10-K 1 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, 1994 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____ Commission File No. 0-14147 QUESTAR PIPELINE COMPANY (Exact name of registrant as specified in its charter) State of Utah 87-0307414 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 79 South State Street, P.O. Box 11450, Salt Lake City, Utah 84147 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (801)530-2400 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: 9 7/8% Debentures due 2020 9 3/8% Debentures due 2021 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 20, 19945 $0. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of March 20, 1995. 6,550,843 shares of Common Stock, $1.00 par value. (All shares are owned by Questar Corporation.) Registrant meets the conditions set forth in General Instruction (J)(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 General............................................ 1 Transmission System................................ 2 Transportation .................................... 4 Gathering.......................................... 5 Storage............................................ 6 New Ventures....................................... 6 Regulatory Environment............................. 7 Competition........................................ 8 Employees.......................................... 9 Relationships with Affiliates...................... 9 Item 3. LEGAL PROCEEDINGS..................................... 9 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...................................... 9 PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS....................... 9 Item 6. (Omitted)..............................................10 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION...........11 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................................................15 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE...................................15 PART III Items 10-13. (Omitted)..............................................15 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K................................15 SIGNATURES.....................................................32 FORM 10-K ANNUAL REPORT, 1994 PART I ITEMS 1 AND 2. BUSINESS AND PROPERTIES General Questar Pipeline Company (Questar Pipeline or the Company) is an interstate pipeline company that is currently engaged in the gathering, processing, transportation and storage of natural gas in the Rocky Mountain states of Utah, Wyoming, and Colorado. During 1994, the Company capitalized on its strategic location, expanded its storage capacity at Clay Basin, built new gathering facilities, and entered a new joint venture to build and operate a processing plant. Questar Pipeline is a wholly owned subsidiary of Questar Corporation (Questar). As a "natural gas company," the Company is subject to regulation by the Federal Energy Regulatory Commission (the FERC) pursuant to the Natural Gas Act of 1938, as amended, and certain other federal legislation. As an open-access pipeline, Questar Pipeline transports gas for affiliated and unaffiliated customers and also gathers gas for such customers. It also operates the Clay Basin storage project, which is a large underground storage project in northeastern Utah, and other underground storage operations in Utah and Wyoming. The Company is involved in three partnerships, Blacks Fork Gas Processing Plant (Blacks Fork), Overthrust Pipeline Company (Overthrust), and TransColorado Gas Transmission Company (TransColorado). The Company has significant business relationships with its affiliates, particularly Mountain Fuel. Mountain Fuel, a regulated local distribution company that serves over 572,000 customers in Utah, southwestern Wyoming, and southeastern Idaho, has reserved approximately 800,000 decatherms (Dth) per day of firm capacity on the Company's transmission system. (A Dth is an amount of heat energy equal to 10 therms or one million Btu. In the Company's system, each thousand cubic feet of gas (Mcf) equals approximately 1.07 Dth.) Questar Pipeline transports natural gas owned by Mountain Fuel and produced from properties operated by Wexpro Company (Wexpro), another affiliate, as well as some natural gas volumes purchased directly by Mountain Fuel from field producers. The Company also transports volumes that are marketed by Universal Resources Corporation (Universal Resources), another affiliate. The following diagram sets forth the corporate structure of the Company and certain affiliates: Questar Corporation Entrada Industries, Inc. Celsius Energy Company Wexpro Company Mountain Fuel Supply Company QUESTAR PIPELINE COMPANY Questar TransColorado, Inc. Questar Gas Management Company Universal Resources Corporation Questar InfoComm, Inc. The major activities of Questar Pipeline are described in more detail below: Transmission System The Company's transmission system is strategically located in the Rocky Mountains near large reserves of natural gas. It is referred to as a "hub and spoke" system, rather than a "long-line" pipeline, because it has multiple interconnections to other interstate pipeline systems and has access to major producing areas. Questar Pipeline's transmission system has connections with the pipeline systems of Colorado Interstate Gas Company (CIG), the middle segment of the Trailblazer Pipeline System (Trailblazer) owned by Wyoming Interstate Company, Ltd. (WIC), Northwest Pipeline Corporation (Northwest Pipeline), Williams Natural Gas Company (Williams), and Kern River Gas Transmission Company (Kern River). These connections have opened markets outside Mountain Fuel's service area and allow the Company to transport gas for others. The Company's transmission system includes 1,761 miles of transmission lines that interconnect with other pipelines and that link various producers of natural gas with Mountain Fuel's distribution facilities in Utah and Wyoming. The system includes two major portions, often referred to as the northern and southern systems. The two segments are linked together and have significant connections with other pipeline systems. The northern segment extends from northwestern Colorado through southwestern Wyoming into northern Utah; the southern segment of the transmission system extends from western Colorado to Payson, in central Utah. The total transmission mileage reported above includes pipelines associated with the Company's storage fields and tap lines used to serve Mountain Fuel. The Company's pipelines, compressor stations, regulator stations, and other transmission-related facilities are constructed on properties held under long-term easements, rights of way, or fee interests sufficient for the conduct of its business activities. In addition to the transmission system described above, Questar Pipeline has an 18 percent interest and is the operating partner in Overthrust, a general partnership that was organized in 1979 to construct, own, and operate the Overthrust segment of Trailblazer. Trailblazer is a major 800-mile pipeline that transports gas from producing areas in the Rocky Mountains to the Midwest. The Overthrust segment is the first of Trailblazer's three segments; it is 88-miles in length and extends from Whitney Canyon in southwestern Wyoming to the vicinity of Rock Springs, Wyoming. As the operating partner of Overthrust, the Company is working to resolve some issues relating to its future use. Some Overthrust partners are also shippers that are currently obligated to pay demand costs on Overthrust despite the fact that minimal volumes are physically shipped on it. The partners have recently negotiated a buyout settlement with Columbia Gas Transmission Corporation, which is an affiliate of an Overthrust partner, Columbia Gulf Transmission Company, and which has been in bankruptcy proceedings since July of 1991. The settlement agreement has recently been submitted to the bankruptcy court and the FERC for approval. Questar Pipeline owns and operates a major compressor complex near Rock Springs, Wyoming, that compresses volumes of gas from the Company's transmission system for delivery to the WIC segment of the Trailblazer system and to CIG. The complex has become a major delivery point on Questar Pipeline's system. Five of the Company's natural gas lines are connected to the system at the complex. In addition, both of CIG's Wyoming pipelines and the WIC segment are connected to the complex. The Company and its partners are continuing to pursue a project announced in 1990 to build and operate the proposed TransColorado pipeline. (Questar TransColorado, Inc., the Company's wholly owned subsidiary is the named partner.) Questar Pipeline's partners include affiliates of Public Service Company of Colorado and KN Energy, Inc. The proposed pipeline is approximately 300 miles in length and would extend from the Piceance Basin in western Colorado to northwestern New Mexico, where it would interconnect with other major pipeline systems. As designed, the pipeline could transport up to 300 million cubic feet (MMcf) of gas per day from western Colorado and other producing basins in Wyoming and Utah to California and midwestern and southwestern markets. This project has received the necessary environmental clearance and regulatory approvals. The project, which was developed prior to the adoption of Order No. 636, needs additional support from customers before construction will begin. The Company and its partners remain optimistic concerning the project and hope that construction can begin in 1996. Questar Pipeline no longer has the only transmission system with direct access to the major population centers in Utah. The new Kern River pipeline became operational in late February of 1992. This line, built to transport gas from Wyoming to the enhanced oil recovery projects in Kern County, California, runs through the major population areas of Utah. A new tap, the Hunter Park tap, has been installed on the Kern River line in Salt Lake County. This new tap makes it possible for Mountain Fuel and other transportation customers to take deliveries from the Kern River line. At the current time, however, no deliveries have been made from the Kern River line to industrial customers in the Wasatch Front area of Utah. Transportation Service Questar Pipeline's largest transportation customer is Mountain Fuel. During 1994, the Company transported 75,941,000 Dth for Mountain Fuel, compared to 65,061,000 Dth in 1993. These transportation volumes include Mountain Fuel's cost-of-service gas produced by Wexpro, as well as volumes purchased by Mountain Fuel directly from field producers after September 1, 1993. (The Company also sold volumes of gas to Mountain Fuel prior to September 1, 1993. Consequently, a direct comparison between Mountain Fuel's transportation volumes in 1993 and 1994 is somewhat misleading.) Prior to September 1, 1993, the Company purchased gas for resale to Mountain Fuel, its only sale-for-resale customer. As of such date, Questar Pipeline discontinued sales-for-resale service and Mountain Fuel converted its firm sales capacity to firm transportation capacity. Mountain Fuel has a reserved capacity of approximately 800,000 Dth per day, or approximately 85 percent of Questar Pipeline's reserved daily capacity. Mountain Fuel paid an annual demand charge of approximately $46.3 million to the Company in 1994, which includes demand charges attributable to firm transportation and "no-notice" transportation. Mountain Fuel only needs its total reserved capacity during peak-demand situations. When it is not fully utilizing its capacity, Mountain Fuel releases the capacity to others, primarily industrial transportation customers and marketing entities, and receives revenue credits from the Company, which were approximately $9.8 million during the 12-month period ending August 31, 1994. Questar Pipeline recovers approximately 96 percent of its transmission cost of service through demand charges from firm transportation customers. In other words, these customers pay for access to transportation capacity, rather than for the volumes actually transported. Consequently, the Company's throughput volumes do not have a significant impact on its short-term operating results. Questar Pipeline is not significantly affected by fluctuating demand based on the vagaries of weather or commodity prices. The Company's total system throughput, however, did increase from 238,586,000 Dth in 1993 to 250,284,000 Dth in 1994. As previously noted, some of this increase was attributable to increased transportation volumes for Mountain Fuel. The total throughput increase was also attributable to increased volumes for other affiliated customers, primarily Universal Resources (from 35,599,000 Dth in 1993 to 45,093,000 Dth in 1994) and nonaffiliated customers (from 113,589,000 Dth in 1993 to 129,250,000 Dth in 1994). Questar Pipeline's transmission system is an open-access system and has been since September of 1988. Order No. 636 and the Company's tariff provisions require it to transport gas on a nondiscriminatory basis when it has available transportation capacity. The Company does have limited opportunities for interruptible transportation service. It, however, is currently obligated, on an annual basis, to credit 90 percent of the revenues, net of variable costs, obtained from such service to firm customers after it recovers $1.5 million in revenues associated with interruptible transportation service. In order to comply with Order No. 636, Questar Pipeline installed additional metering that permits "real time" measurement of gas transported on its system and an electronic bulletin board that allows interested parties to nominate for capacity on such system. Questar Pipeline spent approximately $4.7 million on such equipment and can recover the costs associated with this equipment upon filing its next general rate case and establishing the prudency of such costs. Questar Pipeline will continue to develop and build new lines and related facilities that will allow it to meet customer needs or to improve transportation services. The Company has announced plans to expand its southern transmission system to meet market demand for transportation of natural gas volumes from the Piceance Basin in western Colorado. The project will involve upgrading a section of the system as well as installing additional compression. See "Regulatory Environment" for a discussion of "at-risk" conditions imposed by the FERC on new construction projects. The Company has recently discontinued its participation in the group organized to develop and operate a proposed market center at the Muddy Creek pipeline hub in southwestern Wyoming. Universal Resources, an affiliate, continues to be involved in this activity. Gathering The Company provides gathering services for Mountain Fuel and other customers. In 1994, Questar Pipeline earned revenues of $23,641,000 for gathering services, compared to $20,386,000 in 1993, but the reported volume of gathered gas decreased from 92,768,000 Dth in 1993 to 83,983,000 Dth in 1994. All gathering services performed by Questar Pipeline are conducted on an individual contract basis although it has included a statement of gathering rates in its tariffs. The Company performs gathering services for Mountain Fuel under a four-year agreement that was filed with and accepted by the FERC during 1994. During 1994, Questar Pipeline