,265 281,004 Operating and maintenance 101,486 103,308 96,923 Depreciation and amortization 34,450 36,426 33,261 Other taxes 10,213 7,625 8,185 TOTAL OPERATING EXPENSES 480,342 404,624 419,373 OPERATING INCOME 56,420 45,313 57,450 INTEREST AND OTHER INCOME 1,673 2,980 3,566 DEBT EXPENSE (21,041) (20,062) (19,792) INCOME BEFORE INCOME TAXES 37,052 28,231 41,224 INCOME TAXES 12,889 9,012 13,816 NET INCOME $24,163 $19,219 $27,408
See notes to financial statements. QUESTAR GAS COMPANY BALANCE SHEETS
ASSETS December 31, 2000 1999 (In Thousands) CURRENT ASSETS Cash and cash equivalents $882 $1,708 Accounts receivable 69,808 44,549 Unbilled gas accounts receivable 45,293 37,287 Accounts receivable from affiliates 1,262 Federal income taxes recoverable 5,019 Inventories, at lower of average cost or market Gas stored underground 22,444 18,497 Materials and supplies 3,542 3,183 Purchased-gas adjustments 35,565 432 Prepaid expenses and other 773 3,168 TOTAL CURRENT ASSETS 183,326 110,086 PROPERTY, PLANT AND EQUIPMENT Distribution 818,802 725,874 Production 97,870 97,870 General 125,970 121,421 Construction in progress 24,720 68,434 1,067,362 1,013,599 Less allowances for depreciation 447,496 421,111 and amortization NET PROPERTY, PLANT AND EQUIPMENT 619,866 592,488 OTHER ASSETS Regulatory assets 22,359 16,353 Other noncurrent assets 4,775 4,625 TOTAL OTHER ASSETS 27,134 20,978 $830,326 $723,552
LIABILITIES AND SHAREHOLDER'S EQUITY
December 31, 2000 1999 (In Thousands) CURRENT LIABILITIES Notes payable to Questar $105,600 $79,300 Accounts payable and accrued expenses Accounts and other payables 97,397 34,369 Accounts payable to affiliates 25,701 22,396 Federal income taxes 2,966 Deferred income taxes 13,515 164 Other taxes 8,502 4,915 Interest 4,583 4,476 Total accounts payable and 149,698 69,286 accrued expenses TOTAL CURRENT LIABILITIES 255,298 148,586 LONG-TERM DEBT 225,000 225,000 DEFERRED INCOME TAXES 80,215 79,549 DEFERRED INVESTMENT TAX CREDITS 5,250 5,630 OTHER LONG-TERM LIABILITIES 507 1,394 COMMITMENTS AND CONTINGENCIES - Note 6 COMMON SHAREHOLDER'S EQUITY Common stock - par value $2.50 per share; authorized 50 million shares; 9,189,626 issued and outstanding 22,974 22,974 Additional paid-in capital 81,875 81,875 Retained earnings 159,207 158,544 TOTAL COMMON SHAREHOLDER'S EQUITY 264,056 263,393 $830,326 $723,552
See notes to financial statements. QUESTAR GAS COMPANY STATEMENTS OF COMMON SHAREHOLDER'S EQUITY
Additional Common Paid-in Retained Stock Capital Earnings (In Thousands) Balances at January 1, 1998 $22,974 $41,875 $157,417 1998 net income 27,408 Payment of common stock dividends (22,500) Balances at December 31, 1998 22,974 41,875 162,325 1999 net income 19,219 Equity investment 40,000 Payment of common stock dividends (23,000) Balances at December 31, 1999 22,974 81,875 158,544 2000 net income 24,163 Payment of common stock dividends (23,500) Balances at December 31, 2000 $22,974 $81,875 $159,207
See notes to financial statements. QUESTAR GAS COMPANY STATEMENTS OF CASH FLOWS
Year Ended December 31, 2000 1999 1998 (In Thousand) OPERATING ACTIVITIES Net income $24,163 $19,219 $27,408 Adjustments to reconcile net income to net cash provided from operating activities Depreciation and amortization 37,994 39,479 35,772 Deferred income taxes and deferred investment tax credits 13,637 5,320 (7,086) 75,794 64,018 56,094 Changes in operating assets and liabilities Accounts receivable (32,003) (2,586) 5,975 Inventories (4,306) 616 (1,949) Prepaid expenses and other 2,395 (330) 1,518 Accounts payable and accrued 70,027 (3,019) 7,800 expenses Federal income taxes (7,985) 853 (999) Purchased-gas adjustments (35,133) 1,635 35,184 Other assets (6,156) 2,875 (2,365) Other liabilities (887) 1,064 (5,659) NET CASH PROVIDED FROM OPERATING ACTIVITIES 61,746 65,126 95,599 INVESTING ACTIVITIES Capital expenditures (65,767) (68,447) (76,328) Proceeds from disposition of property, plant and equipment 395 2,103 3,108 NET CASH USED IN INVESTING ACTIVITIES (65,372) (66,344) (73,220) FINANCING ACTIVITIES Equity investment 40,000 Change in notes payable to Questar 26,300 (17,400) (3,300) Payment of dividends (23,500) (23,000) (22,500) NET CASH PROVIDED FROM (USED IN) FINANCING ACTIVITIES 2,800 (400) (25,800) CHANGE IN CASH AND CASH EQUIVALENTS (826) (1,618) (3,421) BEGINNING CASH AND CASH EQUIVALENTS 1,708 3,326 6,747 ENDING CASH AND CASH EQUIVALENTS $882 $1,708 $3,326
See notes to financial statements. QUESTAR GAS COMPANY NOTES TO FINANCIAL STATEMENTS Note 1 - Summary of Accounting Policies Questar Gas Company (the Company or Questar Gas), is a wholly-owned subsidiary of Questar Regulated Services Company (Regulated Services). Regulated Services is a holding company and a wholly-owned subsidiary of Questar Corporation (Questar). Regulated Services was organized in 1996 and provides administrative, accounting, engineering, legal and regulatory functions for its three subsidiaries, Questar Gas, Questar Pipeline Company (Questar Pipeline) and Questar Energy Services. Significant accounting policies are presented below. Business and Regulation: Questar Gas distributes natural gas to residential, commercial and industrial customers. The Company is regulated by the Public Service Commission of Utah (PSCU) and the Public Service Commission of Wyoming (PSCW). While Questar Gas also serves a small area of southeastern Idaho, the Public Utilities Commission of Idaho has deferred to the PSCU for rate oversight of this area. These regulatory agencies establish rates for the sale and transportation of natural gas. The regulatory agencies also regulate, among other things, the extension of natural gas facilities. Regulation is intended to permit the recovery, through rates, of the cost of service including a return on investment. The financial statements are presented in accordance with regulatory requirements. Methods of allocating costs to time periods, in order to match revenues and expenses, may differ from those of nonregulated businesses because of cost-allocation methods used in establishing rates. The amounts included as regulatory assets on the balance sheet include income taxes recoverable from customers, early retirement window costs and gains and losses on the reacquisition of debt. Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent liabilities reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Revenue Recognition: Revenues are recognized in the period that services are provided or products are delivered. Questar Gas accrues gas-distribution revenues for gas delivered to residential and commercial customers but not billed at the end of the accounting period. Purchased-Gas Adjustments: Questar Gas accounts for purchased-gas costs in accordance with procedures authorized by the PSCU and PSCW under which purchased-gas costs that are different from those provided for in the present rates are accumulated and recovered or credited through future rate changes. Cash and Cash Equivalents: Cash equivalents consist principally of repurchase agreements with maturities of three months or less. In almost all cases, the repurchase agreements are highly liquid investments in overnight securities made through commercial bank accounts that result in available funds the next business day. Property, Plant and Equipment: Property, plant and equipment are stated at cost. The provision for depreciation and amortization is based upon rates that will systematically charge the costs of assets over their estimated useful lives. The costs of natural gas distribution property, plant and equipment, excluding gas wells, are amortized using the straight-line method ranging from 3% to 33% per year. The average depreciation and amortization rates used for the twelve months ended December 31, were as follows:
2000 1999 1998 Distribution plant 4.0% 4.2% 4.3% Gas wells, per Mcf $0.15 $0.15 $0.17
Allowance for Funds Used During Construction: The Company capitalized the cost of capital during the construction period of plant and equipment using a method required by regulatory authorities. Capitalized financing costs, called allowance for funds used during construction (AFUDC), consist of debt and equity portions. The debt portion of AFUDC is recorded as a reduction of interest expense and the equity portion is recorded in other income. The debt expense was reduced by $909,000 in 2000, $358,000 in 1999 and $797,000 in 1998. Reacquisition of Debt: Gains and losses on the reacquisition of debt are deferred and amortized as debt expense over the life of the replacement debt in order to match regulatory treatment. Income Taxes: The Company accounts for income tax expense on a separate return basis. Pursuant to the Internal Revenue Code and associated regulations, the Company's operations are consolidated with those of Questar and its subsidiaries for income tax reporting purposes. The Company records tax benefits as they are generated. The Company receives payments from Questar for such tax benefits as they are utilized on the consolidated return. The Company records increases in deferred taxes as income taxes recoverable from customers. The Company has adopted procedures with its regulatory commissions to include under-provided deferred taxes in customer rates on a systematic basis. Questar Gas uses the deferral method to account for investment-tax credits as required by regulatory commissions. New Accounting Standard: The Company is required to adopt the accounting provisions of Statement of Financial Accounting Standards 133, as amended, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133) beginning January 1, 2001. SFAS 133 addresses the accounting for derivative instruments, including certain derivative instruments embedded in other contracts. Under the standard, entities are required to carry all derivative instruments in the balance sheet at fair value. The accounting for changes in fair value, which result in gains or losses, of a derivative instrument would either be reported in income or comprehensive income. The Company has identified a number of contracts that are derivative instruments as defined by SFAS 133, but are specifically excluded from the provisions of SFAS 133 on the basis of normal sales and purchase transactions. The Company does not enter into any commodity or interest rate-based derivative instruments. Reclassifications: Certain reclassifications were made to the 1999 and 1998 financial statements to conform with the 2000 presentation. Note 2 - Debt Questar makes loans to Questar Gas under a short-term borrowing arrangement. Short-term notes payable to Questar totaled $105.6 million at December 31, 2000 with an average interest rate of 6.91% and $79.3 million at December 31, 1999 with an interest rate of 6.61%. Questar Gas' long-term debt consists of medium-term notes with interest rates ranging from 6.85% to 8.43%, due 2007 to 2024. There are no maturities of long-term debt for the five years following December 31, 2000 and no long-term debt provisions restricting the payment of dividends. Cash paid for interest was $21,235,000 in 2000, $19,906,000 in 1999 and $19,963,000 in 1998. Note 3 - Financial Instruments and Risk Management The carrying amounts and estimated fair values of the Company's financial instruments were as follows:
December 31, 2000 December 31, 1999 Book Estimated Book Estimated Value Fair Value Value Fair Value (In Thousands) Financial assets Cash and cash equivalents $882 $882 $1,708 $1,708 Financial liabilities Short-term loans 105,600 105,600 79,300 79,300 Long-term debt 225,000 240,884 225,000 222,582
The Company used the following methods and assumptions in estimating fair values: (1) Cash and cash equivalents, and short-term loans - book value approximates fair value; (2) Long-term debt - the fair value of the medium-term notes is based on the discounted present value of cash flows using the Company's current borrowing rates. Fair value is calculated at a point in time and does not represent what the Company would pay to retire the debt securities. Credit Risk: Questar Gas' primary market area is the Rocky Mountain region of the United States. Exposure to credit risk may be impacted by the concentration of customers in this region due to changes in economic or other conditions. Customers include individuals and numerous industries that may be affected differently by changing conditions. Management believes that its credit-review procedures, loss reserves, customer deposits and collection procedures have adequately provided for usual and customary credit-related losses. Note 4 - Income Taxes The components of income taxes were as follows:
Year Ended December 31, 2000 1999 1998 (In Thousands) Federal Current ($1,999) $935 $16,773 Deferred 13,897 6,948 (5,057) State Current (2) 1,233 2,876 Deferred 1,373 277 (395) Deferred investment tax credits (380) (381) (381) $12,889 $9,012 $13,816 The difference between income tax expense and the tax computed by applying the statutory federal income tax rate of 35% to income before income taxes is explained as follows: Year Ended December 31, 2000 1999 1998 (In Thousands) Income before income taxes $37,052 $28,231 $41,224 Federal income taxes at statutory rate $12,968 $9,881 $14,428 State income taxes, net of federal income tax benefit 891 982 1,613 Nonconventional fuel credits (1,798) (1,872) (2,217) Investment-tax credits (380) (381) (381) Deferred taxes related to regulated assets for which deferred taxes were not provided in prior years 921 921 922 Other 287 (519) (549) Income tax expense $12,889 $9,012 $13,816 Effective income tax rate 34.8% 31.9% 33.5% Significant components of the Company's deferred income taxes were as follows: December 31, 2000 1999 (In Thousands) Deferred tax liabilities Property, plant and equipment $78,683 $77,655 Other 5,812 6,269 Total deferred tax liabilities 84,495 83,924 Deferred tax assets Deferred ITC and other 4,280 4,375 Net deferred income taxes - noncurrent $80,215 $79,549 Deferred income taxes - current Purchased-gas adjustments $13,515 $164
