Questar Corporation
Filed 3/26/01
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2000 OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR
THE TRANSITION PERIOD FROM _____ TO _____.
Commission File No. 1-8796
QUESTAR CORPORATION
(Exact name of registrant as specified in its charter)
State of Utah 87-0407509
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
180 East 100 South, P.O. Box 45433, Salt Lake City, Utah 84145-0433
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (801) 324-5000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange on
Title of each class which registered
Common Stock, Without Par Value, with New York Stock Exchange
Common Stock Purchase Rights
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will
not be contained, to the best of registrants' knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. x
The aggregate market value of the registrant's common stock, without par value, held by nonaffiliates on March 1, 2001, was
$2,167,204,320 (based on the closing price of such stock).
On March 1, 2001, 80,647,952 shares of the registrant's common stock, without par value, were outstanding.
Documents Incorporated by Reference. Portions of the definitive Proxy Statement for the 2001 Annual Meeting of Stockholders
are incorporated by reference into Part III. The sections of the Proxy Statement labelled "Committee Report on Executive
Compensation" and "Cumulative Total Shareholder Return" are expressly not incorporated into this document.
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PART I
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PART II
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PART III
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PART IV
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FINANCIAL STATEMENTS
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TABLE OF CONTENTS
Heading Page
PART I
Items 1.
and 2. BUSINESS AND PROPERTIES . . . . . . . . . . . . . . . . . 1
General. . . . . . . . . . . . . . . . . . . . . . . . . 1
Market Resources, General. . . . . . . . . . . . . . . . 3
Market Resources, Exploration and Production . . . . . . 3
Market Resources, Gathering and Processing . . . . . . . 6
Market Resources, Wholesale Marketing. . . . . . . . . . 7
Market Resources, Regulation . . . . . . . . . . . . . . 8
Market Resources, Competition and Customers. . . . . . . 9
Regulated Services, Introduction . . . . . . . . . . . . 9
Regulated Services, Retail Distribution. . . . . . . . . 9
Regulated Services, Transmission and Storage . . . . . .14
Regulated Services, Other Services . . . . . . . . . . .18
Other Operations . . . . . . . . . . . . . . . . . . . .18
Employees. . . . . . . . . . . . . . . . . . . . . . . .19
Environmental Matters. . . . . . . . . . . . . . . . . .20
Research and Development . . . . . . . . . . . . . . . .20
Oil and Gas Operations . . . . . . . . . . . . . . . . .20
Item 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . .22
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS. . . . . . . . . . . . . . . . . . . . .24
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . .24
Item 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . .25
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATION . . . . . . . . . . . . . . . . . . . . . . . .26
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK. . . . . . . . . . . . . . . . . . . . . . . . . . .37
Item 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA. . . . . . . . . . . . . . . . . . . .40
Item 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE. . . . . . . . . . . . . . . . . . .40
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT . . . . . . . . . . . . . . . . . . . .40
Item 11. EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . .41
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT . . . . . . . . . . . . . . . . . .42
Item 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . .42
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . .42
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . .81
FORM 10-K
ANNUAL REPORT, 2000
PART I
ITEMS 1. AND 2. BUSINESS AND PROPERTIES.
General
Registrant Questar Corporation ("Questar" or "the Company") is a diversified energy services holding company that is involved in
the full spectrum of natural gas activities through two divisions Market Resources and Regulated Services. Market Resources
engages in energy development and production; gas gathering and processing; and wholesale gas, electricity and hydrocarbon
liquids marketing and trading. Regulated Services conducts interstate gas transmission and storage activities and retail gas
distribution services. The Company is also involved in information and communication systems that were built to serve its own
needs and are being expanded in size and scope to meet the needs of other customers.
Questar was organized in 1984 and became a publicly held entity when the shareholders of Questar Gas Company (then known as
Mountain Fuel Supply Company, "Questar Gas") approved a corporate reorganization. Questar was created to provide
organizational and financial flexibility and to achieve a more clearly defined separation of utility and nonutility activities. Questar is
a "holding company," as that term is defined in the Public Utility Holding Company Act of 1935, because Questar Gas is a natural
gas utility. The Company, however, qualifies for and claims an exemption from provisions of such act applicable to registered
holding companies.
As is noted in the following chart, Questar's Market Resources unit includes a subholding company, Questar Market Resources,
Inc. ("QMR"), which owns Wexpro Company ("Wexpro"), Questar Exploration and Production Company ("Questar E&P") and its
Canadian affiliates, Celsius Energy Resources Ltd. ("Celsius") and Canor Energy, Ltd. ("Canor"), Questar Gas Management
Company ("Questar Gas Management"), and Questar Energy Trading Company ("Questar Energy Trading"). Questar's Regulated
Services unit also includes a subholding entity--Questar Regulated Services Company ("QRS")--in addition to Questar Gas,
Questar Pipeline Company ("Questar Pipeline") and Questar Energy Services, Inc. ("QES").
The Company's information and communication activities are conducted by Questar InfoComm, Inc. ("Questar InfoComm")
which, in turn, owns approximately 82 percent of Consonus, Inc. (Consonus," formerly known as Questar MetroNet Services).
QUESTAR
CORPORATION
Questar InfoComm, Inc.
(Information, Communication, and
Electronic Measurement Services)
Consonus, Inc.
(Networking, Website, and Data Security Services)
Questar Market Resources, Inc.
(Subholding Company)
Wexpro Company
(Manages and Develops Cost-of-Service Properties for Questar Gas)
Questar Exploration and Production Company, Celsius Energy Resources, Ltd., and Canor Energy, Ltd.
(Exploration and Production)
Questar Energy Trading Company
(Wholesale Marketing, Trading, Storage)
Questar Gas Management Company
(Gathering and Processing)
Questar Regulated Services Company
(Subholding Company)
Questar Gas Company
(Retail Distribution)
Questar Pipeline Company
(Transportation and Storage)
Questar Energy Services Inc.
(Retail Services)
As a diversified provider of energy services, Questar believes that its structure enhances its operating flexibility to take advantage
of the earnings growth potential of exploration and production operations, wholesale marketing, gathering and processing even as it
continues to take advantage of opportunities to expand its regulated activities through customer additions and new pipeline
projects. The Company's management is convinced that its experience in the various activities along the natural gas value
chain--production, gathering, processing, transportation, storage, distribution--enable it to develop and implement strategies for
taking advantage of opportunities associated with the growing demand for natural gas. Questar, however, is also concerned about
the increased risks associated with traditional utility operations as regulators and politicians fail to understand the need for
competitive returns and to reward efficient operators.
Questar intends to continue emphasizing the ownership of assets--reserves, pipelines, storage reservoirs, distribution systems--as it
fulfills stated objectives to enter new markets and take advantage of the convergence of natural gas and electricity. The Company
has important joint venture arrangements and will continue to pursue new alliances to strengthen its position and exploit its assets.
Financial information concerning the Company's lines of business, including information relating to the amount of total revenues
contributed by any class of similar products or services responsible for 10 percent or more of consolidated revenues, is presented
in Note 10 of the Notes to Consolidated Financial Statements under Item 14.
The Company's activities are discussed below.
Market Resources, General.
The Market Resources unit is the primary growth area within the Company. Questar expects to spend approximately 60-70
percent of its budgeted capital expenditures over the next five years on nonregulated activities, primarily to expand oil and gas
reserves through drilling and acquisitions and to enlarge an infrastructure of gathering systems, processing plants, header facilities,
and nonregulated storage facilities. The diversity of activities within the group enhances a basic strategy to pursue complementary
growth. As Questar E&P, Celsius and Canor (QMR's three exploration and production subsidiaries), for example, find and acquire
new reserves, Questar Gas Management should have more opportunities to expand gathering and processing activities, and
Questar Energy Trading should have more physical production to support its marketing programs.
Market Resources, Exploration and Production
The Company has been in the exploration and production ("E&P") business since its organization in 1935. Through the ensuing
years, the Company's E&P activities have generated substantial economic benefits for the Company and its shareholders and
customers and have expanded in size and geographic location. The year 2000 was the second consecutive banner year for the
Company's E&P operations as record production volumes and reserves were announced and the expectations for the Pinedale
Anticline area of Wyoming were validated.
Questar's E&P group includes Questar E&P and its Canadian subsidiaries Celsius and Canor. These entities form a unique E&P
group that conducts a blended program of low-cost development drilling, low-risk reserve acquisition, and high-quality exploration.
The E&P group also maintains a geographical balance and diversity, while concentrating its activities in core areas where it has
accumulated geological knowledge and has significant expertise. Core areas of activity include the Rocky Mountain region of
Wyoming and Colorado; the Midcontinent region of Oklahoma, the Texas Panhandle, East Texas, and the Upper Gulf Coast; the
Southwest region of northwestern New Mexico and southwestern Colorado; and the Western Canadian Sedimentary Basin
located primarily in Alberta, Canada.
Natural gas remains the primary focus of the Company's E&P operations. As of year-end 2000, the Company had proved
reserves (excluding Questar Gas's cost-of-service reserves) of 639.9 billion cubic feet ("Bcf") of gas and 15.0 million barrels
("MMBbls") of oil and natural gas liquids, compared to 514.5 Bcf of gas and 13.9 MMBbls of oil as of the same date in 1999.
(Any references to oil in this report include natural gas liquids.) On an energy-equivalent basis ratio of six thousand cubic feet
("Mcf") of natural gas to one barrel ("Bbl") of crude oil, natural gas comprised approximately 87.6 percent of total
non-cost-of-service proved reserves. Proved developed gas reserves constituted 76.5
percent of the total non-cost of service proved gas reserves reported. Approximately 9.4 percent of the group's proved natural gas
reserves and 24.7 percent of its proved oil reserves are located in Canada. See "Oil and Gas Operations," a separate section of
this Report, for additional information concerning the Company's oil and gas activities on a consolidated basis.
During 2000, E&P companies and Wexpro, on a combined basis, participated in 316 gross wells (94 net), compared to 235 gross
wells (93 net) in 1999. The 316 wells included 223 gas wells, 18 oil wells, 21 dry holes and 54 wells in progress (waiting on
completion or drilling) at year-end. The overall drilling success (on a net well count basis) in 2000 was 90 percent, compared to 91
percent in 1999.
Questar E&P's drilling activities occurred in four core operating areas: Midcontinent and Upper Gulf Coast, Rocky Mountains,
Pinedale Anticline in western Wyoming (separated out from the Rocky Mountain area given its key importance) and western
Canada. Questar E&P was involved in more net wells located in the Midcontinent than in the Rocky Mountains, including
Pinedale.
QMR's Pinedale activities in 2000 merit special mention. During 2000, Questar E&P and Wexpro drilled nine wells and completed
six of them in the Pinedale Anticline area of Sublette County, Wyoming. (Three of the wells will not be completed until June of
2001 when winter drilling restrictions are lifted.) Drilling results and initial production tests confirmed reserve expectations of 5-6
Bcf per well. As of December 31, 2000, the gross daily production from the 14 QMR wells in Pinedale was estimated at 26 MMcf
and 45 BBl of oil.
Questar E&P and Wexpro expect to continue drilling activities in Pinedale when government restrictions permit. On a combined
basis, they have an approximate 60 percent average working interest in 14,800 acres in the Mesa Area of the Pinedale Anticline
and expect to drill between 135-150 wells based on 80-acre spacing during the next several years.
QMR's activities in Pinedale illustrate its long-term approach. Wexpro held the leasehold acreage by production as a result of
three wells drilled in the area during the mid-1970's. Pinedale gas reserves are contained in tight sands with a low porosity.
Consequently, Questar E&P and Wexpro did not drill additional wells in the area until other companies developed new stimulation
techniques that fractured sandstone formations at multiple intervals and successfully used such techniques to drill wells in
neighboring fields. The Pinedale wells cost an average of $2.2 million to drill and complete. This cost reflects the completion depth
of the wells (12,848 to 13,300 feet), the need for special handling and multiple stimulations, and government regulations that impose
pad limitations and restrict drilling. Current production profiles suggest that the average well may produce on a long-term basis
after stabilizing between 2 and 4 MMcf per day within the first year or two after completion.
The Questar E&P group's gas production increased from 62.7 Bcf in 1999 to 69.0 Bcf in 2000. The increase in production was
attributable to reserve acquisitions and expanded development activities. Questar E&P received an average selling price of $2.80
per Mcf in 2000, compared to $2.00 per Mcf in 1999. Gas production is produced from four separate regions--the Midcontinent
area, San Juan Basin area, Rocky Mountain area, which includes the Pinedale
Anticline area, and western Canada area. Production from each of these areas is generally priced below the Henry Hub pricing
center in Louisiana, reflecting demand and access to transportation.
Although average gas prices were significantly higher in 2000 than in 1999, spot prices remained volatile. The E&P group hedges
as much as 50-60 percent of its natural gas production in order to minimize the effect of price volatility on revenues and to lock in
prices that will enable it to meet strategic objectives. Hedging activities are conducted by Questar Energy Trading.
During 2000, the E&P companies produced 2.2 MMBbls of oil, roughly equivalent to the 2.3 MMBbls in 1999. The production was
sold at an average price of $20.50 per barrel in 2000, compared to $13.92 per barrel in 1999.
The E&P group continued to generate Section 29 tax credits during 2000. These tax credits are available for production from
wells that meet specified criteria, including a requirement that drilling of the wells was commenced prior to January 1, 1993.
Properties are often referred to as "tight sands," "coal seams," or low permeability formations from which it is generally more
expensive to produce gas. During 2000, Questar E&P recorded $4.7 million in Section 29 credits, compared to $5.3 million in 1999.
The production of oil and gas is subject to regulation by appropriate federal and state agencies in the United States and by federal
and provincial agencies in Canada. In general, these regulatory agencies are authorized to make and enforce regulations to prevent
waste of oil and gas, protect the correlative rights and opportunities to produce oil and gas by owners of a common reservoir, and
protect the environment. Many leases held or operated by the E&P group are federal or Crown (Canadian) leases subject to
additional regulatory requirements. As illustrated by the actions taken by the Bureau of Land Management for Pinedale, agencies
are generally imposing more restrictions on access to leasehold acreage, thereby increasing the planning time to obtain drilling
permits and limiting the E&P group's flexibility to adapt quickly to new developments.
Questar E&P maintains regional offices in Denver, Colorado, Tulsa, Oklahoma, and Oklahoma City, Oklahoma. Canadian
operations are managed through an office in Calgary, Alberta.
Wexpro Company. Wexpro was incorporated in 1976 as a subsidiary of Questar Gas. Questar Gas's efforts to transfer producing
properties and leasehold acreage to Wexpro resulted in protracted regulatory proceedings and legal adjudications that ended with a
court-approved settlement agreement that was effective August 1, 1981.
Wexpro, unlike the members of the E&P group, does not conduct exploratory operations and does not acquire leasehold acreage
for exploration activities. It conducts oil and gas development and production activities on certain producing properties located in
the Rocky Mountain region under the terms of the settlement agreement. (The terms of the settlement agreement are described in
Note 9 of the Notes to Consolidated Financial Statements under Item 14.) Wexpro produces gas from specified properties for
Questar Gas and is reimbursed for its costs plus a return on its investment. In connection with its operations, Wexpro charges
Questar Gas for its costs plus a specified rate of return, which averaged 19.5 percent on an after-tax basis in 2000, and is adjusted
annually based on a specified formula on its net investment in such properties adjusted for working capital and deferred taxes.
At year-end 2000, Wexpro's investment (net of deferred income taxes) in cost-of-service operations was $124.8 million compared
to $108.9 million at year-end 1999. Under the terms of the settlement agreement, Wexpro bears all dry hole costs. The settlement
agreement is monitored by the Utah Division of Public Utilities, the staff of the Public Service Commission of Wyoming and
experts retained by these agencies.
The gas volumes produced by Wexpro for Questar Gas are reflected in the latter's rates at cost-of-service prices. Cost-of-service
gas (defined to include the gas attributable to royalty interest owners) produced by Wexpro satisfied 48 percent of Questar Gas's
system requirements during 2000. Questar Gas relies upon Wexpro's drilling program to develop the properties from which the
cost-of-service gas is produced. During 2000, the average wellhead cost of Questar Gas's cost-of-service gas was $1.78 per
decatherm ("Dth"), which is lower than Questar Gas's average price for field-purchased gas.
Wexpro participates in drilling activities in response to the demands of other working interest owners, to protect its rights, and to
meet the needs of Questar Gas. Wexpro, in 2000, produced 45.0 billion cubic feet equivalent ("Bcfe") of natural gas and
hydrocarbon liquids from Questar Gas's cost-of-service properties and added reserves of 71.3 Bcfe through drilling activities and
reserve estimate revisions. (These numbers do not include the related royalty gas.)
Wexpro, under the terms of the Wexpro agreement, owns oil-producing properties. The revenues from the sale of crude oil
produced from such properties are used to recover operating expenses and provide Wexpro with a return on its investment. In
addition, Wexpro receives 46 percent of any residual income. (The remaining income is received by Questar Gas and is used to
reduce natural gas costs reflected in customer rates.)
Wexpro has an ownership interest in the wells and facilities related to its oil properties and in the wells and facilities that have been
installed to develop and produce gas properties described above since August 1, 1981 (a date specified by the settlement
agreement referred to above). Wexpro maintains an office in Rock Springs, Wyoming, in addition to its principal office in Salt
Lake City, Utah.
Market Resources, Gathering and Processing
Questar Gas Management conducts gathering and processing activities in the Rocky Mountain and Midcontinent areas. Its
activities are not subject to regulation by the Federal Energy Regulatory Commission (the "FERC") because the Natural Gas Act
of 1938 specifically provides that the FERC's jurisdiction does not extend to facilities involved in the production or gathering of
natural gas. Questar Gas Management's core system and activities, however, reflect its historical connection to Questar Pipeline's
regulated activities.
Questar Gas Management was formed in 1993 as a wholly-owned subsidiary of Questar Pipeline to construct and operate the
Blacks Fork processing plant in southwestern Wyoming. It expanded in 1996 as a result of receiving Questar Pipeline's gathering
assets and activities. In mid- 1996, Questar Gas Management was moved from Regulated Services to Market Resources shortly
after the transfer of
gathering assets and acquired the processing plants that formerly belonged to Questar E&P.
Questar Gas Management's gathering system was originally built as part of a regulated enterprise. It consists of 1,284 miles of
gathering lines, compressor stations, field dehydration plants and measuring stations and was largely built to gather production from
Questar Gas's cost-of-service properties. Under a contract that was assigned when the gathering assets were transferred from
Questar Pipeline, Questar Gas Management is obligated to gather the cost-of-service production for the life of the properties.
During 2000, Questar Gas Management gathered 36.8 million decatherms ("MMDth") of natural gas for Questar Gas, compared
to 32.1 million in 1999, for which it received $8.5 million, including $4.5 million of demand charges.
Questar Gas Management continues to expand the volumes of gas gathered for affiliates within QMR and for nonaffiliated
customers. During 2000, Questar Gas Management gathered 25.0 MMDth for QMR affiliates, compared to 19.7 MMDth in 1999,
and gathered 93.0 MMDth for nonaffiliated customers, compared to 85.0 MMDth in 1999. Questar Gas Management is interested
in acquiring the existing gathering system that serves the Pinedale wells and constructing additional facilities in the area.
Questar Gas Management continues to own a 50 percent interest in the Blacks Fork processing plant, which has a daily capacity
of 84 MMcf and could be expanded. A processing plant strips liquids such as butane and ethane from natural gas volumes to
enable the producers to meet pipeline specifications for their gas volumes and to take advantage of historical price advantages for
natural gas liquids when compared to natural gas volumes. Questar Gas Management and Wexpro jointly own a processing facility
located in the Canyon Creek area of southwestern Wyoming that has an operating capacity of 43 MMcf per day. It owns interests
in other processing plants in the Rocky Mountain and Midcontinent areas.
Questar Gas Management's 2000 increase in gathering activities reflects the increased value of natural gas volumes. It also
processed more natural gas liquids during 2000 in response to their increased value, but plant volumes slowed significantly in the
last months of 2000 as natural gas became disproportionately valuable when compared to natural gas liquids.
Market Resources, Wholesale Marketing
Questar Energy Trading conducts energy marketing activities. It combines gas volumes purchased from third parties and equity
production (production that is produced by affiliates) to build a flexible and reliable portfolio. Questar Energy Trading aggregates
supplies of natural gas for delivery to large customers, including industrial users, municipalities, and other marketing entities. During
2000, Questar Energy Trading marketed a total of 100.6 MMDth of natural gas and .8 MMBbls of liquids and earned a margin of
$.095 per equivalent Dth. (The volumes and margins exclude affiliated production.)
Questar Energy Trading uses derivatives as a risk management tool to provide price protection for physical transactions involving
equity production and marketing transactions. It executed hedges for equity production on behalf of Questar E&P with a variety of
contracts for different periods of time. Questar Energy Trading does not engage in speculative hedging transactions. (See Notes 1
and 4 of the Notes to Consolidated Financial Statements included in Item 14 of this Report for additional information relating to
hedging activities.)
As a wholesale marketing entity, Questar Energy Trading concentrates on markets in the Pacific Northwest, Rocky Mountains,
Midwest, and western Canada that are close to reserves owned by affiliates or accessible by major pipelines.
Questar Energy Trading is expanding its capabilities in order to sustain its activities in an increasingly competitive environment in
which parties are becoming more sophisticated. During 2000, it, through a limited liability company, commenced operating a private
storage facility in southwestern Wyoming adjacent to several interstate pipelines.
Market Resources, Regulation
The Company's operations are subject to various levels of government controls and regulation in the United States and Canada at
the federal, state/provincial, and local levels. Such regulation includes requiring permits for the drilling of wells; maintaining bonding
requirements in order to drill or operate wells; submitting and implementing spill prevention plans; submitting notices relating to the
presence, use and release of specified contaminants incidental to oil and gas regulations; and regulating the location of wells, the
method of drilling and casing wells, surface usage and restoration of properties upon which wells have been drilled, the plugging
and abandoning of wells and the transportation of production. QMR's operations are also subject to various conservation matters,
including the regulation of the size of drilling and spacing units or proration units, the number of wells that may be drilled in a unit,
and the unitization or polling of oil and gas properties. State conservation laws establish the maximum rates of production from oil
and gas wells, generally prohibit the venting or flaring of gas and impose requirements for the ratable purchase of production.
Some of QMR's leases, including many of its leases in the Rocky Mountain area, are granted by the federal government and
administered by federal agencies. These leases require compliance with detailed regulations on such things as drilling and
operations on the leases and the calculation and payment of royalties.
Various federal, state and local environmental laws and regulations affect the Company's operations and costs. These laws and
regulations concern the generation, storage, transportation, disposal or discharge of contaminants into the environment and the
general protection of public health, natural resources, wildlife, and the environment. They also impose substantial liabilities for any
failure on the part of the Company to comply with them.
Each province in Canada and the federal government of Canada also have laws and regulations governing land tenure, royalties,
production rates and taxes, and environmental protection.
Market Resources, Competition and Customers
QMR faces competition in all aspects of its business including the acquisition of reserves and leases; obtaining goods, services, and
labor; and marketing its production. The Company's competitors include multinational energy companies and other independent
producers, many of which have greater financial resources than QMR has.
The Company's business activities can be subject to seasonal variations. Historically, the demand for natural gas decreases during
the summer months and increases during the winter months. The increasing demand for natural gas to generate electricity may
cause increased demand during the hottest months of the summer. Weather (both in terms of temperatures and moisture) can
have dramatic impacts on natural gas prices and the Company's operations.
The Company sells its natural gas production to a variety of customers including pipelines, gas marketing firms, industrial users,
and local distribution companies. QMR's crude volumes are sold to refiners, remarketers and other companies, some of which
have pipeline facilities near the producing properties. In the event pipeline facilities are not available, crude oil is trucked to storage,
refining, or pipeline facilities.
Regulated Services, Introduction
Questar's Regulated Services segment includes Questar Gas, a retail distribution utility; Questar Pipeline, an interstate pipeline;
QES, an entity engaged in retail energy services, particularly appliance financing and energy management services; and QRS, a
subholding company that provides administrative services to all these entities. All members of the Regulated Services group have
common officers and share service functions, e.g., marketing, planning, business development, engineering, compensation, legal,
regulatory affairs, accounting, and budgeting. All Regulated Services employees share base and incentive compensation programs
and are expected to work together to improve customer service and operating efficiency. The integration of the entities has
resulted in lower operating and maintenance costs and better coordination of activities and projects.
Effective October 31, 2000, 262 employees and 14 disability recipients within the Regulated Services unit retired pursuant to the
terms of a special early retirement program. This early retirement was the fourth program offered to employees of Regulated
Services within the last nine years and reflects continuing efforts to cut costs in response to competitive pressures and to reap the
benefits associated with technological improvements.
Regulated Services, Retail Distribution
Customers and Deliveries. Questar Gas distributes natural gas as a public utility in Utah, southwestern Wyoming, and a small
portion of southeastern Idaho. As of December 31, 2000, it was serving 704,629 sales and transportation customers, a 2.7 percent
increase from the 686,317 customers as of year-end 1999. (Customers are defined in terms of active meters.)