spent $9,392,000 to expand its gathering activities; projects included installing new facilities (including dehydration units as well as laterals) at the Birch Creek and Bruff areas in southwestern Wyoming and at Drunkards Wash in eastern Utah. The Company intends to continue expanding its gathering facilities and services. It is currently reviewing options to transfer gathering facilities to a subsidiary or affiliate given the FERC's current position that it has no direct jurisdiction over the gathering activities of pipeline affiliates. Current natural gas prices have caused some producers to shut in their wells and to postpone drilling activities; these activities, at least for the short-term, will result in reduced gathering volumes for the Company. Questar Pipeline owns 819 miles of gathering lines, compressor stations, field dehydration plants, and measuring stations. Storage Questar Pipeline operates a major storage facility at Clay Basin in northeastern Utah. This storage reservoir has been operational since 1977; open-access storage service has been available at Clay Basin since June of 1991. The Company's storage facilities are certificated by the FERC and its rates for storage service (based on operating costs and investment in plant plus an allowed rate of return) are subject to the approval of the FERC. During 1994, Questar Pipeline installed the necessary compressors and storage laterals to offer additional working gas capacity of approximately 15.3 billion cubic feet (Bcf) of gas. The reservoir currently is certificated for 46.3 Bcf of working gas capacity and a total capacity of 110 Bcf. (Working gas is gas that is injected and withdrawn. Cushion gas is gas in the formation that is necessary to maintain pressure and is not withdrawn under normal operating conditions.) As a result of this expansion, Clay Basin's maximum deliverability increased from 500 million cubic feet of gas MMcf per day to 763 MMcf per day. Clay Basin's storage capacity is fully subscribed by customers under agreements extending to 30 years. Mountain Fuel currently has 12.5 Bcf of working gas capacity at Clay Basin. Other large customers include Northwest Pipeline; Washington Natural Gas Company, a distribution utility in Washington; and BC Gas Inc., a distribution utility in British Columbia. Storage service is increasingly important to distribution companies that need to match annual gas purchases with fluctuating customer demand, improve service reliability, and avoid imbalance penalties. Questar Pipeline also owns and operates three smaller storage reservoirs. These projects were developed to serve Mountain Fuel's needs, and Mountain Fuel has 100 percent of the working gas capacity in them. These small reservoirs are used to supplement Mountain Fuel's gas supply needs on peak-days. The Company is also determining if there is sufficient customer interest in a new salt-cavern storage project in southwestern Wyoming. In a salt cavern, unlike a depleted gas reservoir, working gas can be cycled more frequently. New Ventures During 1994, Questar Pipeline, through a direct subsidiary, formed a partnership with an affiliate of Coastal Corporation to build and operate a new processing plant in southwestern Wyoming. The $20 million plant, which should become fully operational in the spring of 1995, has a design capacity of 84 MMcf per day and is located in a prolific gas producing area. Natural gas liquids, ethane, propane, butane, and gasoline, will be extracted from the natural gas volumes delivered to the plant. In conjunction with this new processing plant, the Company extended its gathering system to the Birch Creek area, approximately 32 miles north of the plant. The new plant and the expanded gathering system provide producers more options for gathering and processing their gas volumes. Once the liquids are stripped, the natural gas can be transported by pipeline to end-use markets. The processing plant is not subject to the jurisdiction of the FERC and represents Questar Pipeline's strategy to expand its expertise and its investment in nonregulated activities. Regulatory Environment The Company is a natural gas company under the Natural Gas Act and is subject to the jurisdiction of the FERC as to rates and charges for storage and transportation of gas in interstate commerce, construction of new storage and transmission facilities, extensions or abandonments of service and facilities, accounts and records, and depreciation and amortization policies. Questar Pipeline holds certificates of public convenience and necessity granted by the FERC for the transportation and underground storage of natural gas in interstate commerce and for the facilities required to perform such operations. This simple factual explanation of federal regulation does not adequately account for the major transformation that has occurred in the natural gas industry within the last several years. Questar Pipeline, in common with other interstate pipelines, chose to terminate its sale-for-resale function when it implemented FERC Order No. 636. To comply with Order No. 636, as amended, the Company restructured its tariff provisions to provide for firm and interruptible transportation and storage service, no-notice transportation service to former sales customers, a capacity release mechanism for shippers and a straight fixed-variable (SFV) rate methodology. It was also required to discontinue use of upstream capacity in its own name, to provide flexible receipt and delivery points for firm transportation customers, and to provide an interactive electronic bulletin board to assist with the administration of the new provisions. When it was engaged in sales-for-resale activities and had a purchased gas adjustment procedure, Questar Pipeline was required to file a general rate case every three years. It is no longer subject to this requirement. The Company, however may determine to file a general rate case before year-end and must weigh several competing factors when making the decision. The Company cannot recover its costs of implementing Order No. 636 or its full cost accrual for postretirement benefits (medical and life) and postemployment benefits (long-term disability) in the absence of a general rate case. Other important considerations include actual revenue generating capability, expectations of allowed return on equity, and revenue crediting issues. In a post-Order No. 636 environment, Questar Pipeline cannot expect to receive unconditioned regulatory approvals for new construction proposals without the support of long-term firm service agreements. The FERC is currently imposing at-risk conditions on projects that lack such support. In other words, the FERC is insisting that shareholders, not customers, absorb any underrecovery of costs if the incremental revenues obtained from a new project do not cover the costs. Given the change that has already occurred in the industry and given the expectation of additional change, customers are understandably wary of providing pipelines with long-term contracts for firm service. Under the Natural Gas Pipeline Safety Act of 1968, as amended, the Company is subject to the jurisdiction of the Department of Transportation (DOT) with respect to safety requirements in the design, construction, operation and maintenance of its transmission and storage facilities. The Company also complies with the DOT's drug testing regulations and the DOT's new alcohol testing regulations. In addition to the regulations discussed above, Questar Pipeline's activities in connection with the operation and construction of pipelines, plants, and other facilities for transporting, processing, or storing natural gas and other products are subject to extensive environmental regulation by state and federal authorities, including state air quality control boards and the federal Environmental Protection Agency. These compliance activities increase the cost of planning, designing, installing and operating facilities. Competition Competition for Questar Pipeline's transportation and gathering services has intensified in recent years. Regulatory changes, such as FERC Order No. 636, have significantly increased customer flexibility and customer responsibility to directly manage their gas supplies. The Company actively competes with other interstate pipelines, intrastate pipelines, and gathering companies to gather and transport gas volumes throughout the intermountain region. In common with Questar Pipeline, other pipeline companies are interested in expanding their non-regulated (or less-regulated) activities and are focusing attention on gathering and field service activities. Other pipelines and marketing groups are encroaching on the Company's historic service territory and competing with Questar Pipeline for gathering. It is not uncommon for wells to have connections with more than one gathering system or for producers to insist that gathering systems be tied to more than one pipeline. As a result, Questar Pipeline's customers have access to a larger universe of service options and providers. They are demanding better service and more flexibility, forcing the Company to improve its accounting processes and electronic communications, to develop balancing and pooling arrangements, and to work with other parties to develop some standard rules within the new environment. The national pipeline grid has become more integrated, even as competition among the pipelines has become more aggressive. The Company has several key assets that contribute to its continued success. It has a strategically located and integrated transmission system with interconnections to major pipeline systems and with access to major producing areas and markets. Questar Pipeline has the Clay Basin storage project, a strategically located storage reservoir that has been successfully operated since 1977, that has been expanded in response to interest from others, and that is fully subscribed by firm-service customers. Questar Pipeline also has an extensive gathering system developed to collect gas volumes from producing wells as well as expertise in extracting hydrocarbon liquids from natural gas. As the operator of the new Blacks Fork processing plant, the Company is expanding its activities and expertise. Questar Pipeline intends to expand its processing and field-treatment activities. Questar Pipeline has consistently established partnerships with other players to share risks and expand opportunities. The Overthrust pipeline, TransColorado pipeline, and Blacks Fork plant projects involve partners, most of which are significantly larger than the Company. Employees As of December 31, 1994, the Company had 478 employees, compared to 470 as of the end of 1993. None of these employees is represented under collective bargaining agreements. The Company participates in the comprehensive benefit plans of Questar and pays the share of costs attributable to its employees covered by such plans. Questar Pipeline's employee relations are generally deemed to be satisfactory. Relationships with Affiliates There are significant business relationships between the Company and its affiliates, particularly Mountain Fuel and Universal Resources. These relationships are described above. See Note G to the financial statements for additional information concerning transactions between the Company and its affiliates. The Company obtains data processing and communication services from another affiliate, Questar InfoComm, Inc. (formerly Questar Service Corporation), under the terms of a written agreement. Questar InfoComm worked closely with the Company to develop the electronic bulletin board that is currently being used by Questar Pipeline and its customers. Questar, the Company's parent, provides certain administrative services, e.g., personnel, legal, public relations, financial, audit, and tax, to the Company and other members of the consolidated group. A proportionate share of the costs associated with such services is directly billed or allocated to Questar Pipeline. ITEM 3. LEGAL PROCEEDINGS Questar Pipeline is involved in various legal and regulatory proceedings. While it is not currently possible to predict or determine the outcome of these proceedings, it is the opinion of management that the outcome will not have a material adverse effect on the Company's financial position or liquidity. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company, as the wholly owned subsidiary of a reporting person, is entitled to omit the information requested in this Item. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's outstanding shares of common stock, $1.00 par value, are currently owned by Questar. Information concerning the dividends paid on such stock and the Company's ability to pay dividends is reported in the Statements of Shareholder's Equity and Notes to Financial Statements included in Item 8. ITEM 6. SELECTED FINANCIAL DATA The Company, as the wholly owned subsidiary of a reporting person, is entitled to omit the information requested in this Item. ITEM 7. MANAGEMENT'S ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Following is a summary of operating income and operating information for the Company's operations:
Year Ended December 31, 1994 1993 1992 (Dollars In Thousands) OPERATING INCOME Revenues Transportation $61,844 $51,590 $43,912 Gathering 23,641 20,386 17,822 Storage 27,620 14,698 7,798 Sales for resale 81,813 133,059 Other 2,503 3,141 1,995 Total revenues 115,608 171,628 204,586 Operating expenses Natural gas purchases 56,022 93,024 Operating and maintenance 42,778 48,356 46,601 Depreciation and amortization 15,453 14,084 13,699 Other taxes 4,499 3,915 3,842 Total expenses 62,730 122,377 157,166 Operating income $52,878 $49,251 $47,420 OPERATING STATISTICS Natural gas volumes (in Mdth) Transportation For Mountain Fuel 75,941 65,061 33,883 For other customers 174,343 149,188 171,097 Total transportation 250,284 214,249 204,980 Sales for resale to Mountain Fuel 24,337 38,981 Total system throughput 250,284 238,586 243,961 Gathering For Mountain Fuel 32,098 44,432 48,164 For other customers 51,885 48,336 25,901 Total gathering 83,983 92,768 74,065 Clay Basin storage working gas volumes (in Bcf) 41.8 31.0 30.0 Natural gas revenues (per dth) Transportation $0.25 $0.24 $0.21 Gathering 0.28 0.22 0.24 Sales for resale - 3.36 3.41 Natural gas purchase cost (per dth - 2.28 2.53