Cash paid for income taxes was $7,570,000 in 2000, $2,133,000 in 1999 and $18,985,000 in 1998. Note 5 - Rate Matters On August 11, 2000, the Public Service Commission of Utah (PSCU) issued an order in the general rate case filed by Questar Gas. The PSCU granted $13.5 million in general rate relief and authorized an 11% return on equity. The $13.5 million in general rate relief includes the $7.1 million in interim rate relief that Questar Gas was authorized to collect, subject to refund, effective January 1, 2000. The PSCU's order allows Questar Gas to collect $5 million of carbon-dioxide-processing costs yearly. In February 2000, the Public Service Commission of Wyoming (PSCW) reaffirmed Questar Gas's 11.83% authorized return on equity in a general rate case filing and approved the request for a $377,000 rate reduction. Cost efficiencies and slower population growth in Wyoming compared with Utah, enabled Questar Gas to reduce its rates in Wyoming. The PSCW's rate-ruling also ordered the Company to transfer the recovery of carbon dioxide gas processing costs from gas costs to general rates beginning April 2000. Questar Gas routinely files semi-annual applications with the PSCU and the PSCW requesting permission to reflect annualized gas cost increases or decreases depending on gas prices. These requests for gas cost increases or decreases are passed on to customers on a dollar-for-dollar basis with no markup. On May 31, 2000, Questar Gas filed with the PSCW to reflect annualized gas costs of $11.1 million in rates for Wyoming customers. The filing reflected a $53,000 increase from the previous filing. The PSCW authorized Questar Gas to reflect the request in rates effective July 1, 2000. On June 14, 2000, Questar Gas filed a request with the PSCU to reflect annualized gas costs of $286.6 million in rates for Utah customers effective July 1, 2000. The request slightly decreased rates for residential and commercial customers. However, the PSCU, by an interim order, chose to make no adjustment in rates. Due to the rapidly rising gas prices caused by a high demand for energy, Questar Gas filed an out-of-period pass-on application on September 19, 2000, with the PSCW seeking approval to reflect an increase of annualized gas costs of $2.5 million in rates for Wyoming customers. The PSCW authorized the requested gas-cost increase in rates effective October 1, 2000. On September 20, 2000, Questar Gas filed a special pass-through application with the PSCU requesting permission to reflect annualized gas cost increases of $63.5 million in rates for Utah customers. The PSCU, by interim order, authorized Questar Gas to reflect the increase in rates effective October 1, 2000. As a result of a continuing growing demand for energy and the accompanying pressure on energy prices, Questar Gas filed on December 19, 2000, with the PSCU to reflect a $167.5 million increase of annualized gas cost in rates for Utah customers. The PSCU, by interim order, authorized Questar Gas to reflect the increase in rates effective January 1, 2001. On December 19, 2000, Questar Gas filed an application with the PSCW to increase gas costs in Wyoming rates by $7.1 million. The PSCW authorized the increase in Wyoming gas rates effective January 1, 2001. Note 6 - Litigation and Commitments The Company is a named defendant in two cases that have been filed by Jack Grynberg, an independent producer that has sued Questar Gas and its affiliates a number of times during the last eight years. The most active case involves claims brought by Mr. Grynberg under the Federal False Claims Act. It and the 75 substantially similar cases filed by Grynberg against pipelines and their affiliates have been consolidated for discovery and pre-trial discovery motions in Wyoming's federal district court. The cases involve allegations of industry-wide mismeasurement and undervaluation of gas volumes on which royalty payments are due the federal government. The complaint seeks treble damages and imposition of civil penalties. The Questar defendants in the case have joined with other defendants to file a comprehensive motion to dismiss, which has not yet been ruled on by the federal district judge. A second Grynberg case was filed against Questar Gas and several affiliates in 1997. This case involves claims of fraud and antitrust violations in addition to some take-or-pay, breach of contract, and intentional interference with a contract claims. The case was stayed pending Gyrnberg's appeal of another case involving the Company to the Tenth Circuit Court of Appeals, although the district court did rule favorably on some issues before the case was stayed. The district court has not ruled on the defendant's motions for summary judgement. Questar Gas and several affiliates are among the 220 named defendants in the Quinque Operating Company v. Gas Pipelines, which was recently transferred from the Wyoming federal district court where it had been consolidated with the Grynberg cases to the Kansas state court where it had been originally filed. This case is very similar to the cases filed by Mr. Grynberg against the pipeline industry, but the allegations of systematic mismeasurement of natural gas volumes and resulting underpayment of royalties are made on behalf of private and state lessors, rather than on behalf of the federal government. There are other various legal proceedings against the Company. While it is not currently possible to predict or determine the outcomes of these proceedings, it is the opinion of management that the outcomes will not have a material adverse effect on the Company's results of operations, financial position or liquidity. Historically, 45% to 50% of Questar Gas's gas-supply portfolio has been provided from company-owned gas reserves at the cost of service. The remainder of the gas supply has been purchased from various suppliers under agreements with a duration of one year or less and index-based pricing. Generally, at the conclusion of the heating season and after a bid process, new agreements for the upcoming heating season are put into place. Questar Gas bought significant quantities of natural gas under purchase agreements amounting to $184 million, $93 million and $100 million in 2000, 1999 and 1998, respectively. In addition, Questar Gas makes use of various storage arrangements to meet peak-gas demand during certain times of the heating season. Note 7 - Employee Benefits Pension Plan: Substantially all of Questar Gas' employees are covered by Questar's defined benefit pension plan. Benefits are generally based on years of service and the employee's 72 pay-period interval of highest earnings during the 10 years preceding retirement. It is Questar's policy to make contributions to the plan at least sufficient to meet the minimum funding requirements of applicable laws and regulations. Plan assets consist principally of equity securities and corporate and U.S. government debt obligations. Questar Gas' 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, 2000, Questar's accumulated benefit obligation exceeded the fair value of plan assets. Questar Regulated Services has offered early retirement windows to eligible employees in 2000 and 1998. In 2000, a total of 276 employees and recipients of long-term disability from Questar Gas, Questar Pipeline and Questar Regulated Services elected to retire effective October 31. The $14.4 million cost of the early retirement window will be