Over 96 percent of Questar Gas's customers live in Utah. Questar Gas distributes gas to customers in the major populated areas
of Utah, commonly referred to as the Wasatch Front in which
the Salt Lake metropolitan area, Provo, Ogden, and Logan are located. It also serves customers in eastern, central, and
southwestern Utah with Price, Roosevelt, Fillmore, Richfield, Cedar City, and St. George as the primary cities. Questar Gas
supplies natural gas in the southwestern Wyoming communities of Rock Springs, Green River, and Evanston, and the southeastern
Idaho community of Preston. Questar Gas has the necessary regulatory approvals granted by the Public Service Commission of
Utah ("PSCU"), the Public Service Commission of Wyoming ("PSCW"), and the Public Utilities Commission of Idaho ("PUCI") to
serve these areas. It also has long-term franchises granted by communities and counties within its service area.
Questar Gas added 18,312 customers in 2000, compared to 22,925 new customers added 1999. Utah's population is continuing to
grow faster than the national average, although the rate of increase is slowing down, and Questar Gas expects to add
17,000-20,000 customers each year for the next several years.
Questar Gas's sales to residential and commercial customers are seasonal, with a substantial portion of such sales made during the
heating season. The typical residential customer in Utah (defined as a customer using 115 Dth per year) consumes over 75
percent of his total gas requirements in the coldest six months of the year. Questar Gas's revenue forecasts used to set rates are
based on normal temperatures. As measured in degree days, temperatures in Questar Gas's service area were 4 percent warmer
than normal in 2000, which was the seventh consecutive year in which temperatures have been warmer than normal.
Questar Gas's sensitivity to weather and temperature conditions, however, has been ameliorated by a weather normalization
mechanism for its general service customers in Utah and Wyoming. The mechanism, which has been in effect since 1997, adjusts
the non-gas portion of a customer's monthly bill as the actual degree days in the billing cycle are warmer or colder than normal.
This mechanism reduces the sometimes dramatic fluctuations in any given customer's monthly bill from year to year.
During 2000, Questar Gas sold 83.4 MMDth to residential and commercial customers, compared to 82.2 MMDth in 1999. General
service sales to residential and commercial customers were responsible for 87 percent of Questar Gas's total revenues in 2000.
The increase in sales volumes reflects colder weather and increased customers. Customers are continuing to decrease their usage
on a temperature-adjusted basis as they use more efficient gas-burning appliances and respond to higher commodity prices with
conservation measures.
Questar Gas has designed its distribution system and annual gas supply plan to handle design-day demand requirements. It
periodically updates its design-day demand, which is the volume of gas that firm customers could use during extremely cold
weather. For the 2000-01 heating season, Questar Gas used a design-day demand of 999,856 Dth for firm sales customers.
Questar Gas is also obligated to have pipeline capacity, but not gas supply, for firm-transportation customers; the combined
design-day requirement for supply and transportation capacity is 1,100,700 Dth. Questar Gas's management believes that the
distribution system is adequate to meet the demands of its firm customers. During the 2000-01 winter heating season, Questar Gas
did curtail transportation capacity to some of its interruptible customers.
Questar Gas has been providing transportation service since 1986. It has worked diligently to retain its transportation customers
with cost-based rates. Transportation service is attractive to customers that can buy volumes of gas directly from producers and
have such volumes transported at aggregate prices lower than Questar Gas's sales rates.
Questar Gas's largest transportation customers, as measured by revenue contributions in 2000, are the Geneva Steel plant in
Orem, Utah; the Gadsby plant operated by Scottish Power (electric utility) in Salt Lake City; the Kennecott copper processing
operations, located in Salt Lake County; and the mineral extraction operations of Magnesium Corporation of America in Tooele
County, west of Salt Lake City. Questar Gas's total industrial deliveries, including both sales and transportation, increased from
61.5 MMDth in 1999 to 65.2 MMDth in 2000, reflecting the increased use of natural gas for electric generation.
Gas Supply. Questar Gas's competitive position has been strengthened as a result of owning natural gas producing properties.
During 2000, it satisfied 48 percent of its system requirements with the cost-of-service gas produced from such properties. These
properties are operated by Wexpro, and the gas produced from such properties is transported by Questar Pipeline. Questar Gas's
investment in these properties is included in its utility rate base.
Questar Gas had reserves of 399.7 Bcfe as of year-end 2000, compared to 373.4 Bcfe as of year-end 1999. (The reserve
numbers do not include volumes attributable to royalty interests but they do include oil reserves.) The average wellhead cost
associated with Questar Gas's cost-of-service reserves was below the cost of field-purchased gas. During 2000, Questar Gas
recorded $1.8 million in Section 29 tax credits associated with production from wells on its cost-of-service properties that qualify
for such credits. Questar Gas believes that it is important to continue owning gas reserves, producing them in a manner that will
serve the best interests of its customers, and satisfying a significant portion of its supply requirements with gas produced from
such properties.
Questar Gas uses storage capacity at Clay Basin (a base-load storage facility owned and operated by Questar Pipeline) to provide
flexibility for handling gas volumes produced from cost-of-service properties. It stores gas at Clay Basin during the summer and
withdraws it during the heating season.
Questar Gas has a balanced and diversified portfolio of gas supply contracts with suppliers located in the Rocky Mountain states
of Wyoming, Colorado, and Utah. It purchases gas on the spot market and under longer-term contracts, primarily during the winter
heating season. The contracts have market-price provisions and are either of short-term duration or renewable on an annual basis
upon agreement of the parties. Questar Gas's gas acquisition objective is to obtain reliable, diversified sources of gas supply at
competitive prices. In its latest semi-annual pass-through application, Questar Gas estimated that its average cost of purchased gas
would be $6.75 per Dth for gas delivered to the upstream pipeline, compared to the $2.61 price it was quoting a year earlier.
Competition. Questar Gas has historically enjoyed a favorable price comparison with all energy sources used by residential and
commercial customers except coal and occasionally fuel oil. This historic price advantage, together with the convenience and
handling advantages associated with natural gas, has permitted Questar Gas to retain 90-95 percent of the residential
space and water heating markets in its service area and to distribute more energy, in terms of Btu content, than any other energy
supplier to residential and commercial markets in Utah. Questar Gas has virtually 100 percent of the space heating and water
heating offered in new homes within its service area that are connected to its system.
Questar Gas is a public utility and currently has no direct competition from other distributors of natural gas for residential and
commercial customers. (The PSCW approved a "suppler choice" program for Questar Gas's Wyoming customers in 1998, but no
supplier has yet offered to provide service under the program.) Questar Gas does compete with other energy sources. It continues
to monitor its competitive position, in terms of commodity costs and efficiency of usage, with other energy sources.
Questar Gas is also interested in Utah's economic development in order to enhance market growth and is encouraging the use of
natural gas in additional appliances. Its market share for other gas appliances, e.g., ranges and dryers, has historically been less
than 30 percent, which is significantly lower than its over 90 percent market share for furnaces and water heaters. Questar Gas
continues to focus marketing efforts to develop incremental load in existing homes and new construction.
Questar Gas believes that it must maintain a competitive price advantage in order to retain its residential and commercial
customers and to build incremental load by convincing current customers to convert additional appliances to natural gas.
Consequently, Questar Gas follows an annual gas supply plan that provides for a judicious balance between cost-of-service gas
and purchased gas and that allows it to increase operating efficiency.
The Kern River pipeline, which was built to transport gas from southwestern Wyoming to Kern County, California, runs through
portions of Questar Gas's service area and provides an alternative delivery source for transportation customers. As of the date of
this report, Questar Gas has lost no industrial load as a result of the Kern River pipeline. The existence of this interstate pipeline
system has made it possible for Questar Gas to extend service into a new area in Utah and to develop a second source of supply
for its central and its southern Utah system. Questar Gas has taps on the Kern River line for the delivery of additional peak-day
supplies to meet increasing demand.
Questar Gas and other local distribution companies are faced with the challenges and opportunities posed by the unbundling and
restructuring of traditional utility services, which have been complicated by recent developments in California and other states
where partial deregulation activities have resulted in market anomalies and demands for "reregulation." At this point, it is far too
soon to predict a timetable for Questar Gas's unbundling of services to residential and commercial customers. Questar Gas will
continue to examine its costs, take advantage of technological developments, and improve its overall efficiency in order to take
advantage of opportunities in a deregulated environment.
Regulation. As a public utility, Questar Gas is subject to the jurisdiction of the PSCU and PSCW. (Questar Gas's customers in
Idaho are served under the provisions of its Utah tariff. Pursuant to a special contract between the PUCI and the PSCU, rates for
Questar Gas's Idaho customers are regulated by the PSCU.) Questar Gas's natural gas sales and transportation services are made
under rate schedules approved by the two regulatory commissions.
Questar Gas's 2000 general rate case proceedings culminated with the receipt of an "acceptable" decision from the PSCU in
August of 2000. Specifically, the PSCU granted $13.5 million in general rate relief and authorized a return on equity of 11 percent.
This dollar amount includes the $7.1 million in interim rate relief that Questar Gas was authorized to collect, subject to refund,
effective January 1, 2000. Questar Gas originally requested a general rate increase of $22.2 million and a return on equity of 12
percent in December of 1999. The decision permitted Questar Gas to collect $5 million (included in the $13.5 million) of annual
carbon dioxide processing costs that the PSCU had earlier refused to accept as part of Questar Gas's gas costs for pass-through
treatment.
Questar Gas was disappointed in the authorized return on equity it received from the PSCU, given its testimony concerning the
response of financial markets to unattractive returns and given the increased evidence that utilities cannot earn their allowed
returns when they are growing their customer base faster than the national average. It is authorized to earn a return on equity of
11.83 percent in Wyoming.
Questar Gas has consistently endeavored to balance the costs of adding 18,000-21,000 customers each year with the cost savings
associated with reducing labor costs, consolidating activities, and utilizing new technology. During 2000, Questar Gas improved its
overall efficiency by closing the front office of its service centers, limiting in-home service calls to safety and emergency calls,
outsourcing some non-core functions, and combining operations with Questar Pipeline.
Regulatory treatment of processing costs has been an issue of contention for the past 18 months. Questar Gas, in order to give its
customers time to adjust the combustion settings in its service area to handle lower Btu-gas, determined to enhance the Btu of
such gas by contracting to have carbon dioxide removed from it and agreeing to pay the costs associated with this activity.
Questar Gas is involved in two separate cases before the Utah Supreme Court involving the PSCU's treatment of carbon dioxide
costs. The first case, which has been briefed and argued, is Questar Gas's appeal from the PSCU's order denying its application to
recover the costs in its pass-through proceedings from June of 1999 through year-end 1999. The second case, which has not been
argued, involves an appeal taken by a state agency from the PSCU's general rate case order allowing Questar Gas to include the
processing costs in its rates.
Questar Gas aborted its legislative efforts to address regulatory problems in Utah when the Utah state legislature voted to repeal
legislation that was adopted during 2000. The legislation was designed to improve regulatory processes by consolidating two state
agencies into one, encouraging rate-case settlements without protracted and adversarial proceedings, and requiring the PSCU to
consider "known and measurable" changes when setting rates. The legislation received adverse reactions from consumer groups
and local media, which resulted in a political decision to repeal the legislation before it could become effective.
Both the PSCU and the PSCW have authorized Questar Gas to use a balancing account procedure for changes in the cost of
natural gas, including supplier non-gas costs, and to reflect changes on at least a semi-annual basis. During 2000, Questar Gas filed
three pass-through applications with both the Utah and Wyoming commissions to reflect increased gas costs in its rates. In the last
pass-through applications that became effective January 1, 2001, Questar Gas was allowed to reflect annualized gas costs of
$504,865,533 in its Utah rates and $19,529,523 in its Wyoming rates.
The typical residential customer in Utah would have an annual bill of $905.02, using rates in effect as of January 1, 2001,
compared to an annual bill of $611.19, using rates in effect as of January 1, 2000. The PSCW and PSCU have allowed Questar
Gas to collect the increased gas costs in rates, subject to refund. Both commissions scheduled public hearings to consider any
issues raised in the most recent pass-through filings.
Questar Gas has requested regulatory permission to purchase Utah Gas Service Company ("Utah Gas") and Wyoming Industrial
Gas Company ("Wyoming Gas") and immediately merge these two entities into it. Utah Gas is the only other retail natural gas
utility in Utah and serves the three primary cities of Vernal, Moab, and Monticello, which are located in eastern and southeastern
Utah. Wyoming Gas supplies gas to Kemmerer, Wyoming, which is located in western Wyoming. As a result of the acquisition,
Questar Gas would add approximately 10,500 customers. Questar Gas specified several conditions to its acquisition that include
receiving regulatory approval to continue charging the acquired customers the current non-gas cost portion of their rates for 10
years.
Miscellaneous. Questar Gas owns and operates distribution systems throughout its Utah, Wyoming and Idaho service areas and
has a total of 21,660 miles of street mains, service lines, and interconnecting pipelines. Questar Gas has consolidated many of its
activities in its operations center located in Salt Lake City, Utah.
It also owns operations centers, field offices, and service center facilities throughout other parts of its service area. The mains and
service lines are constructed pursuant to franchise agreements or rights-of-way. Questar Gas has fee title to the properties on
which its operation and service centers are constructed.
Regulated Services, Transmission and Storage
Questar Pipeline is an interstate pipeline company that transports natural gas in the Rocky Mountain states of Utah, Wyoming and
Colorado and stores gas volumes in Utah and Wyoming. As a "natural gas company" under the Natural Gas Act of 1938, Questar
Pipeline is subject to regulation by the FERC as to rates and charges for storage and transportation of gas in interstate commerce,
construction of new 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.
Transmission System. Questar Pipeline, as an open-access pipeline, transports gas for affiliated and unaffiliated customers. It also
owns and operates the Clay Basin storage facility, which is a large underground storage project in northeastern Utah, and other
underground storage operations in Utah and Wyoming. Questar Pipeline has a 72 percent ownership interest in Overthrust Pipeline
Company ("Overthrust") and, through a subsidiary, a 50 percent ownership interest in TransColorado Gas Transmission Company
("TransColorado").
Questar Pipeline's transmission system is strategically located in the Rocky Mountain area near large reserves of natural gas. It is
referred to as a "hub and spoke" system, rather than a "long-line" pipeline, because of its physical configuration, multiple
connections to other major pipeline systems and access to major producing areas. Questar Pipeline's transmission system connects
with the transmission systems of Colorado Interstate Gas Company ("CIG"), the middle segment (commonly referred to as the
"WIC segment") of the Trailblazer pipeline system, The Williams Companies, Inc. ("Williams") including Kern River, and
TransColorado. These connections provide access to markets outside Questar Gas's service area and allow Questar Pipeline to
transport gas for nonaffiliated customers.
Questar Pipeline's transmission system includes 1,734 miles of transmission lines that interconnect with other pipelines and link
producers of natural gas with Questar Gas's distribution operations in Utah and Wyoming. (The transmission mileage figure
includes lines at storage fields and tap lines used to serve Questar Gas, but does not include the 700-mile Southern Trails line.)
This system includes two major segments, often referred to as the northern and southern systems; the northern system segment
extends from northwestern Colorado through southwestern Wyoming into northern Utah, and the southern system segment
extends from western Colorado to Payson in central Utah. The two portions are linked together and have significant connections
with other pipeline systems, making it a fully integrated system.
Questar Pipeline's largest single transportation customer is Questar Gas. During 2000, Questar Pipeline transported 108.2 MMDth
for Questar Gas, compared to 105.5 MMDth in 1999. These transportation volumes include cost-of-service gas produced by
Wexpro on properties owned by Questar Gas as well as some volumes purchased by Questar Gas directly from field producers.
Questar Gas has reserved firm transportation capacity of about 798,000 Dth per day on an ongoing basis, or about 66 percent of
Questar Pipeline's reserved capacity. (Questar Gas also contracts for additional capacity during the heating season.) Questar
Pipeline's transportation agreement with Questar Gas was extended in mid-1999 and expires on June 30, 2002. Questar Gas paid
reservation charges of $54.3 million to Questar Pipeline in 2000; these charges include reservation charges attributable to firm and
"no-notice" transportation. Questar Gas only needs its total reserved capacity during peak-demand situations. When it is not fully
utilizing such capacity, Questar Gas releases it to others, primarily industrial transportation customers and marketing entities.
Questar Pipeline recovers approximately 95 percent of its transmission cost of service through demand charges from firm
transportation customers. In other words, these customers pay primarily for access to transportation capacity. Consequently,
Questar Pipeline's throughput volumes do not have a significant effect on its short-term operating results. Questar Pipeline's
transportation revenues are not significantly impacted by fluctuating demand based on the vagaries of weather or natural gas
prices. Its revenues may be adversely affected if the FERC changes its basic regulatory scheme of "straight fixed-variable" rates.
Questar Pipeline's total system throughput increased from 253.5 MMDth in 1999 to 275.2 MMDth in 2000. Questar Pipeline
increased the volumes it transports for nonaffiliated customers from 135.9 MMDth in 1999 to 158.6 MMDth in 2000.
In addition to the transmission system described above, Questar Pipeline has a 72 percent interest in and is the operating partner of
Overthrust, a general partnership that owns and operates the Overthrust segment of Trailblazer. Trailblazer, in turn, is a major
800-mile line that transports gas from producing areas in the Rocky Mountains to the Midwest. The 88-mile Overthrust segment is
the western-most of Trailblazer's three segments. Although the Overthrust segment is currently underutilized, Questar Pipeline and
its remaining partners are reviewing opportunities, including backhauling, to increase its value.
The Kern River pipeline, which is owned by Williams, was built to transport gas from Wyoming to the enhanced oil recovery
projects in Kern County, California. It runs through Utah's Wasatch Front, making it possible for some large industrial customers
to bypass both Questar Gas and Questar Pipeline by buying transportation service on Kern River. The Kern River line has
diverted some transportation volumes from both Questar Pipeline and Overthrust. The Kern River line, on the other hand, has also
provided Questar Pipeline with opportunities to make additional connections with outside markets.
Questar Pipeline's 50 percent ownership interest in the TransColorado pipeline project is subject to a complex lawsuit that is
described under "Legal Proceedings" later in this Report. Until this lawsuit is resolved, Questar Pipeline is effectively precluded
from realizing any value by its contractual claim to sell its interest in TransColorado to its partner, a subsidiary of Kinder Morgan
Inc. (formerly KN Energy), as early as March 31, 2001.
The TransColorado pipeline project, which commenced operations on March 31, 1999, was built to transport natural gas from the
Rocky Mountain area that was traditionally priced lower than other gas supplies, e.g., San Juan Basin, to California and
Midwestern markets through interconnections with major pipeline systems. The pipeline originates at a point on Questar Pipeline's
system 25 miles east of Rangely in northwestern Colorado and extends 292 miles to the Blanco hub in northwestern New Mexico.
In its two years of operation, TransColorado incurred significant losses because gas prices did not reflect basis differentials that
encouraged producers and market aggregators to transport volumes on the line. Questar Pipeline wrote down its investment in
TransColorado at year-end 1999. Since it is effectively precluded from exercising its put pending the outcome of the litigation,
Questar Pipeline will record operating results as of April 1, 2001.
New Projects. Questar Pipeline expects to construct a new line-- the Mainline 104 project-- during 2001 and meet its original
timetable to have the project in service before the winter heating season of 2001-02. Questar Pipeline, however, does not have the
final environmental approvals to construct the line. This line, which is 75.6 miles long and 24 inches in diameter, extends from
Price, Utah, near the Ferron area of coalbed methane gas, to Questar Gas's system at Payson, Utah, and the Kern River line near
Elberta, Utah. CIG has a 31.3 percent interest in the project, which is estimated to cost $80 million and which will provide
approximately
272,000 Dth of additional firm transportation capacity. Questar Gas has contracted for approximately 22 percent of the capacity
on the new line, which will allow it to have additional firm capacity to meet its long-term needs.
Questar Pipeline, through a subsidiary, is continuing to negotiate necessary rights of way and obtain market support for the
Southern Trails project. It has received regulatory approval from the FERC and formal certification from the California State
Lands Commission. This project involves converting a 700-mile oil pipeline and installing the necessary compression facilities to
transport natural gas volumes. The line extends from the Four Corners area where the states of Utah, Colorado, New Mexico, and
Arizona meet to Long Beach, California. Current operating plans divide the line into two segments. The eastern segment extends
from the San Juan Basin to the California state line and is expected to be in service in 2002. The western segment, which extends
from the California state line to Long Beach needs additional market support and decisions by the California Public Utilities
Commission to support competition for transportation volumes.
Questar Pipeline owns and operates a major compressor complex near Rock Springs, Wyoming, that compresses volumes of gas
from the 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, with five of its major natural gas lines connected to the system at the complex.
In addition, both of CIG's Wyoming pipelines and the WIC segment are connected to the complex.
Storage and Processing. Questar Pipeline's Clay Basin storage facility in northeastern Utah is the largest underground storage
reservoir in the Rocky Mountains. The facility has a capacity of 117.5 Bcf. Clay Basin has been operational since 1977 and has
been successfully expanded several times. Storage service is important to parties that need to balance purchases with fluctuating
customer demand, improve service reliability, and avoid imbalance penalties. The storage capacity at Clay Basin is fully subscribed
by customers under long-term agreements. Questar Gas currently has 13.3 MMDth of working gas capacity at Clay Basin. Other
large customers, in addition to Questar Gas, include Williams; Puget Sound Energy Company, a utility in the state of Washington;
and Duke Energy Trading and Marketing. Questar Pipeline also offers interruptible storage service at Clay Basin and allows firm
storage service customers the right to transfer their injection and withdrawal rights to other parties.
Through a subsidiary, Questar Pipeline also owns a processing plant near Price, Utah, that removes carbon dioxide from coalbed
methane gas in order to raise the Btu content of the gas to be safely and efficiently used for appliances in Questar Gas's service
area. This plant began operations in June of 1999.
Miscellaneous. Questar Pipeline extended its footprint to other parts of the western United States by participating in the
TransColorado pipeline project and purchasing the Southern Trails line. There are market risks associated with these projects, as
evidenced by Questar Pipeline's decision to writedown its investment in TransColorado. Questar Pipeline's efforts to complete the
Southern Trails conversion are affected by its ability to obtain market support.
Questar Pipeline does not currently plan to file a general rate case in 2001. It, however, will continue to review its revenues and
costs as it adds new facilities that are not included in its rate base and makes expenditures to comply with regulatory mandates.
Competition for Questar Pipeline's transportation and storage services has intensified in recent years. Regulatory changes have
significantly increased customer flexibility and increased the risks associated with new projects. Questar Pipeline has two 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 and it has significant storage
capacity with Clay Basin. Questar Pipeline intends to take advantage of these assets by increasing its "intra-hub capacity" or its
ability to quickly and reliably move gas between receipt and delivery points and by expanding its storage capacity and services.
Regulated Services, Other Services
QES was organized in 1996 to pursue opportunities created by the deregulation of energy markets and was transferred from QMR
to QRS effective January 1, 1999. It provides energy management equipment, installation, and service contracts for commercial
and industrial clients and home security systems, service contracts, and equipment financing to residential customers.
During 2000, QES concentrated on three new business activities. It partnered with Northwest Natural Gas Company, a
Portland-based natural gas utility, to provide residential and commercial appliance financing for Northwest's customers. It
developed a "joint trenching" business in which it works with developers to coordinate utility installations in new developments.
Finally, QES introduced a program to supply contractors with a reliable energy source for winter construction projects.
Other Operations
In addition to the two primary segments of Market Resources and Regulated Services, Questar has "other operations." This group
includes Questar InfoComm, which is a full-service provider of integrated information and communication services to affiliates and
external businesses; Consonus's activities; and, limited real estate operations. Stock owned by the Company or Questar InfoComm
is also included in this category.
Questar InfoComm provides information and communication services. It operates a regional microwave system that covers much
of Utah and southwestern Wyoming. This digital system was originally built to satisfy the needs of Questar's operations, but also
carries data for alternative telephone providers and other external customers. Questar InfoComm installs and maintains
telephone-switching equipment and voice-mail systems. It built and leases a fiber optic telephone network in parts of Salt Lake
City for an alternative telephone provider XO Communication ("XO" formerly Nextlink Communication) and owns shares of stock
issued by XO. Questar InfoComm is currently involved with a special project to modify its proprietary software to handle electric
grid customers in the United Kingdom and Europe.
Questar InfoComm, in addition to XO, owns equity positions in other companies that are involved in telecommunications. It owns
an equity interest in Evolution Networks, a private company organized in 1999 to take advantage of opportunities with integrating
and extending microwave facilities, and Parker Vision, a Florida-based firm that develops wireless technology and new equipment
using such technology.
In 1999, Questar InfoComm launched Consonus (formerly known as Questar MetroNet Services), which offers managed hosting
and operations services, critical data center support, network engineering and equipment sales. Consonus owns three ultra-secure
Internet data centers in the Salt Lake metropolitan area and intends to construct additional data centers in other metropolitan
areas. These centers are designed to protect critical systems and data from natural or man-made disasters. Consonus's customers
range from small businesses that lack the expertise to design their networks to large corporations such as Hewlett-Packard that
use Consonus's newest data center in West Jordan, Utah, to showcase their services and products.
Questar InfoComm also owns a Colorado-based manufacturing company, Questar Baseline Industries, Inc. ("Baseline"), that
develops and manufactures gas-analysis systems. This entity was purchased in 1998 to support Questar InfoComm's strategy to
expand its gas-analysis expertise and applied technology services. Questar InfoComm transferred these functions to QRS as of
January 1, 2001 and has announced its intention to sell Baseline.