1994 was the first full year of operations for Questar Pipeline under the regulations of FERC Order No. 636. In this new regulatory environment Questar Pipeline's transportation, gathering and storage services are separate activities, and sales-for-resale services have been discontinued. Firm-transportation volumes do not have a significant impact on current operating results because about 96% of the cost of service is recovered equally each month in the reservation component of rates. Most of Questar Pipeline's transportation capacity has been reserved by firm-transportation customers. Roughly 92% of firm-transportation contracts have remaining terms of at least four years. Firm-transportation customers can release that capacity to third parties when it is not required for their own needs. Mountain Fuel has reserved transportation capacity from Questar Pipeline of approximately 800,000 decatherms per day, or about 85% of the total reserved daily transportation capacity. Throughput volumes increased 5% in 1994 reflecting increases in services provided to both firm- and interruptible-transportation customers. After $1.5 million of revenues are earned from interruptible-transportation services, 90% of remaining interruptible-transportation revenues are credited back to firm-transportation customers. Throughput volumes for Mountain Fuel, which include sales for resale in 1993 and 1992, declined 15% in 1994 because of warmer weather in Mountain Fuel's service area. Gathering revenues increased 16% in 1994 and 14% in 1993. Gathering activities were unbundled from the sales function in 1991. Volumes of gas gathered for Mountain Fuel have remained level for 1994, 1993 and 1992. However, billings for gas gathered for Mountain Fuel in 1993 and 1992 were based on imputed volumes, which were substantially higher than volumes gathered. Gas volumes gathered for other customers have increased. Questar Pipeline has expanded its gas gathering operations in the past several years in the Birch Creek, Bruff and Henry areas of southwestern Wyoming. Questar Pipeline began a program in 1993 to expand firm-storage service offered at its Clay Basin storage facility. Working gas storage capacity was increased to 31 Bcf in 1993 and to 41.8 Bcf beginning May 1994. Planned capacity of 46.3 Bcf is projected beginning mid-year 1995. Storage capacity at year-end 1994 was 100% subscribed with contractual terms extending from seven to 30 years. Firm-storage revenues increased 20% to $22,400,000 in 1994 as a result of increased capacity and the associated service at Clay Basin, and unbundling and reclassifying peaking storage service from sales-for-resale revenues. Peaking storage is designed to meet peak daily demand requirements of Mountain Fuel. Questar Pipeline, through a partnership, is a 50% owner of a gas processing plant in southwestern Wyoming. The Blacks Fork Processing plant cost $19.7 million to build and will be operational in the first half of 1995. Under the terms of Order No. 636, Questar Pipeline is no longer required to file rate cases every three years. However, with its capital expenditure program, recent adoption of new accounting rules for postemployment and postretirement costs, and loss of interruptible-transportation revenues, the Company is considering filing a rate case in 1995. The Company did not purchase gas for resale after August 31, 1993. Natural gas purchases decreased 40% in 1993 and 25% in 1992 consistent with changes in sales-for-resale volumes. Operating and maintenance expenses decreased 12% in 1994 because of eliminating volume and fuel usage costs associated with the resale of natural gas. Operating and maintenance expenses increased 4% in 1993 because of higher labor and supplies costs. Depreciation expense was 10% higher in 1994 and 3% higher in 1993 as a result of Questar Pipeline's capital expenditure program. Interest and other income (expense) in 1994 and 1993 includes the reduction in value of certain investments. The effective income tax rate was 33.6% in 1994, 35.6% in 1993, and 35.4% in 1992. A 1994 reversal of $1,245,000 of income tax expense previously expensed resulted in a lower effective income tax rate. The adjustment resulted from the exclusion from taxable income of the transportation revenues recorded on cushion gas transported into storage. The Company adopted SFAS No.112, Accounting for Postemployment Benefits, on January 1, 1994, by establishing a liability of $1,256,000 offset by a regulatory asset. This statement requires the Company to recognize the net present value of the liability for postemployment benefits, such as long-term disability benefits and health care and life insurance costs, when employees become eligible for such benefits. Postemployment benefits are paid to former employees after employment has been terminated but before retirement benefits are paid. SFAS No.112 requires the Company to accrue both current and future costs which formerly had been recorded when paid. By December 1994 the total liability had dropped to $450,000 as a result of designating Medicare as the primary health care provider and increasing the discount rate from 7% to 8.5%. The Company expects to recover SFAS No.112 costs in a subsequent rate filing. LIQUIDITY AND CAPITAL RESOURCES Operating Activities Net cash provided from operating activities decreased 42% in 1994 after increasing 65% in 1993. Net cash provided from operating activities was $39,675,000 in 1994, $68,548,000 in 1993, and $41,479,000 in 1992. Cash flow generated by income and depreciation has grown steadily in the period from 1992 through 1994. The balance of operating assets and liabilities changed dramatically in 1993. as a result of adopting FERC Order No.636. Balances in receivables and payables decreased, and gas stored underground was transferred to Mountain Fuel. Investing Activities Following is a summary of capital expenditures for 1994, 1993 and a forecast of 1995 expenditures:
1995 Estimated 1994 1993 (In Thousands) Clay Basin cushion gas and expansion $8,700 $42,196 $30,070 Other storage 4,200 Transmission lines 12,300 1,878 4,856 Gathering facilities 8,200 9,392 5,743 Order 636 transition costs 421 4,313 Partnerships 2,000 614 354 General and other 5,600 3,726 2,244 $41,000 $58,227 $47,580
Questar Pipeline has completed the majority of work expanding the capacity of its Clay Basin underground gas storage facility, which involves building compression facilities and injecting cushion gas into the reservoir. After expansion, the storage field will have a total capacity of 110 Bcf, including 46.3 Bcf of working-gas storage. The first phase of the project was completed in May 1994 with an increase in working-gas capacity to 41.8 Bcf. The final phase is scheduled for completion by mid 1995. Capital projects also added 14 miles of transmission lines and 42 miles of gathering lines in 1994. A major increase in gathering lines will enable Questar Pipeline to provide service to gas producers in the Birch Creek area of southwestern Wyoming. The pipeline has announced plans to expand and enhance its southern pipeline system to meet market demand for natural gas transportation from the productive Piceance Basin in western Colorado. The pipeline has filed a request with the FERC to upgrade 26.4 miles of its Main Line No. 68 west of Rifle, Colorado. An existing 10-inch line will be replaced with 14-inch to upgrade Questar Pipeline's southern system. Construction is planned for the summer of 1995. During 1994, the FERC authorized construction of the TransColorado Pipeline, a proposed $184 million, 292-mile interstate gas transmission line that will run from producing areas and pipeline interconnects in northwest Colorado to a gas hub in New Mexico. Questar Pipeline is a one-third partner in the project. Additional market support is needed before construction can begin. Questar Pipeline's unconsolidated affiliate, Overthrust Pipeline, has some uncertainty caused by the bankruptcy proceedings of a partner and firm-shipper, Columbia Gas Transmission Corporation. Columbia Gas and Overthrust have negotiated a buyout settlement. The settlement has recently been submitted to the bankruptcy court and the FERC for approval. Financing Activities The Company funded its 1994 capital expenditures primarily with cash provided from operations and a capital contribution. The Company expects to finance the 1995 capital expenditure program with cash provided from operations and borrowings from Questar. The Company has a short-term line-of-credit arrangement with a bank under which it may borrow up to $200,000, below the prime interest rate. The arrangements are renewable on an annual basis. At December 31, 1994, no amounts were borrowed under this arrangement. Questar loans funds to the Company under a short-term borrowing arrangement. Outstanding short-term notes payable to Questar totaled $14,600,000 with an interest rate of 6.11% at December 31, 1994. On July 1, 1994 Questar Pipeline received a $25,000,000 capital contribution from Questar. Questar Pipeline's capital structure was 38% long-term debt and 62% common shareholder's equity. Moody's and Standard and Poors have rated the Company's long-term debt A1 and A+. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's financial statements are included in Part IV, Item 14, herein. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The Company has not changed its independent auditors or had any disagreements with them concerning accounting matters and financial statement disclosures within the last 24 months. PART III The Company, as the wholly owned subsidiary of a reporting person, is entitled to omit all information requested in Part III (Items 10-13). PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1)(2) Financial Statements and Financial Statement Schedules. The financial statements identified on the List of Financial Statements are filed as part of this Report. (a)(3) Exhibits. The following is a list of exhibits required to be filed as a part of this Report in Item 14(c). Exhibit No. Exhibit 2.*1 Agreement of Transfer among Mountain Fuel Supply Company, Entrada Industries, Inc. and Mountain Fuel Resources, Inc., dated July 1, 1984. (Exhibit No. 2. to Registration Statement No. 2-96102 filed February 27, 1985.) 3.1.* Articles of Incorporation dated January 2, 1975; Articles of Amendment to the Articles of Incorporation dated September 14, 1976; Articles of Amendment to the Articles of Incorporation dated May 25, 1984. (Exhibit No. 3.1. to Registration Statement No. 2-96102 filed February 27, 1985.) 3.2.* Articles of Amendment to the Articles of Incorporation dated March 7, 1988. (Exhibit No. 3.2. to Form 10-K Annual Report for 1987.) 3.3.* Bylaws (as amended on August 11, 1992). (Exhibit No. 3. to Form 10-Q Report for quarter ended June 30, 1992.) 4.1.* Indenture dated June 1, 1990, for 9-7/8% Debentures due 2020, with Morgan Guaranty Trust Company of New York as Trustee. (Exhibit No. 4. to Form 10-Q Report for quarter ended June 30, 1990.) 4.2.* Indenture dated as of June 1, 1991, for 9-3/8% Debentures due June 1, 2021, with Morgan Guaranty Trust Company of New York as Trustee. (Exhibit No. 4. to Form 10-Q Report for quarter ended June 30, 1991.) 10.1.*1 Overthrust Pipeline Company General Partnership Agreement dated September 20, 1979, as amended and restated as of October 11, 1982, and as amended August 21, 1991, among CIG Overthrust, Inc., Columbia Gulf Transmission Company; Mountain Fuel Resources, Inc.; NGPL-Overthrust Inc.; Northern Overthrust Pipeline Company; and Tennessee Overthrust Gas Company. (Exhibit No. 10.4. to Form 10-K Annual Report for 1985, except that the amendment dated August 21, 1991, is included as Exhibit No. 10.4. to Form 10-K Annual Report for 1992.) 10.2.*1 Data Processing Services Agreement effective July 1, 1985, between Questar Service Corporation and Mountain Fuel Resources, Inc. (Exhibit No. 10.11. to Form 10-K Annual Report for 1988.) 10.3.2 Questar Pipeline Company Annual Management Incentive Plan, as amended February 14, 1995. 10.4.* Partnership Agreement for the TransColorado Gas Transmission Company effective June 30, 1990, between KN TransColorado, Inc., Westgas TransColorado, Inc., and Questar TransColorado, Inc. (Exhibit No. 2.8. to Form 10-Q Report for quarter ended June 30, 1990.) 10.5.*3 Firm Transportation Service Agreement with Mountain Fuel Supply Company under Rate Schedule T-1 dated August 10, 1993, for a term from November 2, 1993 to June 30, 1999. (Exhibit No. 10.5. to Form 10-K Annual Report for 1993.) 10.6.*3 Storage Service Agreement with Mountain Fuel Supply Company under Rate Schedule FSS, for 3.5 Bcf of working gas capacity at Clay Basin, with term a from September 1, 1993, to August 31, 2008. (Exhibit No. 10.6. to Form 10-K Annual Report for 1993.) 10.7.*3 Storage Service Agreement with Mountain Fuel Supply Company under Rate Schedules FSS, for 3.5 Bcf of working gas capacity at Clay Basin with a term from September 1, 1993, to August 31, 2013. (Exhibit No. 10.7. to Form 10-K Annual Report for 1993.) 10.8.2 Questar Pipeline Company Deferred Compensation Plan for Directors, as amended and restated April 30, 1991. 10.9. Gas Gathering Agreement between Mountain Fuel Supply Company and Questar Pipeline Company effective September 1, 1993. 22. Subsidiary Information. 25. Power of Attorney. 27. Financial Data Schedule. *Exhibits so marked have been filed with the Securities and Exchange Commission as part of the indicated filing and are incorporated herein by reference. 1 The documents listed here have not been formally amended to refer to the Company's current name. They still refer to the Company as Mountain Fuel Resources, Inc. 2 Exhibit so marked is management contract or compensation plan or arrangement. 3 Agreement incorporates specified terms and conditions of Questar Pipeline's FERC Gas Tariff, First Revised Volume No. 1. The tariff provisions are not filed as part of the exhibit, but are available upon request. (b) Questar Pipeline did not file a Current Report on Form 8-K during the last quarter of 1994. ANNUAL REPORT ON FORM 10-K ITEM 8, ITEM 14(a) (1) and (2), and (d) LIST OF FINANCIAL STATEMENTS FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA YEAR ENDED DECEMBER 31, 1994 QUESTAR PIPELINE COMPANY SALT LAKE CITY, UTAH FORM 10-K -- ITEM 14 (a) (1) AND (2) QUESTAR PIPELINE COMPANY LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES The following financial statements of Questar Pipeline Company are included in Item 8: Statements of income -- Years ended December 31, 1994, 1993 and 1992 Balance sheets -- December 31, 1994 and 1993 Statements of cash flows -- Years ended December 31, 1994, 1993 and 1992 Statements of shareholder's equity -- Years ended December 31, 1994, 1993 and 1992 Notes to financial statements All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. Report of Independent Auditors Board of Directors Questar Pipeline Company We have audited the accompanying balance sheets of Questar Pipeline Company as of December 31, 1994 and 1993, and the related statements of income, shareholder's equity, and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Questar Pipeline Company at December 31, 1994 and 1993, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. As discussed in Note F to the financial statements, Questar Pipeline Company changed its method of accounting for postemployment benefits. ERNST & YOUNG LLP Salt Lake City, Utah February 10, 1995 QUESTAR PIPELINE COMPANY STATEMENTS OF INCOME
Year Ended December 31, 1994 1993 1992 (In Thousands) REVENUES From unaffiliated customers $40,412 $41,354 $34,991 From affiliates - Note G 75,196 130,274 169,595 TOTAL REVENUES 115,608 171,628 204,586 OPERATING EXPENSES Natural gas purchases - Note G 56,022 93,024 Operating and maintenance - Note G 42,778 48,356 46,601 Depreciation 15,453 14,084 13,699 Other taxes 4,499 3,915 3,842 TOTAL OPERATING EXPENSES 62,730 122,377 157,166 OPERATING INCOME 52,878 49,251 47,420 INCOME FROM UNCONSOLIDATED AFFILIATES 229 128 61 INTEREST AND OTHER INCOME (EXPENSE) - Note G (1,124) (139) 1,109 DEBT EXPENSE (13,107) (13,114) (13,829) INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT 38,876 36,126 34,761 INCOME TAXES - Note D 13,047 12,851 12,298 INCOME BEFORE CUMULATIVE EFFECT 25,829 23,275 22,463 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR INCOME TAXES - Note D (45) NET INCOME $25,829 $23,275 $22,418
See notes to financial statements. QUESTAR PIPELINE COMPANY BALANCE SHEETS