amortized over a five-year period in accordance with regulatory treatment. In 1998, Regulated Services offered an early-retirement window that was accepted by 178 eligible employees. The $3.1 million cost of the window is being amortized over a five-year period beginning August 1998. About two-thirds of the early retirement window costs will be charged to Questar Gas. Pension expense was $2,075,000 in 2000, $1,735,000 in 1999 and $1,865,000 in 1998. Postretirement Benefits Other Than Pensions: Generally postretirement health-care benefits and life insurance are provided only to employees hired before January 1, 1997. Questar Gas pays a portion of postretirement health-care costs benefits as determined by an employee's years of service and limited to 170% of the 1992 contribution. The Company's policy is to fund amounts allowable for tax deduction under the Internal Revenue Code. Plan assets consist of equity securities, and corporate and U.S. government debt obligations. The Company is amortizing the transition obligation over a 20-year period, which began in 1992. The cost of postretirement benefits other than pensions was $1,107,000 in 2000, $1,150,000 in 1999 and $1,844,000 in 1998. 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. Postemployment Benefits: The Company recognizes the net present value of the liability for postemployment benefits, such as long-term disability benefits and health-care and life-insurance costs, when employees become eligible for such benefits. Postemployment benefits are paid to former employees after employment has been terminated but before retirement benefits are paid. The Company accrues both current and future costs. The PSCU and the PSCW have allowed Questar Gas to recover postemployment costs that were accumulated through December 31, 1994 in future rates. At December 31, 2000, the Company had a $253,000 regulatory liability that it is amortizing over the next five years. Employee Investment Plan: Questar Gas participates in Questar's Employee Investment Plan (Plan), which allows eligible employees to purchase Questar common stock or other investments through payroll deduction. The Company makes contributions of Questar common stock to the Plan of approximately 80%, 75% prior to 1999, of the employees' eligible purchases and contributes an additional $200 of common stock in the name of each eligible employee. The Company's expense and contribution to the plan was $1,657,000 in 2000, $1,596,000 in 1999 and $1,616,000 in 1998. Note 8 - Related Party Transactions Regulated Services provides administrative, technical and accounting support to Questar Gas. The cost of this support was $34,022,000 in 2000, $37,534,000 in 1999 and $24,935,000 in 1998. The majority of these costs are allocated and included in operating and maintenance expenses. The allocation methods are based on several methods dictated by the nature of the charges. Management believes that the allocation methods are reasonable. Questar Gas has reserved transportation capacity on Questar Pipeline's system of approximately 828,000 dth per day and paid an annual demand charge of approximately $54.3 million for this reservation. Questar Gas releases excess capacity to its industrial transportation or other customers and receives a credit from Questar Pipeline for the released-capacity revenues and a portion of Questar Pipeline's interruptible-transportation revenues. Questar Gas paid for transportation, storage and processing services provided by Questar Pipeline and a subsidiary amounting to $73,742,000 in 2000, $71,636,000 in 1999 and $67,528,000 in 1998, which included demand charges. The costs of these services were included in natural gas purchases. Wexpro, an affiliated company, operates certain properties owned by Questar Gas under the terms of the Wexpro Settlement Agreement. The Company receives a portion of Wexpro's income from oil operations after recovery of Wexpro's operating expenses and a return on investment. This amount, which is included in revenues and reduces amounts billed to gas distribution customers, was $4,758,000 in 2000, $2,306,000 in 1999 and $1,050,000 in 1998. Questar Gas paid Wexpro for the operation of gas properties owned by Questar Gas. These costs are included in natural gas purchases and amounted to $73,692,000 in 2000, $62,299,000 in 1999 and $58,482,000 in 1998. Also included in natural gas purchases are amounts paid to Questar Gas Management, an affiliate, for gathering of Company-owned gas and purchased gas. These costs amounted to $8,542,000 in 2000, $9,045,000 in 1999 and $9,047,000 in 1998. Questar Gas purchased various other field-related services from Questar Gas Management amounting to $864,000 in 2000, $755,000 in 1999 and $418,000 in 1998. Questar Gas purchased gas from Questar Energy Trading amounting to $9,329,000 in 2000, $7,190,000 in 1999 and $7,125,000 in 1998. Questar Gas has an 11-year lease with an option to renew with an affiliate for some space in an office building located in Salt Lake City, Utah. Rent expense was $1,300,000 in 2000 and $1,155,000 in 1999 and 1998. The annual lease payment for the five years following 2000 are scheduled as follows: $1,315,000 in 2001, $1,346,000 in 2002 and $1,378,000 in 2003 through 2005. Questar InfoComm Inc. is an affiliated company that provides data processing and communication services to Questar Gas. Direct charges paid by the Company to Questar InfoComm were $15,372,000 in 2000, $13,700,000 in 1999 and $16,480,000 in 1998. Questar charged Questar Gas for certain administrative functions amounting to $6,198,000 in 2000, $4,981,000 in 1999 and $4,714,000 in 1998. These costs are included in operating and maintenance expenses and are allocated based on each affiliated company's proportional share of revenues less product costs; property, plant and equipment; and labor costs. Management believes that the allocation method is reasonable. Questar Gas incurred debt expense to Questar of $3,470,000 in 2000, $1,922,000 in 1999 and $2,403,000 in 1998. Note 9 - Supplemental Oil and Gas Information (Unaudited) The following information discusses the Company's oil and gas producing activities. All of the properties are cost-of-service properties with the return on investment established by state regulatory agencies. Questar Gas has not incurred any costs for oil and gas producing activities for the three years ended December 31, 2000. See Note 8 for the amounts paid by Questar Gas to Wexpro. Estimated Quantities of Proved Oil and Gas Reserves: The following estimates were made by Questar's reservoir engineers. Reserve estimates are based on a complex and highly interpretive process which is subject to continuous revision as additional production and development drilling information becomes available. The quantities are based on existing economic and operating conditions using current prices and operating costs. All oil and gas reserves reported are located in the United States. Questar Gas does not have any long-term supply contracts with foreign governments or reserves of equity investees. No estimates are available for proved undeveloped reserves that may exist.