As of year-end 2000, Questar retained 802,962 shares of its original 7.8 million shares issued by Nextel, an international wireless
communication company. The Company acquired this stock in 1994 when it sold Questar Telecom, a specialized mobile radio
subsidiary, to Nextel.
Questar no longer owns the office building in downtown Salt Lake City that serves as its headquarters facility. It does have a
long-term lease for the building and has approximately 750 employees in it. Questar, through a subsidiary, continues to own
property adjacent to the building that is currently used for parking and will continue to review proposals to develop it.
Through an affiliate, Questar also owns 14.5 acres of commercial real estate in Salt Lake County that was the site of the Wasatch
Chemical clean-up activities and is currently being utilized by the organizing committee for the Salt Lake 2002 Olympics. See
Legal Proceedings. Although the Company intends to continue owning the property to minimize any future problems associated
with environmental compliance, it believes that the property can earn attractive returns when leased.
Employees
As of December 31, 2000, Questar and its affiliates had 2,022 employees compared to 2,288 employees at year-end 1999. Of this
total, 1,218 worked for the Regulated Services segment, 412 worked for Market Resources entities, and 392 worked for corporate,
Questar InfoComm, Consonus, and Baseline. (At year-end 1999, the Regulated Services unit had 1,497 employees. The reduction
in employees reflects the impact of an early retirement program described under "Regulated Services.") None of these employees
is represented under collective bargaining agreements. Questar has comprehensive benefit plans for its employees, but some
benefit plans vary by business unit. Employee relations are generally deemed to be satisfactory.
Environmental Matters
Questar and its affiliates are subject to the National Environmental Policy Act and other federal and state legislation regulating the
environmental aspects of their businesses. During 2000, Questar continued to be involved in actions involving local and federal
environmental enforcement agencies and allegations of "hazardous waste" problems. The Company does not believe that
environmental protection provisions will have any significant effect on its competitive position; it does believe, however, that such
provisions have added and will continue to add to capital expenditures and operating costs.
Questar is actively promoting the environmental advantages of natural gas in comparison to other fuels. It has actively participated
in various clean air committees and has promoted the use of natural gas in automobiles. Questar's management believes that
increasing concerns about environmental pollution will result in an increased demand for natural gas.
Research and Development
Questar Gas has the primary responsibility for the Company's research and development activities. It evaluates gas conversion
equipment, gas piping, and engines using natural gas and also evaluates technological developments with electrical appliances. The
total amount spent by Questar on research and development activities either directly or through contributions is not significant.
Oil and Gas Operations
Oil and gas operations are significant to the business functions and financial condition of Questar. (All information set forth below
relates to the Company on a consolidated basis.) Certain information concerning the Company's oil and gas operations is presented
in Note 12 of the Notes to Consolidated Financial Statements included in Item 14 of this Report. The Company does not have any
long-term supply contracts with foreign governments or reserves of equity investees.
Reserve Reports. The following is a reconciliation of reserve quantities reported in Note 12 of the Notes to Consolidated Financial
Statements and reserve quantities reported to other regulatory agencies:
The Company, on a consolidated basis, is reporting 1,018.9 Bcf of natural gas reserves at year-end 2000. This total represents the
net revenue interest of all owned reserves and includes quantities attributable to cost-of-service properties.
During 2000, the Company filed estimated reserves as of year-end 1999 on Form EIA-23 with the Energy Information
Administration in the Department of Energy and will submit a comparable report for 2000. Although Questar used the same
technical and economic assumptions when it filed this report, it was obligated to report reserves on wells it operates, not on all
wells in which it has an interest, and to include the reserves attributable to other owners in such wells.
Questar Gas files information using a FERC Form 2 format with the PSCU and PSCW and lists gas reserves of 431.9 Bcf
(working interest) at December 31, 2000, which include reserves attributable
to royalty interests. The 379.0 Bcf (net revenue interest) reported as cost-of-service gas reserves in Note 12 exclude reserves
attributable to royalty interests.
Questar Pipeline files a Form 2 (Annual Report) with the FERC. The Form 2 discloses Questar Pipeline's cushion gas of 61.8 Bcf
at December 31, 2000. This gas is not included in the total reserve number.
Oil and Gas Production.1
2000 1999 1998
Natural gas (MMcf) 110,509 101,602 88,44
Oil (Mbbl) 2,804 2,934 2,95
1Production quantities from all properties, including cost-of-service properties.
Average Sales Price.2
2000 1999 1998
Natural gas per Mcf $2.80 $ 2.00 $ 1.92
Oil per bbl $20.50 $13.92 $12.70
2Average sales price is calculated on production excluding cost-of-service volumes.
Average Production (Lifting) Cost. The average production cost Mcfe excludes costs and volumes associated with production of
cost-of-service reserves. One barrel of oil equals the energy content of 6 Mcf of gas.
2000 1999 1998
Production cost per Mcfe $.70 $.59 $.63
Producing Wells at December 31, 2000.
Gas Oil
Gross wells 4,244 1,248
Net wells 1,741 468
The numbers for gross wells include 140 wells with multiple completions.
Leasehold Acreage at December 31, 2000. Questar can retain its interest in undeveloped acreage by either drilling activity that
establishes commercial production or by the payment of delay rentals. A portion of the unproved acreage may be allowed to lapse
prior to the primary terms of the lease. Leasehold acreage is located in the United States and Canada. Approximately 78 percent
of the domestic unproved acreage consists of federal and state leases that generally have ten-year terms. The remaining 22
percent is attributable to fee leases that generally have three- to five-year terms. About 35 percent of the unproved acreage is
scheduled to expire within the next five years if no drilling or development activity is undertaken. Substantially all the Canadian
unproved acreage is related to Crown or government leases, which provide for five-year terms.
The following chart lists the Company's consolidated productive and unproved acreage:
Productive Unproved
Gross Net Gross Net
United States 2,348,662 779,882 1,793,625 756,033
Canada 258,284 92,465 371,369 161,655
Total 2,606,946 872,347 2,164,994 917,688
Net Productive and Dry Wells Drilled.
Exploratory Wells Development Wells
2000 1999 1998 2000 1999 1998
Productive 2 85 84 6
Dry 3 1 3 6 8 5
Total 3 1 5 91 92 66
Present Activities. At year-end 2000, Questar affiliates had a working interest in 38 wells waiting on completion and 16 wells
being drilled.
Delivery Commitments. Questar Gas is obligated to deliver natural gas to approximately 704,600 customers in Utah, Wyoming and
Idaho, but future quantities associated with such service are neither fixed nor determinable.
The E&P group sells a majority of its oil and gas production through Questar Energy Trading on the spot-market or under
short-term contracts that provide for price readjustments.
ITEM 3. LEGAL PROCEEDINGS.
There are various legal proceedings pending against the Company and its affiliates. Management believes that the outcome of
these cases will not have a material adverse effect on the Company's financial position or liquidity. Significant cases are discussed
below.
TRANSCOLORADO. Questar TransColorado, Inc. ("QTC"), a subsidiary of Questar Pipeline, owns a 50 percent interest in the
TransColorado Gas Transmission Company ("TransColorado), which is
the partnership that built and operates the TransColorado pipeline project. QTC and its partner, KN TransColorado, Inc.
("KNTC") are involved in a complex lawsuit that is pending in a state district court in Colorado. At center stage in the lawsuit is
the validity of a contractual right claimed by QTC to put its 50 percent interest in TransColorado to KNTC during the 12-month
period beginning March 31, 2001.
KNTC originally filed the lawsuit in June of 2000 alleging that Questar Pipeline and its affiliates breached their fiduciary duties to
TransColorado and KNTC by developing a plan to construct and operate a new pipeline (this project--Mainline 104--is described
under the section "Regulated Services, Transportation and Storage") that would compete with TransColorado, rendering it
economically unviable. KNTC is seeking $150 million plus punitive damages, a declaratory judgment that KNTC's obligation to
purchase QTC's interest in the project be declared void and unenforceable, and a dissolution of the partnership under Colorado
law.
QTC and its affiliates subsequently filed a counterclaim and third party complaint against KNTC and its named affiliates, including
Kinder Morgan, Inc., seeking a declaratory judgment that its contractual right to exercise the put is binding and enforceable and
damages of at least $185 million.
The parties have entered into a stipulation and standstill agreement that preserves the claims made by the parties pending the
resolution of the litigation. On December 31, 2000, QTC gave notice of its election to exercise its contractual right to sell its 50
percent interest in TransColorado to KNTC, subject to the standstill agreement. The Company determined that it will be required
to account for its share of any operating results as of April 1, 2001. The parties are also evaluating the retention of an outside
party to operate the TransColorado pipeline during the litigation, which is currently scheduled for trial in February of 2002.
BRIDENSTINE. On January 4, 2001, a district court judge in Oklahoma approved the settlement agreement in Bridenstine v.
Kaiser-Francis Oil Company, a class action lawsuit that was originally filed against Questar E&P, other named affiliates including
Questar and QMR, and unrelated defendants in 1995. Pursuant to the terms of the settlement, Questar E&P and Union Pacific
Resources Company (predecessor in interest to Questar E&P) paid $22.5 million, with Questar E&P's portion being $16.5 million.
Although the Questar defendants disputed claims that centered on allegations of an excessive and improper transportation charged
against royalty payments, they settled the lawsuit to avoid continued legal costs and the uncertainty of a jury verdict.
GRYNBERG. Questar affiliates are named defendants in a lawsuit filed by an independent producer (Grynberg) under the
Federal False Claims Act. This case and the 75 substantially similar cases filed by Grynberg against pipelines and their affiliates
have been consolidated for discovery and pre-trial motions in Wyoming's federal district court. The cases involve allegations of
industry-wide mismeasurement and undervaluation of gas volumes on which royalty payments are due the federal government.
The complaint seeks treble damages and imposition of civil penalties. The federal district judge has not ruled on the defendants'
motion to dismiss.
On March 8, 2001, the trial court judge granted a motion to dismiss another lawsuit filed by Grynberg against several Questar
defendants including Questar Pipeline, Questar Gas Management and
Questar Energy Trading. This case, which was filed in a Utah state district court, claims that the Questar defendants mismeasured
gas volumes attributable to Mr. Grynberg's working interest in a specified property in southwestern Wyoming. The plaintiff's
allegations included breach of contract, negligent misrepresentation, fraud, breach of fiduciary duty, etc. The judge dismissed the
lawsuit based on defendants' arguments that the applicable statute of limitation had expired and, there was no basis to support
fraudulent concealment claims, or independent tort claims.
QUINQUE. Questar E&P, Questar Gas Management, Wexpro, Questar Gas, and Questar Pipeline are among the 220 named
defendants in Quinque Operating Company v. Gas Pipelines, which was recently transferred from the Wyoming federal district
court where it had been consolidated with the Grynberg cases to the Kansas state court where it had been originally filed. This
case is very similar to the cases filed by Mr. Grynberg against the pipeline industry, but the allegations of systematic
mismeasurement of natural gas volumes and resulting underpayment of royalties are made on behalf of private and state lessors,
rather than on behalf of the federal government.
Royalty class actions are being asserted in numerous states, including Wyoming, against other companies in the oil and gas
production and marketing businesses in which QMR's subsidiaries participate. Similar actions could be filed against QMR and its
subsidiaries.
The Company continues to monitor the Wasatch Chemical property in Salt Lake City, which is still included on the national
priorities list, commonly known as the "Superfund" list. The Wasatch Chemical property was the location of chemical mixing
operations and is the subject of a 1992 consent order. Questar conducted the necessary soil remediation and groundwater
remediation activities and expects that the site will be eventually removed from the Superfund list.
See "Regulated Services, Retail Distribution, Regulation" for a review of significant regulatory proceedings and appeals from
decisions in such proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company did not submit any matters to a vote of stockholders during the last quarter of 2000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Information concerning the market for the common equity of the Company and the dividends paid on such stock is located in Note
11 of the Notes to Consolidated Financial Statements under Item 14. As of March 14, 2001, Questar had 11,279 shareholders of
record and estimates that it had an additional 25,000-30,000 beneficial holders.
ITEM 6. SELECTED FINANCIAL DATA.
2000 1999 1998 1997 1996
(In Thousands, Except Per Share Amounts)
Revenues $1,266,153 $924,219 $906,256 $936,337 $817,981
Operating expenses
Cost of natural gas and other
products sold 562,229 352,554 367,932 399,941 314,271
Write-down of full cost oil
and gas properties 34,000 3,000
Write-down of gas gathering
properties 3,000
Other expenses 444,014 391,747 371,543 360,241 332,087
Total operating expenses 1,006,243 744,301 773,475 766,182 646,358
Operating income $259,910 $179,918 $132,781 $170,155 $171,623
Interest and other income 41,682 74,700 18,202 19,667 12,040
Write-down of investment in
partnership (49,700)
Net income $156,711 $98,830 $76,899 $104,795 $98,145
Basic earnings per common share $1.95 $1.20 $0.93 $1.27 $1.20
Diluted earnings per common share $1.94 $1.20 $0.93 $1.27 $1.19
Dividends per share $0.685 $0.67 $0.6525 $0.62 $0.60
Book value per common share 12.26 11.37 10.62 10.30 9.41
Total assets $2,539,045 $2,237,997 $2,161,281 $1,945,017 $1,816,225
Net cash provided from operating
activities 260,373 214,998 284,685 202,678 182,921
Capital expenditures 323,753 268,004 461,347 212,797 291,835
Capitalization
Long-term debt, less current
portion 714,537 735,043 615,770 541,986 555,509
Redeemable cumulative
preferred stock 4,828
Common stock 991,066 925,845 877,958 845,778 772,085
Total capitalization $1,705,603 $1,660,888 $1,493,728 $1,387,764 $1,332,422
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
SUMMARY
Questar Corporation earned $156.7 million in 2000, representing a 59% improvement over net income reported for 1999. Following
is a year to year comparison of net income by line of business.
(Dollars in thousands)
Questar Market Resources $ 85,042 $ 45,866 $ 39,176 85%
Questar Regulated Services 54,332 11,079 43,253 390%
Corporate and other operations 17,337 41,885 (24,548) -59%
$ 156,711 $ 98,830 $ 57,881 59%
Earnings per diluted common share $ 1.94 $ 1.20 $ 0.74 62%
Questar Market Resources' net income rose 85% in 2000 compared with 1999 due primarily to higher energy prices, a 10%
increase in natural gas production and increased investment by Wexpro in gas-development properties.
Net income of Questar Regulated Services increased 390% in 2000. In 1999, Questar Pipeline recorded a write-down of its
investment in the TransColorado partnership and ongoing operating losses from the TransColorado partnership. Questar Gas
received a $13.5 million general rate increase effective August 11, 2000, including $7.1 million of interim rate relief beginning
January 1, 2000.
Net income of corporate and other operations decreased 59% in 2000 primarily as the result of reduced sales of securities.
Corporate and other operations recorded after tax gains from selling securities of $13.8 million in 2000 compared with $36.9 million
in 1999.
Repurchase of 3.2 million shares of Questar common stock beginning in April 1999 and continuing through August 2000 increased
earnings per share by $.04 in 2000.
RESULTS OF OPERATIONS
QUESTAR MARKET RESOURCES (Market Resources) conducts Questar's exploration and production, gas development,
gathering, processing and marketing activities. Following is a summary of financial results and operating information.
Year Ended December 31,
2000 1999 1998
(In Thousands)
OPERATING INCOME
Revenues
Natural gas sales $ 193,359 $ 125,245 $ 98,767
Oil and natural gas liquids sales 59,901 41,521 36,722
Cost-of-service gas operations 74,492 61,705 61,448
Energy marketing 379,760 243,296 234,565
Gas gathering and processing 29,278 22,341 21,954
Other 5,263 4,203 4,816
Total revenues 742,053 498,311 458,272
Operating expenses
Energy purchases 369,752 239,201 230,462
Operating and maintenance 106,703 79,916 74,863
Depreciation and amortization 84,475 78,608 71,377
Write-down of full cost oil
and gas properties 34,000
Other taxes 36,262 21,516 24,988
Wexpro settlement agreement -
oil income sharing 4,758 2,292 1,053
Total operating expenses 601,950 421,533 436,743
Operating income $ 140,103 $ 76,778 $ 21,529
OPERATING STATISTICS
Production volumes
Natural gas (in MMcf) 68,963 62,712 51,309
Oil and natural gas liquids
(in Mbbl)
Questar Exploration & Production 2,225 2,311 2,340
Wexpro 521 555 554
Production revenue
Natural gas (per Mcf) $ 2.80 $ 2.00 $ 1.92
Oil and natural gas liquids
(per bbl)
Questar Exploration & Production $ 20.50 $ 13.92 $ 12.70
Wexpro $ 27.43 $ 16.84 $ 12.64
Wexpro investment base, net
of deferred income taxes
(in millions) $ 124.8 $ 108.9 $ 97.6
Energy-marketing volumes
(in thousands of equivalent dth) 105,632 112,982 113,513
Natural gas-gathering volumes
(in Mdth)
For unaffiliated customers 92,969 84,961 72,908
For Questar Gas 36,791 32,050 29,893
For other affiliated customers 25,068 19,659 17,720
Total gathering 154,828 136,670 120,521
Gathering revenue (per dth) $ 0.13 $ 0.15 $ 0.16
Revenues
Revenues were 49% higher in 2000 when compared with 1999 because of higher prices for natural gas, oil and NGL and
increased natural gas production. Natural gas production rose 10% to 69 Bcf and the average selling price increased 40%. U. S.
gas production increased 3% to 61.7 Bcf, while Canadian production rose 152% to 7.3 Bcf. Questar acquired Canadian reserves
and producing properties in January 2000. Approximately 53% of gas production in 2000 was hedged at an average price of $2.16
per Mcf, net to the well. Hedging activities reduced revenues from gas sales by $33.7 million in 2000, but had an insignificant
impact in 1999 and 1998.
Selling prices of oil and NGL for nonregulated operations increased 47% to a combined average of $20.50 per barrel and more
than offset a 4% decrease in production volumes. Approximately 73% of the nonregulated oil production was hedged at an
average price of $17.36 per barrel. Hedging activities reduced revenues from oil sales by $15.5 million in 2000, but had an
insignificant impact in 1999 and 1998. Production declined in 2000 as a result of selling nonstrategic properties in the fourth quarter
of 1999.
For 2001, Questar has used swaps, costless collars and fixed-price contracts to hedge approximately 55% of estimated gas
production based on December 2000 reserves. The average hedged price is $2.90 per Mcf (net to the well) assuming floor prices
on collars. The average hedged price increases to $3.15 per Mcf (net to the well) if collar ceiling prices are assumed.
Approximately 62% of 2001 estimated oil production, based on December 2000 reserves, is hedged at an average price of $17.20
per barrel, net to the well. Quantities of hedged production in any given month range between 49% and 66% for gas and 56% and
70% for oil.
Revenues from cost-of-service operations were 21% higher in 2000 compared with 1999. Wexpro manages and develops oil and
natural gas properties on behalf of Questar Gas and receives a return on its investment in successful wells. The natural gas
production is delivered to Questar Gas at cost of service. Oil is sold at market prices. Any net income from oil sales remaining
after recovery of expenses and Wexpro's return on investment is divided between Wexpro and Questar Gas. Questar Gas's
portion is reported as oil-income sharing. Wexpro's investment base, net of deferred income taxes, grew 15% in 2000 when
compared with 1999. The average return on investment was 19.5% in 2000 and 20% in 1999.
Higher energy prices were responsible for substantial increases in revenues for energy marketing and improved plant-processing
margins. Increased gas demand led to higher volumes of gas gathering.
Revenues in 1999 improved 9% compared with 1998 as a result of increased prices for gas, oil and NGL and a 22% rise in gas
production. Natural gas selling prices averaged 4% higher in 1999.
Operating Expenses
Operating and maintenance expenses were 34% higher in 2000 primarily due to an increase in the number of gas and oil properties
and increased legal costs in the settlement of a major case. Depreciation and amortization expense increased 7% in 2000 due
largely to a 10% improvement in natural gas production. The combined U.S. and Canadian full-cost amortization rate was $.79 per
thousand cubic feet equivalent (Mcfe) for 2000, down from $.80 per Mcfe in 1999. Other taxes, primarily production related, rose
69% in 2000 driven by higher revenues and prices.
Nonregulated Gas and Oil Reserves Market Resources achieved a 261% reserve replacement ratio in 2000 compared with 131%
in 1999. Reserve additions, revisions and purchases, net of sales in place, amounted to 214.8 Bcfe in 2000, more than double the
100.1 Bcfe added in 1999. Gains in reserves occurred through drilling results in the Pinedale Anticline and the acquisition of 61.1
Bcfe of proved reserves in Canada. In January 2001,
Market Resources closed on the sale of 290 producing properties and a gas gathering system in the Midcontinent for $27 million
with an effective sale date of November 2000. The properties produced approximately 4.3 MMcf of gas and 180 barrels of oil per
day, but were not compatible with the long-term strategic plans of the Company. In the fourth quarter of 1999, Market Resources
sold producing properties mostly in the Permian Basin and Kansas with combined daily production of 4.3 MMcf of gas and 1,100
barrels of oil.
Market Resources achieved a five-year average finding cost of $.86 per Mcfe, excluding cost-of-service operations, in 2000
compared with $.90 per Mcfe in 1999.
QUESTAR REGULATED SERVICES (Regulated Services) conducts Questar's natural gas- distribution, transmission, storage
and nonregulated retail energy services.
Natural Gas Distribution - Questar Gas conducts natural gas distribution operations. Following is a summary of financial results
and operating information:
Year Ended December 31,
2000 1999 1998
( In Thousands)
OPERATING INCOME
Revenues
Residential and commercial sales $ 467,293 $ 396,882 $ 425,452
Industrial sales 38,993 28,938 29,555
Industrial transportation 6,968 6,594 6,480
Other 23,508 17,523 15,336
Total revenues 536,762 449,937 476,823
Natural gas purchases 334,193 257,265 281,004
Margin 202,569 192,672 195,819
Operating expenses
Operating and maintenance 101,486 103,308 96,923
Depreciation and amortization 34,450 36,426 33,261
Other taxes 10,213 7,625 8,185
Total operating expenses 146,149 147,359 138,369
Operating income $ 56,420 $ 45,313 $ 57,450
OPERATING STATISTICS
Natural gas volumes (in Mdth)
Residential and commercial sales 83,373 82,201 83,231
Industrial deliveries
Sales 10,314 9,823 9,681
Transportation 54,836 51,643 55,461
Total industrial 65,150 61,466 65,142
Total deliveries 148,523 143,667 148,373
Natural gas revenue (per dth)
Residential and commercial $ 5.60 $ 4.83 $ 5.11
Industrial sales 3.78 2.95 3.05
Transportation for industrial
customers 0.13 0.13 0.12
System natural gas cost (per dth) $ 3.54 $ 2.61 $ 2.57
Heating degree days (normal 5,609) 5,402 5,317 5,462
Warmer than normal 4% 5% 3%
Number of customers at December 31,
Residential and commercial 703,306 684,950 662,084
Industrial 1,323 1,367 1,308
704,629 686,317 663,392
Margin (Revenues less natural gas purchases) Questar Gas'margin increased 5% in 2000 when compared with 1999 after
declining by 2% in the prior-year comparison. The improvement was primarily the result of a $13.5 million annual general rate
increase. A $7.1 million portion of the Utah rate increase went into effect January 1, 2000, with the remainder reflected in rates
beginning August 11, 2000. The rate case authorized Questar Gas to earn up to an 11% return on equity and included $5 million
for annual gas processing costs. The rate case resolved an issue in which the Public Service Commission of Utah (PSCU) had
denied recovery of $3.6 million of gas processing costs in 1999.
Usage per residential customer, calculated on a temperature adjusted basis, decreased in 2000 for the third consecutive year.
Usage per residential customer was three decatherms or 3% lower in 2000 when compared with 1999 and two decatherms or 1%
lower in 1999 compared with 1998. Temperatures have been warmer than normal for the past seven years. However, since 1995,
the financial impact of warmer weather has been minimized because of a weather-normalization adjustment in rates. Customers
served by Questar Gas grew by 18,312 or 2.7% in 2000, following growth rates of 3.5% in 1999 and 3.4% in 1998.
Industrial deliveries were 6% higher in 2000 due to an increase in natural gas volumes used to generate electricity. Gas deliveries
to industrial customers decreased by 6% in 1999 because a major steel-producing customer reduced operations. Margins from gas
delivered to industrial customers, either sold or transported, are substantially lower than from gas delivered to residential and
commercial customers.
Significant gas-cost increases in the second half of 2000 due to rising demand for natural gas in the western U. S. did not affect
the margin. Under rate regulation in Utah and Wyoming, Questar Gas can request authorization to recover from customers the
cost of its gas supply on a dollar-for-dollar basis. Gas costs in Utah rates have risen from $1.72 per dth in 1999 to $2.91 in 2000.
As of January 1, 2001, gas costs in rates rose to $4.67 per dth.
Operating expenses
Operating and maintenance expenses were 2% lower in 2000 due to decreases in legal, information technology and labor costs.
Questar Gas improved a number of its information technology systems in 1999 as part of its year 2000 system-readiness program.