ASSETS December 31, 1994 1993 (In Thousands) CURRENT ASSETS Cash and short-term investments - Note C $1,448 $1,341 Accounts receivable 13,234 5,653 Accounts receivable from affiliates 2,002 5,538 Federal income tax receivable 1,080 Inventories, at lower of average cost or market 2,583 2,394 Prepaid expenses and deposits 2,809 2,268 TOTAL CURRENT ASSETS 23,156 17,194 PROPERTY, PLANT AND EQUIPMENT Transmission 273,673 270,343 Storage 210,162 155,414 General and intangible 39,061 36,375 Construction work in progress 11,812 29,400 615,313 561,108 Less allowances for depreciation 203,008 189,279 NET PROPERTY, PLANT AND EQUIPMENT 412,305 371,829 OTHER ASSETS Investment in unconsolidated affiliates 7,988 7,145 Income taxes recoverable from customers - Note D 3,666 2,674 Unamortized costs of reacquired debt 3,426 3,719 Other 4,502 3,333 19,582 16,871 $455,043 $405,894
LIABILITIES AND SHAREHOLDER'S EQUITY
December 31, 1994 1993 (In Thousands) CURRENT LIABILITIES Notes payable to Questar - Notes B and C $14,600 $3,000 Accounts payable and accrued expenses Accounts payable 9,368 8,005 Accounts payable to affiliates 1,436 1,996 Federal income taxes 242 Other taxes 1,425 1,349 Accrued interest 1,076 1,076 Total accounts payable and accrued expenses 13,305 12,668 TOTAL CURRENT LIABILITIES 27,905 15,668 LONG-TERM DEBT - Notes B and C 134,506 134,487 DEFERRED CREDITS 4,861 2,276 DEFERRED INCOME TAXES - Note D 68,814 67,335 COMMITMENTS AND CONTINGENCIES - Note E SHAREHOLDER'S EQUITY Common stock - par value $1 per share; authorized 25,000,000 shares; issued and outstanding 6,550,843 shares 6,551 6,551 Additional paid-in capital 82,034 57,034 Retained earnings 130,372 122,543 218,957 186,128 $455,043 $405,894
See notes to financial statements. QUESTAR PIPELINE COMPANY STATEMENTS OF SHAREHOLDER'S EQUITY
Additional Common Paid-in Retained Stock Capital Earnings (In Thousands) Balance at January 1, 1992 $6,551 $57,034 $108,850 1992 net income 22,418 Cash dividends (16,000) Balance at December 31, 1992 6,551 57,034 115,268 1993 net income 23,275 Cash dividends (16,000) Balance at December 31, 1993 6,551 57,034 122,543 Capital contribution 25,000 1994 net income 25,829 Cash dividends (18,000) Balance at December 31, 1994 $6,551 $82,034 $130,372
See notes to financial statements. QUESTAR PIPELINE COMPANY STATEMENTS OF CASH FLOWS
Year Ended December 31, 1994 1993 1992 (In Thousands) OPERATING ACTIVITIES Net income $25,829 $23,275 $22,418 Depreciation 17,078 15,979 15,562 Deferred income taxes 1,479 1,592 4,353 Income from unconsolidated affiliates (229) (128) (61) Cumulative effect of change in accounting for income taxes 45 44,157 40,718 42,317 Changes in operating assets and liabilities Accounts receivable (4,045) 23,815 (5,973) Federal income taxes (1,322) (1,462) 875 Inventories (189) 25,539 (205) Prepaid expenses and deposits (541) (75) 129 Accounts payable and accrued expenses 879 (18,466) (5,399) Purchased-gas adjustments (3,441) 8,630 Other 736 1,920 1,105 Net cash provided from operating activities 39,675 68,548 41,479 INVESTING ACTIVITIES Capital expenditures Purchase of property, plant and equipment (57,613) (47,216) (36,555) Other investments (614) (364) (1,383) Total capital expenditures (58,227) (47,580) (37,938) Proceeds from (costs of) disposition of property, plant and equipment 59 (182) 81 Cash used in investing activities (58,168) (47,762) (37,857) FINANCING ACTIVITIES Capital contribution 25,000 Change in notes payable to Questar 11,600 (4,500) 7,500 Change in notes receivable from Questar 5,000 Payment of dividends (18,000) (16,000) (16,000) Cash provided by (used in) financing activities 18,600 (20,500) (3,500) Change in cash and short-term investments 107 286 122 Beginning cash and short-term investments 1,341 1,055 933 Ending cash and short-term investments $1,448 $1,341 $1,055
See notes to financial statements. QUESTAR PIPELINE COMPANY NOTES TO FINANCIAL STATEMENTS Note A - Summary of Accounting Policies Business: Questar Pipeline Company (the Company or Questar Pipeline) is a wholly-owned subsidiary of Questar Corporation (Questar). The Company's primary activities are the transportation, gathering and storage of natural gas. Prior to September 1993, Questar Pipeline was also engaged in the sale for resale of natural gas. Significant accounting policies are presented below. Regulation: The Company is regulated by the Federal Energy Regulatory Commission (FERC) which establishes rates for the transportation and storage of natural gas. The FERC also regulates, among other things, the extension and enlargement or abandonment of jurisdictional natural gas facilities. Regulation is intended to permit the recovery, through rates, of the cost of service including a rate of return on investment. The financial statements are presented in accordance with regulatory requirements. Methods of allocating costs to time periods, in order to match revenues and expenses, may differ from those of nonregulated businesses because of cost allocation methods used in establishing rates. Revenue Recognition: Revenues are recognized in the period that services are provided or products are delivered. Questar Pipeline periodically collects revenues subject to possible refunds pending final orders from the FERC. The Company establishes reserves for revenues collected subject to refund. Credit Risk: The Company's primary market area is the Rocky Mountain region of the United States. The Company's exposure to credit risk may be impacted by the concentration of customers in this region due to changes in economic or other conditions. The Company's customers may be affected differently by changing conditions. The Company believes that it has adequately reserved for expected credit-related losses and that the carrying amount of trade receivables approximates fair value. Property, Plant and Equipment: Property, plant and equipment is stated at cost. The provision for depreciation is based upon rates, which will amortize costs of assets over their estimated useful lives. The costs of property, plant and equipment are depreciated in the financial statements using the straight-line method, ranging from 3 to 33% per year and averaging 3.6% in 1994. Investment in Unconsolidated Affiliates: The Company has an 18% partnership interest in the Overthrust Pipeline Company which built and operates the Overthrust Segment of the Trailblazer Pipeline System. The Company is a one-third partner in the TransColorado Gas Transmission Company, which plans to construct a pipeline from the Piceance Basin in Colorado to connections with other pipelines in northern New Mexico. The Company accounts for its investment in these partnerships using the equity method. Income Taxes: On January 1, 1992, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 109. The deferred tax balances represent the temporary differences between book and taxable income multiplied by the effective income tax rates. These temporary differences relate primarily to depreciation. The Company uses the deferral method to account for investment tax credits as required by the FERC. Reacquisition of Debt: Gains and losses on the reacquisition of debt are deferred and amortized as debt expense over the remaining life of the issue in order to match regulatory treatment. Allowance for Funds Used During Construction: The Company capitalizes the cost of capital during the construction period of plant and equipment. This amounted to $976,000 in 1994, $856,000 in 1993, and $421,000 in 1992. Cash and Short-Term Investments: Short-term investments consist principally of Euro-time deposits and repurchase agreements with maturities of three months or less. Note B - Debt The Company has a short-term line-of-credit arrangement with a bank under which it may borrow up to $200,000, below the prime interest rate. The arrangements are renewable on an annual basis. At December 31, 1994, no amounts were borrowed under this arrangement. Questar loans funds to the Company under a short-term borrowing arrangement. Outstanding short-term notes payable to Questar totaled $14,600,000 with an interest rate of 6.11% at December 31, 1994. Outstanding short-term notes payable to Questar totaled $3,000,000 with an interest rate of 3.59% at December 31, 1993. The details of long-term debt at December 31, were as follows:
1994 1993 (In Thousands) 9 3/8% debentures due 2021 $85,000 $85,000 9 7/8% debentures due 2020 50,000 50,000 Total long-term debt outstanding 135,000 135,000 Less unamortized debt discount 494 513 $134,506 $134,487
There are no maturities of long-term debt for the five years following December 31, 1994. Cash paid for interest on debt was $13,065,000 in 1994, $13,018,000 in 1993, and $13,573,000 in 1992. Note C - Financial Instruments The carrying amounts and estimated fair values of the Company's financial instruments at December 31, were as follows:
1994 1993 Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value (In Thousands) Financial assets Cash and short-term investments $1,448 $1,448 $1,341 $1,341 Financial liabilities Short-term loans 14,600 14,600 3,000 3,000 Long-term debt 134,506 134,429 134,487 163,265
The Company used the following methods and assumptions in estimating fair values: (1) Cash and short-term investments - the carrying amount approximates fair value; (2) Short-term loans - the carrying amount approximates fair value; (3) Long-term debt - the fair value of long-term debt is based on quoted market prices. Note D - Income Taxes The Company's operations are consolidated with those of Questar and its subsidiaries for income tax purposes. The income tax arrangement between Questar Pipeline and Questar provides that amounts paid to or received from Questar are substantially the same as would be paid or received by the Company if it filed a separate return. Questar Pipeline is also paid for tax benefits used in the consolidated tax return even if such benefits would not have been usable had the Company filed a separate return. Effective January 1, 1992, the Company changed its method of accounting for income taxes from the deferred method to the liability method required by SFAS No. 109, Accounting for Income Taxes. The Company did not restate prior years' financial statements. The application of the new rules did not have a significant impact on the 1992 income before cumulative effect. Questar Pipeline records cumulative increases in deferred taxes as income taxes recoverable from customers. The Company has adopted procedures with the FERC to include under-provided deferred taxes in customer rates on a systematic basis. The components of income taxes charged to income for years ended December 31, were as follows:
1994 1993 1992 (In Thousands) Federal Current $10,571 $10,010 $7,352 Deferred 1,436 1,512 4,160 State Current 997 1,249 593 Deferred 43 80 193 $13,047 $12,851 $12,298
The difference between income tax expense and the tax computed by applying the statutory federal income tax rate to income from continuing operations before income taxes is explained as follows:
1994 1993 1992 (In Thousands) Income before income taxes $38,876 $36,126 $34,761 Federal income taxes at statutory rate $13,607 $12,644 $11,819 State income taxes, net of federal income tax benefit 691 892 519 Prior years' tax settlement (692) Tax adjustment on revenues from cushion gas transported into storage (1,245) Other (6) 7 (40) Income tax expense $13,047 $12,851 $12,298 Effective income tax rate 33.6% 35.6% 35.4%
Significant components of the Company's deferred tax liabilities and assets at December 31, were as follows:
1994 1993 (In Thousands) Deferred tax liabilities Property, plant and equipment $64,002 $63,147 Unamortized debt reacquisition costs 1,267 1,376 Pension costs 535 398 Income taxes recoverable from customers 1,914 922 Other 3,263 2,667 Total deferred tax liabilities 70,981 68,510 Deferred tax assets 2,167 1,175 Net deferred tax liabilities $68,814 $67,335
Cash paid for income taxes was $14,404,000 in 1994, $12,404,000 in 1993, and $7,146,000 in 1992. Note E - Rate Matters, Litigation and Commitments Under the terms of Order No. 636, Questar Pipeline is no longer required to file rate cases every three years. However, with its capital expenditure program, recent adoption of new accounting rules for postemployment and postretirement costs, and loss of interruptible transportation revenues, the Company is considering filing a rate case in 1995. There are various legal proceedings against the Company. While it is not currently possible to predict or determine the outcome of these proceedings, it is the opinion of management that the outcome will not have a material adverse effect on the Company's results of operations, financial position or liquidity. Note F - Employment Benefits Substantially all Company employees are covered by Questar's defined benefit pension plan. Benefits are generally based on years of service and the employee's 36-month period of highest earnings during the ten years preceding retirement. It is Questar's policy to make contributions to the plan at least sufficient to meet the minimum funding requirements of applicable laws and regulations. Plan assets consist principally of equity securities and corporate and U.S. government debt obligations. Pension cost was $1,201,000 in 1994, $1,372,000 in 1993 and $1,259,000 in 1992. Questar Pipeline's portion of plan assets and benefit obligations is not determinable because the plan assets are not segregated or restricted to meet the Company's pension obligations. If the Company were to withdraw from the pension plan, the pension obligation for the Company's employees would be retained by the pension plan. At December 31, 1994, Questar's fair value of plan assets exceeded the accumulated benefit obligation. The Company participates in Questar's Employee Investment Plan, which allows the majority of employees to purchase Questar stock or other investments with payroll deductions. The Company makes contributions to the plan of approximately 75% of the employee's purchases. The Company's expense and contribution to the plan was $503,000 in 1994, $483,000 in 1993 and $522,000 in 1992. The Company participates in a Questar program that pays a portion of the health-care costs and all the life insurance costs for retired employees. . Questar's policy is to fund amounts allowable for tax deduction under the Internal Revenue Code. Plan assets consist of equity securities, corporate and U.S. government debt obligations, and insurance company general accounts. The Company adopted the provisions of SFAS No. 106 on Employer's Accounting for Postretirement Benefits Other than Pensions effective January 1, 1993. This statement requires the Company to expense the costs of postretirement benefits, principally health-care benefits, over the service life of employees using an accrual method. Questar Pipeline is amortizing the transition obligation over a 20-year period. The Company's cost of postretirement benefits other than pensions under SFAS No. 106 was $1,130,000 in 1994 and $1,059,000 in 1993 compared with the costs based on cash payments to retirees plus the funding of some benefits totaling $569,000 in 1992. The 1994 and 1993 amounts recorded as regulatory assets were $558,000 and $487,000, respectively. These amounts are expected to be recovered in a future rate proceeding. The impact of SFAS No. 106 on the Company's future net income will be mitigated by recovery of these costs from customers. The FERC issued an order granting rate recovery methodology for SFAS No. 106 