Natural Gas Oil (In Million (In Thousands Cubic Feet) of Barrels) Proved Developed Reserves Balance at January 1, 1998 337,179 3,049 Revisions of estimates 15,017 (46) Extensions and discoveries 25,077 333 Production (37,138) (613) Balance at December 31, 1998 340,135 2,723 Revisions of estimates 5,699 976 Extensions and discoveries 46,739 213 Production (38,890) (623) Balance at December 31, 1999 353,683 3,289 Revisions of estimates 16,523 504 Extensions and discoveries 50,351 234 Production (41,546) (579) Balance at December 31, 2000 379,011 3,448
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 27th day of March, 2001. QUESTAR GAS COMPANY (Registrant) By /s/ D. N. Rose D. N. Rose President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. /s/ D. N. Rose President and Chief Executive D. N. Rose Officer; Director (Principal Executive Officer) /s/ S. E. Parks Vice President, Treasurer and Chief S. E. Parks Financial Officer (Principal Financial Officer) /s/ D. M. Curtis Controller D. M. Curtis (Principal Accounting Officer) *R. D. Cash Chairman of the Board *W. Whitley Hawkins Director *Robert E. Kadlec Director *Dixie L. Leavitt Director *Gary G. Michael Director *K. O. Rattie Director *D. N. Rose Director *Harris H. Simmons Director March 27, 2001 *By /s/ D. N. Rose Date D. N. Rose, Attorney in Fact EXHIBIT INDEX Exhibit Number Description 3.1.* Restated Consolidated Articles of Incorporation dated August 15, 1980. (Exhibit No. 4(a) to Registration Statement No. 2-70087, filed December 1, 1980.) 3.2.* Certificate of Amendment to Restated Consolidated Articles of Incorporation dated May 13, 1982. (Exhibit No. 3(b) to Form 10-K Annual Report for 1982.) 3.3.* Certificate of Amendment to Restated Consolidated Articles of Incorporation dated May 10, 1983. (Included in Exhibit No. 4.1. to Registration Statement No. 2-84713, filed June 23, 1983.) 3.4.* Certificate of Amendment to Restated Consolidated Articles of Incorporation dated August 16, 1983. (Exhibit No. 3(a) to Form 8 Report amending the Company's Form 10-Q Report for Quarter Ended September 30, 1983.) 3.5.* Certificate of Amendment to Restated Consolidated Articles of Incorporation dated October 26, 1984. (Exhibit No. 3.5. to Form 10-K Annual Report for 1984.) 3.6.* Certificate of Amendment to Restated Consolidated Articles of Incorporation dated May 13, 1985. (Exhibit No. 3.1. to Form 10-Q Report for Quarter Ended June 30, 1985.) 3.7.* Articles of Amendment to Restated Consolidated Articles of Incorporation dated February 10, 1988. (Exhibit No. 3.7. to Form 10-K Annual Report for 1987.) 3.8.* Articles of Amendment to Restated Consolidated Articles of Incorporation dated December 31, 1997. (Exhibit No. 3.7. to Form 8-K Current Report for December 31, 1997.) 3.9. Bylaws (as amended effective February 13, 2001) 4.*1 Indenture dated as of May 1, 1992, between the Company and Citibank, as trustee, for the Company's Debt Securities. (Exhibit No. 4. to Form 10-Q Report for Quarter Ended June 30, 1992.) 10.1.*2 Stipulations and Agreement, dated October 14, 1981, executed by Mountain Fuel Supply Company; Wexpro Company; the Utah Department of Business Regulations, Division of Public Utilities; the Utah Committee of Consumer Services; and the staff of the Public Service Commission of Wyoming. (Exhibit No. 10(a) to Form 10-K Annual Report for 1981.) 10.2*2 Gas Gathering Agreement between Mountain Fuel Supply Company and Questar Pipeline Company effective September 1, 1993. (This agreement has been transferred from Questar Pipeline to Questar Gas Management Company.) (Exhibit No. 10.11. To Form 10-K Annual Report for 1994.) 10.3.*2 Amendment to Gas Gathering Agreement between Mountain Fuel Supply Company and Questar Gas Management Company effective September 1, 1997. 24. Power of Attorney. _______________________ *Exhibits so marked have been filed with the Securities and Exchange Commission as part of the referenced filing and are incorporated herein by reference. 1 First Security Bank, N.A. serves as the successor trustee. 2 This document has not been formally amended to refer to the Company's current name. EX-3.9 2 0002.txt EXHIBIT 3.9 BYLAWS of QUESTAR GAS COMPANY A Utah Corporation OFFICES SECTION 1. The principal office shall be in the City of Salt Lake, County of Salt Lake, State of Utah. The Corporation may also have an office at such other places as the Board of Directors may from time to time appoint or the business of the Corporation may require. SEAL SECTION 2. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization, and the words "Corporate Seal, Utah." Said seal may be used by causing it, or a facsimile thereof, to be impressed or affixed or reproduced, or otherwise. STOCKHOLDERS' MEETINGS SECTION 3. All meetings of the stockholders shall be held at the office of the Corporation in Salt Lake City, Salt Lake County, State of Utah. SECTION 4. The annual meeting of stockholders shall be held on the third Tuesday of May in each year, and if such day is a legal holiday, then on the next preceding secular business day, at 12:00 noon, when the stockholders shall elect directors by majority vote and transact such other business as may properly be brought before such meeting. SECTION 5. The Board of Directors may direct the calling of special meetings of the stockholders at such time and place as the Board may deem necessary. SECTION 6. Holders of a majority of the stock issued and outstanding, and entitled to vote thereat, present in person or represented by proxy, shall be requisite and shall constitute a quorum at all meetings of the stockholders for the transaction of business, except as otherwise provided by law, by the Articles of Incorporation, or by these Bylaws. If, however, such majority shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or by proxy, shall have power to adjourn the meeting, from time to time, without notice other than announcement at the meeting, until such requisite amount of voting stock shall be present. At such adjourned meeting at which the requisite amount of voting stock shall be represented any business may be transacted which might have been transacted at the meeting as originally notified. SECTION 7. The Secretary shall, but in case of his failure any other officer of the Corporation may, give written or printed notice to the stockholders stating the place, day and hour of each stockholders meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called. Such notice shall be given not less than ten (10) nor more than fifty (50) days before the date of the meeting. SECTION 8. Notice may be given either personally or by mail, and if given by mail, such notice shall be deemed to be delivered when deposited in the United States mails addressed to the stockholder at his address as it appears on the stock transfer books of the Corporation, with postage prepaid thereon. SECTION 9. At any meeting of the stockholders, each outstanding share entitled to vote shall be entitled to one vote upon each matter submitted to a vote. At each meeting of the stockholders, a stockholder may vote in person or vote by proxy that is executed in writing by the stockholder or his duly authorized attorney-in-fact. No proxy shall be valid after 11 months from the date of its execution unless otherwise provided in the proxy. The vote for directors and, upon the demand of any stockholder, the vote upon any question before the meeting, shall be by ballot. All elections shall be had and all questions decided by a plurality vote, except as otherwise provided in these Bylaws, the Articles of Incorporation, or applicable law. SECTION 10. A complete list of stockholders entitled to vote at the ensuing election shall be prepared and be available for inspection by any stockholder beginning two business days after notice is given of the meeting for which the list was prepared and continuing throughout the meeting. The list shall indicate each stockholder's name, address, and number of voting shares. A stockholder, directly or through an agent or attorney, has the right to inspect and copy, at his expense, the list of stockholders prepared for each meeting of stockholders. The stockholder must make a written request to examine the list and must examine it during the Corporation's regular business hours. SECTION 11. Business transacted at all special meetings of the stockholders shall be confined to the objects stated in the call and notice. SECTION 12. Unless otherwise provided in the Articles of Incorporation, any action that may be taken at any annual or special meeting of stockholders may be taken without a meeting and without prior notice upon the receipt of a unanimous written consent. DIRECTORS SECTION 13. The property and business of this Corporation shall be managed under the direction of the Board of Directors and shall consist of at least three and not more than nine members. SECTION 14. The directors may hold their meetings and have one or more offices and keep the books of the Corporation outside of Utah at such places as they may from time to time determine. SECTION 15. In