Labor costs were lower as a result of early retirement programs effective October 31, 2000, and August 31, 1998. Operating and
maintenance expenses were 7% higher in 1999 due to incremental costs of serving a growing customer base. Depreciation
expense was $2.8 million lower in 2000 due to investments in several information systems being fully depreciated. Depreciation
increased 10% in 1999 because
of capital spending. Other taxes increased in 2000 because of a $1.4 million current-year adjustment of prior-year taxes and from
higher property tax rates.
Acquisition of distribution systems Questar Gas has agreed in principle to acquire two gas distribution systems in exchange for
390,000 shares of Questar Corporation common stock. The acquisitions, pending approval from the PSCU and Public Service
Commission of Wyoming (PSCW), will add about 10,500 customers in Utah and Wyoming. The transactions will be accounted for
as a purchase.
Natural Gas Transmission - Questar Pipeline conducts natural gas-transmission and storage operations. Following is a summary of
financial results and operating information:
Year Ended December 31,
2000 1999 1998
(In Thousands)
OPERATING INCOME
Revenues
Transportation $ 72,547 $ 69,885 $ 70,824
Storage 37,711 37,647 36,463
Processing 6,763 3,570
Other 2,055 1,058 1,270
Total revenues 119,076 112,160 108,557
Operating expenses
Operating and maintenance 43,761 38,534 38,832
Depreciation and amortization 15,391 16,743 13,927
Other taxes 3,071 2,488 2,600
Total operating expenses 62,223 57,765 55,359
Operating income $ 56,853 $ 54,395 $ 53,198
OPERATING STATISTICS
Natural gas transportation
volumes (in Mdth)
For unaffiliated customers 158,604 135,886 120,747
For Questar Gas 108,183 105,499 107,501
For other affiliated customers 8,370 12,153 26,878
Total transportation 275,157 253,538 255,126
Transportation revenue (per dth) $ 0.26 $ 0.28 $ 0.28
Revenues
Revenues rose 6% in 2000 compared with 1999 due to an increase in the demand charges resulting from a higher quantity of
transportation volumes under firm contracts and a full year of operation of a plant that removes excess carbon dioxide from the
gas stream. The plant began operation mid-year 1999.
The transportation system experienced an increased demand for gas transportation resulting from colder fourth-quarter
temperatures and expanded usage for regional power generation. As of December 31, 2000, approximately 77% of Questar
Pipeline's transportation system was reserved by firm-transportation customers under contracts with varying terms and lengths.
Questar Gas has reserved transportation capacity from Questar Pipeline of approximately 828,000 dth per day, representing 69%
of the total reserved daily-transportation capacity at December 31, 2000. This contract, which accounts for 78% of the demand
charges collected by Questar Pipeline, extends through June 2002.
Revenues from storage operations were unchanged in 2000 when compared with 1999 after increasing 3% in 1999. Questar
Pipeline's primary storage facility at Clay Basin in eastern Utah was enlarged in May 1998. The storage facility is 100%
subscribed under long-term contracts. Most of those contractual volumes have remaining terms of at least nine years. Questar
Gas has contracted for 26% of firm-storage capacity for at least seven years.
Operating expenses
Operating and maintenance expense climbed 14% in 2000 compared with 1999. A full year of expenses associated with a
gas-processing plant added $2 million of expense and legal costs in a case involving the TransColorado pipeline added $1.8 million.
The estimated useful life of the carbon-dioxide removal plant was increased from 10 to 20 years resulting in a $1.3 million
reduction of depreciation expense in 2000. Because processing fees are determined on a cost-of-service basis, the lower
depreciation expense resulted in a $1.3 million refund to Questar Gas, the primary customer of processing services. Depreciation
expense increased 20% in 1999 resulting from capital investment in facilities and information-technology systems.
TransColorado case Questar TransColorado Inc. (QTC), a subsidiary of Questar Pipeline, and KN TransColorado, Inc., (KNTC),
a subsidiary of Kinder Morgan, are partners in the TransColorado Gas Transmission Company (TransColorado). The partners are
involved in a complex lawsuit that is pending in a state district court in Colorado. At the center of the lawsuit is the validity of a
contractual right claimed by QTC to put its 50% interest in TransColorado to KNTC during the 12-month period beginning March
31, 2001. QTC and KNTC entered a standstill agreement regarding various issues in the litigation. QTC provided notice to KNTC
that it elected to put its interest in TransColorado as of March 31, 2001, were it not for the provisions of the standstill agreement.
Questar Pipeline recorded a $49.7 million pretax write-down of its investment in the TransColorado partnership in 1999. QTC
share of TransColorado's operating losses ranged from $.3 million to $1.2 million per month.
CORPORATE AND OTHER OPERATIONS - This business segment is responsible for information-technology and
communications services and corporate administration.
Year Ended December 31,
2000 1999 1998
(In Thousands)
OPERATING INCOME
Revenues $ 73,409 $ 57,679 $ 47,907
Operating expenses
Cost of products sold 24,640 9,651 1,515
Operating and maintenance 33,506 37,516 37,113
Depreciation and amortization 7,590 5,953 6,575
Other taxes 1,073 1,071 1,019
Total operating expenses 66,809 54,191 46,222
Operating income $ 6,600 $ 3,488 $ 1,685
Revenues
Revenues increased 27% because of the acquisitions of Consonus of Oregon at mid-year 2000 and two computer-networking
businesses in the second half of 1999. Questar InfoComm is the majority owner of Consonus. Consonus is an e-commerce
business that combines Internet services and network support in facilities designed to withstand many of the effects of natural
disasters. The gross margin on products and services sold amounted to $8.3 million, $2.6 million and $2 million in 2000, 1999 and
1998, respectively.
Operating expenses
Operating and maintenance expenses were 11% lower in 2000 when compared with 1999. The impact of adding businesses was
partially offset by the effect of an early retirement program in 1999. A $2.9 million charge associated with an early retirement
program was recorded in 1999 when 50 employees elected to retire. The workforce reduction resulted in a $2.8 million decrease
of operating expenses in 2000. Amortization of goodwill, incurred because of the acquisition of Consonus, amounted to $1.7 million
in 2000.
CONSOLIDATED OPERATING RESULTS
Revenues
Consolidated revenues rose 37% in 2000 compared with 1999 as a result of higher energy prices, a 10% increase in gas produced
from nonregulated sources and a boost in revenues from e-commerce business. Higher energy prices increased revenues from
gas and oil production, energy marketing, natural gas distribution and gas plant processing. Consolidated revenues increased 2% in
1999 compared with 1998 due primarily to increased gas production, higher selling prices for energy and the revenues from
electronic commerce services. These increases were largely offset by lower revenues from gas distribution due to lower gas costs
collected in rates.
Cost of natural gas and other products sold Higher energy prices were apparent in the cost of natural gas and other products sold.
The dominant areas were natural gas purchased for resale to distribution customers and energy purchases in marketing
transactions. In addition, the cost of e-commerce services increased in 2000. The cost of natural gas and other products sold was
4% lower in 1999 due to lower gas costs allowed in distribution rates.
Operating and maintenance
Operating and maintenance expenses
increased by 14% in 2000 when compared with 1999. Through an acquisition of Canadian properties and development drilling,
Market Resources increased the number of producing properties. Legal expenses grew in 2000. A major lawsuit involving
affiliates of Market Resources was settled in 2000, while a lawsuit involving affiliates of Questar Pipeline began in 2000.
Operating and maintenance expenses increased 6% in 1999 compared with 1998 resulting from higher costs of serving a growing
number of gas-distribution customers, adding gas and oil producing properties, and the cost of an early retirement program for
information-technology employees. Labor costs were about $4.6 million lower in 1999 compared with 1998 as a result of an early
retirement program offered to employees of Regulated Services in 1998.
Questar Regulated Services initiated an early retirement window program effective October 31, 2000. A total of 262 employees
from Questar Gas, Questar Pipeline and Questar Regulated Services elected to retire. The window program is projected to result
in pretax labor-cost savings for Regulated Services of $6-$8 million yearly.
Depreciation and amortization
Depreciation and amortization
increased 3% in 2000 when compared with 1999 as a result of increased gas production and investment in depreciable assets. A
lower full-cost amortization rate partially mitigated the increased production. The combined full-cost amortization rate for U.S. and
Canadian operations was $.79 per Mcfe in 2000 compared with $.80 in 1999 and $.85 in 1998. The reduction in the amortization
rate resulted primarily from increasing reserves and selling properties from the full- cost asset pool at prices in excess of the book
value. Software that reached the end of its depreciable life and an increase of the estimated useful life of a processing plant
resulted in a $4.1 million reduction of 2000 depreciation expense. Depreciation and amortization was 10% higher in 1999 as a
result of increased gas production and more investment in exploration and production, distribution and transmission facilities. The
Company wrote down the book value of its full-cost oil and gas properties by $34 million in 1998 because of weak energy prices.
Other taxes
Production and property taxes increased in 2000 because of higher revenues. Lower revenues in prior years caused a decrease of
other taxes in 1999. Rising property values caused higher property taxes in 2000. A current-year adjustment of a prior-year tax
added $1.4 million to expense in 2000.
Interest and other income
Gain from selling securities of other
companies is a significant part of interest and other income. However, the level of securities sales dropped in 2000 because of the
general decline in market value of technology companies. These sales generated a pretax gain of $26.5 million ($16.3 million after
tax) in 2000 and a pretax gain of $60.7 million ($36.9 million after tax) in 1999.
Year ended December 31,
2000 1999 1998
(In Thousands)
Gain from sales of securities $26,523 $60,720 $10,474
Interest income and other earnings 8,460 9,765 4,410
Allowance for borrowed funds
used during construction 4,476 2,017 1,426
Return earned on working-gas inventory 2,223 2,198 1,892
Interest and other income $41,682 $74,700 $18,202
Operations of unconsolidated affiliates
Higher energy prices
and not repeating TransColorado's operating losses resulted in earnings in 2000 as opposed to losses the year before. This
income-statement line item included a $49.7 million write-down of investment in the TransColorado partnership and $5.9 million of
operating loss, net of AFUDC, from TransColorado in 1999.
Debt expense
Interest expense increased due to higher short- and long-term borrowing and to higher interest rates in 2000.
Income taxes
The effective combined federal, state and foreign income tax rate was 35.3% in 2000, 32.6% in 1999 and 27.4% in 1998. Income
tax rates were below the combined statutory rate of about 38% primarily due to nonconventional fuel credits, which amounted to
$6.5 million in 2000, $7.2 million in 1999 and $8 million in 1998. In addition, a Colorado state income tax credit derived from
conducting business in a designated enterprise zone reduced state income taxes by $3.2 million in 2000.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
2000 1999 1998
(In Thousands)
Net income $156,711 $98,830 $76,899
Adjustments to net income 174,500 141,670 136,919
Changes in operating assets
and liabilities (70,838) (25,502) 70,867
Net cash provided from
operating activities $260,373 $214,998 $284,685
Net cash provided from operating activities increased 21% in 2000 when compared with 1999 due primarily to a 59% increase in
net income. Changes in operating assets and liabilities resulted in a decrease of cash flow due to the timing differences associated
with the effect of higher energy prices on accounts receivable and the purchased-gas adjustments. This was partially offset by the
change in accounts payable. Interest bearing deposits with energy brokers, included in accounts receivable, increased significantly
in 2000. Net cash provided from operating activities decreased 24% in 1999 compared with 1998 as a result of disbursements on
accounts payable. The balance in payables was higher at the end of 1998 due to construction projects completed in 1999. The
write-downs of investments in partnership and oil and gas properties were noncash expenses.
Investing Activities
Capital expenditures amounted to $323.8 million in 2000 and $268 million in 1999. Capital spending in 2001 is expected to range
between $368 million and $563 million. The upper spending level is contingent upon several key projects going forward. A 75-mile
pipeline planned for central Utah is awaiting final environmental approval. If approval is received in 2001 and the pipeline is
constructed, Questar Pipeline could spend an additional $74 million. Another major pipeline project, Questar Southern Trails
Pipeline could begin construction in 2001 pending final right of way agreements. This would further increase capital spending by
$45 million. The development of Questar's e-commerce business is dependent upon the level of outside venture capital invested.
Year Ended December 31,
2001
Forecast 2000 1999
(In Thousands)
Questar Market Resources
Exploratory drilling $8,700 $752 $1,538
Development drilling 76,000 97,361 64,642
Other exploration 10,700 8,647 19,464
Reserve acquisitions 32,000 65,130 3,704
Production 5,100 8,382 8,746
Gathering and processing 28,000 3,330 12,705
Electric generation 25,000
Storage 7,100 11,513 4,108
General 1,500 855 19,362
194,100 195,970 134,269
Year Ended December 31,
2001
Forecast 2000 1999
(In Thousands)
Questar Regulated Services
Natural gas distribution
Distribution system and
customer additions 49,900 49,454 50,077
General 17,800 16,313 18,370
67,700 65,767 68,447
Natural gas transmission
Transmission system 20,700 15,312 11,936
Storage 11,900 333 1,571
Partnerships 7,900 9,024 14,414
Southern Trails Pipeline 13,975 14,639
Processing plant 250 2,912
General 6,600 4,141 4,952
47,100 43,035 50,424
Other 2,100 1,167 1,385
Total Questar Regulated Services 116,900 109,969 120,256
Corporate and other operations
Electronic commerce 49,900 12,878 4,296
Communications and technology 3,100 1,317 3,472
General 3,600 3,619 5,711
56,600 17,814 13,479
$367,600 $323,753 $268,004
Questar Market Resources
Capital expenditures in 2000 primarily reflected exploration for and development of gas and oil reserves and a purchase of a
Canadian company, which added 61 Bcfe of proved reserves. Market Resources participated in drilling 316 wells (94 net wells) in
2000 that resulted in 223 gas wells, 18 oil wells, 21 dry holes and 54 wells in progress at year end. The success rate was 92%.
Questar Regulated Services - Natural gas distribution The distribution system was extended by 964 miles of main, feeder and
service lines to accommodate the addition of 18,312 customers.
Questar Regulated Services - Natural gas transmission Capital spending focused on expansion of the gas transmission network,
conversion of a crude-oil pipeline to transport gas into Southern California and the acquisition of an additional 18% interest in a
pipeline partnership.
Corporate and Other Operations
Capital expenditures included acquiring e-commerce operations and developing information- technology facilities.
Financing Activities
Cash flow generated from operations plus proceeds from the sales of securities and release of cash previously held in escrow
were used to fund capital expenditures, reduce short- and long-term borrowings, repurchase shares of Questar common stock and
pay dividends to holders of common stock. Proceeds from a 1999 sale of nonstrategic gas and oil properties were placed in an
escrow account pending possible reinvestment in other producing properties.
In April 1999, the Company announced plans to repurchase up to $50 million of its shares over the next two years. From April
1999 through August 2000, the Company acquired 3.2 million shares for $51.4 million, with about half of those purchases occurring
in 2000. The Company used part of the $121.9 million in proceeds from its 1999 and 2000 sales of Nextel and other securities to
fund those stock repurchases.
Short-term borrowings amounted to $181.1 million of commercial paper and $28 million of bank loans at December 31, 2000. A
year earlier, short-term debt consisted of $128.4 million of commercial paper and $15.7 million of bank loans. The weighted
average interest rate on balances at December 31 was 6.68% in 2000 and 6.14% in 1999. Parent-company commercial-paper
borrowings are backed by short-term line-of-credit arrangements and rated P1 and A1 by Moody's and Standard and Poor's,
respectively. In the third quarter of 2000, Market Resources initiated an unrated commercial-paper program with a $100 million
capacity. Commercial-paper borrowings are limited to and supported by available capacity on Market Resources' existing
revolving credit facility. Market Resources had a commercial-paper balance of $12.5 million that was included in the total $181.1
million balance at December 31, 2000.
On March 6, 2001, Market Resources issued in a public offering $150 million of 7.5% notes due 2011. Market Resources applied
the proceeds of the debt offering to repay a portion of its outstanding floating-rate debt. In 1999, Market Resources entered into a
long-term revolving-credit facility with a syndication of banks. The credit facility has a $300 million capacity. Market Resources
had borrowed $244.4 million as of December 31, 2000 under this arrangement.
On February 27, 2001, Questar Pipeline gave notice that it will redeem $30 million of its 9 7/8% debentures on March 30, 2001.
The redemption price is equal to 104.67% of the principal amount plus interest from December 1, 2000.
The Company typically has negative net working capital at December 31 because of short-term borrowings. These borrowings are
seasonal and generally peak at year end because of cold-weather gas purchases. Negative working capital at year end was
exacerbated by rising energy prices experienced in the second half of 2000 and extending into the first quarter of 2001.
Questar's consolidated capital structure consisted of 42% long-term debt and 58% common shareholders' equity at December 31,
2000. Moody's and Standard and Poor's have rated the long-term debt of Questar Gas and Questar Pipeline A1 and A+,
respectively. Questar Market Resources' debt rating is BBB+ by Standard and Poor's and Baa2 by Moody's.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Questar's primary market-risk exposures arise from commodity-price changes for natural gas, oil and other hydrocarbons and
changes in long-term interest rates. The Company has an investment in a foreign operation that may subject it to exchange-rate
risk. Market Resources also has
reserved pipeline capacity for which it is obligated to pay $3 million annually for the next six years, regardless of whether it is able
to market the capacity to others.
Hedging Policy
The Company has established policies and procedures for managing market risks through the use of commodity-based derivative
arrangements. A primary objective of these hedging transactions is to protect the Company's commodity sales from adverse
changes in energy prices. The volume of production hedged and the mix of derivative instruments employed are regularly
evaluated and adjusted by management in response to changing market conditions and reviewed periodically by the Board of
Directors. Additionally, under the terms of the Market Resources' revolving credit facility, not more than 75% of Market
Resources' production quantities can be committed to hedging arrangements. The Company does not enter into derivative
arrangements for speculative purposes.
Energy-Price Risk Management
Energy-price risk is a function of changes in commodity prices as supply and demand fluctuate. Market Resources bears a
majority of the risk associated with changes in commodity prices. The Company uses hedge arrangements in the normal course of
business to limit the risk of adverse price movements; however, these same arrangements usually limit future gains from favorable
price movements.
Market Resources held hedge contracts covering the price exposure for about 50.5 million dth of gas and 1 million barrels of oil at
December 31, 2000. A year earlier the contracts covered 72.1 million dth of natural gas and 2.4 million barrels of oil. The hedging
contracts exist for a significant share of Questar-owned gas and oil production and for a portion of gas-marketing transactions.
The contracts at December 31, 2000, had terms extending through December 2003, with about 91% of those contracts expiring by
the end of 2001.
The mark-to-market adjustment of gas and oil price-hedging contracts at December 31, 2000 was a negative $98 million and
represented a liability owed to counterparties if terminated. A 10% decline in gas and oil prices would decrease the
mark-to-market adjustment by $18.1 million; while a 10% increase in prices would increase the mark-to-market adjustment by
$18.1 million. The mark-to-market adjustment of gas and oil price-hedging contracts at December 31, 1999 was a negative $6.2
million. A 10% decline in gas and oil prices at that time would have caused a positive mark-to-market adjustment of $16.7 million.
Conversely, a 10% increase in prices would have resulted in a $16.3 million negative mark-to-market adjustment. The calculations
used energy prices posted on the NYMEX, various "into the pipe" postings and fixed prices for the indicated measurement dates.
These sensitivity calculations do not consider changes in the fair value of the corresponding scheduled physical transactions (i.e.,
the correlation between the index price and the price to be realized for the physical delivery of gas or oil production), which should
largely offset the change in value of the hedge contracts.
Interest-Rate Risk Management
The Company owed $714.9 million of long-term debt at December 31, 2000, of which $470.5 million was fixed-rate debt. The fair
value of fixed-rate debt is subject to change as interest rates fluctuate. The fair value of Questar's long-term debt amounted to
$735.6 million at December 31, 2000. The Company owed $735.4 million of long-term debt at December 31, 1999, of which
$470.1 million was fixed-rate debt. The fair value of Questar's long-term debt amounted to $728.3 million at December 31, 1999.
The fair-value calculation was based upon quoted market prices and the discounted present value of cash flows using the
Company's current borrowing rates. If interest rates declined by 10%, fair value would increase to $758.4 million in 2000 and
$753.3 million in 1999. Interest costs paid on variable-rate long-term debt would decrease about $1.7 million. The sensitivity
calculations do not represent the cost to retire the debt securities. The book value of variable-rate debt approximates fair value.
Securities Available for Sale
Securities available for sale represent equity instruments traded on national exchanges. The value of these investments is subject
to day to day market volatility. A 10% change in prices would result in a change in value of $3.3 million in 2000 and $9.5 million in
1999.
Foreign Currency Risk Management
The Company does not hedge the foreign currency exposure of its foreign operation's net assets and long-term debt. Long-term
debt held by the foreign operation amounting to $54.4 million (U.S.) is expected to be repaid from future operations of the foreign
company. In January 2000, Market Resources purchased 100% of the outstanding common stock plus debt of a Canadian
company for $66.4 million (U.S.).
Forward-Looking Statements
This report includes "forward-looking statements" within the meaning of Section 27(a) of the Securities Act of 1933, as amended,
and Section 21(e) of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts
included or incorporated by reference in this report, including, without limitation, statements regarding the Company's future
financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are
forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking
terminology such as "may", "will", "could", "expect", "intend", "project", "estimate", "anticipate", "believe", "forecast", or "continue"
or the negative thereof or variations thereon or similar terminology. Although these statements are made in good faith and are
reasonable representations of the Company's expected performance at the time, actual results may vary from management's
stated expectations and projections due to a variety of factors.
Important assumptions and other significant factors that could cause actual results to differ materially from those expressed or
implied in forward-looking statements include changes in general economic conditions, gas and oil prices and supplies, competition,
rate-regulatory issues, regulation of the Wexpro settlement agreement, availability of gas and oil properties for sale or for
exploration and other factors beyond the control of the Company. These other factors include the rate of inflation, quoted prices of
securities available for sale, the weather and other natural phenomena, the effect of accounting policies issued periodically by
accounting standard-setting bodies, and adverse changes in the business or financial condition of the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements required by this Item are submitted in a separate section of this Report.
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
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information requested in this item concerning Questar's directors is presented in the Company's definitive Proxy Statement
under the section entitled "Election of Directors" and is incorporated herein by reference. A copy of the definitive Proxy Statement
will be filed with the Securities and Exchange Commission on or about April 2, 2001.
The following individuals are serving as executive officers of the Company:
Primary Positions Held with
Name the Company and Affiliates
R. D. Cash 58 Chairman of the Board of
Directors (May 1985);
President and Chief Executive
Officer, Director (May 1984);
President (May 1984 to
February 2001); Chairman of
the Boards of Directors, all
affiliates except Questar
Energy Trading.
K. O. Rattie 47 President and Chief Operating
Officer, Director (February
2001); Vice Chairman and
Director, QRS, QMR, Questar
Gas, Questar Pipeline and
most affiliates (February 2001).
G. L. Nordloh 53 President and Chief Executive
Officer, all Market Resources
affiliates (at various times
beginning in March 1991);
Executive Vice President,
Questar (February 1996);
Senior Vice President,
Questar (March 1991 to
February 1996); Director,
(October 1996); Director, QMR
(May 1991), all Market
Resources subsidiaries
(various times beginning in
June 1989); Chairman, Questar
Energy Trading (August 1998).
D. N. Rose 56 President and Chief Executive
Officer, Questar Gas (October
1984), Questar Pipeline
(March 1997), QRS (December
1996), QES (January 1999);
Executive Vice President,
Questar (February 1996);
Senior Vice President,
Questar (May 1985 to February
1996); Director (May 1984);
Director, Questar Gas (May
1984), Questar Pipeline (May
1996), QRS (December 1996),
and QES (January 1999).
S. E. Parks 49 Senior Vice President (March
2001); Vice President (
February 1990 to March
2001); Treasurer and Chief
Financial Officer, Questar
and all affiliates except
Questar Energy Trading
(February 1996); Treasurer,
Questar and affiliates except
Questar Energy Trading (at
various dates beginning in
May 1984); Director, Questar
E&P (May 1996) and Consonus
(October 1999).
Connie C. Holbrook 54 Senior Vice President (March
2001); Vice President
(October 1984 to March 2001);
Corporate Secretary (October
1984); General Counsel (April
1999); Corporate Secretary,
Questar Gas and other
affiliates except Questar
Energy Trading (at various
dates beginning in March
1982); Director, Consonus
(October 1999).
Glenn H. Robinson 50 President and Chief Executive
Officer and Director, Questar
InfoComm (August 2000); Vice
President and Chief
Information Officer (August
2000); Vice President and
Controller, QRS (January 1999
to August 2000), Questar Gas
(April 1991 to August 2000),
and Questar Pipeline
(September 1996 to August 2000);
There is no "family relationship" between any of the listed officers or between any of them and the Company's directors. The
executive officers serve at the pleasure of the Board of Directors. There is no arrangement or understanding under which the
officers were selected. Information concerning compliance with Section 16(a) of the Securities Exchange Act of 1934, as
amended, is presented in the Company's definitive Proxy Statement under the section entitled "Section 16(a) Compliance" and is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information requested in this item is presented in Questar's definitive Proxy Statement for the Company's 2001 annual
meeting, under the sections entitled "Executive Compensation" and "Election of Directors" and is incorporated herein by reference.