costs to the extent that the Company contributes the amounts to an external trust. The Company's portion of plan assets and benefit obligations related to postretirement medical and life insurance benefits is not determinable because the plan assets are not segregated or restricted to meet the Company's obligations. The Company adopted SFAS No.112, Accounting for Postemployment Benefits, on January 1, 1994, by establishing a liability of $1,256,000 offset by a regulatory asset. This statement requires the Company to recognize the net present value of the liability for postemployment benefits, such as long-term disability benefits and health care and life insurance costs, when employees become eligible for such benefits. Postemployment benefits are paid to former employees after employment has been terminated but before retirement benefits are paid. SFAS No.112 requires the Company to accrue both current and future costs which formerly had been recorded when cash was paid. By December 1994 the total liability had dropped to $450,000 as a result of designating Medicare as the primary health care provider and increasing the discount rate from 7% to 8.5%. The Company expects to recover SFAS No. 112 costs in a subsequent rate filing. Note G - Related Party Transactions The Company receives a substantial portion of its revenues from Mountain Fuel Supply Company. Revenues received from Mountain Fuel amounted to $70,966,000 or 61% of the total in 1994, $124,807,000 or 73% in 1993, and $161,900,000 or 79% in 1992. The Company also received revenues from other affiliated companies totaling $4,230,000 in 1994, $5,072,000 in 1993, and $6,730,000 in 1992. Natural gas purchases include $4,844,000 in 1993 and $11,237,000 in 1992 from affiliated companies. The Company did not purchase gas for resale after August 31, 1993. Questar performs certain administrative functions for the Company. The Company was charged for its allocated portion of these services which totaled $3,439,000 in 1994, $3,408,000 in 1993, and $3,260,000 in 1992. These costs are included in operating and maintenance expenses and are allocated based on each company's proportional share of revenues, net of gas costs; property, plant and equipment; and payroll. Management believes that the allocation method is reasonable. The Company terminated an operating service agreement on July 1, 1993, with Wexpro Company (Wexpro), a wholly-owned subsidiary of Questar. Under that agreement Wexpro operated certain gathering, compressor, measurement and other production-related facilities owned by the Company. Those functions were subsequently assumed by Company employees. The Company reimbursed Wexpro's expenses with respect to such services and paid a fee equal to 15% of such expenses. The Company paid Wexpro $3,443,000 in 1993 and $5,954,000 in 1992 for such services. Questar InfoComm Inc is an affiliated company that provides data processing and communication services to Questar Pipeline. The Company paid Questar InfoComm $7,036,000 in 1994, $6,607,000 in 1993 and $5,979,000 in 1992. The Company received interest income from affiliated companies of $225,000 in 1994, $327,000 in 1993, and $740,000 in 1992. The Company had debt expense to affiliated companies of $134,000 in 1994, $21,000 in 1993, and $39,000 in 1992. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 29th day of March, 1995. QUESTAR PIPELINE COMPANY (Registrant) By /s/ A. J. Marushack A. J. Marushack President & Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. /s/ A. J. Marushack President & Chief Executive Officer; A. J. Marushack Director (Principal Executive Officer) /s/ W. F. Edwards Vice President & Chief Financial W. F. Edwards Officer (Principal Financial Officer) /s/ R. P. Ord Controller & Assistant Treasurer R. P. Ord (Principal Accounting Officer) *R. D. Cash Chairman of the Board; Director *W. F. Edwards Director *U. Edwin Garrison Director *A. J. Marushack Director *Neal A. Maxwell Director *Mary Mead Director March 29, 1995 *By /s/ A. J. Marushack Date A. J. Marushack, Attorney in Fact EXHIBIT INDEX Exhibit Number Exhibit 2.*1 Agreement of Transfer among Mountain Fuel Supply Company, Entrada Industries, Inc. and Mountain Fuel Resources, Inc., dated July 1, 1984. (Exhibit No. 2. to Registration Statement No. 2-96102 filed February 27, 1985.) 3.1.* Articles of Incorporation dated January 2, 1975; Articles of Amendment to the Articles of Incorporation dated September 14, 1976; Articles of Amendment to the Articles of Incorporation dated May 25, 1984. (Exhibit No. 3.1. to Registration Statement No. 2-96102 filed February 27, 1985.) 3.2.* Articles of Amendment to the Articles of Incorporation dated March 7, 1988. (Exhibit No. 3.2. to Form 10-K Annual Report for 1987.) 3.3.* Bylaws (as amended on August 11, 1992). (Exhibit No. 3. to Form 10-Q Report for quarter ended June 30, 1992.) 4.1.* Indenture dated June 1, 1990, for 9-7/8% Debentures due 2020, with Morgan Guaranty Trust Company of New York as Trustee. (Exhibit No. 4. to Form 10-Q Report for quarter ended June 30, 1990.) 4.2.* Indenture dated as of June 1, 1991, for 9-3/8% Debentures due June 1, 2021, with Morgan Guaranty Trust Company of New York as Trustee. (Exhibit No. 4. to Form 10-Q Report for quarter ended June 30, 1991.) 10.1.*1 Overthrust Pipeline Company General Partnership Agreement dated September 20, 1979, as amended and restated as of October 11, 1982, and as amended August 21, 1991, among CIG Overthrust, Inc., Columbia Gulf Transmission Company; Mountain Fuel Resources, Inc.; NGPL-Overthrust Inc.; Northern Overthrust Pipeline Company; and Tennessee Overthrust Gas Company. (Exhibit No. 10.4. to Form 10-K Annual Report for 1985, except that the amendment dated August 21, 1991, is included as Exhibit No. 10.4. to Form 10-K Annual Report for 1992.) 10.2.*1 Data Processing Services Agreement effective July 1, 1985, between Questar Service Corporation and Mountain Fuel Resources, Inc. (Exhibit No. 10.11. to Form 10-K Annual Report for 1988.) 10.3.2 Questar Pipeline Company Annual Management Incentive Plan, as amended February 14, 1995. 10.4.* Partnership Agreement for the TransColorado Gas Transmission Company effective June 30, 1990, between KN TransColorado, Inc., Westgas TransColorado, Inc., and Questar TransColorado, Inc. (Exhibit No. 2.8. to Form 10-Q Report for quarter ended June 30, 1990.) 10.5.*3 Firm Transportation Service Agreement with Mountain Fuel Supply Company under Rate Schedule T-1 dated August 10, 1993, for a term from November 2, 1993 to June 30, 1999. (Exhibit No. 10.5. to Form 10-K Annual Report for 1993.) 10.6.*3 Storage Service Agreement with Mountain Fuel Supply Company under Rate Schedule FSS, for 3.5 Bcf of working gas capacity at Clay Basin, with term a from September 1, 1993, to August 31, 2008. (Exhibit No. 10.6. to Form 10-K Annual Report for 1993.) 10.7.*3 Storage Service Agreement with Mountain Fuel Supply Company under Rate Schedules FSS, for 3.5 Bcf of working gas capacity at Clay Basin with a term from September 1, 1993, to August 31, 2013. (Exhibit No. 10.7. to Form 10-K Annual Report for 1993.) 10.8.2 Questar Pipeline Company Deferred Compensation Plan for Directors, as amended and restated April 30, 1991. 10.9. Gas Gathering Agreement between Mountain Fuel Supply Company and Questar Pipeline Company effective September 1, 1993. 22. Subsidiary Information. 25. Power of Attorney. 27. Financial Data Schedule. *Exhibits so marked have been filed with the Securities and Exchange Commission as part of the indicated filing and are incorporated herein by reference. 1 The documents listed here have not been formally amended to refer to the Company's current name. They still refer to the Company as Mountain Fuel Resources, Inc. 2 Exhibit so marked is management contract or compensation plan or arrangement. 3 Agreement incorporates specified terms and conditions of Questar Pipeline's FERC Gas Tariff, First Revised Volume No. 1. The tariff provisions are not filed as part of the exhibit, but are available upon request. EX-10.3 2 EXHIBIT - 10.3 QUESTAR PIPELINE COMPANY ANNUAL MANAGEMENT INCENTIVE PLAN (As amended effective February 14, 1995) Paragraph 1. Name. The name of this Plan is the Questar Pipeline Company Annual Management Incentive Plan (the Plan). Paragraph 2. Purpose. The purpose of the Plan is to provide an incentive to officers and key employees of Questar Pipeline Company (the Company) for the accomplishment of major organizational and individual objectives designed to further the efficiency, profitability, and growth of the Company. Paragraph 3. Administration. The Management Performance Committee (Committee) of the Board of Directors shall have full power and authority to interpret and administer the Plan. Such Committee shall consist of no less than three disinterested members of the Board of Directors. Paragraph 4. Participation. Within 60 days after the beginning of each year, the Committee shall nominate Participants from the officers and key employees for such year. The Committee shall also establish a target bonus for the year for each Participant expressed as a percentage of base salary. Participants shall be notified of their selection and their target bonus as soon as practicable. Paragraph 5. Determination of Performance Objectives. Within 60 days after the beginning of each year, the Committee shall establish target, minimum, and maximum performance objectives for the Company and for its operating subsidiaries and shall determine the manner in which the target bonus is allocated among the performance objectives. The Committee shall also recommend a dollar maximum for payments to Participants for any Plan year. The Board of Directors shall take action concerning the recommended dollar maximum within 60 days after the beginning of the Plan year. Participants shall be notified of the performance objectives as soon as practicable once such objectives have been established. Paragraph 6. Determination and Distribution of Awards. As soon as practicable, but in no event more than 90 days after the close of each year during which the Plan is in effect, the Committee shall compute incentive awards for eligible participants in such amounts as the members deem fair and equitable, giving consideration to the degree to which the Participant's performance has contributed to the performance of the Company and its affiliated companies and using the target bonuses and performance objectives previously specified. Aggregate awards calculated under the Plan shall not exceed the maximum limits approved by the Board of Directors for the year involved. To be eligible to receive a payment, the Participant must be actively employed by the Company or an affiliate as of the date of distribution except as provided in Paragraph 8. Beginning with the 1995 plan year, an assessment of individual performance will be formally included in determining the bonus awarded to any eligible Participant. Eligible Participants are only entitled to receive 80 percent of the bonus amounts calculated on the basis of performance objectives The remaining 20 percent of such bonus amounts will be aggregated together in a pool and be available for allocation among such Participants on the basis of their individual performance. Amounts shall be paid (less appropriate withholding taxes and FICA deductions) according to the following schedule: Award Distribution Schedule Percent of Award Date Initial Award 75% As soon as possible after (First Year of initial award is Participation) determined 25 One year after initial award is determined 100% Subsequent Awards 50% As soon as possible after award is determined 25 One year after award is determined 25 Two years after award is determined 100% Paragraph 7. Restricted Stock in Lieu of Cash. For 1992 and subsequent years, participants who have a target bonus of $10,000 or higher shall be paid all deferred portions of such bonus with restricted shares of the Company's common stock under the Company's Long-Term Stock Incentive Plan. Such stock shall be granted to the participant when the initial award is determined, but shall vest free of restrictions according to the schedule specified above in Paragraph 6. Paragraph 8. Termination of Employment. (a) In the event a Participant ceases to be an employee during a year by reason of death, disability or approved retirement, an award, if any, determined in accordance with Paragraph 6 for the year of such event, shall be reduced to reflect partial participation by multiplying the award by a fraction equal to the months of participation during the applicable year through the date of termination rounded up to whole months divided by 12. For the purpose of this Plan, approved retirement shall mean any termination of service on or after age 60, or, with approval of the Board of Directors, early retirement under the Company's qualified retirement plan. For the purpose of this Plan, disability shall mean any termination of service that results in payments under the Company's long-term disability plan. The entire amount of any award that is determined after the death of a Participant shall be paid in accordance with the terms of Paragraph 11. In the event of termination of employment due to disability or approved retirement, a Participant shall be paid the undistributed portion of any prior awards in his final paycheck or in accordance with the terms of elections to voluntarily defer receipt of awards earned prior to February 12, 1991, or deferred under the terms of the Company's Deferred Compensation Plan. In the event of termination due to disability or approved retirement, any shares of common stock previously credited to a Participant shall be distributed free of restrictions as of the final date of employment. The current market value (defined as the closing price for the stock on the New York Stock Exchange on the date in question) of such shares shall be included in the Participant's final paycheck. Such Participant shall be paid the full amount of any award (adjusted for partial participation) declared subsequent to the date of such termination within 30 days of the date of declaration. Any partial payments shall be made in cash. (b) In the event a Participant ceases to be an employee during a year by reason of a change of control, he shall be entitled to receive all amounts deferred by him prior to February 12, 1991, or under the terms of the Company's Deferred Compensation Plan, and all undistributed portions for prior Plan years. He shall also be entitled to an award for the year of such event as if he had been an employee throughout such year. The entire amount of any award for such year shall be paid in a lump sum within 60 days after the end of the year in question. Such amounts shall be paid in cash. For the purpose of this Plan, a "change of control" shall be defined as (i) any person (as such term is used in Sections 13(d) and 14(d) of the Act is or becomes the beneficial owner (as such term is used in Rule 13d-3 under the Act) of securities of the Company representing 20% or more of the combined voting power of the Company, or (ii) the stockholders of the Company approve (A) a plan of merger or consolidation of the Company (unless, immediately following consummation of such merger or consolidation, the persons who held the Company's voting securities immediately prior to consummation thereof will hold at least a majority of the total voting power of the surviving or new company), or (B) a sale or