addition to the powers and authority by these Bylaws expressly conferred upon them, the Board may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute of the State of Utah, or by the Articles of Incorporation, or by these Bylaws directed or required to be exercised or done by the stockholders. COMMITTEE SECTION 16. The Board of Directors may, by resolution or resolutions passed by a majority of the whole Board, designate one or more Committees, one of which said Committees to be known as the Executive Committee, each Committee to consist of two or more of the Directors of the Corporation, which to the extent provided in the Articles of Incorporation or in said resolution or in these Bylaws, shall have and may exercise the powers conferred upon them by the Board of Directors; provided, however, that the Executive Committee when so appointed by resolution of the Board of Directors shall have and may exercise the power of the Board of Directors in the management of the business and affairs of the Corporation, and may have power to authorize the seal of the Corporation to be affixed to all papers which may require it. All Committees, except the Executive Committee, when so appointed, shall have such name or names as may be stated in these Bylaws or may be determined from time to time by resolutions adopted by the Board of Directors. SECTION 17. The Committees shall keep regular minutes for their proceedings and report the same to the Board of Directors when required. COMPENSATION OF DIRECTORS SECTION 18. Directors, as such, shall not receive any salary for their services, but the Board of Directors by resolution shall: fix the fees to be allowed and paid to directors, as such, for their services; and provide for the payment of the expenses of the directors incurred by them in performing their duties. Nothing herein contained, however, shall be considered to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. SECTION 19. Fees to members of special or standing committees and expenses incurred by them in the performance of their duties, as such, shall also be fixed and allowed by resolution of the Board of Directors. MEETINGS OF THE BOARD SECTION 20. The Board of Directors named in the Articles of Incorporation may meet either at Salt Lake City, Utah; Pittsburgh, Pennsylvania; or Findlay, Ohio, as shall be determined by a majority of the members of the Board named in the Articles of Incorporation. The newly elected Board may meet at such place and time as shall be fixed by the vote of the stockholders at the annual meeting, for the purpose of organization or otherwise, and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute a meeting; provided a majority of the whole Board shall be present; but they may meet at such place and time as shall be fixed by the consent, in writing, of all the directors. SECTION 21. Regular meetings of the Board may be held without notice at such time and place as shall from time to time be determined by the Board. SECTION 22. Special meetings of the Board may be called by the Chairman of the Board or the President on one days' notice to each Director, with such notice given either in person, by telephone, or by telegram to the address listed in the corporate records of the Corporation; special meetings may be called by the President or Secretary in like manner and on like notice on the written request of two directors. SECTION 23. At all meetings of the Board a majority of the directors shall be necessary and sufficient to constitute a quorum for the transaction of business, and the act of a majority of the directors present at any meeting at which there is a quorum, shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the Articles of Incorporation or by these Bylaws. Directors may participate in a Board meeting and be counted in the quorum by means of conference telephone or similar communications equipment by which all directors participating in the meeting can hear each other. SECTION 24. Unless the Articles of Incorporation provide otherwise, any acts required or permitted to be taken by the Board of Directors at a meeting may be taken without a meeting if all the directors take the action, each director signs a written consent describing the actions taken, and the consents are filed with the records of the Corporation. Action taken by consent is effective when the last director signs the consent, unless the consent specifies a different effective date. A signed consent has the effect of a meeting vote and may be described as such in any document. SECTION 25. The officers of the Corporation shall be chosen by the Directors and shall be as stated in the Articles of Incorporation, to-wit: a Chairman of the Board of Directors, a President, a Vice President, a Secretary and Treasurer. The Board may also choose a Vice Chairman, additional Vice Presidents, Assistant Secretaries and Assistant Treasurers. The Secretary and Treasurer may be the same person, and the Chairman of the Board or any Vice President may hold at the same time the office of Secretary or Treasurer. SECTION 26. The Board of Directors at its first meeting after each annual meeting shall choose a President and Chairman of the Board of Directors from their own number, and one or more Vice Presidents, a Secretary and a Treasurer, who need not be members of the Board nor stockholders of the Corporation. SECTION 27. The Board may appoint such other officers and agents as it may deem necessary in conformity with the provisions of the Articles of Incorporation, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board. SECTION 28. The salaries of all officers and agents of the Corporation shall be fixed by the Board of Directors. SECTION 29. The officers of the Corporation shall hold office until their successors are chosen and qualified in their stead. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the whole Board of Directors. If the office of any officer or officers becomes vacant for any reason, the vacancy shall be filled by the affirmative vote of a majority of the whole Board of Directors. CHAIRMAN OF THE BOARD SECTION 30. The Chairman of the Board of Directors shall preside at all meetings of the stockholders and of the Board of Directors and shall have supervision of such matters as may be designated to him by the Board of Directors. PRESIDENT SECTION 31. Unless another officer is so designated by the Board of Directors, the President shall be the Chief Executive Officer of the Corporation and shall perform the following duties: (a) In the absence of the Chairman of the Board, he shall preside at all meetings of the stockholders and directors; he shall have general and active management of the business of the Corporation and shall see that all orders and resolutions of the Board are carried into effect. (b) He shall execute bonds, mortgages and other contracts requiring the seal, under the seal of the Corporation. (c) He shall be ex-officio a member of all standing Committees and shall have the general powers and duties of supervision and management usually vested in the office of a President of a corporation. If another officer is designated by the Board of Directors as Chief Executive Officer, the President shall have supervision of such matters as shall be designated to him by the Board of Directors and/or the Chief Executive Officer. VICE PRESIDENT SECTION 32. The Board of Directors may appoint one or more of the Vice Presidents as Senior Vice Presidents and one or more as Executive Vice Presidents. If only a Senior Vice President or if only an Executive Vice President has been appointed or if one person has been appointed to both such offices, then during the disability of the President such person shall perform the duties and exercise the powers of the President. If one or more persons have been appointed Executive and/or Senior Vice Presidents, the Board of Directors shall prescribe which of them during the disability of the President, shall perform the duties and exercise the powers of the President. SECRETARY AND ASSISTANT SECRETARIES SECTION 33. (a) The Secretary shall attend all sessions of the Board and all meetings of the stockholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose; and shall perform like duties for the standing Committees when required. He shall give or cause to be given notice of all meetings of the stockholders and of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or President, under whose supervision he shall be. He shall keep in safe custody the seal of the Corporation and, when authorized by the Board or the Executive Committee of the Board of Directors, affix the same to any instrument requiring it, and when so affixed it shall be attested by his signature, or by the signature of the Treasurer. (b) The Assistant Secretaries, in the absence or disability of the Secretary, shall perform the duties and exercise the powers of the Secretary and shall perform such other duties as the Board of Directors shall prescribe. TREASURER AND ASSISTANT TREASURERS SECTION 34. (a) The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate account of receipts and disbursements in moneys and other valuable effects in the name and to the credit of the Corporation in such depositary as may be designated by the Board of Directors. (b) He shall disburse the funds of the Corporation as may be ordered by the Board, taking proper vouchers for such disbursements, and shall render to the President and Directors at the regular meeting of the Board, or whenever they may require it, an account of all his transactions as Treasurer, and of the financial condition of the Corporation. (c) He shall give the Corporation a bond, if required by the Board of Directors, in a sum, and with one or more sureties, satisfactory to the Board for the faithful performance of the duties of his office, and for the restoration to the Corporation in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property, of whatever kind, in his possession or under his control, belonging to the Corporation. (d) The Assistant Treasurers, in the absence or disability of the Treasurer, shall perform the duties and exercise the powers of the Treasurer, and shall perform such other duties as the Board of Directors shall prescribe. VACANCIES SECTION 35. If the office of any director or directors becomes vacant by reason of the death, resignation, disqualification, removal from office, or otherwise, the remaining directors, though not less than a quorum, shall choose a successor or successors who shall hold office for the remaining portion of the term or terms of the office left vacant until the successor or successors shall have been duly elected, unless sooner displaced. DUTIES OF OFFICERS MAY BE DELEGATED SECTION 36. In case of the absence of any officer of the Corporation, or for any other reason that the Board may deem sufficient, the Board may delegate, for the time being, the power or duties, or any of them, of such officer to any other officer, or to any director, provided a majority of the entire Board concur therein. CERTIFICATES OF STOCK SECTION 37. The certificates of stock of the Corporation shall be numbered and shall be entered in the books of the Corporation as they are issued. Every holder of stock shall be entitled to have a certificate signed by or in the name of the Corporation by the President or a Vice President and the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Corporation certifying the number of shares owned by him; provided, however, that where such certificate is signed by a transfer agent or an assistant transfer agent or by a transfer clerk, acting in behalf of the Corporation, and a registrar, the signature of any such President, Vice President, Treasurer, Assistant Treasurer, Secretary or Assistant Secretary, may be facsimile. In case any officer or officers, who shall have signed or whose facsimile signature or signatures shall have been used on any such certificate or certificates, shall cease to be such officer or officers of such Corporation, whether because of death, resignation or otherwise, before such certificate or certificates shall have been delivered by the Corporation, such certificate or certificates may nevertheless be adopted by the Corporation and be issued and delivered as though the person or persons, who signed such certificate or certificates or whose facsimile signatures shall have been used thereon, had not ceased to be such officer or officers of the Corporation. TRANSFER OF STOCK SECTION 38. Transfers of stock shall be made on the books of the Corporation only by the person named in the certificate, or by attorney, lawfully constituted in writing, and upon surrender of the certificate therefor, and upon the payment of any transfer tax or transfer fees which may be imposed by law or by the Board of Directors. CLOSING OF TRANSFER BOOKS SECTION 39. The Board of Directors shall have power to close the stock transfer books of the Corporation for a period not exceeding fifty (50) days preceding the date of any meeting of stockholders, or the date for payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion, or exchange of capital stock shall go into effect, or for a period of not exceeding fifty (50) days in connection with obtaining the consent of stockholders for any purpose, provided, however, that in lieu of closing the stock transfer books, as aforesaid, the Board of Directors may fix in advance a date not exceeding fifty (50) days preceding the date of any meeting of stockholders, or the date for the payment of any dividend, or the date for the allotment of rights or the date when any change or conversion, or exchange of capital stock shall go into effect, or a date in connection with obtaining such consent, as a record date for the determination of the stockholders entitled to notice of and to vote at any such meeting, or entitled to receive payment of any such dividend, or to any such allotment of rights, or to exercise the rights in respect of any such change, conversion, or exchange of capital stock, and in such case only such stockholders as shall be entitled to such notice of and to vote at any such meeting or to receive payment of such dividend or to receive such allotment of rights or generally exercise such rights as the case may be, notwithstanding any transfer of stock on the books of the Corporation after any such recorded date fixed as aforesaid. REGISTERED STOCKHOLDERS SECTION 40. The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and accordingly shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any person, whether or not it shall have express or other notice thereof, save as expressly provided by the laws of the State of Utah. LOST CERTIFICATE SECTION 41. When authorized by the Secretary of the Corporation in writing, the duly appointed stock transfer agency may issue and the duly appointed registrar may register, new or duplicate stock certificates to replace lost, stolen, or destroyed certificates of the same tenor and for the same number of shares as those alleged to be lost, stolen, or destroyed, upon delivery to the Company in each case of an affidavit of loss and indemnity bond acceptable to the Secretary; but the Board of Directors may authorize the issuance of new or duplicate stock certificates without requiring an indemnity bond when in its judgment it is proper INSPECTION OF BOOKS SECTION 42. The Corporation shall maintain permanent records of the minutes of all meetings of its stockholders and Board of Directors; all actions taken by the stockholders or Board of Directors without a meeting; and all actions taken by a Committee of the Board of Directors in place of the Board of Directors on behalf of the Corporation. The Corporation shall also maintain appropriate accounting records. A stockholder of the Corporation, directly or through an agent or attorney, shall have limited rights to inspect and copy the Corporation's records as provided under applicable state law and by complying with the procedures specified under such law. BANK ACCOUNTS SECTION 43. All checks, demands for money, or other transactions involving the Corporation's bank accounts shall be signed by such officers or other responsible persons as the Board of Directors may designate. No third party is allowed access to the Corporation's bank accounts without express written authorization by the Board of Directors. FISCAL YEAR SECTION 44. The fiscal year shall begin the first day of January in each year. DIVIDENDS SECTION 45. Dividends upon the capital stock of the Corporation, subject to the provisions of the Articles of Incorporation and the laws of the State of Utah, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock. Before payment of any dividend there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the directors from time to time, in their sole discretion, think proper, as a reserve fund to meet contingencies or for equalizing dividends, or for repairing or maintaining property of the Corporation, or for such other purposes as the directors shall think conducive to the interests of the Corporation. NOTICE SECTION 46. Whenever, under the provisions of the Articles of Incorporation or the laws of the State of Utah, notice is required to be given to any director, officer or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, by depositing the same in the post office or letter box in a postpaid, sealed wrapper, addressed to such stockholder, officer or director, at such address as appears on the books of the Corporation, or in default of other address, to such director, officer or stockholder, at the general post office in the City of Salt Lake, Utah; and such notice shall be deemed to be given at the time when the same shall be thus mailed. Or notice may be published as provided in the Articles of Incorporation in lieu of mailing notice in the manner aforesaid. Any stockholder, director or officer may waive any notice required to be given under these Bylaws or the Articles of Incorporation. AMENDMENTS SECTION 47. These Bylaws may be amended by a majority vote of the directors. These Bylaws may be also amended by the affirmative vote of a