The sections of the Proxy Statement labeled "Committee Report on
Executive Compensation" and "Cumulative Total Shareholder Return" are expressly not incorporated into this document.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information requested in this item for certain beneficial owners is presented in Questar's definitive Proxy Statement for the
Company's 2001 annual meeting under the section entitled "Security Ownership, Principal Holders" and is incorporated herein by
reference. Similar information concerning the securities ownership of directors and executive officers is presented in the definitive
Proxy Statement for the Company's 2001 annual meeting under the section entitled "Security Ownership, Directors and Executive
Officers" and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information requested in this item for related transactions involving the Company's directors and executive officers is
presented in the definitive Proxy Statement for the Questar's 2000 annual meeting under the section entitled "Election of
Directors."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1)(2) Financial Statements and Financial Statement Schedules. The financial statements identified in the List of Financial
Statements are filed as part of this Report.
(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. Description
2.* Plan and Agreement of Merger dated as of December
16, 1986, by and among the Company, Questar
Systems Corporation, and Universal Resources
Corporation. (Exhibit No. (2) to Current Report
on Form 8-K dated December 16, 1986.)
3.1.* Restated Articles of Incorporation as amended
effective May 19, 1998. (Exhibit No. 3.1. to
Form 10-Q Report for Quarter ended June 30, 1998.)
3.2.* Bylaws (as amended effective August 11, 1998).
(Exhibit No. 3.2. to Form 10-Q Report for Quarter
ended June 30, 1998.)
4.1.*1 Rights Agreement dated as of February 13, 1996,
between the Company and Chemical Mellon
Shareholder Services L.L.C. pertaining to the
Company's Shareholder Rights Plan. (Exhibit No.
4. to Current Report on Form 8-K dated February
13, 1996.)
4.2.* Questar Dividend Reinvestment and Stock Purchase
Plan. (Exhibit No. 4. to Current Report on Form
8-K dated February 8, 2000.)
10.1.* Stipulation and Agreement, dated October 14,
1981, executed by Mountain Fuel; Wexpro; the Utah
Department of Business Regulations, Division of
Public Utilities; the Utah Committee of Consumer
Services; and the staff of the Public Service
Commission of Wyoming. (Exhibit No. 10(a) to
Mountain Fuel Supply Company's Form 10-K Annual
Report for 1981.)
10.2.2 Questar Corporation Annual Management Incentive
Plan, as amended and restated effective February
13, 2001.
10.3.*2 Questar Corporation Executive Incentive
Retirement Plan, as amended and restated
effective May 19, 1998. (Exhibit No. 10.2. to
Form 10-Q Report for Quarter Ended June 30, 1998.)
10.4.2 Questar Corporation Long-Term Stock Incentive
Plan, as amended and restated effective March 1,
2001 (subject to the receipt of shareholder
approval.)
10.5.*2 Questar Corporation Executive Severance
Compensation Plan, as amended and restated
effective May 19, 1998. (Exhibit No. 10.3. to
Form 10-Q Report for Quarter Ended June 30, 1998.)
10.6.2 Questar Corporation Deferred Compensation Plan
for Directors, as amended and restated effective
October 26, 2000.
10.7.*2 Questar Corporation Supplemental Executive
Retirement Plan, as amended and restated
effective June 1, 1998. (Exhibit No. 10.6. to
Form 10-Q Report for Quarter Ended June 30, 1998.)
10.8.*2 Questar Corporation Stock Option Plan for
Directors, as amended and restated effective
October 29, 1998. (Exhibit No. 10.10. to Form
10-Q Report for Quarter Ended September 30, 1998.)
10.9.*2 Form of Individual Indemnification Agreement
dated February 9, 1993 between Questar
Corporation and Directors. (Exhibit No. 10.11.
to Form 10-K Annual Report for 1992.)
10.10.*2 Questar Corporation Deferred Share Plan, as
amended and restated effective May 19, 1998.
(Exhibit No. 10.7. to Form 10-Q Report for
Quarter Ended June 30, 1998.)
10.11.2 Questar Corporation Deferred Compensation Plan,
as amended and restated effective October 26, 2000.
10.12.*2 Questar Corporation Directors' Stock Plan as
approved May 21, 1996. (Exhibit No. 10.15. to
Form 10-Q Report for Quarter ended June 30, 1996.)
10.13.*2 Questar Corporation Deferred Share Make-Up Plan.
(Exhibit No. 10.8. to Form 10-Q Report for
Quarter Ended June 30, 1998.)
10.14.*2 Questar Corporation Special Situation Retirement
Plan. (Exhibit No. 10.10. to Form 10-Q Report
for Quarter Ended June 30, 1998.)
10.15. Employment Agreement between Questar Corporation
and Keith O. Rattie effective February 1, 2001.
21. Subsidiary Information.
23. Consent of Independent Auditors.
24. Power of Attorney.
99.1. Undertakings for Registration Statements on Form
S-3 (No. 33-48168) and on Form S-8 (Nos. 33-4436,
33-15149, 33-40800, 33-40801, 33-48169,
333-04913, and 333-04951).
________________________
*Exhibits so marked have been filed with the Securities and Exchange Commission as part of the indicated filing and are
incorporated herein by reference.
1The name of the Rights Agent has been changed to USBank National Association.
2Exhibit so marked is management contract or compensation plan or arrangement.
(b) The Company did not file any Current Reports on Form 8-K during the last quarter of 2000.
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a) (1) and (2), and (d)
LIST OF FINANCIAL STATEMENTS
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
YEAR ENDED DECEMBER 31, 2000
QUESTAR CORPORATION
SALT LAKE CITY, UTAH
FORM 10-K -- ITEM 14 (a) (1) AND (2)
QUESTAR CORPORATION AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
The following financial statements of Questar Corporation and subsidiaries are included in Item 8:
Consolidated statements of income--Years ended December 31, 2000, 1999 and 1998
Consolidated balance sheets--December 31, 2000 and 1999
Consolidated statements of common shareholders' equity--Years ended December 31, 2000, 1999 and 1998
Consolidated statements of cash flows--Years ended December 31, 2000, 1999 and 1998
Notes to consolidated financial statements
Financial statement schedules, for which provision is made in the applicable accounting regulations of the Securities and Exchange
Commission, are not required under the related instructions or are inapplicable, and therefore have been omitted.
Report of Independent Auditors
Shareholders and Board of Directors
Questar Corporation
We have audited the accompanying consolidated balance sheets of Questar Corporation and subsidiaries as of December 31, 2000
and 1999, and the related consolidated statements of income and common shareholders' equity and cash flows for each of three
years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position
of Questar Corporation and subsidiaries at December 31, 2000 and 1999, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally
accepted in the United States.
/s/Ernst & Young
Ernst & Young
Salt Lake City, Utah
March 6, 2001
QUESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
2000 1999 1998
(In Thousands, Except Per Share Amounts)
REVENUES $1,266,153 $ 924,219 $ 906,256
OPERATING EXPENSES
Cost of natural gas and other products sold 562,229 352,554 367,932
Operating and maintenance 251,419 221,279 209,594
Depreciation and amortization 141,941 137,744 125,157
Write-down of full cost oil and gas properties 34,000
Other taxes 50,654 32,724 36,792
TOTAL OPERATING EXPENSES 1,006,243 744,301 773,475
OPERATING INCOME 259,910 179,918 132,781
INTEREST AND OTHER INCOME 41,682 74,700 18,202
OPERATIONS OF UNCONSOLIDATED
AFFILIATES
Income (loss) 3,996 (4,356) 2,917
Write-down of investment in partnership (49,700)
3,996 (54,056) 2,917
DEBT EXPENSE (63,510) (53,944) (47,971)
INCOME BEFORE INCOME TAXES 242,078 146,618 105,929
INCOME TAXES 85,367 47,788 29,030
NET INCOME $ 156,711 $ 98,830 $ 76,899
EARNINGS PER COMMON SHARE
Basic $ 1.95 $ 1.20 $ 0.93
Diluted $ 1.94 $ 1.20 $ 0.93
Average common shares outstanding
Basic 80,412 82,547 82,365
Diluted 80,915 82,676 82,817
See notes to consolidated financial statements
QUESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS December 31,
2000 1999
(In Thousands)
CURRENT ASSETS
Cash and cash equivalents $ 9,416 $ 8,291
Accounts receivable 277,331 143,987
Unbilled gas accounts receivable 45,293 37,287
Federal income taxes recoverable 9,694
Inventories, at lower of average
cost or market
Gas and oil storage 30,062 27,360
Materials and supplies 10,472 10,254
Purchased-gas adjustments 35,565 432
Prepaid expenses and other 9,189 11,249
TOTAL CURRENT ASSETS 427,022 238,860
PROPERTY, PLANT AND EQUIPMENT
Questar Market Resources 1,657,291 1,469,676
Questar Regulated Services - gas distribution 1,067,362 1,013,599
Questar Regulated Services - gas transmission 731,246 698,236
Questar Regulated Services - other 5,764 4,493
Corporate and other operations 82,603 72,769
3,544,266 3,258,773
LESS ALLOWANCES FOR DEPRECIATION
AND AMORTIZATION
Questar Market Resources 853,037 778,695
Questar Regulated Services - gas distribution 447,496 421,111
Questar Regulated Services - gas transmission 243,006 228,784
Questar Regulated Services - other 3,073 2,542
Corporate and other operations 43,661 40,727
1,590,273 1,471,859
NET PROPERTY, PLANT AND EQUIPMENT 1,953,993 1,786,914
SECURITIES AVAILABLE FOR SALE 33,019 94,945
INVESTMENT IN UNCONSOLIDATED
AFFILIATES 34,505 25,269
OTHER ASSETS
Regulatory assets 37,646 26,025
Goodwill, net 20,514 7,750
Cash held in escrow 5,387 36,727
Other noncurrent assets 26,959 21,507
TOTAL OTHER ASSETS 90,506 92,009
$2,539,045 $2,237,997
LIABILITIES AND SHAREHOLDERS' EQUITY
2000 1999
(In Thousands)
CURRENT LIABILITIES
Short-term debt $ 209,139 $ 144,115
Accounts payable and accrued expenses
Accounts and other payables 273,892 132,473
Federal income taxes 17,374
Other taxes 30,718 22,315
Deferred income taxes 13,515 164
Interest 7,300 7,518
Total accounts payable and
accrued expenses 325,425 179,844
TOTAL CURRENT LIABILITIES 534,564 323,959
LONG-TERM DEBT 714,537 735,043
DEFERRED INCOME TAXES 241,720 210,948
DEFERRED INVESTMENT TAX CREDITS 5,262 5,648
OTHER LONG-TERM LIABILITIES 33,680 29,944
MINORITY INTEREST 18,216 6,610
COMMITMENTS AND CONTINGENCIES - Note 7
COMMON SHAREHOLDERS' EQUITY
Common stock - without par value; 350,000,000
shares authorized; 80,818,274 outstanding at
December 31, 2000 and 81,418,853 outstanding
at December 31, 1999 268,630 278,437
Retained earnings 710,125 608,498
Cumulative other comprehensive income 12,311 38,910
TOTAL COMMON SHAREHOLDERS' EQUITY 991,066 925,845
$2,539,045 $2,237,997
See notes to consolidated financial statements
QUESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
Common Stock Retained Receivable Compre- hensive
Shares Amount Earnings from ESOP hensive Income
Income
(Dollars in Thousands)
Balances at January 1, 1998 82,142,084 $ 291,322 $ 541,663 $ (10,173) $ 22,966
Issuance of common stock 521,879 8,243
Purchase of common stock (31,885) (677)
1998 net income 76,899 $ 76,899
Payment of common stock dividends
of $.6525 per share (53,747)
Income tax benefit of dividends
paid to ESOP 143
Collection of note receivable
from ESOP 6,218
Other comprehensive income
Unrealized loss on securities
available for sale, net of income
taxes of $3,086 (4,992) (4,992)
Foreign currency translation
adjustmentnet of income
taxes of $53 93 93
Balances at December 31, 1998 82,632,078 298,888 564,958 (3,955) 18,067 $ 72,000
Issuance of common stock 488,302 8,124
Purchase of common stock (1,701,527) (28,575)
1999 net income 98,830 $ 98,830
Payment of common stock dividends
of $.67 per share (55,328)
Income tax benefit of dividends
paid to ESOP 38
Collection of note receivable
from ESOP 3,955
Other comprehensive income
Unrealized gain on securities
available for sale, net of income
net of income taxes of $13,193 21,303 21,303
Foreign currency translation
adjustment,net of income
taxes of $284 (460) (460)
Balances at December 31, 1999 81,418,853 278,437 608,498 - 38,910 $ 119,673
Issuance of common stock 958,232 11,764
Purchase of common stock (1,558,811) (25,543)
2000 net income 156,711 $ 156,711
Payment of common stock dividends
of $.685 per share (55,084)
Income tax benefit associated
with exercise of nonqualified
options and premature dispositions 3,972
Other comprehensive income
Unrealized loss on securities
available for sale, net of income
taxes of $16,767 (25,453) (25,453)
Foreign currency translation
adjustment, net of income
taxes of $1,018 (1,146) (1,146)
Balances at December 31, 2000 80,818,274 $ 268,630 $ 710,125 $ - $ 12,311 $ 130,112
See notes to consolidated financial statements
QUESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
2000 1999 1998
OPERATING ACTIVITIES (In Thousands)
Net income $ 156,711 $ 98,830 $ 76,899
Adjustments to reconcile net income to
net cash provided from operating
activities
Depreciation and amortization 147,645 144,704 128,664
Deferred income taxes and investment 54,277 315 (14,911)
tax credits
Write-down of investment in partnership 49,700
Write-down of full cost oil and gas
properties 34,000
(Income) loss from unconsolidated
affiliates, net of cash distributions (899) 7,671 (360)
Gain from sales of securities (26,523) (60,720) (10,474)
331,211 240,500 213,818
Changes in operating assets and liabilities
Accounts receivable (136,700) (1,004) 9,922
Inventories (2,892) 252 (7,238)
Prepaid expenses and other 2,077 615 2,556
Accounts payable and accrued expenses 144,190 (41,549) 38,207
Federal income taxes (27,068) 8,684 2,251
Purchased-gas adjustments (35,133) 1,635 35,184
Other assets (17,144) 3,446 (7,664)
Other liabilities 1,832 2,419 (2,351)
NET CASH PROVIDED FROM OPERATING ACTIVITIES 260,373 214,998 284,685
INVESTING ACTIVITIES
Capital expenditures
Purchase of property, plant and equipment (314,429) (221,835) (427,680)
Other investments (9,324) (46,169) (33,667)
Total capital expenditures (323,753) (268,004) (461,347)
Proceeds from disposition of property, plant
and equipment 3,051 44,220 44,500
Proceeds from sales of securities 46,814 75,126 6,759
NET CASH USED IN INVESTING ACTIVITIES (273,888) (148,658) (410,088)
FINANCING ACTIVITIES
Issuance of common stock 15,736 8,124 8,243
Purchase of Questar common stock (25,543) (28,575) (677)
Issuance of long-term debt 61,725 317,000 152,743
Repayment of long-term debt (80,075) (206,996) (77,198)
Increase (decrease) in short-term loans 64,581 (76,985) 89,900
Cash held in escrow 31,340 (36,727)
Other financing 2,955 3,993 6,361
Payment of dividends (55,084) (55,328) (53,747)
NET CASH PROVIDED FROM (USED IN)
FINANCING ACTIVITIES 15,635 (75,494) 125,625
Foreign currency translation adjustment (995) (44) (4)
CHANGE IN CASH AND CASH EQUIVALENTS 1,125 (9,198) 218
BEGINNING CASH AND CASH EQUIVALENTS 8,291 17,489 17,271
ENDING CASH AND CASH EQUIVALENTS $ 9,416 $ 8,291 $ 17,489
See notes to consolidated financial statements
QUESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Accounting Policies
Principles of Consolidation: The consolidated financial statements contain the accounts of Questar Corporation and subsidiaries
(Questar or the Company). Questar is a diversified natural gas company with two principal lines of business:
nonregulated and regulated. The Company's nonregulated activities of gas and oil exploration and production, gas gathering and
processing, and energy marketing are conducted by Questar Market Resources, Inc. and subsidiaries (Market Resources). The
Company's regulated activities of natural gas distribution, transmission and storage operations are conducted by Questar Regulated
Services Co. and subsidiaries (Regulated Services). Natural gas-distribution activities are conducted by Questar Gas. Questar
Pipeline provides natural gas transmission and storage services. Regulated Services also includes Questar Energy Services which
conducts retail-energy services. Corporate and other operations include information-technology and telecommunication services
and corporate activities. All significant intercompany accounts and transactions have been eliminated in consolidation.
Investments in Unconsolidated Affiliates: Questar uses the equity method to account for investments in affiliates in which it does
not have control. Principal affiliates and percentage ownership include: Overthrust Pipeline Company (72%), TransColorado Gas
Transmission Company (50%), Canyon Creek Compression Company (15%) and Blacks Fork Gas Processing Company (50%).
Generally, the Company's investment in these affiliates equals the underlying equity in net assets, except for TransColorado where
the investment was written down. The Company experienced an other-than-temporary decline in its partnership investment in
TransColorado caused by low volumes resulting from unfavorable regional transportation economics.
Regulation: Questar Gas is regulated by the Public Service Commission of Utah (PSCU) and the Public Service Commission of
Wyoming (PSCW). While Questar Gas also serves a small area of southeastern Idaho, the Public Utilities Commission of Idaho
has deferred to the PSCU for rate oversight of this area. Questar Pipeline is regulated by the Federal Energy Regulatory
Commission (FERC). These regulatory agencies establish rates for the storage, transportation and sale of natural gas. The
regulatory agencies also regulate, 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 return on investment.
The financial statements of rate-regulated businesses 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 other businesses because of
cost-allocation methods used in establishing rates.
Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent
liabilities reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Revenue Recognition: Revenues are recognized in the period that services are provided or products are delivered. Questar Gas
records gas-distribution revenues for gas delivered to residential and commercial customers but not billed at the end of the
accounting period. Rate-regulated companies periodically collect revenues subject to possible refunds pending final orders from
regulatory agencies. These companies establish appropriate reserves for revenues collected subject to refund. The Company's
exploration and production operations use the sales method of accounting for gas revenues, whereby revenue is recognized on all
gas sold to purchasers. A liability is recorded to the extent that the Company has an imbalance in excess of its share of remaining
reserves in an underlying property. The Company's net gas imbalances at December 31, 2000 and 1999 were not significant.
Purchased-Gas Adjustments: Questar Gas accounts for purchased-gas costs in accordance with procedures authorized by the
PSCU and PSCW under which purchased-gas costs that are different from those provided for in present rates are accumulated
and recovered or credited through future rate changes.
Cash and Cash Equivalents: Cash equivalents consist principally of repurchase agreements with maturities of three months or less.
In almost all cases, the repurchase agreements are highly liquid investments in overnight securities made through commercial bank
accounts that result in available funds the next business day.
Securities Available for Sale: The value of securities available for sale approximates fair value at the balance sheet date based on
published share prices. Based on market value at the balance sheet date, the Company records unrealized gains or losses, net of
income taxes, as a separate component of other comprehensive income in shareholders' equity. Gains or losses resulting from the
sale of securities are included in the determination of income as incurred.
Property, Plant and Equipment: Property, plant and equipment is stated at cost. The Company uses the full-cost accounting method
for a majority of its gas and oil exploration and development activities. However, as ordered by the PSCU, the successful-efforts
method of accounting is utilized with respect to costs associated with certain "cost- of-service" oil and gas properties managed and
developed by Wexpro and regulated for ratemaking purposes. Cost- of service oil and gas properties are those properties for
which the operations and return on investment are regulated by the Wexpro settlement agreement (see Note 9). In accordance
with the settlement agreement, production from the gas properties operated by Wexpro is delivered to Questar Gas at Wexpro's
cost of providing this service. That cost includes a return on Wexpro's investment. Oil produced from the cost-of-service
properties is sold at market prices. Proceeds are credited, pursuant to the terms of the settlement agreement, allowing Questar
Gas to share in the proceeds for the purpose of reducing natural gas rates.
Under the full-cost method, all costs associated with the acquisition, exploration and development of oil and gas reserves, including
certain directly related internal-employee costs, are capitalized. Such amounts include the cost of drilling and equipping productive
wells, dry-hole costs, lease-acquisition costs, delay rentals, and costs related to such activities. The internal costs capitalized are
directly attributable to acquisition, exploration, and development activities and do not include costs related to production, general
corporate overhead or similar activities. Exclusive of field-level costs, the Company capitalized $3.6 million, $3 million and $2.6
million of internal costs in 2000, 1999 and 1998, respectively. Costs associated with production and general corporate activities are
expensed in the period incurred. Sales of oil and gas properties, whether or not being amortized currently, are accounted for as
adjustments of capitalized costs, with no gain or loss recognized, unless such adjustments would significantly alter the relationship
between capitalized costs and proved reserves.
The Company limits, on a country-by-country cost-center basis, the capitalized costs of oil and gas properties, net of accumulated
amortization and related deferred taxes, to the full-cost ceiling. The full-cost ceiling comprises the present value of estimated
future net revenues from proved oil and gas reserves plus the cost of unproved properties not being amortized, all adjusted for the
effect of related income taxes. The present value calculation is based upon current economic and operating conditions and
estimated future development expenditures, discounted at 10%. If capitalized costs exceed the full-cost ceiling, the excess is
expensed. In 1998, the Company recorded a $34 million write-down of oil and gas properties pursuant to the ceiling limitation
required by the full-cost accounting method.
Capitalized costs are amortized, on a country-by-country cost-center basis, by an energy equivalent unit-of- production method
based upon production and estimates of proved gas and oil reserves. The Company presently has two cost centers: the United
States and Canada. Amortizable costs include developmental drilling in progress as well as estimates of future development costs
of proved reserves, but exclude the costs of certain unproved oil and gas properties until the properties are evaluated. The
estimated costs of future site restoration, dismantlement, and abandonment of producing properties are expected to be offset by
the estimated salvage value of the lease and well equipment.
The aggregate costs of unproved properties not being amortized are assessed at least annually for possible impairments or
reduction in value. Significant properties are assessed individually. If a reduction in value has occurred, costs being amortized are
increased. Of the $76.2 million of net unproved property costs at excluded from the amortizable base at December 31, 2000, $22.9
million, $10.4 million, and $20.5 million were incurred in 2000, 1999 and 1998, respectively. Based on anticipated future exploration
and development activities, the Company expects the majority of the costs of unproved properties currently excluded to be
evaluated and included in the amortization calculation within the next five years.
The Company uses the successful-efforts method of accounting for costs associated with the development of cost- of-service oil
and gas properties. The cost to drill and equip development wells, successful or unsuccessful, and construct appurtenant facilities
are capitalized. Geological and geophysical costs are expensed as incurred.
Capitalized costs are amortized on an individual field basis using the unit-of-production method based upon proved developed oil
and gas reserves attributable to the field. Costs of future site restoration, dismantlement, and abandonment for producing
properties are accrued as part of depreciation and amortization expense for tangible equipment by assuming no salvage value in
the calculation of the unit-of-production rate. The following table contains the detail of Market Resources' property, plant and
equipment at December 31.
2000 1999
(In Thousands)
Property, plant and equipment
Oil and gas properties - full-cost accounting
Proved properties $1,082,009 $ 943,349
Unproved properties, not being amortized 76,216 69,777
Support equipment and facilities 13,179 13,408
1,171,404 1,026,534
Cost-of-service oil and gas properties -
successful-efforts accounting 348,403 318,451
Gathering, processing and marketing 137,484 124,691
$1,657,291 $1,469,676
Accumulated depreciation and amortization
Oil and gas properties - full-cost accounting $ 601,620 $ 544,491
Cost-of-service oil and gas properties -
successful efforts accounting 193,029 180,867
Gathering, processing and marketing 58,388 53,337
$ 853,037 $ 778,695
For the remaining Company properties, the provision for depreciation and amortization is based upon rates that will systematically
charge the costs of assets against income over the estimated useful lives of those assets. The investment in natural gas
distribution, transmission, storage, gathering and processing property, plant and equipment is charged to expense using the
straight-line method. The costs of gas wells and related production facilities are charged to expense using the unit-of-production
method. Average depreciation and amortization rates used in the 12 months ended December 31 were as follows:
2000 1999 1998
Questar Market Resources
Exploration and production, per
Mcf equivalent
Full-cost amortization rate
U.S. $ 0.78 $ 0.81 $ 0.83
Canada (in U.S. dollars) 0.85 0.65 1.04
Combined U.S. and Canada 0.79 0.80 0.85
Cost of service oil and gas properties, 0.44 0.42 0.39
per Mcfe
Average depreciation and amortization rates
used were as follows:
Questar Regulated Services
Natural gas distribution
Distribution plant 4.0% 4.2% 4.3%
Gas wells, per Mcf $ 0.15 $ 0.15 $ 0.17
Natural gas transmission, processing
and storage 3.2% 3.4% 3.2%
Goodwill: Goodwill is amortized on the straight-line method principally over 10 years. Goodwill amortization expense was $1.7
million in 2000 and the accumulated amortization balance was $1.8 million at December 31, 2000.