disposition of all or substantially all assets of the Company, or (C) plan of liquidation or dissolution of the Company. A change of control shall also include any act or event that, with the passage of time, would result in a Distribution Date, within the meaning of the Rights Agreement dated as of March 14, 1986, and as amended on May 16, 1989, between the Company and Morgan Guaranty Trust Company of New York. Paragraph 9. Interest on Previously Deferred Amounts. Amounts voluntarily deferred prior to February 12, 1991, shall be credited with interest from the date the payment was first available in cash to the date of actual payment. Such interest shall be calculated at a monthly rate using the typical rates paid by major banks on new issues of negotiable Certificates of Deposit in the amounts of $1,000,000 or more for one year as quoted in The Wall Street Journal on the first day of the relevant calendar month or the next preceding business day if the first day of the month is a non-business day. Paragraph 10. Coordination with Deferred Compensation Plan. Some Participants are entitled to defer the receipt of their cash bonuses under the terms of the Questar Corporation's Deferred Compensation Plan, which became effective November 1, 1993. Any cash bonuses deferred pursuant to the Deferred Compensation Plan shall be accounted for and distributed according to the terms of such plan and the choices made by the Participant. Paragraph 11. Death and Beneficiary Designation. In the event of the death of a Participant, any undistributed portions of prior awards shall become payable. Amounts previously deferred by the Participant, together with credited interest to the date of death, shall also become payable. Each Participant shall designate a beneficiary to receive any amounts that become payable after death under this Paragraph or Paragraph 8. In the event that no valid beneficiary designation exists at death, all amounts due shall be paid as a lump sum to the estate of the Participant. Any shares of restricted stock previously credited to the Participant shall be distributed to the Participant's beneficiary or, in the absence of a valid beneficiary designation, to the Participant's estate, at the same time any cash is paid. Paragraph 12. Amendment of Plan. The Company's Board of Directors, at any time, may amend, modify, suspend, or terminate the Plan, but such action shall not affect the awards and the payment of such awards for any prior years. The Company's Board of Directors cannot terminate the Plan in any year in which a change of control has occurred without the written consent of the Participants. The Plan shall be deemed suspended for any year for which the Board of Directors has not fixed a maximum dollar amount available for award. Paragraph 13. Nonassignability. No right or interest of any Participant under this Plan shall be assignable or transferable in whole or in part, either directly or by operation of law or otherwise, including, but not by way of limitation, execution, levy, garnishment, attachment, pledge, bankruptcy, or in any other manner, and no right or interest of any Participant under the Plan shall be liable for, or subject to, any obligation or liability of such Participant. Any assignment, transfer, or other act in violation of this provision shall be void. Paragraph 14. Effective Date of the Plan. The Plan shall be effective with respect to the fiscal year beginning January 1, 1984, and shall remain in effect until it is suspended or terminated as provided by Paragraph 12. EX-10.8 3 EXHIBIT - 10.8 QUESTAR PIPELINE COMPANY DEFERRED COMPENSATION PLAN FOR DIRECTORS (As Amended and Restated April 30, 1991) 1. Purpose of Plan. The purpose of the Deferred Compensation Plan for Directors ("Plan") is to provide Directors of Questar Pipeline Company (the "Company") with an opportunity to defer compensation paid to them for their services as Directors of the Company and to maintain a Deferred Account Balance until they cease to serve as Directors of the Company or its affiliates. 2. Eligibility. Subject to the conditions specified in this Plan or otherwise set by the Company's Board of Directors, all voting Directors of the Company who receive compensation for their service as Directors are eligible to participate in the Plan. Eligible Directors are referred to as "Directors." Directors who elect to defer receipt of fees or who have account balances are referred to as "Participants" in this Plan. 3. Administration. The Company's Board of Directors shall administer the Plan and shall have full authority to make such rules and regulations deemed necessary or desirable to administer the Plan and to interpret its provisions. 4. Election to Defer Compensation. (a) Time of Election. A Director can elect to defer future compensation or to change the nature of his election for future compensation by submitting a notice prior to the beginning of the calendar year. A newly elected Director is entitled to make a choice within five days of the date of his election or appointment to serve as a Director to defer payment of compensation for future service. An election shall continue in effect until the termination of the Participant's service as a Director or until the end of the calendar year during which the Director serves written notice of the discontinuance of his election. All notices of election, change of election, or discontinuance of election shall be made on forms prepared by the Corporate Secretary and shall be dated, signed, and filed with the Corporate Secretary. A notice of change of election or discontinuance of election shall operate prospectively from the beginning of the calendar year, but any compensation deferred shall continue to be held and shall be paid in accordance with the notice of election under which it was withheld. (b) Amount of Deferral. A Participant may elect to defer receipt of all or a specified portion of the compensation payable to him for serving as a Director and attending Board and Committee Meetings as a Director. For purposes of this Plan, compensation does not include any funds paid to a Director to reimburse him for expenses. (c) Period of Deferral. When making an election to defer all or a specified percentage of his compensation, a Participant shall elect to receive the deferred compensation in a lump sum payment within 45 days following the end of his service as a Director or in a number of annual installments (not to exceed four), the first of which would be payable within 45 days following the end of his service as a Director with each subsequent payment payable one year thereafter. Under an installment payout, the Participant's first installment shall be equal to a fraction of the balance in his Deferred Compensation Account as of the last day of the calendar month preceding such payment, the numerator of which is one and the denominator of which is the total number of installments selected. The amount of each subsequent payment shall be a fraction of the balance in the Participant's Account as of the last day of the calendar month preceding each subsequent payment, the numerator of which is one and the denominator of which is the total number of installments elected minus the number of installments previously paid. The term "balance," as used herein, refers to the amount credited to a Participant's Account or to the Fair Market Value (as defined in Section 5 (a)) of the Phantom Shares of Questar Corporation's common stock ("Common Stock") credited to his Account. (d) Phantom Stock Option and Certificates of Deposit Option. When making an election to defer all or a specified percentage of his compensation, a Participant shall choose between two methods of determining earnings on the deferred compensation. He may choose to have such earnings calculated as if the deferred compensation had been invested in Common Stock at the Fair Market Value (as defined in Section 5 (a)) of such stock as of the date such compensation amount would have otherwise been payable to him ("Phantom Stock Option"). Or he may choose to have earnings calculated as if the deferred compensation had been invested in negotiable certificates of deposit at the time such compensation would otherwise be payable to him ("Certificates of Deposit Option"). The Participant must choose between the two options for all of the compensation he elects to defer in any given year. He may change the option for future compensation by filing the appropriate notice with the Corporate Secretary before the first day of each calendar year, but such change shall not affect the method of determining earnings for any compensation deferred in a prior year. 5. Deferred Compensation Account. A Deferred Compensation Account ("Account") shall be established for each Participant. (a) Phantom Stock Option Account. If a Participant elects the Phantom Stock Option, his Account will include the number of shares and partial shares of Common Stock (to four decimals) that could have been purchased on the date such compensation would have otherwise been payable to him. The purchase price for such stock is the Fair Market Value of such stock, i.e., the closing price of such stock as reported on the Composite Tape of the New York Stock Exchange for such date or the next preceding day on which sales took place if no sales occurred on the actual payable date. The Participant's Account shall also include the dividends that would have become payable during the deferral period if actual purchases of Common Stock had been made, with such dividends treated as if invested in Common Stock as of the payable date for such dividends. (b) Certificates of Deposit Option Account. If a Participant elects the Certificates of Deposit Option, his Account will be credited with any compensation deferred by the Participant at the time such compensation would otherwise be payable and with interest calculated at a monthly rate using the typical rates paid by major banks on new issues of negotiable Certificates of Deposit on amounts of $1,000,000 or more for one year as quoted in The Wall Street Journal under "Money Rates" on the first day of the relevant calendar month or the next preceding business day if the first day of the month is a non-business day. The interest credited to each Account shall be based on the amount held in the Account at the beginning of each particular month. 6. Statement of Deferred Compensation Account. Within 45 days after the end of the calendar year, a statement will be sent to each Participant listing the balance in his Account as of the end of the year. 7. Retirement Upon retirement or resignation as a Director from the Board of Directors, a Participant shall receive payment of the balance in his Account in accordance with the terms of his prior instructions and the terms of the Plan unless he is still serving as a voting director of Questar Corporation ("Questar"). Upon retirement or resignation as a Director of Questar or upon appointment as a non-voting Senior Director of Questar, a Participant shall receive payment of the balance in his Account in accordance with the terms of his prior instructions and the terms of the Plan unless he is currently serving as a Director of the Company. 8. Payment of Deferred Compensation. (a) Phantom Stock Option. The amount payable to the Participant choosing the Phantom Stock Option shall be the cash equivalent of the stock using the Fair Market Value of such stock on the date of withdrawal. (b) Certificates of Deposit Option. The amount payable to the Participant choosing the Certificate of Deposit Option shall include the interest on all sums credited to the Account, with such interest credited to the date of withdrawal. (c) The date of withdrawal for both the Phantom Stock Option Account and the Certificates of Deposit Option Account shall be the last day of the calendar month preceding payment or if payment is made because of death, the date of death. (d) The payment shall be made in the manner (lump sum or installment) chosen by the Participant. In the event of a Participant's death, payment shall be made within 45 days of the Participant's death to the beneficiary designated by the Participant or, in the absence of such designation, to the Participant's estate. 9. Hardship Withdrawal. Upon petition to and approval by the Company's Board of Directors, a Participant may withdraw all or a portion of the balance in his Account in the case of financial hardship in the nature of an emergency, provided that the amount of such withdrawal cannot exceed the amount reasonable necessary to meet the financial hardship. The Board of Directors shall have sole discretion to determine the circumstances under which such withdrawals are permitted. 10. Amendment and Termination of Plan The Plan may be amended, modified or terminated by the Company's Board of Directors. No amendment, modification, or termination shall adversely affect a Participant's rights with respect to amounts accrued in his Account. In the event that the Plan is terminated, the Board has the right to make lump sum payments of all Account balances on such date as it may determine. 11. Nonassignability of Plan. The right of a Participant to receive any unpaid portion of his Account shall not be assigned, transferred, pledged or encumbered or be subject in any manner to alienation or attachment. 12. No Creation of Rights. Nothing in this Plan shall confer upon any Participant the right to continue as a Director. The right of a Participant to receive any unpaid portion of his Account shall be an unsecured claim against the general assets and will be subordinated to the general obligations of the Company. 13. Effective Date. The Plan was effective on September 1, 1982, and shall remain in effect until it is discontinued by action of the Company's Board of Directors. The effective date of the amendment to the Plan establishing a Phantom Stock Option is January 1, 1983. The effective date of the amended and restated Plan is April 30, 1991. EX-10.9 4 EXHIBIT - 10.9 GAS GATHERING AGREEMENT This Agreement is entered into on this 11th day of October 1993, between Mountain Fuel Supply Company (Mountain Fuel), 180 East First South Street, Salt Lake City, Utah 84111, and Questar Pipeline Company (Questar), 79 South State Street, Salt Lake City, Utah 84111. Mountain Fuel and Questar are collectively referred to as the Parties. The Parties represent that: On October 14, 1982, Mountain Fuel, Wexpro Company, the Utah Divi- sion of Public Utilities, the Utah Committee of Consumer Services and the Staff of the Public Service Commission of Wyoming entered into an agree- ment (the Wexpro Agreement) that provides for the operation and develop- ment of certain oil-and-gas properties previously owned by Mountain Fuel and Wexpro Company. Pursuant to the provisions of the Wexpro Agreement, Mountain Fuel owns or has the right to purchase certain supplies of natural gas that are produced by Wexpro Company. Mountain Fuel requires that certain of this Wexpro Agreement produc- tion be gathered and transported from points at which it is made available or produced to Mountain Fuel's retail distribution facilities. Questar currently provides gas-gathering services for Mountain Fuel for certain Wexpro Agreement gas in part pursuant to a Gas Gathering Agreement, dated July 1, 1984. Up through August 31, 1993, Mountain Fuel purchased gas from Questar under Questar's FERC firm sales Rate Schedule CD-1. This service incorpo- rated, among other things, the field gathering of certain gas supplies by Questar that were necessary to support firm sales service to Mountain Fuel. In partial support of its contractual obligation to provide CD-1 sales service, Questar has built or acquired, and maintains and operates, a gathering system that is contiguous to its interstate transmission system. Pursuant to Questar's FERC gas tariff, firm sales service was pro- vided to Mountain Fuel under two Rate Schedule CD-1 service agreements executed by Mountain Fuel and Questar on March 1, 1991, and amended as of December 1, 1992, with a primary term that was to expire on June 30, 1999. Pursuant to Federal Energy Regulatory Commission (FERC) Order No. 636 and related FERC orders, Questar submitted a comprehensive restructur- ing of its transportation, storage and gathering operations in FERC Docket No. RS92-9. Under the restructuring, approved by the FERC in Docket No. RS92-9, Questar has (a) restructured its various services, and (b) termi- nated its sales function by assigning to Mountain Fuel all the gas pur- chase agreements that supported Rate Schedule CD-1 sales service. 