majority of the stock issued and outstanding and entitled to vote at any special or regular meeting of the stockholders if notice of the proposed amendment be contained in the notice of the meeting. Provided, however, that in addition to any vote required by any other provision of these Bylaws, the Articles of Incorporation, or any applicable law, if such amendment is to be adopted solely by the stockholders, the affirmative vote of eighty-five percent of the issued and outstanding stock of the Corporation that is entitled to vote for the election of directors shall be required for any amendment that deletes or changes Section 13 or this Section 47 of these Bylaws; that restricts or limits the powers of the Board of Directors or any other officers or agents of the Corporation; that vests any powers of the Corporation in any officer or agent other than the Board of Directors, or officers and agents appointed by the Board of Directors, or officers and agents appointed by officers or agents appointed by the Board of Directors; that requires the approval of any stockholders or any other person or entity in order for the Board of Directors or any other corporate officer or agent to take any action; or that changes the quorum requirement for any meeting of the Board of Directors, the vote by which it must act in connection with any matter, the manner of calling or conducting meetings of directors, or the place of such meeting. INDEMNIFICATION AND INSURANCE SECTION 48. (a) Voluntary Indemnification. Unless otherwise provided in the Articles of Incorporation, the Corporation shall indemnify any individual made a party to a proceeding because he is or was a director of the Corporation, against liability incurred in the proceeding, but only if the Corporation has authorized the payment in accordance with the applicable statutory provisions [Sections 16-10a-902 and 16-10a-904 of Utah's Revised Business Corporation Act] and a determination has been made in accordance with the procedures set forth in such provision that the director conducted himself in good faith; that he reasonably believed that his conduct, if in his official capacity with the Corporation, was in its best interests and that his conduct, in all other cases, was at least not opposed to the Corporation's best interests; and that he had no reasonable cause to believe his conduct was unlawful in the case of any criminal proceeding. (b) The Corporation may not voluntarily indemnify a director in connection with a proceeding by or in the right of the Corporation in which the director was adjudged liable to the Corporation or in connection with any other proceeding charging improper personal benefit to him, whether or not involving action in his official capacity, in which he was adjudged liable on the basis that personal benefit was improperly received by him. (c) Indemnification permitted under Paragraph (a) in connection with a proceeding by or in the right of the Corporation is limited to reasonable expenses incurred in connection with the proceeding. (d) If a determination is made, using the procedures set forth in the applicable statutory provision, that the director has satisfied the requirements listed herein and if an authorization of payment is made, using the procedures and standards set forth in the applicable statutory provision, then, unless otherwise provided in the Corporation's Articles of Incorporation, the Corporation shall pay for or reimburse the reasonable expenses incurred by a director who is a party to a proceeding in advance of the final disposition of the proceeding if the director furnishes the Corporation a written affirmation of his good faith belief that he has satisfied the standard of conduct described in this Section, furnishes the Corporation a written undertaking, executed personally or on his behalf, to repay the advance if it is ultimately determined that he did not meet the standard of conduct (which undertaking must be an unlimited general obligation of the director, but need not be secured and may be accepted without reference to financial ability to make repayment); and if a determination is made that the facts then known of those making the determination would not preclude indemnification under this Section. (e) Mandatory Indemnification. Unless otherwise provided in the Corporation's Articles of Incorporation, the Corporation shall indemnify a director or officer of the Corporation who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he is or was a director or officer of the Corporation against reasonable expenses incurred by him in connection with the proceeding. (f) Court-Ordered Indemnification. Unless otherwise provided in the Corporation's Articles of Incorporation, a director or officer of the Corporation who is or was a party to a proceeding may apply for indemnification to the court conducting the proceeding or to another court of competent jurisdiction. The court may order indemnification if it determines that the director or officer is entitled to mandatory indemnification as provided in this Section and applicable law, in which case the court shall also order the Corporation to pay the reasonable expenses incurred by the director or officer to obtain court-ordered indemnification. The court may also order indemnification if it determines that the director or officer is fairly and reasonably entitled to indemnification in view of all the relevant circumstances, whether or not the director or officer met the applicable standard of conduct set forth in this Section and applicable law. Any indemnification with respect to any proceeding in which liability has been adjudged in the circumstances described in Paragraph (b) above is limited to reasonable expenses. (g) Indemnification of Others. Unless otherwise provided in the Corporation's Articles of Incorporation, an officer, employee, or agent of the Corporation shall have the same indemnification rights provided to a director by this Section. The Board of Directors may also indemnify and advance expenses to any officer, employee, or agent of the Corporation, to any extent consistent with public policy as determined by the general or specific purpose of the Board of Directors. (h) Insurance. The Corporation may purchase and maintain liability insurance on behalf of a person who is or was a director, officer, employee, fiduciary, or agent or the Corporation, or who, while serving as a director, officer, employee, fiduciary, or agent of the Corporation, is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee, fiduciary or agent of another foreign or domestic corporation, other person, of an employee benefit plan, or incurred by him in that capacity or arising from his status as a director, officer, employee, fiduciary, or agent, whether or not the Corporation has the power to indemnify him against the same liability under applicable law. LIMITATION ON LIABILITY SECTION 49. No director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for any action taken or any failure to take any action, as a director, except liability for (a) the amount of a financial benefit received by a director to which he is not entitled; (b) an intentional infliction of harm on the Corporation or the shareholders; (c) for any action that would result in liability of the director under the applicable statutory provision concerning unlawful distributions or (d) an intentional violation of criminal law. This provision shall not limit the liability of a director for any act or omission occurring prior to August 11, 1992. Any repeat or modification of this provision by the stockholders shall be prospective only and shall not adversely affect any limitation on the personal liability of a director for the Corporation for acts or omissions occurring prior to the effective date of such repeal or modification. EX-24 3 0003.txt EXHIBIT 24 POWER OF ATTORNEY We, the undersigned directors of Questar Gas Company, hereby severally constitute D. N. Rose and S. E. Parks, and each of them acting alone, our true and lawful attorneys, with full power to them and each of them to sign for us, and in our names in the capacities indicated below, the Annual Report on Form 10-K for 2000 and any and all amendments to be filed with the Securities and Exchange Commission by Questar Gas Company, hereby ratifying and confirming our signatures as they may be signed by the attorneys appointed herein to the Annual Report on Form 10-K for 2000 and any and all amendments to such Report. Witness our hands on the respective dates set forth below. Signature Title Date /s/ R. D. Cash Chairman of the Board 2-13-01 R. D. Cash /s/ K. O. Rattie Vice Chairman 2-13-01 K. O. Rattie /s/ D. N. Rose President & Chief 2-13-01 D. N. Rose Executive Officer Director /s/ W. Whitley Hawkins Director 2-13-01 W. Whitley Hawkins /s/ Robert E. Kadlec Director 2-13-01 Robert E. Kadlec /s/ Dixie L. Leavitt Director 2-13-01 Dixie L. Leavitt /s/ Gary G. Michael Director 2-13-01 Gary G. Michael /s/ Harris H. Simmons Director 2-13-01 Harris H. Simmons -----END PRIVACY-ENHANCED MESSAGE-----