Capitalized Interest and Allowance for Funds Used During Construction: Questar's regulated subsidiaries capitalize the cost of
capital employed during the construction period of plant and equipment in accordance with FERC guidelines. Capitalized financing
costs, called allowance for funds used during construction (AFUDC), consist of debt and equity portions. The debt portion of
AFUDC is recorded as a reduction of interest expense and the equity portion is recorded in other income. The Company's
nonregulated subsidiaries capitalize interest costs during construction of assets when it is applicable. Interest costs related to full
cost oil and gas activities are expensed in the period incurred. Under provisions of the Wexpro settlement agreement, the
Company capitalizes AFUDC on cost-of-service construction projects and records the amount in other income. Debt expense was
reduced by $4,224,000 in 2000, $3,035,000 in 1999 and $1,421,000 in 1998. AFUDC included in interest and other income
amounted to $4,476,000 in 2000, $2,017,000 in 1999 and $1,426,000 in 1998.
Reacquisition of Debt: Gains and losses on the reacquisition of debt by rate-regulated affiliates are deferred and amortized as debt
expense over the would-be remaining life of the retired debt or the life of the replacement debt in order to match regulatory
treatment.
Foreign Currency Translation: The Company conducts gas and oil exploration and production activities in western Canada. The
local currency is the functional currency of the Company's foreign operations. Translation from the functional currency to U. S.
dollars is performed for balance-sheet accounts using the exchange rate in effect at the balance-sheet date. Revenue and expense
accounts are translated using an average exchange rate. Adjustments resulting from such translations are reported as a separate
component of other comprehensive income in shareholders' equity. Deferred income taxes have been provided on translation
adjustments because the earnings are not considered to be permanently invested.
Hedging Policy: The Company has established policies and procedures for managing market risks through the use of
commodity-based derivative arrangements. A primary objective of these hedging transactions is to protect the Company's
commodity sales from adverse changes in energy prices. The volume of production hedged and the mix of derivative instruments
employed are regularly evaluated and adjusted by management in response to changing market conditions and reviewed
periodically by the Board of Directors. Additionally, under the terms of Market Resources' revolving credit facility, not more than
75% of Market Resources' production quantities can be committed to hedging arrangements. The Company does not enter into
derivative arrangements for speculative purposes.
Energy-Price Risk Management: Market Resources enters into swaps, futures contracts or options agreements to hedge exposure
to price fluctuations in connection with marketing of the Company's natural gas and oil production, and to secure a known margin
for the purchase and resale of gas, oil and electricity in marketing activities. It is expected that there is a high degree of correlation
between the changes in market value of such contracts and the market price ultimately received on the hedged physical
transactions. The timing of production and of the hedge contracts is closely matched. Hedge prices are established in the areas of
Market Resources' production operations. The Company settles most contracts in cash and recognizes the gains and losses on
hedge transactions during the same time period as the related physical transactions. Cash flows from the hedge contracts are
reported in the same category as cash flows from the hedged assets. Contracts which do not have high correlation with the related
physical transactions are marked-to-market and recognized in the current-period income.
Interest-Rate Risk Management: The Company borrows funds under both fixed and variable interest rate arrangements.
Variable-rate agreements expose the Company to market risk related to changes in interest rates.
Credit Risk: The Company's primary market areas are the Rocky Mountain regions of the United States and Canada and the
Midcontinent region of the United States. Exposure to credit risk may be impacted by the concentration of customers in these
regions due to changes in economic or other conditions. Customers include individuals and numerous industries that may be
affected differently by changing conditions. Management believes that its credit-review procedures, loss reserves, customer
deposits and collection procedures have adequately provided for usual and customary credit-related losses. Commodity-based
hedging arrangements also expose the Company to credit risk. The Company monitors the creditworthiness of its counterparties,
which generally are major financial institutions, and believes that losses from non-performance are unlikely to occur.
Income Taxes: Questar files income tax reports on a consolidated basis in accordance with the Internal Revenue Code and
associated regulations. Questar's subsidiaries account for income taxes on a separate-return basis. Rate- regulated operations
record cumulative increases in deferred taxes as income taxes recoverable from customers. Questar Gas and Questar Pipeline
have adopted procedures with their regulatory commissions to include under-provided deferred taxes in customer rates on a
systematic basis. Questar Gas and Questar Pipeline use the deferral method to account for investment tax credits as required by
regulatory commissions.
Earnings Per Share: The Company presents basic and diluted earnings per share (EPS) on the income statement. Basic EPS are
computed by dividing net income available to common shareholders by the weighted average number of common shares
outstanding during the accounting period. Diluted EPS includes the potential dilution from exercising stock options, which is the
reason for the difference between the number of basic and diluted average shares outstanding.
Comprehensive Income: Comprehensive income is the sum of net income as reported in the Consolidated Statement of Income
and other comprehensive income transactions reported in the Consolidated Statement of Shareholders' Equity. Other
comprehensive income transactions that currently apply to Questar result from changes in the market value of securities held for
sale and changes in holding value resulting from foreign currency translation adjustments. These transactions are not the
culmination of the earnings process, but result from periodically adjusting historical balances to fair value. Income is realized when
the securities available for sale are sold. Income taxes associated with realized gains from selling securities available for sale,
which were included in other comprehensive income in prior years, were $10.2 million in 2000, $23.4 million in 1999 and $1.9
million in 1998. Beginning in 2001, other comprehensive income will include mark-to-market adjustments of the Company's
qualified energy derivatives. The balances of cumulative other comprehensive income (loss) for the 12 months ended December
31, were as follows:
2000 1999
(In Thousands)
Unrealized gain on securities $13,832 $39,285
Foreign currency translation adjustment (1,521) (375)
Cumulative other comprehensive income $12,311 $38,910
Business Segments: Questar's line-of-business disclosures are presented based on the way senior management evaluates the
performance of its business segments. Certain intersegment sales include intercompany profit.
New accounting standard: The Company is required to adopt the accounting provisions of Statement of Financial Accounting
Standards 133, as amended, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133) beginning in January
2001. SFAS 133 addresses the accounting for derivative instruments, including certain derivative instruments embedded in other
contracts. Under the standard, entities are required to carry all derivative instruments in the balance sheet at fair value. The
accounting for changes in fair value, which result in gains or losses, of a derivative instrument depends on whether
such instrument has been designated and qualifies as part of a hedging relationship and, if so, depends on the reason for holding it.
If certain conditions are met, entities may elect to designate a derivative instrument as a hedge of exposure to changes in fair
value, cash flows or foreign currencies. If the hedged exposure is a fair-value exposure, the gain or loss on the derivative
instrument is recognized in earnings in the period of the change together with the offsetting loss or gain on the hedged item
attributable to the risk being hedged. If the hedged exposure is a cash-flow exposure, the effective portion of the gain or loss on
the derivative instrument is reported initially as a component of other comprehensive income in the shareholders' equity section of
the balance sheet and subsequently reclassified into earnings when the forecasted transaction affects earnings. Any amounts
excluded from the assessment of hedge effectiveness, as well as the ineffective portion of the gain or loss, is reported in earnings
immediately.
As of January 1, 2001, the Company structured a majority of its energy derivative instruments as cash flow hedges. As a result of
adopting SFAS 133 in January 2001, the Company expects to record a liability for derivative instruments of approximately $121
million. The offset to this amount, net of income taxes, will be recorded as a loss in other comprehensive income in the
shareholders' equity section of the balance sheet. The fair-value calculation does not consider changes in fair value of the
corresponding scheduled physical transactions. The Company has identified a number of contracts that are derivative instruments
as defined by SFAS 133, but are specifically excluded from the provisions of SFAS 133 on the basis of normal sales and purchase
transactions. These contracts are primarily located in the natural gas distribution and transmission activities.
Reclassifications: Certain reclassifications were made to the 1999 and 1998 financial statements to conform with the 2000
presentation.
Note 2 - Debt
Questar has short-term line-of-credit arrangements with several banks under which it may borrow up to $220 million. These lines
have interest rates generally below the prime interest rate. Commercial paper borrowings are backed by the short-term
line-of-credit arrangements. The details of short-term debt are as follows:
December 31,
2000 1999
(In Thousands)
Commercial paper with variable interest rates $181,100 $128,379
Bank loans with variable interest rates 28,039 15,736
$209,139 $144,115
Weighted average interest rate at December 31 6.68% 6.14%
The details of long-term debt are as follows:
December 31,
2000 1999
(In Thousands)
Questar Market Resources
Revolving-credit loan due
2001- 2005 with variable
interest rates (7.01% at
December 31, 2000) $244,377 $264,894
Questar Regulated Services - Natural
gas distribution
Medium-term notes 6.85% to 8.43%, due 2007
to 2024 225,000 225,000
Questar Regulated Services -
Natural gas transmission
Medium-term notes 5.85% to 7.55%, due 2008
to 2019 130,400 130,400
9 3/8% debentures due 2021 85,000 85,000
9 7/8% debentures due 2020 30,000 30,000
Corporate and other 148 155
Total long-term debt outstanding 714,925 735,449
Less current portion 8 7
Less unamortized debt discount 380 399
$714,537 $735,043
Maturities of long-term debt for the five years following December 31, 2000, in thousands of dollars are as follows:
2001 $8
2002 6,977
2003 16,978
2004 186,980
2005 6,981
Cash paid for interest was $66,833,000 in 2000, $56,019,000 in 1999 and $49,430,000 in 1998.
As of December 31, 2000, Questar Pipeline guaranteed $100 million of long-term debt borrowed by TransColorado Gas
Transmission Company. The partnership has borrowed $200 million under a three-year revolving-credit arrangement that will
expire unless renewed by October 2001.
Market Resources revolving-credit loan contains covenants specifying a minimum amount of net equity and a maximum ratio of
debt to equity. On March 6, 2001, Market Resources issued in a public offering $150 million of 7.5% notes due 2011. Market
Resources applied the proceeds of the debt offering to repay a portion of its outstanding floating-rate debt. On February 27, 2001,
Questar Pipeline gave notice that it will redeem $30 million of its 9 7/8% debentures on March 30, 2001. The redemption price is
equal to 104.67% of the principal amount plus interest from December 1, 2000.
Note 3 - Common Stock
Dividend Reinvestment and Stock Purchase Plan: The Dividend Reinvestment and Stock Purchase Plan (Reinvestment Plan)
allows parties interested in owning Questar common stock to reinvest dividends or invest additional funds in common stock. The
Company can use unissued shares or purchase shares in the open market in order to meet shareholders' purchase demands. The
Reinvestment Plan issued total shares of 322,062, 371,985 and 329,794 in 2000, 1999 and 1998, respectively. At December 31,
2000, 1,920,761 shares were reserved for future issuance.
Employee Investment Plan: The Employee Investment Plan (Plan) allows eligible employees to purchase shares of Questar
Corporation common stock or other investments through payroll deduction. Since January 1, 1999, the Company has matched 80%
of employees-pretax purchases up to a maximum of 6%. Prior to that date, the Company matched 75% of employees' eligible
contributions. The Company's expense equals its matching contribution. Questar's expense and contribution to the Plan amounted
to $5,042,000, $4,713,000 and $4,542,000 for the years ended December 31, 2000, 1999 and 1998, respectively.
Stock Plans: The Company has a Long-term Stock Incentive Plan for officers and employees and a Stock Option Plan for
nonemployee directors (Stock Plans). The number of shares made available for a given year for options or other stock awards
under the Long-term Stock Incentive Plan is 1% of the outstanding shares of common stock on the first day of the calendar year.
The current plan was amended March 1, 2011, subject to shareholders approval. The option price equals the market price of the
stock on the grant date. Stock options for employees have a 10-year life and vest in four equal annual installments beginning six
months after grant date. Nonemployee directors may receive shares of common stock instead of cash in payment for directors
fees under a separate plan. At December 31, 2000 there were 90,729 shares available for future issuance under this plan.
No compensation expense is recorded for stock options issued to employees or directors because the exercise price equals the
market price on the date of issue. If compensation expense had been recorded, it would be based on an estimate of the fair value
of stock options granted and would reduce earnings per share by $.03 in 2000 and 1998 and $.02 in 1999. For purposes of the
pro-forma expense, the weighted average fair value of the options was amortized over the vesting period. The pro-forma
estimates rely upon subjective assumptions and the use of a mathematical model to estimate value, and may not be representative
of future results.
Transactions involving option shares in the Stock Plans are summarized as follows:
Weighted
Average
Shares Price Range Exercise
Price
Balance at January 1, 1998 2,940,610 $ 9.81-$19.13 $16.22
Granted 857,800 21.38 21.38
Cancelled (77,200) 13.69- 21.38 17.33
Exercised (437,209) 9.81- 16.81 14.72
Balance at December 31, 1998 3,284,001 9.81- 21.38 17.74
Granted 866,400 17.00 17.00
Cancelled (82,900) 9.81- 21.38 17.94
Exercised (138,445) 9.81- 16.81 14.44
Balance at December 31, 1999 3,929,056 9.81- 21.38 17.69
Granted 1,289,050 15.00 15.00
Cancelled (89,254) 13.69- 21.38 17.19
Exercised (1,301,361) 9.81- 21.38 15.99
Balance at December 31, 2000 3,827,491 $9.81-$21.38 $17.37
Exercisable at December 31, 2000 2,464,368 $17.98
Available for future grant at
December 31, 2000 1,191,636
The stock options at December 31, 2000 had a weighted average remaining life of 4.6 years. The fair value of the stock options
was determined on the grant date using the Black-Scholes option-valuation model. The calculated fair value of options granted and
major assumptions used in the model at the date of grant were as follows:
2000 1999 1998
Fair value of options at grant date $3.38 $3.16 $3.94
Risk-free interest rate 6.79% 5.11% 5.56%
Expected price volatility 25.1% 20.6% 20.2%
Expected dividend yield 4.53% 3.88% 3.09%
Expected life in years 7.0 7.2 4.4
In addition to stock options, the Company issued restricted shares to officers and employees as part of its payment of bonuses.
Compensation expense is recorded when the bonus is earned. Restricted stock vests in two equal, annual installments beginning
one year after grant. Stock is issued at the market price on date of grant. Recipients of restricted stock awards are entitled to full
voting rights and receipt of dividends.
2000 1999 1998
Shares of restricted stock awarded 46,053 16,919 7,620
Market price at award date $28.01 $15.00 $17.00
Shareholder Rights: On February 13, 1996, Questar's Board of Directors declared a stock-right dividend for each outstanding
share of common stock. The stock rights were issued March 25, 1996. The rights become exercisable if a person, as defined,
acquires 15% or more of the Company's common stock or announces an offer for 15% or more of the common stock. Each right
initially represents the right to buy one share of the Company's common stock for $87.50. Once any person acquires 15% or more
of the Company's common stock, the rights are automatically modified. Each right not owned by the 15% owner becomes
exercisable for the number of shares of Questar's stock that have a market value equal to two times the exercise price of the
right. This same result occurs if a 15% owner acquires the Company through a reverse merger when Questar and its stock
survive. If the Company is involved in a merger or other business combination at any time after the rights become exercisable,
rightsholders will be entitled to buy shares of common stock in the acquiring company having a market value equal to twice the
exercise price of each right. The rights may be redeemed by the Company at a price of $.005 per right until 10 days after a person
acquires 15% ownership of the common stock. The rights expire March 25, 2006.
Note 4 - Financial Instruments and Risk Management
The carrying value and estimated fair values of the Company's financial instruments were as follows:
December 31, 2000 December 31, 1999
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
(In Thousands)
Financial assets
Cash and cash equivalents $9,416 $9,416 $8,291 $8,291
Financial liabilities
Short-term loans 209,139 209,139 144,115 144,115
Long-term debt 714,545 735,554 735,050 728,273
Gas and oil price-hedging contracts (98,000) (6,200)
The Company used the following methods and assumptions in estimating fair values: Cash and cash equivalents and short-term
loans - the carrying amount approximates fair value; Long-term debt - the carrying amount of variable-rate debt approximates fair
value. The fair value of fixed-rate debt is based on quoted market prices, and on the discounted present value of cash flows using
the Company's current borrowing rates; Gas and oil price-hedging contracts - the mark-to-market adjustment of contracts is based
on market prices as posted on the NYMEX from the last trading day of the year.
The average price of the oil contracts at December 31, 2000, was $18.30 per barrel and was based on the average of fixed
amounts in contracts which settle against the NYMEX. All oil contracts relate to Company-owned production where basis
adjustments would result in a net to the well price of $17.20 per barrel. The average price of the gas contracts at December 31,
2000 was $3.87 per MMBtu representing the average of contracts with different terms including fixed, various "into the pipe"
postings and NYMEX references. Gas-hedging contracts were in place for Market Resources-owned production and
gas-marketing transactions. Removing transportation and heat-value adjustments on the hedges of Company-owned gas as of
December 31, 2000, would result in a price between $2.90 and $3.15 per Mcf, net back to the well.
Fair value is calculated at a point in time and does not represent the amount the Company would pay to retire the debt securities.
In the case of gas and oil price-hedging activities, the fair value calculation does not consider the the fair value of the
corresponding scheduled physical transactions (i.e., the correlation between the index price and the price to be realized for the
physical delivery of gas or oil production).
Energy-Price Risk Management
Market Resources held hedge contracts covering the price exposure for about 50.5 million dth of gas and 1 million barrels of oil at
December 31, 2000. A year earlier the contracts covered 72.1 million dth of natural gas and 2.4 million barrels of oil. The hedging
contracts exist for a significant share of Questar-owned gas and oil production and for a portion of gas-marketing transactions.
The contracts at December 31, 2000, had terms extending through December 2003, with about 91% of those contracts expiring by
the end of 2001. A primary objective of energy-price hedging is to protect product sales from adverse changes in energy prices.
The Company does not enter into hedging contracts for speculative purposes.
Securities Available for Sale
Securities available for sale represent equity instruments traded on national exchanges. The value of these investments is subject
to day-to-day market volatility. Common shares of Nextel Communications, XO Communications and ParkerVision represented
the Company's primary investments. At December 31, 2000, the Company holdings amounted to 803,000 shares of Nextel,
214,000 shares of ParkerVision and 237,000 shares of XO.
Credit Risk.
The Company's primary market areas are the Rocky Mountain regions of the United States and Canada and the Midcontinent
region of the United States. Exposure to credit risk may be impacted by the concentration of customers in these regions due to
changes in economic or other conditions. Customers include individuals and numerous industries that may be affected differently
by changing conditions. Management believes that its credit-review procedures, loss reserves, customer deposits and collection
procedures have adequately provided for usual and customary credit-related losses. Commodity-based hedging arrangements also
expose the Company to credit risk. The Company monitors the creditworthiness of its counterparties, which generally are major
financial institutions, and believes that losses from non-performance are unlikely to occur.
Note 5 - Income Taxes
Details of Questar's income tax expenses and deferred income taxes are provided in the following tables. The components of
income taxes were as follows:
Year Ended December 31,
2000 1999 1998
(In Thousands)
Federal
Current $24,758 $43,326 $39,454
Deferred 49,481 (2,349) (7,160)
State
Current 4,067 6,602 3,918
Deferred 1,053 437 346
Deferred investment tax credits (386) (387) (387)
Foreign income taxes 6,394 159 (7,141)
$85,367 $47,788 $29,030
The difference between income tax expense reported and the tax computed by applying the statutory federal income tax rate of
35% to income before income taxes is explained as follows:
Year Ended December 31,
2000 1999 1998
(In Thousands)
Income before income taxes $242,078 $146,618 $105,929
Federal income taxes at 35% $84,727 $51,316 $37,075
State income taxes, net of federal
income tax benefit 3,328 4,576 2,773
Nonconventional fuel credits (6,453) (7,154) (7,953)
Investment tax credits utilized (386) (387) (387)
Deferred taxes related to regulated
assets that were not provided in
prior years 921 921 922
Tax benefits from dividends paid
to ESOP (398) (840)
Foreign income taxes 2,474 48 (1,061)
Other 756 (1,134) (1,499)
Income tax expense $85,367 $47,788 $29,030
Effective income tax rate 35.3% 32.6% 27.4%
Significant components of the Company's deferred income taxes were as follows:
December 31,
2000 1999
(In Thousands)
Deferred tax liabilities
Property, plant and equipment $256,368 $215,055
Mark-to-market adjustments of securities
available for sale 8,568 24,333
Other 9,826 13,477
Total deferred tax liabilities 274,762 252,865
Deferred tax assets
Write-down of investment
in partnership 11,806 18,706
Alternative minimum tax and nonconventional-
fuel-credit carryforwards 3 2,468
Deferred compensation 7,443 4,910
Depletion and ITC carryforwards 1,995 2,140
Other 11,795 13,693
Total deferred tax assets 33,042 41,917
Deferred income taxes - noncurrent $241,720 $210,948
Deferred income taxes - current
Purchased -gas adjustment $13,515 $164
Cash paid for income taxes was $54,088,000, $35,244,000 and $35,036,000 in 2000, 1999 and 1998, respectively.
Note 6 - Litigation and Commitments
Bridenstine vs. Kaiser-Francis Oil Company On January 4, 2001, a district court judge in Texas County, Oklahoma, approved the
settlement agreement reached by the Questar defendants and Union Pacific Resources Company, predecessor in interest to
Questar Exploration & Production (QE&P), as defendants in the Bridenstine case. Under the terms of the settlement, the
Company and Union Pacific Resources paid a total of $22.5 million ($16.5 million by the Company) to resolve all of the issues in
the litigation. The Questar defendants disputed plaintiffs' claims, but settled the lawsuit to avoid the uncertainty of a jury verdict.
Payment of the settlement funds did not have a material adverse effect on the Company's results of operations, financial position,
or liquidity.
TransColorado case
Questar TransColorado Inc. (QTC) and its partner, KN TransColorado, Inc., (KNTC) in the TransColorado Gas Transmission
Company (TransColorado) are involved in a complex lawsuit that is pending in a state district court in Colorado. At the center of
the lawsuit is the validity of a contractual right claimed by QTC to put its 50% interest in TransColorado to KNTC during the
12-month period beginning March 31, 2001.
KNTC originally filed a lawsuit in June of 2000 alleging that Questar Pipeline and its affiliates breached their fiduciary duties to
TransColorado and KNTC by developing a plan to construct and operate a new pipeline that would compete with TransColorado,
rendering TransColorado economically unviable. KNTC is seeking damages in excess of $150 million plus punitive damages; a
declaratory judgment that KNTC's obligation to purchase QTC's interest in the project be declared void and unenforceable; and a
dissolution of the partnership under Colorado
law. QTC and its affiliates subsequently filed a counterclaim and third-party complaint against KNTC and named affiliates,
including Kinder Morgan, Inc., seeking a declaratory judgment
that its contractual right to exercise the put is binding and enforceable and damages of at least $185 million.
The trial judge denied the motion filed by the Questar defendants to stay the proceedings and remove some issues to be
considered by the FERC. The parties have entered into a standstill agreement that preserves the claims made by Questar and by
KNTC pending the resolution of the litigation. On December 31, 2000, QTC gave notice of its election to exercise its contractual
right to sell its 50% interest in TransColorado to KNTC. The parties have agreed to hire an outside party to operate the
TransColorado pipeline during the pending litigation. The trial is scheduled for February of 2002.
Grynberg lawsuits
Questar affiliates are named defendants in a lawsuit filed by independent gas producer Jack J. Grynberg under the Federal False
Claims Act. This case and the 75 substantially similar cases filed by Grynberg against pipelines and their affiliates have been
consolidated for discovery and pre-trial rulings in Wyoming federal district court. The cases involve allegations of industry wide
mismeasurement and undervaluation of gas on which royalty payments are due the federal government. The complaint seeks
treble damages and imposition of civil penalties. The Wyoming district court judge has not ruled on the defendants' motion to
dismiss.
Grynberg has filed a case against Questar Pipeline, Questar Energy Trading and Questar Gas Management in Utah state district
court, alleging mismeasurement of gas volumes attributable to his working ownership interest in a specified property in
southwestern Wyoming. Grynberg alleges breach of contract, negligent misrepresentation, fraud, breach of fiduciary duty, etc. On
March 8, 2001, the trial judge granted defendants' motion to dismiss a case by Grynberg.
It is too early to estimate the outcome of the other cases filed by Grynberg against Questar affiliates.
There are various other legal proceedings against Questar and its subsidiaries. While it is not currently possible to predict or
determine the outcomes of these proceedings, it is the opinion of management that the outcomes will not have a materially adverse
effect on the Company's results of operations, financial position or liquidity.
Commitments
Historically, 45% to 50% of Questar Gas's gas-supply portfolio has been provided from company-owned gas reserves at the cost
of service. The remainder of the gas supply has been purchased from various suppliers under agreements with a duration of one
year or less and index-based pricing. Generally, at the conclusion of the heating season and after a bid process, new agreements
for the upcoming heating season are put into place. Questar Gas bought significant quantities of natural gas under purchase
agreements amounting to $184 million, $93 million and $100 million in 2000, 1999 and 1998, respectively. In addition, Questar Gas
makes use of various storage arrangements to meet peak-gas demand during certain times of the heating season.
Questar Energy Trading has contracted for firm-transportation services with various pipelines to transport 76.2 Mdths per day of
gas. The contracts extend for the next six years and have an annual cost of approximately $3 million. Due to market conditions
and competition, it is possible that Questar Energy Trading may be unable to sell enough gas to fully utilize the contracted capacity.