64 FERC 61,157 (Aug. 2, 1993). As a result of Questar's restructuring, described above, Mountain Fuel requires gathering services to transport gas purchased by Mountain Fuel from its purchase points to points on Questar's transmission system. Pursuant to the Docket No. RS92-9 restructuring, Questar transports Mountain Fuel's gas on its transmission system under its FERC Gas Tariff. Questar and Mountain Fuel wish to enter into a new agreement, under which Questar will gather designated Wexpro Agreement gas and Mountain Fuel-purchased gas, including certain gas that formerly supported the Rate Schedule CD-1 sales service. This Agreement is intended to replace the July 1, 1984, Gas Gathering Agreement and the gathering services formerly provided under Rate Schedule CD-1. Therefore, the Parties agree as follows: Article I Dedication Except as limited in I(b) and I(d), the following categories of gas are dedicated under this Agreement, up to a combined maximum daily quantity (MDQ) of 322,812 Dth: gas purchased by or produced for Mountain Fuel pursuant to the Wexpro Agreement, and gas purchased by Mountain Fuel at the wellhead or any other point on or near Questar's gathering system that is upstream from the interstate transmission system into which the gas will be delivered for Mountain Fuel's account. The Parties acknowledge that Questar does not provide exclusive service to Mountain Fuel in certain fields. Excluded from dedication under this Agreement, at Mountain Fuel's discretion, is gas from (i) wells, producing at the initial effective date [defined in IV(a)] and gathered exclusively through facilities not owned by Questar, or (ii) wells completed in the future that would require reimbursement when evalu- ated under the criteria described in III(c) of this Agreement. Subject to the physical and contractual limitations of Questar's system, Mountain Fuel may adjust its MDQ to reflect its anticipated 12- month service requirement upon at least 180 days' advanced written notice to Questar to be effective the next September 1. Any reduction under this provision will be effective no sooner than September 1, 1997. After August 31, 1997, gas produced for or purchased by Mountain Fuel under the Wexpro Agreement will remain subject to the terms of this Agreement. In addition, any gas being purchased by Mountain Fuel from a third party and dedicated to this Agreement under I(a)(2) on August 31, 1997, may, at Mountain Fuel's option, continue to be dedicated under this Agreement from year to year (September 1 through August 31) until Mountain Fuel's underlying gas-purchase agreement expires or until Mountain Fuel, on 180 days' prior written notice, terminates dedication on the next August 31. The MDQ for use under this Agreement shall be accordingly modified to reflect the demonstrated deliverability of Wexpro Agreement gas and such third-party purchases. Article II Gathering Service, Receipts and Deliveries Questar shall gather up to the MDQ of 322,812 Dth/day of gas dedi- cated under this Agreement on a firm basis for delivery for Mountain Fuel's account into Questar's transmission system or the pipelines of others connected to Questar's gathering facilities. The gathering service shall include essential wellhead gas condi- tioning, collection and measurement through Questar's gathering laterals, and field compression to enable delivery into connected pipelines. At the request of Mountain Fuel, Questar shall install all necessary facilities to connect any new well to Questar's then-existing gathering system. If requested, Questar shall provide an estimate of the costs to connect any new well under this Agreement. Reimbursement of Questar's costs, if any, shall be determined under III(c). A new well is one that was not identified on Appendix A on the initial effective date. Except when prevented by a force majeure event, Questar shall connect each new well from which gas is to be gathered under this Agreement within 30 days of the later of: Authorization from Mountain Fuel to connect the well, or Receipt of all rights of way, permits and necessary authoriza- tions. Mountain Fuel shall be permitted to change or add new receipt and delivery points, within its MDQ, upon 10 days' advance written notifica- tion to Questar, subject to available capacity at the desired points. Questar shall receive gas from Mountain Fuel at the receipt points listed on Appendix A. So long as Mountain Fuel does not exceed the MDQ under II(a), Moun- tain Fuel may use any gathering receipt or delivery point on an interruptible basis at any time. Mountain Fuel shall tender gas at pressures sufficient for delivery into Questar's facilities against the existing pressures, but not exceed- ing the maximum allowable operating pressures (MAOPs) of Questar's facili- ties. Questar shall deliver equivalent quantities of gas for Mountain Fuel's account, less fuel and lost-and-unaccounted-for gas under 6 of the General Terms and Conditions of this Agreement. Delivery for Mountain Fuel's account by Questar shall take place at the delivery points listed on Appendix A. Questar shall deliver these volumes of gas at the existing pressures, but not exceeding the MAOP in Questar's facilities at the delivery points. Article III Gathering Charges, Reimbursements and Credits Gathering Rates. Through August 31, 1995. From the initial effective date of this Agreement until August 31, 1995, rates for gathering services and their derivation are set forth in Appendix B and were calculated on the basis of: The annual cost of service assigned to Questar's gathering function for calendar year 1992, as ad- justed to establish rates in FERC Docket No. RS92- 9, and reduced by $2.5 million, which is represen- tative of the value of gathering service rendered by Questar to third parties. An assignment of 60% of the resultant annual gath- ering cost of service to reservation charges and 40% to usage charges. Billing determinants. Reservation charges: 322,812 Dth/day. Usage charges: 30,336,677 Dth (annual). September 1, 1995 - August 31, 1997. For the period from September 1, 1995, through August 31, 1997, rates will be determined by an application of the methodology shown in Appendix B and will be based on: The annual cost of service attributable to Questar's gathering function for calendar year 1994, reduced by the actual revenues received by Questar for providing gathering services to third parties during 1994, and adjusted in accordance with 1 of Appendix B. An assignment of 60% of the resultant annual gath- ering cost of service to reservation charges and 40% to usage charges. Billing determinants. Reservation charge: 322,812 Dth/day, unless adjusted under I(c). Us- age charge: the actual quantity gathered under this Agreement during calendar 1994. After August 31, 1997. From September 1, 1997, until the termination of this Agreement, rates will be redetermined each year, to be effective from September 1 through the following August 31, and will be based on: An allocated portion of the annual cost of service for the prior calendar year that is attributable to Questar's gathering function through which any gas dedicated under I(d) flows during that year, in accordance with the methodology shown in Appen- dix B. The allocation under this subparagraph shall be the ratio of the annual deliverability of the volumes dedicated and flowing under I(d) to total deliverability of volumes flowing through the same facilities. An assignment of 60% of the resultant annual gath- ering cost of service to reservation charges and 40% to usage charges. Billing determinants. Reservation charge: ac- cording to the MDQ established under I(d). Usage charge: the actual quantity gathered under this Agreement during the prior calendar year. Independent Facilities. Questar may construct new gathering facili- ties that will be operated independently of systems in operation on the initial effective date (i.e., facilities through which gas will flow that do not require the use of any part of Questar's gathering system as it existed on the initial effective date). To the extent these facilities are not operated to provide service for Mountain Fuel, the costs and revenues associated with or derived from these systems shall be excluded when determining Mountain Fuel's gathering rates under this Agreement. New Well Connection Reimbursement. For any new well to be connected to Questar's gathering system at Mountain Fuel's request under this Agree- ment that was not subject to this Agreement on the initial effective date, Mountain Fuel shall reimburse Questar according to the formula set forth in Appendix C of this Agreement. Article IV Effective Date and Term For all purposes in this Agreement, the initial effective date is September 1, 1993, the date of implementation of Questar's restructuring in FERC Docket No. RS92-9. This Agreement will become effective on the initial effective date and will remain in full force and effect so long as Mountain Fuel is producing or purchasing gas pursuant to the Wexpro Agreement. Upon termination of this Agreement, deliveries and receipts shall continue for as long as necessary to eliminate any imbalance in quantities of gas owed by either Party to the other. Article V 1984 Gas Gathering Agreement Upon implementation of the terms of this Agreement on the initial effective date, the July 1, 1984, Gas Gathering Agreement shall be termi- nated and superseded by this Agreement. Article VI Government Authorization The Parties shall cooperate to obtain any necessary governmental authorization to implement this Agreement. To the extent that a govern- mental agency with jurisdiction over the rates, facilities or services addressed by this Agreement imposes terms or conditions on this Agreement that materially alter the rights or obligations of either party, this Agreement may be terminated or rescinded, as appropriate, by either party upon 15 days' written notice to the other party. The Parties have entered into this Agreement with the expectation that the facilities, services and rates that are the subject of this Agreement do not come within the jurisdiction of the FERC. The Parties may, however, seek FERC approval of all or part of the Agreement to expe- dite its implementation. Any such action by the Parties will not be construed as a concession, acquiescence or waiver by either party of any legal position concerning the regulation of gathering facilities, service or rates. If the rates for Questar's gathering services are deemed to be subject to regulation by an administrative agency that prescribes rates other than those specified in this Agreement for any period governed by this Agreement, the rates so specified shall be substituted for the rates provided for in Article III. Any substitution under this provision will apply only to the extent that, and for the period during which, the admin- istrative agency lawfully exercises rate regulation over the services. Nothing in this provision will preclude either party from exercising its termination rights under VI(a). Article VII Notices All notices required in this agreement shall be in writing and shall be considered as having been given if delivered personally, by mail or facsimile transmission to either Questar or Mountain Fuel at the designat- ed address. Normal operating instructions can be delivered by telephone or any electronic means. Notice of events of force majeure may be made by any electronic means and confirmed in writing. Monthly statements, pay- ments, and any communications will be considered as delivered when mailed to the addresses listed below or to such other address as either Party designates in writing: Questar: Mountain Fuel: Contract Administrator Vice President, Gas Supply Gathering Division Mountain Fuel Supply Company Questar Pipeline Company 141 East First South Street 79 South State Street Salt Lake City, Utah 84111 Salt Lake City, Utah 84111 This Agreement is entered into by the authorized representatives of the Parties, whose signatures appear below. Questar Pipeline Company: Mountain Fuel Supply Company: /s/ J. B. Carricaburu /s/ M. E. Benefield J. B. Carricaburu M. E. Benefield Vice President, Gas Supply Vice President, Gas Supply and Marketing Signature date: Oct. 12, 1993 Signature date: Oct. 12, 1993 General Terms and Conditions OF Gas Gathering Agreement Definitions Firm, as applied to service under this Agreement, refers to Questar's contractual obligation to render the specified service unless the obliga- tion is otherwise waived, reduced, modified or terminated by force-majeure events. Interruptible means subject to reduction, suspension or termination of the receipt or delivery of gas. Questar's gathering system refers to all facilities owned or operated by Questar for the purposes of conveying natural gas on all or a portion of its movement from the production of the gas at the wellhead to the delivery of the gas into a pipeline that provides transportation of the gas in interstate commerce, as defined under 1 of the Natural Gas Act. Questar's FERC Gas Tariff Vol. No. 1, as amended and revised from time to time, will be used to define terms that are otherwise not defined in this Agreement. Scheduling of Gas Receipts and Deliveries Scheduling. (All times are Mountain Standard or Daylight Time, as applicable.) If Mountain Fuel desires to have gas gathered on gas day one of each month, Mountain Fuel must notify Questar's nomination department no later than 10:00 a.m. three working days prior to the commencement of service. For all succeeding days of the month, Mountain Fuel shall notify Questar's nomination department no later than 10:00 a.m. each day of the quantity of natural gas it desires to have gathered from specific sources and receipt points commencing at 12:00 noon on the succeeding calendar day. By electronic means or in writing by 12:00 noon of the nomination day, Questar shall then notify Mountain Fuel of the quantity that it can re- ceive and deliver. Starting no later than 12:00 noon on the day following the calendar day of receipt of Mountain Fuel's nomination, Questar shall commence to deliver an equivalent volume of natural gas. All scheduling of deliveries of gas between Mountain Fuel and Questar shall take this scheduled timing difference into account. Upon written agreement or telephone agreement (to be confirmed