Questar sold its headquarters building under a sale and lease-back arrangement in November 1998. The operating agreement
commits the Company to occupy the building for the next 11 years with an option for renewal. The minimum future payments
under the terms of long-term operating leases for the Company's primary office locations, including its headquarters building, for
the five years following December 31, 2000, are as follows:
(In Thousands)
2001 $4,507
2002 4,314
2003 4,155
2004 3,677
2005 3,633
Thereafter 37,121
Total minimum future rental payments have not been reduced for sublease rental receipts of $187,000, and $24,000, which are
expected to be received in the years ended December 31, 2001, and 2002, respectively. Total rental expense amounted to
$4,402,000 in 2000, $4,321,000 in 1999 and $563,000 in 1998. Sublease rental receipts were $96,000 in 2000 and $94,000 in 1999.
Note 7 - Rate Regulation and Other Matters
State rate regulation
On August 11, 2000, the Public Service Commission of Utah (PSCU) issued an order in the general rate case filed by Questar
Gas. The PSCU granted $13.5 million in general rate relief and authorized an 11% return on equity. The $13.5 million in general
rate relief includes the $7.1 million in interim rate relief that Questar Gas was authorized to collect, subject to refund, effective
January 1, 2000. The PSCU's order allows Questar Gas to collect $5 million of carbon-dioxide-processing costs yearly.
In February 2000, the Public Service Commission of Wyoming (PSCW) reaffirmed Questar Gas's 11.83% authorized return on
equity in a general rate case filing and approved the request for a $377,000 rate reduction. Cost efficiencies and slower population
growth in Wyoming compared with Utah, enabled Questar Gas to reduce its rates in Wyoming. The PSCW's rate-ruling also
ordered the Company to transfer the recovery of carbon dioxide gas processing costs from gas costs to general rates beginning
April 2000.
Questar Gas routinely files semi-annual applications with the PSCU and the PSCW requesting permission to reflect annualized gas
cost increases or decreases depending on gas prices. These requests for gas cost increases or decreases are passed on to
customers on a dollar-for-dollar basis with no markup.
On May 31, 2000, Questar Gas filed with the PSCW to reflect annualized gas costs of $11.1 million in rates for Wyoming
customers. The filing reflected a $53,000 increase from the previous filing. The PSCW authorized Questar Gas to reflect the
request in rates effective July 1, 2000. On June 14, 2000, Questar Gas filed a request with the PSCU to reflect annualized gas
costs of $286.6 million in rates for Utah customers effective July 1, 2000. The request slightly decreased rates for residential and
commercial customers. However, the PSCU, by an interim order, chose to make no adjustment in rates.
Due to the rapidly rising gas prices caused by a high demand for energy, Questar Gas filed an out-of-period pass-on application on
September 19, 2000, with the PSCW seeking approval to reflect an increase of annualized gas costs of $2.5 million in rates for
Wyoming customers. The PSCW authorized the requested gas-cost increase in rates effective October 1, 2000. On September 20,
2000, Questar Gas filed a special pass-through application with the PSCU requesting permission to reflect annualized gas cost
increases of $63.5 million in rates for Utah customers. The PSCU, by interim order, authorized Questar Gas to reflect the increase
in rates effective October 1, 2000.
As a result of a continuing growing demand for energy and the accompanying pressure on energy prices, Questar Gas filed on
December 19, 2000, with the PSCU to reflect a $167.5 million increase of annualized gas cost in rates for Utah customers. The
PSCU, by interim order, authorized Questar Gas to reflect the increase in rates effective January 1, 2001. On December 19, 2000,
Questar Gas filed an application with the PSCW to increase gas costs in Wyoming rates by $7.1 million. The PSCW authorized
the increase in Wyoming gas rates effective January 1, 2001.
Federal rate regulation
The Federal Energy Regulatory Commission (FERC) issued a final order granting a certificate of public convenience and
necessity to Questar's Southern Trails Pipeline. The FERC's July 28, 2000, ruling came after the agency became satisfied that the
pipeline was in the public convenience and necessity and could be completed in an environmentally sound manner. The California
State Lands Commission has formally certified the Environmental Impact Report for the Southern Trails Pipeline. Questar Pipeline
is actively working on right-of-way issues and exploring marketing opportunities to subscribe Southern Trail's pipeline capacity.
Questar Pipeline has received a preliminary determination from the FERC to construct a 75-mile natural gas pipeline from the
Price area in eastern Utah to a proposed interconnect with Kern River Gas Transmission Co. near Elberta, Utah. A final order is
contingent upon completion of an environmental impact statement. The proposed expansion of Questar Pipeline's interstate system
will parallel an existing Questar pipeline for 57 miles from Price to Payson, Utah. The $80 million project, referred to as Main Line
104, will be 24 inches in diameter, with a maximum operating pressure of 1,400 pounds per square inch.
Note 8 - Employee Benefits
Pension Plan: The Company has a defined-benefit pension plan covering the majority of its employees. Benefits are generally
based on the employee's age at retirement, years of service and highest earnings in a consecutive 72 pay-period interval during the
ten years preceding retirement. The Company's policy is to make contributions to the plan at least sufficient to meet the minimum
funding requirements of the Internal Revenue Code. Plan assets consist principally of equity securities and corporate and U.S.
government debt obligations.
The Company offered early retirement windows to specific groups of employees in 2000, 1999 and 1998. Questar's Regulated
Services has offered early retirement windows to eligible employees in 2000 and 1998. In 2000, a total of 276 employees and
recipients of long-term disability from Questar Gas, Questar Pipeline and Questar Regulated Services elected to retire effective
October
31. The $14.4 million cost of the early retirement window will be amortized over a five-year period in accordance with regulatory
treatment. In 1998, Regulated Services offered an early retirement window that was accepted by 178 eligible employees. The $3.1
million cost of the window is being amortized over a five-year period beginning August 1998.
Questar InfoComm, which conducts telecommunications and information-technology services, announced an early retirement
program effective November 1, 1999. Fifty employees elected to retire and the $2.9 million cost was expensed in 1999.
A summary of pension expense is as follows:
Year Ended December 31,
2000 1999 1998
(In Thousands)
Service cost $7,354 $8,894 $7,746
Interest cost 18,447 18,814 18,617
Expected return on plan assets (23,782) (24,059) (23,016)
Prior service and other costs 1,581 1,365 872
Recognized net actuarial gain (552)
Early retirement expenses 1,340 3,744 530
Pension expense $4,388 $8,758 $4,749
Assumptions used to calculate pension expense were as follows:
2000 1999 1998
Discount rate 7.75% 6.75% 6.75%
Rate of increase in compensation 5.00% 5.00% 5.00%
Long-term return on assets 9.25% 9.25% 8.50%
The status of the pension plan was as follows:
Pension Plan 2000 1999
(In Thousands)
Change in benefit obligation
Projected benefit obligation
at January 1, $246,958 $252,799
Service cost 7,354 8,894
Interest cost 18,447 18,814
Plan amendments 8,153 2,164
Change in discount rate assumption (42,321)
Actuarial loss 34,096 35,264
Benefits paid (11,275) (11,469)
Early retirement settlements paid (80,946) (17,187)
Projected benefit obligation
at December 31, 222,787 246,958
Change in plan assets
Fair value of plan assets
at January 1, 274,907 264,632
Actual return on plan assets 4,284 32,831
Contributions to the plan 3,000 6,100
Benefits paid (11,275) (11,469)
Early retirement settlements paid (80,946) (17,187)
Fair value of plan assets
at December 31, 189,970 274,907
Plan assets less the projected
benefit obligation (32,817) 27,949
Unrecognized net actuarial
(gain) loss 3,053 (36,724)
Unrecognized prior-service cost 19,138 12,424
Unrecognized transition obligation 67 210
(Current liability) prepaid
pension expense ($10,559) $3,859
Postretirement Benefits Other Than Pensions: Postretirement health-care benefits and life insurance are provided only to
employees hired before January 1, 1997. The Company pays a portion of the costs of health-care benefits, as determined by an
employee's years of service, and limited to 170% of the 1992 contribution. The Company's policy is to fund amounts allowable for
tax deduction under the Internal Revenue Code. Plan assets consist of equity securities and corporate and U.S. government debt
obligations. The Company is amortizing its transition obligation over a 20-year period, which began in 1992.
Regulated Services accounts for approximately 50% of the postretirement benefit costs. The impact of postretirement benefit
costs on Questar's future net income will be mitigated by the ability to recover these costs from customers. The regulatory
agencies allow Questar Gas and Questar Pipeline to recover future costs if the amounts are funded in external trusts.
A summary of the expense of postretirement benefits other than pensions follows:
Year Ended December 31,
2000 1999 1998
(In Thousands)
Service cost $823 $1,006 $1,138
Interest cost 4,979 4,545 4,094
Expected return on plan assets (3,241) (2,831) (1,830)
Amortization of transition obligation 1,877 1,877 1,878
Amortization of regulatory liability 523
Postretirement-benefit expense $4,438 $5,120 $5,280
Assumptions used to calculate postretirement benefit expense were as follows:
2000 1999 1998
Discount rate 7.75% 6.75% 6.75%
Long-term return on assets 9.25% 9.25% 8.50%
Health care inflation rate 10.00% 10.50% 11.00%
decreasing decreasing decreasing
to 6.5% to 5.5% to 5.5%
by 2008 by 2010 by 2010
A 1% increase in the health-care inflation rate would increase the service cost and interest cost by $290,000 and the accumulated
postretirement benefit obligation by $3.3 million. A 1% decrease in the health-care inflation rate would decrease the service cost
and interest cost by $210,000 and the accumulated postretirement benefit obligation by $2.8 million. The status of the
postretirement benefit programs was as follows:
Postretirement Benefits Other Than Pensions
(In Thousands)
Change in benefit obligation
Projected benefit obligation
at January 1, $66,169 $64,245
Service cost 823 1,006
Interest cost 4,979 4,545
Actuarial gain (701) (498)
Benefits paid (3,406) (3,129)
Projected benefit obligation
at December 31, 67,864 66,169
2000 1999
(In Thousands)
Change in plan assets
Fair value of plan assets
at January 1, 35,302 30,845
Actual return on plan assets 389 3,732
Contributions to the plan 3,017 3,854
Benefits paid (3,406) (3,129)
Fair value of plan assets
at December 31, 35,302 35,302
Projected benefit obligation
in excess of plan assets (32,562) (30,867)
Unrecognized transition obligation 22,529 24,406
Unrecognized net gain (2,442) (4,594)
Accrued postretirement benefit
liability recorded in
current liabilities ($12,475) ($11,055)
Postemployment Benefits: The Company recognizes the net present value of the liability for postemployment benefits, such as
long-term disability benefits and health-care and life-insurance costs, when employees become eligible for such benefits.
Postemployment benefits are paid to former employees after employment has been terminated but before retirement benefits are
paid. The Company accrues both current and future costs. In 2000, 14 former employees of Questar Regulated Services and
recipients of postemployment benefits accepted early retirement benefits. Questar's postemployment liability at December 31,
2000, 1999 and 1998 was $1,381,000, $2,347,000 and $2,452,000, respectively.
Note 9 - Wexpro Settlement Agreement
Wexpro's operations are subject to the terms of the Wexpro settlement agreement. The agreement was effective August 1, 1981,
and sets forth the rights of Questar Gas's utility operations to share in the results of Wexpro's operations. The agreement was
approved by the PSCU and PSCW in 1981 and affirmed by the Supreme Court of Utah in 1983. Major provisions of the
settlement agreement are as follows:
a. Wexpro continues to hold and operate all oil-producing properties previously transferred from Questar Gas's nonutility accounts.
The oil production from these properties is sold at market prices, with the revenues used to recover operating expenses and to give
Wexpro a return on its investment. The after-tax rate of return is adjusted annually and is approximately 13.64%. Any net income
remaining after recovery of expenses and Wexpro's return on investment is divided between Wexpro and Questar Gas, with
Wexpro retaining 46%.
b. Wexpro conducts developmental oil drilling on productive oil properties and bears any costs of dry holes. Oil discovered from
these properties is sold at market prices, with the revenues used to recover operating expenses and to give Wexpro a return on its
investment in successful wells. The after-tax rate of return is adjusted annually and is approximately 18.64%. Any net income
remaining after recovery of expenses and Wexpro's return on investment is divided between Wexpro and Questar Gas, with
Wexpro retaining 46%.
c. Amounts received by Questar Gas from the sharing of Wexpro's oil income are used to reduce natural-gas costs to utility
customers.
d. Wexpro conducts developmental gas drilling on productive gas properties and bears any costs of dry holes. Natural gas
produced from successful drilling is owned by Questar Gas. Wexpro is reimbursed for the costs of producing the gas plus a return
on its investment in successful wells. The after-tax return allowed Wexpro is approximately 21.64%.
e. Wexpro operates natural-gas properties owned by Questar Gas. Wexpro is reimbursed for its costs of operating these
properties, including a rate of return on any investment it makes. This after-tax rate of return is approximately 13.64%.
Note 10 - Operations by Line of Business
Following is a summary of operations by line of business for the Year Ended December 31.
Questar Regulated Services
Questar Natural Gas Natural Gas Other Corporate Intercompany Questar
Market Distri- Trans- & Other Transactions Consol-
Resources bution mission Operations idated
(In Thousands)
2000
Revenues
From unaffiliated customers $649,200 $531,988 $42,500 $3,642 $38,823 $1,266,153
From affiliated companies 92,853 4,774 76,576 283 34,586 ($209,072)
742,053 536,762 119,076 3,925 73,409 (209,072) 1,266,153
Operating expenses
Cost of natural gas and
other products sold 369,752 334,193 2,253 24,640 (168,609) 562,229
Operating and maintenance 106,703 101,486 43,761 1,668 33,506 (35,705) 251,419
Depreciation and amortization 84,475 34,450 15,391 35 7,590 141,941
Other expenses 41,020 10,213 3,071 35 1,073 (4,758) 50,654
Total operating expenses 601,950 480,342 62,223 3,991 66,809 (209,072) 1,006,243
Operating income (loss) 140,103 56,420 56,853 (66) 6,600 259,910
Interest and other income 10,631 1,673 3,025 1,349 36,926 (11,922) 41,682
Income from unconsolidated
affiliates 2,776 1,220 3,996
Debt expense (22,922) (21,041) (17,584) (722) (13,163) 11,922 (63,510)
Income tax expense (45,546) (12,889) (13,689) (217) (13,026) (85,367)
Net income $85,042 $24,163 $29,825 $344 $17,337 $156,711
Identifiable assets $1,027,509 $830,889 $538,408 $19,640 $122,599 $2,539,045
Investment in unconsolidated
affiliates 15,417 19,088 34,505
Capital expenditures 195,970 65,767 43,035 1,167 17,814 323,753
1999
Revenues
From unaffiliated customers $418,603 $447,606 $36,922 $2,260 $18,828 $924,219
From affiliated companies 79,708 2,331 75,238 196 38,851 ($196,324)
498,311 449,937 112,160 2,456 57,679 (196,324) 924,219
Operating expenses
Cost of natural gas and
other products sold 239,201 257,265 774 9,651 (154,337) 352,554
Operating and maintenance 79,916 103,308 38,534 1,700 37,516 (39,695) 221,279
Depreciation and amortization 78,608 36,426 16,743 14 5,953 137,744
Other expenses 23,808 7,625 2,488 24 1,071 (2,292) 32,724
Total operating expenses 421,533 404,624 57,765 2,512 54,191 (196,324) 744,301
Operating income (loss) 76,778 45,313 54,395 (56) 3,488 179,918
Interest and other income 4,272 2,980 4,229 1,014 73,406 (11,201) 74,700
Income (loss) from
unconsolidated affiliates 763 (5,109) (10) (4,356)
Write-down of investment
in partnership (49,700) (49,700)
Debt expense (17,363) (20,062) (17,466) (605) (9,649) 11,201 (53,944)
Income tax (expense) credit (18,584) (9,012) 5,260 (102) (25,350) (47,788)
Net income (loss) $45,866 $19,219 ($8,391) $251 $41,885 $98,830
Identifiable assets $831,186 $722,290 $517,981 $11,423 $155,117 $2,237,997
Investment in unconsolidated
affiliates 13,301 11,724 244 25,269
Capital expenditures 134,269 68,447 50,424 1,385 13,479 268,004
1998
Revenues
From unaffiliated customers $382,791 $475,754 $37,156 $2,355 $8,200 $906,256
From affiliated companies 75,481 1,069 71,401 99 39,707 ($187,757)
458,272 476,823 108,557 2,454 47,907 (187,757) 906,256
Operating expenses
Cost of natural gas and
other products sold 230,462 281,004 1,249 1,515 (146,298) 367,932
Operating and maintenance 74,863 96,923 38,832 2,269 37,113 (40,406) 209,594
Depreciation and amortization 71,377 33,261 13,927 17 6,575 125,157
Write-down of full-cost oil
and gas properties 34,000 34,000
Other expenses 26,041 8,185 2,600 1,019 (1,053) 36,792
Total operating expenses 436,743 419,373 55,359 3,535 46,222 (187,757) 773,475
Operating income (loss) 21,529 57,450 53,198 (1,081) 1,685 132,781
Interest and other income 3,638 3,566 78 655 22,756 (12,491) 18,202
Income (loss) from
unconsolidated affiliates (930) 4,011 (164) 2,917
Debt expense (12,631) (19,792) (14,456) (385) (13,198) 12,491 (47,971)
Income tax (expense) credit 2,131 (13,816) (14,940) 339 (2,744) (29,030)
Net income (loss) $13,737 $27,408 $27,891 ($472) $8,335 $76,899
Identifiable assets $778,694 $699,727 $556,226 $8,519 $118,115 $2,161,281
Investment in unconsolidated
affiliates 3,673 54,712 253 58,638
Capital expenditures 254,546 76,328 114,318 493 15,662 461,347
Questar Market Resources has subsidiaries that conducts gas and oil exploration and production activities in western Canada.
Canadian operations reported revenues, measured in U. S. dollars, totaling $38.1 million, $12.3 million and $10.5 million for the 12
months ended December 31, 2000, 1999, and 1998, respectively. Total assets at December 31, stated in U. S. dollars, amounted to
$120 million, $40.3 million and $36.9 million in 2000, 1999 and 1998, respectively.
Note 11 - Quarterly Financial and Stock Price Information (Unaudited)
Following is a summary of quarterly financial and stock price data.
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
(Dollars In Thousands, Except Per Share Amounts)
2000
Revenues $336,702 $232,542 $245,117 $451,792 $1,266,153
Operating income 82,140 45,049 45,344 87,377 259,910
Net income 50,230 26,205 27,263 53,013 156,711
Basic earnings per common share 0.62 0.33 0.34 0.66 1.95
Diluted earnings per common share 0.62 0.33 0.34 0.65 1.94
Dividends per common share 0.17 0.17 0.17 0.18 0.69
Market price per common share
High $19.00 $20.63 $28.00 $31.88 $31.88
Low $13.56 $17.13 $18.88 $26.00 $13.56
Close $18.56 $19.38 $27.81 $30.06 $30.06
Price-earnings ratio on closing price 14.4 14.4 18.5 15.4 15.4
Annualized dividend yield on closing price 3.7% 3.5% 2.4% 2.3% 2.3%
Market-to-book ratio on closing price 1.56 1.62 2.33 2.45 2.45
Average number of common shares traded
per day 233 169 237 280 230
1999
Revenues $277,814 $177,858 $183,070 $285,477 $924,219
Operating income 67,362 30,549 27,396 54,611 179,918
Net income 43,364 23,070 15,102 17,294 98,830
Basic earnings per common share 0.52 0.28 0.19 0.21 1.20
Diluted earnings per common share 0.52 0.28 0.18 0.21 1.20
Dividends per common share 0.165 0.165 0.17 0.17 0.67
Market price per common share
High $19.38 $19.94 $19.63 $19.13 $19.94
Low $16.13 $15.81 $17.88 $14.75 $14.75
Close $16.94 $19.13 $18.13 $15.00 $15.00
Price-earnings ratio on closing price 17.8 18.4 16.2 12.5 12.5
Annualized dividend yield on closing price 3.9% 3.5% 3.8% 4.5% 4.5%
Market-to-book ratio on closing price 1.52 1.69 1.58 1.32 1.32
Average number of common shares traded
per day 201 147 138 179 166
1998
Revenues $300,083 $179,157 $150,282 $276,734 $906,256
Operating income 67,056 25,084 18,173 22,468 132,781
Net income 40,882 16,196 8,235 11,586 76,899
Basic earnings per common share 0.50 0.19 0.10 0.14 0.93
Diluted earnings per common share 0.49 0.19 0.10 0.14 0.93
Dividends per common share 0.1575 0.165 0.165 0.165 0.6525
Market price per common share
High $22.28 $22.38 $19.81 $20.38 $22.38
Low $20.19 $18.69 $15.81 $17.38 $15.19
Close $20.78 $19.63 $19.25 $19.38 $19.38
Price-earnings ratio on closing price 16.4 15.1 15.9 20.8 20.8
Annualized dividend yield on closing price 3.2% 3.4% 3.4% 3.4% 3.4%
Market-to-book ratio on closing price 1.94 1.84 1.82 1.82 1.82
Average number of common shares traded
per day 171 165 169 188 173
Note 12 - Supplemental Oil and Gas Information (Unaudited)
The Company uses the full-cost accounting method for the majority of its oil and gas exploration and development activities.
However, as ordered by the Public Service Commission of Utah, the successful efforts method of accounting is utilized with
respect to costs associated with certain cost- of-service oil and gas properties managed and developed by Wexpro and regulated
for ratemaking purposes. Cost-of-service oil and gas properties are those properties for which the operations and return on
investment are regulated by the Wexpro settlement agreement (See Note 9).
Oil and Gas Exploration and Development Activities: The following information is provided with respect to Questar's oil and gas
exploration and development activities, located in the United States and Canada.
Capitalized Costs
The aggregate amounts of costs capitalized for oil and gas exploration and development activities and the related amounts of
accumulated depreciation and amortization follow:
As of December 31, United State Canada Total
(In Thousands)
2000
Proved properties $962,942 $119,067 $1,082,009
Unproved properties 48,429 27,787 76,216
Support equipment and facilities 12,002 1,177 13,179
1,023,373 148,031 1,171,404
Accumulated depreciation and amortization 558,884 42,736 601,620
$464,489 $105,295 $569,784
1999
Proved properties $885,333 $58,016 $943,349
Unproved properties 58,248 11,529 69,777
Support equipment and facilities 12,418 990 13,408
955,999 70,535 1,026,534
Accumulated depreciation and amortization 509,976 34,515 544,491
$446,023 $36,020 $482,043
1998
Proved properties $869,514 $48,723 $918,237
Unproved properties 49,724 12,763 62,487
Support equipment and facilities 13,949 929 14,878
933,187 62,415 995,602
Accumulated depreciation and amortization 469,555 29,163 498,718
$463,632 $33,252 $496,884
Unproved Properties Excluded from Full-Cost Amortization
Unproved properties are excluded from full cost
amortization until evaluated. A summary of costs excluded
from amortization at December 31, 2000, and the period in
which these costs were incurred are listed below by cost
center:
Year Costs Incurred
1997 and
Total 2000 1999 1998 Prior
(In Thousands)
United States
Acquisition $35,387 $2,932 $7,266 $17,689 $7,500
Exploration 13,042 2,340 2,967 1,868 5,867
48,429 5,272 10,233 19,557 13,367
Canada
Acquisition 23,786 14,903 71 534 8,278
Exploration 4,002 2,703 125 382 792
27,788 17,606 196 916 9,070
Total U. S. and Canada $76,217 $22,878 $10,429 $20,473 $22,437
Costs Incurred
The following costs were incurred in oil and gas exploration and development activities:
Year Ended December 31, United
States Canada Total
(In Thousands)
2000
Property acquisition
Unproved $3,082 $14,885 $17,967
Proved 1,202 31,900 33,102
Exploration 5,412 3,078 8,490
Development 65,709 30,470 96,179
$75,405 $80,333 $155,738
1999
Property acquisition
Unproved $12,547 $351 $12,898
Proved 3,746 18 3,764
Exploration 7,467 501 7,968
Development 53,488 3,745 57,233
$77,248 $4,615 $81,863
United
States Canada Total
(In Thousands)
1998
Property acquisition
Unproved $29,367 $145 $29,512
Proved 126,723 3,144 129,867
Exploration 10,055 1,222 11,277
Development 43,090 5,363 48,453
$209,235 $9,874 $219,109
Results of Operations
Following are the results of operations of Market Resources' oil and gas exploration and development activities, before corporate
overhead and interest expenses. The Company recorded write-downs of its full-cost oil and gas properties in accordance with the
limitation of its full-cost ceiling in 1998.