in writing) between Questar and Mountain Fuel, receipts and deliveries may commence earlier than provided by this schedule. In connection with service provided to Mountain Fuel under Questar's FERC Rate Schedule NNT (no-notice service), Mountain Fuel may modify its nominations under this 2 at any time. Operating Information and Estimates. Upon request of Questar, Mountain Fuel shall from time to time submit its best estimates of the daily, monthly and annual quantities of gas it expects to be gathered, together with such other operating data as Questar may require in order to schedule its operations. Operating Requirements. Mountain Fuel shall use reasonable efforts to deliver and receive gas at uniform hourly and daily rates of flow. Mountain Fuel shall deliver gas to Questar at the receipt points at a pressure sufficient to allow the gas to enter Questar's gathering sys- tem. Questar shall not be required to compress natural gas into its system. If requested by Questar, Mountain Fuel shall provide equipment acceptable to Questar at each receipt point to prevent overpressuring Questar's system. Questar shall deliver gas at each transfer point to the receiving party at the pressure in Questar's system after required measurement, flow control or regulation. Limitations On Questar's Gathering Obligations. On any day, Questar shall not be obligated to deliver to Mountain Fuel a quantity of gas different from the equivalent volume received from Mountain Fuel during the same day, as adjusted under 6 below. For gathering service provided under this Agreement, Questar shall not be obligated to receive from or deliver to Mountain Fuel a quantity of gas in excess of the MDQ, unless Mountain Fuel has requested and Questar has agreed to provide overrun service. Warranty Mountain Fuel warrants title to and the right to deliver and use the gas shipped or committed to use under this Agreement and further warrants that the gas is free from all liens and adverse claims, including tax liens. Mountain Fuel will have the obligation to make settlements for all royalties due and payments owed to Mountain Fuel's mineral and royalty owners. Mountain Fuel agrees to indemnify Questar and save it harmless from all suits, actions, claims, debts, accounts, damages, costs, losses, liens, license fees, and expenses which arise from Mountain Fuel's owner- ship or control of the gas. Quality Questar may refuse to receive gas from Mountain Fuel if the gas does not meet the quality specifications of the party to whom the gas is to be delivered (including the interstate transmission facilities of Questar) for the following: hydrogen sulfide and other forms of sulfur; inert substances; liquids; dust, gums, gum-forming constituents, dirt, impuri- ties or other solid or liquid matter that might interfere with the mer- chantability of the gas; oxygen; or water vapor. The gas tendered to Questar at each receipt point shall contain a gross heating value of at least 950 Btu per cubic foot. The gas tendered to Questar at each receipt point shall be at a temper- ature between 35 degrees F. and 120 degrees F. If the gas tendered to Questar under this Agreement fails to meet the specifications, as described in 4.1, 4.2 and 4.3, Questar shall notify Mountain Fuel and may, at its option, refuse to accept further receipt of gas pending correction. Mountain Fuel shall indemnify Questar and hold it harmless from all suits, actions, regulatory proceedings, damages, costs, losses and expens- es (including reasonable attorney fees) arising out of the failure of the gas tendered by Mountain Fuel to conform to the quality specifications, including any injury or damage done to Questar's facilities. Acceptance of gas that does not meet quality specifications is at Questar's option. Acceptance of the gas does not constitute any waiver of Questar's right to refuse to accept similarly nonconforming gas. Measurement The volumes of gas delivered to Questar by Mountain Fuel shall be measured by Questar according to its current FERC tariff. The meters shall be installed and tested and any discrepancies in the volumes mea- sured shall be resolved according to Questar's current FERC tariff. All claims of any party as to the quantity of gas tendered and deliv- ered must be submitted in writing by the party within 180 days from the date of commencement of the claimed discrepancy. Either party may, at its option and expense, install and operate check measuring equipment, provided that the equipment is installed in a way that does not interfere with the operations of the other party. However, measurement of gas for the purpose of this Agreement shall be measured under 5.1. Either party's check meters will be subject at all reasonable times to inspection and examination by a representative of the other party, but the reading, calibration, adjustment, and changing of charts will be done only by the party installing the check meters. Each party shall, upon request, furnish to the other party at the earliest possible time all charts upon which it has based any statement. Each party shall return to the other party all charts after a 30-day period. Each party shall have access to the other party's records and books at all reasonable business hours so far as they affect measurement and settlement for the gas received or delivered. Questar shall integrate the charts and data obtained by the metering and measurement of the gas gathered under this Agreement. Upon written request, Questar shall furnish Mountain Fuel copies of measurement charts used in compiling any monthly statements. Mountain Fuel may compute the volume of gas from Questar's charts and data. If Mountain Fuel's computa- tion of the volume of gas varies from Questar's computation by less than the greater of 2% or 50 Dth, Questar's computation will be deemed correct. If Mountain Fuel's computation differs from Questar's by more than the greater of 2% or 50 Dth, then Questar shall reintegrate and redetermine the volume of gas purchased. If Questar's second computation varies from Mountain Fuel's computation by less than the greater of 2% or 50 Dth, Mountain Fuel's computation will be deemed correct. However, if Questar's second computation still varies from Mountain Fuel's computation by more than the greater of 2% or 50 Dth, then Questar's initial computation will be deemed correct. Fuel Gas Reimbursement Fuel Reimbursement. For all gas tendered by Mountain Fuel under this Agreement, Mountain Fuel shall reimburse Questar with gas provided in-kind for: The actual fuel used to treat or condition the gas to permit compliance with any quality requirements under 4 and compressor fuel required to effect receipt or delivery of the gas, and Mountain Fuel's proportionate share of lost-and-unaccounted- for gas on Questar's gathering system. Nomination Adjustment. Mountain Fuel's total nominations into Questar's gathering system must include the amount of gas required to reimburse Questar for fuel use and lost-and-unaccounted-for gas. Billing and Payment Monthly Bill. On the 20th day of each month, Questar shall bill Mountain Fuel any applicable reservation charges for the current month. By the 25th day of each month, Questar shall bill Mountain Fuel usage charges for all volumes of gas gathered for delivery during the immediately previous month as well as any other applicable charges. If actual quantities are not reasonably available, Questar may use estimates of the quantity of gas gathered for Mountain Fuel in computing the amounts due. Any necessary adjustment shall be made in later billings for differ- ences between the estimated and actual quantities. Access to Billing Data. Both Parties will have the right to examine at reasonable times books, records and charts of the other to the extent necessary to verify the accuracy of any statement, charge or computation made under or pursuant to any of the provisions of such statement. Payment. Mountain Fuel shall pay Questar on or before the last day of each month or within 10 days of the date the bill is received by Mountain Fuel under this section, whichever is later. Late Payments. Should Mountain Fuel fail to make timely payment of any part of the amount of any bill, the unpaid amount will be deemed late, and Questar shall charge interest from the date payment is due until the actual date of receipt of payment. The interest will be compounded quarterly until paid. Interest will be calculated at the rate prescribed for the applica- ble period by 18 C.F.R. 154.67(c). Questar shall bill Mountain Fuel for any interest due in its next billing to Mountain Fuel, and Mountain Fuel shall pay the amount due according to this section. Questar may waive the interest on late payment made within five days of the due date. If an uncontested bill remains unpaid for 30 days or more after payment is due, Questar, in addition to any other remedy it may have, may, after giving Mountain Fuel 15 days' written notice, suspend further receipt and delivery of gas for Mountain Fuel until full payment for all service rendered to date is made. Contested Bills. Any billing or statement may be contested within 180 days from its receipt by Mountain Fuel. If Mountain Fuel (i) contests all or any part of a bill in good faith, (ii) pays to Questar the amounts it concedes to be correct, and (iii) within 30 days of a demand made by Questar furnishes a surety bond guaranteeing payment in the amount of the disputed portion of the bill, then Questar may not suspend further deliv- ery of gas unless default has occurred under the conditions of the bond. No payment by Mountain Fuel of the amount of a disputed bill will preju- dice its right to claim an adjustment of the disputed bill. Mountain Fuel shall pay interest on disputed portions of a bill for which it has with- held payment, and which ultimately are found due. Billing Errors. If an error is discovered in the amount of any bill, the error shall be adjusted within 30 days of the determination that an adjustment is required, provided that the claim for adjustment will have been made within 180 days from the date of the bill. If it is determined that Mountain Fuel has been overcharged and has paid the statement con- taining the overcharge, then, within 30 days after the final determina- tion, Questar shall refund the amount overcharged with interest. If it is determined that Mountain Fuel has been undercharged, Mountain Fuel shall pay the amount undercharged with interest. The rate of any interest to be paid by either party under this provision will be governed by 18 C.F.R. 154.67(c). In the event that any portion of a statement is in dispute, payment of the disputed portion will not be deemed a waiver of the right to contest such disputed portion in any forum having jurisdiction. Liability Each party assumes full responsibility and liability arising from the operation of the facilities it owns and agrees to hold the other party harmless from any liability whatever arising from the owning party's installation, ownership or operation of its facilities. Force Majeure Definition. The term force majeure as employed in this agreement will mean acts of God, strikes, lockouts or other labor or industrial distur- bances, acts of the public enemy, wars, blockades, insurrections, riots, epidemics, landslides, lightning, earthquakes, fires, tornadoes, severe weather, storms floods, washouts, arrest and restraint from rulers of people, necessity for compliance with any court order, law ordinance or regulations promulgated by a governmental authority having jurisdiction, civil disturbances, explosions, breakage or accident to machinery, instru- mentation, or lines of pipe, sudden partial or sudden entire failure of wells, freezing of wells or pipelines, inability to secure right-of-way, materials, supplies or labor, including inability or failure to obtain materials and supplies due to governmental regulations, and causes of like or different kind, whether enumerated in this agreement or not, and not within the control of the party claiming force majeure, and which by the exercise of due diligence such party is unable to overcome. Notice. If either party is rendered wholly or partially unable to carry out its obligations under this Agreement due to force majeure, the party shall give written notice describing the event of force majeure as soon as is reasonably possible after the occurrence. The obligations of the Parties, other than to make payments of amounts due so far as they are affected by such force majeure, will be suspended during the continuance of the event of force majeure, but for no longer period. The affected party shall remedy the event of force majeure in a commercially reasonable manner. Nothing in this Agreement shall be construed to require either party to settle a strike or labor dispute againstits better judgment. Assignment All rights and duties under this Agreement shall inure to and be bind- ing upon the successors and assignees of the Parties. No conveyance or transfer of any interest of either party, except a transfer to an affili- ate, will be binding upon the other party until the other party has been furnished with notice and a true copy of the conveyance or transfer. The successor or assignee agrees in writing to be bound by all the terms and conditions of the agreement and that the successor or assignee assumes all the obligations under this Agreement. Miscellaneous A waiver by either party of any one or more defaults by the other party shall not operate as a waiver of any future default. This Agreement, including any appendices and these General Terms and Conditions, contains the entire understanding of the Parties and may only be amended by an instrument in writing signed by the Parties. In interpreting this Agreement, the recitals will be considered as part of this Agreement and not as surplusage. This Agreement shall be construed under the laws of Utah. EX-22 5 EXHIBIT - 22 SUBSIDIARY INFORMATION Registrant Questar Pipeline Company has two subsidiaries, Questar TransColorado, Inc., and Questar Gas Management Company, both of which are Utah corporations. Questar Pipeline Company and Universal Resources Corporation, an affiliate, each have a 50 percent ownership position in Questar WMC Corporation, a Utah corporation. EX-25 6 EXHIBIT - 25 POWER OF ATTORNEY We, the undersigned directors of Questar Pipeline Company, hereby severally constitute A. J. Marushack and W. F. Edwards, 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 1994 and any and all amendments to be filed with the Securities and Exchange Commission by Questar Pipeline 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 1994 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 2-14-95 R. D. Cash /s/ A. J. Marushack President & Chief 2-14-95 A. J. Marushack Executive Officer /s/ W. F. Edwards Director 2-14-95 W. F. Edwards /s/ U. E. Garrison Director 2-14-95 U. E. Garrison /s/ Neal A. Maxwell Director 2-14-95 Neal A. Maxwell /s/ Mary Mead Director 2-14-95 Mary Mead EX-27 7
5 This schedule contains summarized financial information extracted from the Questar Pipeline Company Statements of Income and Balance Sheet for the period ended December 31, 1994, and is qualified in its entirety by reference to such audited financial statements. 1,000 YEAR DEC-31-1994 JAN-01-1994 DEC-31-1994 1,448 0 16,316 0 2,583 23,156 615,313 203,008 455,043 27,905 134,506 6,551 0 0 212,406 455,043 0 115,608 0 42,778 19,952 0 13,107 38,876 13,047 25,829 0 0 0 25,829 0 0