United
States Canada Total
Year Ended December 31, 2000 (In Thousands)
Revenues
From unaffiliated customers $207,656 $38,072 $245,728
From affiliates 18 18
Total revenues 207,674 38,072 245,746
Production expenses 49,116 9,370 58,486
Depreciation and amortization 54,942 9,677 64,619
Total expenses 104,058 19,047 123,105
Revenues less expenses 103,616 19,025 122,641
Income taxes - Note A 33,890 10,939 44,829
Results of operations before corporate
overhead and interest expenses $69,726 $8,086 $77,812
Year Ended December 31, 1999
Revenues $150,159 $12,316 $162,475
Production expenses 41,948 3,681 45,629
Depreciation and amortization 57,545 3,512 61,057
Total expenses 99,493 7,193 106,686
Revenues less expenses 50,666 5,123 55,789
Income taxes - Note A 13,616 2,567 16,183
Results of operations before corporate
overhead and interest expenses $37,050 $2,556 $39,606
Year Ended December 31, 1998
Revenues $125,035 $10,474 $135,509
Production expenses 38,788 3,004 41,792
Depreciation and amortization 49,740 5,275 55,015
Write-down of oil and gas properties 19,000 15,000 34,000
Total expenses 107,528 23,279 130,807
Revenues less expenses 17,507 (12,805) 4,702
Income taxes - Note A 1,191 (5,263) (4,072)
Results of operations before corporate
overhead and interest expenses $16,316 ($7,542) $8,774
Note A - Income tax expenses have been reduced by nonconventional fuel tax credits of $4,655,000 in 2000, $5,282,000 in 1999
and $5,736,000 in 1998.
Estimated Quantities of Proved Oil and Gas Reserves
Estimates of the reserves located in the United States were made by Ryder Scott Company, H. J. Gruy and Associates, Inc.,
Netherland, Sewell & Associates, and Malkewicz Hueni Associates, Inc., independent reservoir engineers. Estimated Canadian
reserves were prepared by Gilbert Laustsen Jung Associates Ltd. and Sproule Associates Ltd. Reserve estimates are based on a
complex and highly interpretive process that is subject to continuous revision as additional production and development-drilling
information becomes available. The quantities reported below are based on existing economic and operating conditions at
December 31. All oil and gas reserves reported were located in the United States and Canada. The Company does not have any
long-term supply contracts with foreign governments or reserves of equity investees.
Oil
United Natural Gas United Oil Total
States Canada Total States Canada
(MMcf) (MBbls)
Proved Reserves
Balance at January 1, 1998 357,529 21,134 378,663 12,664 2,435 15,099
Revisions of estimates 378 (3,568) (3,190) (3,165) 238 (2,927)
Extensions and discoveries 28,598 1,984 30,582 442 261 703
Purchase of reserves in place 129,207 5,110 134,317 3,720 71 3,791
Sale of reserves in place (440) (440) (76) (76)
Production (48,584) (2,725) (51,309) (1,936) (404) (2,340)
Balance at December 31, 1998 466,688 21,935 488,623 11,649 2,601 14,250
Revisions of estimates 4,155 (106) 4,049 4,031 372 4,403
Extensions and discoveries 77,737 1,720 79,457 794 257 1,051
Purchase of reserves in place 17,020 17,020 130 130
Sale of reserves in place (11,984) (11,984) (3,665) (3,665)
Production (59,839) (2,873) (62,712) (1,876) (435) (2,311)
Balance at December 31, 1999 493,777 20,676 514,453 11,063 2,795 13,858
Revisions of estimates 25,662 (7,890) 17,772 221 (64) 157
Extensions and discoveries 123,155 2,511 125,666 1,532 208 1,740
Purchase of reserves in place 846 52,000 52,846 1 1,520 1,521
Sale of reserves in place (1,885) (1,885) (17) 0 (17)
Production (61,722) (7,241) (68,963) (1,484) (741) (2,225)
Balance at December 31, 2000 579,833 60,056 639,889 11,316 3,718 15,034
Proved-Developed Reserves
Balance at January 1, 1998 300,550 16,670 317,220 10,769 1,851 12,620
Balance at December 31, 1998 411,826 17,835 429,661 10,443 2,281 12,724
Balance at December 31, 1999 412,008 17,076 429,084 9,897 2,565 12,462
Balance at December 31, 2000 434,122 55,623 489,745 9,696 3,077 12,773
Standardized Measure of Future Net Cash Flows Relating to Proved Reserves
Future net cash flows were calculated at December 31 using year-end prices and known contract-price changes. The year-end
prices do not include any impact of hedging activities. Year-end production costs, development costs and appropriate statutory
income tax rates, with consideration of future tax rates already legislated, were used to compute the future net cash flows. All
cash flows were discounted at 10% to reflect the time value of cash flows, without regard to the risk of specific properties.
The assumptions used to derive the standardized measure of future net cash flows are those required by accounting standards and
do not necessarily reflect the Company's expectations. The usefulness of the standardized measure of future net cash flows is
impaired because of the reliance on reserve estimates and production schedules that are inherently imprecise.
Year Ended December 31, United
States Canada Total
(In Thousands)
2000
Future cash inflows $5,412,945 $568,771 $5,981,716
Future production costs (955,827) (73,583) (1,029,410)
Future development costs (107,355) (2,900) (110,255)
Future income tax expenses (1,493,301) (225,234) (1,718,535)
Future net cash flows 2,856,462 267,054 3,123,516
10% annual discount to reflect
timing of net cash flows (1,314,258) (117,637) (1,431,895)
Standardized measure of discounted
future net cash flows $1,542,204 $149,417 $1,691,621
1999
Future cash inflows $1,332,761 $108,990 $1,441,751
Future production costs (398,591) (28,280) (426,871)
Future development costs (61,034) (3,146) (64,180)
Future income tax expenses (183,767) (11,656) (195,423)
Future net cash flows 689,369 65,908 755,277
10% annual discount to reflect
timing of net cash flows (283,055) (23,193) (306,248)
Standardized measure of discounted
future net cash flows $406,314 $42,715 $449,029
1998
Future cash inflows $982,404 $66,885 $1,049,289
Future production costs (320,355) (22,088) (342,443)
Future development costs (45,138) (696) (45,834)
Future income tax expenses (74,738) (74,738)
Future net cash flows 542,173 44,101 586,274
10% annual discount to reflect
timing of net cash flows (216,907) (14,809) (231,716)
Standardized measure of discounted
future net cash flows $325,266 $29,292 $354,558
The principal sources of change in the standardized
measure of discounted future net cash flows were:
Year Ended December 31,
2000 1999 1998
(In Thousands)
Beginning balance $449,029 $354,558 $301,162
Sales of oil and gas produced, net
of production costs (187,260) (116,846) (93,717)
Net changes in prices and
production costs 1,636,707 170,012 (53,626)
Extensions and discoveries, less
related costs 492,398 79,511 24,120
Revisions of quantity estimates 70,155 28,665 (14,399)
Purchase of reserves in place 33,102 3,764 129,867
Sale of reserves in place (1,867) (33,043) (540)
Accretion of discount 44,903 35,456 30,116
Net change in income taxes (804,799) (66,293) 11,550
Change in production rate (50,077) (8,859) 6,728
Other 9,330 2,104 13,297
Net change 1,242,592 94,471 53,396
Ending balance $1,691,621 $449,029 $354,558
Cost-of-Service Activities
The following information is provided with respect to cost-of-service oil and gas properties managed and developed by Wexpro
and regulated by the Wexpro settlement agreement. Information on the standardized measure of future net cash flows has not
been included for cost-of-service activities because the operations of and return on investment for such properties are regulated by
the Wexpro settlement agreement.
Capitalized Costs
Capitalized costs for cost-of-service oil and gas properties net of the related accumulated depreciation and amortization were as
follows:
December 31,
2000 1999 1998
(In Thousands)
Wexpro $155,374 $137,584 $129,573
Questar Gas 22,620 25,380 27,739
$177,994 $162,964 $157,312
Costs Incurred
Costs incurred by Wexpro for cost of service oil and gas producing activities were $32,066,000 in 2000, $21,273,000 in 1999 and
$26,956,000 in 1998.
Results of Operations
Following are the results of operations of the Company's cost-of-service gas and oil development activities before corporate
overhead and interest expenses.
Year Ended December 31,
2000 1999 1998
(In Thousands)
Revenues
From unaffiliated companies $15,179 $8,844 $10,025
From affiliates - Note A 73,721 62,335 58,581
Total revenues 88,900 71,179 68,606
Production expenses 27,861 18,548 22,439
Depreciation and amortization 13,922 12,665 11,379
Total expenses 41,783 31,213 33,818
Revenues less expenses 47,117 39,966 34,788
Income taxes 16,923 14,602 12,441
Results of operations before corporate
overhead and interest expenses $30,194 $25,364 $22,347
Note A - Represents revenues received from Questar Gas pursuant to Wexpro Settlement Agreement.
Estimated Quantities of Proved Oil and Gas Reserves
The following estimates were made by the Company's reservoir engineers. No estimates are available for cost of service
proved-undeveloped reserves that may exist.
Natural Gas Oil
(MMcf) (MBbls)
Proved Developed Reserves
Balance at January 1, 1998 337,179 3,049
Revisions of estimates 15,017 (46)
Extensions and discoveries 25,077 333
Production (37,138) (613)
Balance at December 31, 1998 340,135 2,723
Revisions of estimates 5,699 976
Extensions and discoveries 46,739 213
Production (38,890) (623)
Balance at December 31, 1999 353,683 3,289
Revisions of estimates 16,523 504
Extensions and discoveries 50,351 234
Production (41,546) (579)
Balance at December 31, 2000 379,011 3,448
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 23th day of March, 2001.
QUESTAR CORPORATION
(Registrant)
By /s/ R. D. Cash
R. D. Cash
Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the date indicated.
/s/ R. D. Cash Chairman and Chief
R. D. Cash Executive Officer (Principal
Executive Officer)
/s/ S. E. Parks Senior Vice President, Treasurer and Chief
S. E. Parks Financial Officer (Principal Financial
and Accounting Officer)
*R. D. Cash Director
*K. O. Rattie Director
*Teresa Beck Director
*Patrick J. Early Director
*W. W. Hawkins Director
*Robert E. Kadlec Director
*Dixie L. Leavitt Director
*Gary G. Michael Director
*G. L. Nordloh Director
*Scott S. Parker Director
*D. N. Rose Director
*Harris H. Simmons Director
March 23, 2001 *By /s/ R. D. Cash
Date R. D. Cash, Attorney in Fact
EXHIBIT INDEX
Exhibit
Number Description
2.* Plan and Agreement of Merger dated as of December 16, 1986,
by and among the Company, Questar Systems Corporation, and
Universal Resources Corporation. (Exhibit No. (2) to Current
Report on Form 8-K dated December 16, 1986.)
3.1.* Restated Articles of Incorporation as amended effective May
19, 1998. (Exhibit No. 3.1. to Form 10-Q Report for Quarter
ended June 30, 1998.)
3.2.* Bylaws (as amended effective August 11, 1998). (Exhibit No.
3.2. to Form 10-Q Report for Quarter ended June 30, 1998.)
4.1.*1 Rights Agreement dated as of February 13, 1996, between the
Company and Chemical Mellon Shareholder Services L.L.C.
pertaining to the Company's Shareholder Rights Plan.
(Exhibit No. 4. to Current Report on Form 8-K dated February
13, 1996.)
4.2.* Questar Dividend Reinvestment and Stock Purchase Plan.
(Exhibit No. 4. to Current Report on Form 8-K dated February
8, 2000.)
10.1.* Stipulation and Agreement, dated October 14, 1981, executed
by Mountain Fuel; Wexpro; the Utah Department of Business
Regulations, Division of Public Utilities; the Utah Committee
of Consumer Services; and the staff of the Public Service
Commission of Wyoming. (Exhibit No. 10(a) to Mountain Fuel
Supply Company's Form 10-K Annual Report for 1981.)
10.2.2 Questar Corporation Annual Management Incentive Plan, as
amended and restated effective February 13, 2001.
10.3.*2 Questar Corporation Executive Incentive Retirement Plan, as
amended and restated effective May 19, 1998. (Exhibit No.
10.2. to Form 10-Q Report for Quarter Ended June 30, 1998.)
10.4.2 Questar Corporation Long-Term Stock Incentive Plan, as
amended and restated effective March 1, 2001 (subject to the
receipt of shareholder approval.)
10.5.*2 Questar Corporation Executive Severance Compensation Plan, as
amended and restated effective May 19, 1998. (Exhibit No.
10.3. to Form 10-Q Report for Quarter Ended June 30, 1998.)
10.6.2 Questar Corporation Deferred Compensation Plan for Directors,
as amended and restated effective October 26, 2000.
10.7.*2 Questar Corporation Supplemental Executive Retirement Plan,
as amended and restated effective June 1, 1998. (Exhibit No.
10.6. to Form 10-Q Report for Quarter Ended June 30, 1998.)
10.8.*2 Questar Corporation Stock Option Plan for Directors, as
amended and restated effective October 29, 1998. (Exhibit
No. 10.10. to Form 10-Q Report for Quarter Ended September
30, 1998.)
10.9.*2 Form of Individual Indemnification Agreement dated February
9, 1993 between Questar Corporation and Directors. (Exhibit
No. 10.11. to Form 10-K Annual Report for 1992.)
10.10.*2 Questar Corporation Deferred Share Plan, as amended and
restated effective May 19, 1998. (Exhibit No. 10.7. to Form
10-Q Report for Quarter Ended June 30, 1998.)
10.11.2 Questar Corporation Deferred Compensation Plan, as amended
and restated effective October 26, 2000.
10.12.*2 Questar Corporation Directors' Stock Plan as approved May 21,
1996. (Exhibit No. 10.15. to Form 10-Q Report for Quarter
ended June 30, 1996.)
10.13.*2 Questar Corporation Deferred Share Make-Up Plan. (Exhibit
No. 10.8. to Form 10-Q Report for Quarter Ended June 30, 1998.)
10.14.*2 Questar Corporation Special Situation Retirement Plan.
(Exhibit No. 10.10. to Form 10-Q Report for Quarter Ended
June 30, 1998.)
10.15. Employment Agreement between Questar Corporation and Keith O.
Rattie effective February 1, 2001.
21. Subsidiary Information.
23. Consent of Independent Auditors.
24. Power of Attorney.
99.1. Undertakings for Registration Statements on Form S-3 (No. 33-48168) and on Form S-8 (Nos. 33-4436, 33-15149, 33-40800,
33-40801, 33-48169, 333-04913, and 333-04951). *Exhibits so marked have been filed with the Securities and Exchange
Commission as part of the indicated filing and are incorporated herein by reference.
1The name of the Rights Agent has been changed to USBank National Association.
2Exhibit so marked is management contract or compensation plan or arrangement.
(b) The Company did not file any Current Reports on Form 8-K during the last quarter of 2000.
QUESTAR CORPORATION
ANNUAL MANAGEMENT INCENTIVE PLAN
(As amended and restated effective February 13, 2001)
Paragraph 1. Name. The name of this Plan is the Questar Corporation 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 Corporation
(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 or specified portion 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 major 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.
Amounts shall be paid (less appropriate withholding taxes and FICA deductions) according to the following schedule for Plan
years beginning with 2001:
Award Distribution Schedule
Percent of
Award Date
67% As soon as possible after initial
award is determined
33 One year after initial 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, approved retirement, an
award, or a reduction in force, 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 55 with 10 years of
service. 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. A reduction in force, for the purpose of this Plan, shall mean any involuntary termination of employment
due to the Company's economic condition, sale of assets, shift in focus, or other reasons independent of the Participant's
performance.
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, approved retirement, or a reduction in force, 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, approved retirement, or a reduction in force, any shares of common stock previously
credited to a Participant shall be distributed free of
restrictions during the last month 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 in control, he shall be entitled to
receive all amounts deferred by him prior to February 12, 1991, 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.
A Change in Control of the Company shall be deemed to have occurred if (i) any "Acquiring Person" (as such term is defined in
the Rights Agreement dated as of February 13, 1996, between the Company and ChaseMellon Shareholder Services L.L.C.
("Rights Agreement")) is or becomes the beneficial owner (as such term is used in Rule 13d-3 under the Securities Exchange Act
of 1934) of securities of the Company representing 25 percent or more of the combined voting power of the Company; or (ii) the
following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, as of
May 19, 1998, constitute the Company's Board of Directors ("Board") and any new director (other than a director whose initial
assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation,
relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the
Company's stockholders was approved or recommended by a vote of at least two-thirds of the directors then still in office who
either were directors on May 19, 1998, or whose appointment, election or nomination for election was previously so approved or
recommended; or (iii) the Company's stockholders approve a merger or consolidation of the Company or any direct or indirect
subsidiary of the Company with any other corporation, other than a merger or consolidation that would result in the voting
securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by
remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 60 percent
of the combined voting power of the securities of the Company or such surviving entity or its parent outstanding immediately after
such merger or consolidation, or a merger or consolidation effected to implement a recapitalization of the Company (or similar
transaction) in which no person is or becomes the beneficial owner, directly or indirectly, of securities of the Company
representing 25 percent or more of the combined voting power of the Company's then outstanding securities; or (iv) the
Company's stockholders approve a plan of complete liquidation or dissolution of the Company or there is consummated an
agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or
disposition by the Company of all or substantially all of the Company's assets to an entity, at least 60 percent of the combined
voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as
their ownership of the Company immediately prior to such sale. A Change in Control, however, shall not be considered to have
occurred
until all conditions precedent to the transaction, including but not limited to, all required regulatory approvals have been obtained.
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 Thursday closest to the end of the month or other
published source of rates as identified by Questar Corporation's Treasury department.
Paragraph 10. Coordination with Deferred Compensation Plan. Some Participants are entitled to defer the receipt of their cash
bonuses under the terms of the Company'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 awards.
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. Special Limitation. The Company's shareholders have not been asked to approve the Plan. Consequently, awards
payable under the Plan do not constitute performance based compensation under Section 162(m) of the Internal Revenue Code of
1986 as amended. Any portion of an award otherwise payable under this Plan to a Participant who is listed in the compensation
table of the Company's proxy statement will be deferred to the extent that the Company cannot take a tax deduction for it. The
deferred payment will be made as soon as the Company can take a deduction for it.
Paragraph 15. 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.
QUESTAR CORPORATION
LONG-TERM STOCK INCENTIVE PLAN
(As Amended and Restated Effective March 1, 2001)
Section 1. Purpose
The Questar Corporation Long-Term Stock Incentive Plan (the "Plan") is designed to encourage directors, officers and employees
of and consultants to Questar Corporation and its affiliated companies (the "Company") to acquire a proprietary interest in the
Company, to generate an increased incentive to contribute to the Company's future growth and success, and to enhance the
Company's ability to attract and retain talented individuals to serve the Company. Accordingly, the Company, during the term of
this Plan, may grant incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, performance
shares, and other awards valued in whole or in part by reference to the Company's stock. Any awards granted to a nonemployee
director shall be solely to compensate such person for service to the Company as a nonemployee director.
Section 2. Definitions
"Affiliate" shall mean any business entity in which the Company directly or indirectly has an equity interest deemed significant by
the Company's Board of Directors.
"Award" shall mean a grant or award under Section 7 through 11, inclusive, of the Plan, as evidenced in a written document
delivered to a Participant as provided in Section 12(b).
"Award Agreement" shall mean a written agreement between a Participant and the Company that sets forth the terms of the
Award.
"Board" shall mean the Board of Directors of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time to time.
"Committee" shall mean the Management Performance Committee of the Board of Directors.
"Common Stock" or "Stock" shall mean the Common Stock, no par value, of the Company. The term shall also include any
Common Stock Purchase Rights attached to the Common Stock.
"Company" shall mean Questar Corporation on a consolidated basis.
"Covered Participant" shall mean a Participant who is a "covered employee" as defined in Section 162(m)(3) of the Code and the
regulations promulgated pursuant to it or who the Committee believes will be such a covered employee for a Performance Period,
and who the Committee believes will have remuneration in excess of $1 million for the Performance Period, as provided in Section
162(m) of the Code.
"Designated Beneficiary" shall mean the beneficiary designated by the Participant, in a manner determined by the Committee, to
receive amounts due the Participant in the event of the Participant's death. In the absence of an effective designation by the
Participant, Designated Beneficiary shall mean the Participant's estate.
"Disability" shall mean permanent and total disability within the meaning of Section 105(d)(4) of the Code.
"Employee" shall mean any officer or employee of the Employer.
"Employer" shall mean the Company and any Affiliate.
"Fair Market Value" shall mean the regular closing benchmark price of the Company's Common Stock reported on the New York
Stock Exchange on the date in question, or, if the Common Stock shall not have been traded on such date, the closing price on the
next preceding day on which a sale occurred.
"Family Member" shall mean the Participant's spouse, children, grandchildren, parents, siblings, nieces and nephews.
"Fiscal Year" shall mean the fiscal year of the Company.
"Incentive Stock Option" shall mean a stock option granted under
Section 7 that is intended to meet the requirements of Section 422 of the Code.
"Nonemployee Director" shall mean a member of the Board who is not an Employee and who satisfies the requirements of Rule
16b-3(b)(3) promulgated under the Securities and Exchange Act of 1934 or any successor provision.
"Nonqualified Stock Option" shall mean a stock option granted under
Section 7 that is not intended to be an Incentive Stock Option.
"Option" shall mean an Incentive Stock Option or a Nonqualified Stock Option.
"Participant" shall mean an Employee or Nonemployee Director to whom an Award is granted under this Plan.
"Payment Value" shall mean the dollar amount assigned to a Performance Share which shall be equal to the Fair Market Value of
the Common Stock on the day of the Committee's determination under Section 8(c)(2) with respect to the applicable Performance
Period.
"Performance Goals" shall mean the objectives established by the Committee for a Performance Period pursuant to Section 12, for
the purpose of determining the extent to which Performance Shares that have been contingently awarded for such Period are
earned.
"Performance Period" or "Period" shall mean the period of years selected by the Committee during which the performance is
measured for the purpose of determining the extent to which an Award of Performance Shares has been earned.
"Performance Share" shall mean an Award granted pursuant to Section 9 of the Plan expressed as a share of Common Stock.
"Restricted Period" shall mean the period of years selected by the Committee during which a grant of Restricted Stock or
Restricted Stock Units may be forfeited to the Company.
"Restricted Stock" shall mean shares of Common Stock contingently granted to a Participant under Section 10 of the Plan.
"Restricted Stock Unit" shall mean a fixed or variable dollar denominated unit contingently awarded under Section 10 of the Plan.
"Right" shall mean a Stock Appreciation Right granted under Section 7.
"Stock Unit Award" shall mean an Award of Common Stock or units granted under Section 11.
"Termination of Service" shall mean the date on which a Participant shall cease to serve as an Employee or Nonemployee
Director for any reason.
Section 3. Administration
The Plan shall be administered by the Committee, unless otherwise determined by the Board. The Committee shall have sole and
complete authority to adopt, alter and repeal such administrative rules, guidelines and practices governing the operation of the Plan,
and to interpret the terms and provisions of the Plan. The Committee's decisions shall be binding upon all persons, including the
Company, stockholders, an Employer, Employees, Nonemployee Director, Participants, Designated Beneficiaries, and Family
Members.
All actions to be taken by the Committee under this Plan, insofar as such actions affect compliance with Section 162(m) of the
Code, shall be limited to those members of the Board who are Nonemployee Directors and who are "outside directors" under
Section 162(m).
Section 4. Eligibility
Awards may only be granted to directors, officers and employees of or consultants to the Company or any Affiliate who have the
capacity to contribute to the success of the Company. When selecting Participants and making Awards, the Committee may
consider such factors as the Participant's functions and responsibilities and the Participant's past, present and future contributions
to the Company's profitability and growth.
Nothing contained in the Plan or in any individual agreement pursuant to the terms of the Plan shall confer upon any Participant
any right to continue in the employment or service of the Company or to limit in any respect the right of the Company to terminate
the Participant's employment or service at any time and for any reason.
Section 5. Maximum Amount Available for Awards and Maximum Award
The Company shall reserve 8,000,000 shares of Common Stock for issuance under this Plan plus any shares of Common Stock
that are available as of March 1, 2001, under the Plan provisions that existed prior to such date and any shares of Common Stock
that become available after such date as a result of forfeitures or cancellations of options granted before or after such date.
Shares of Common Stock may be made available from the authorized but unissued shares of the Company or from shares
reacquired by the Company, including shares purchased in the open market. In the event that an Option or Right expires or is
terminated unexercised as to any shares of Common Stock covered thereby, or any Award in respect of shares is forfeited for
any reason under the Plan, such shares, to the extent not precluded by applicable law or regulation, shall be again available for
Awards pursuant to the Plan.
In the event that the Committee shall determine that any stock dividend, extraordinary cash dividend, recapitalization,
reorganization, merger, consolidation, split-up, spin-off, combination, exchange of shares, warrants or rights offering to purchase
Common Stock at a price substantially below fair market value or other similar corporate event affects the Common Stock such
that an adjustment is required in order to preserve the benefits or potential benefits intended to be made available under this Plan,
then the Committee, in its sole discretion, may take action. The Committee may adjust any or all of the number and kind of shares
that thereafter may be awarded or optioned and sold or made the subject of Rights under the Plan, the number and kind of shares
subject to outstanding Options and other Awards, and the grant, exercise or conversion price with respect to any of the foregoing
and/or, if deemed appropriate, make provision for a cash payment to a Participant or a person who has an outstanding Option or
other Award.
There is a maximum of 500,000 shares that can be the subject of Awards granted to any single Participant in any given fiscal
year.
There is a maximum of 600,000 shares that can be the subject of Incentive Stock Options in any given fiscal year. There is also a
maximum of 1,000,000 shares that can be used for purposes other than options.
Section 6. Termination of Service
In the event of a Participant's Termination of Service, the Participant's right to exercise an Option or receive any Award shall be
determined by the Committee and provided in the Award Agreement subject to the general requirement that Incentive Stock
Options cannot be exercised for longer than three months after retirement or 12 months after death or Disability.
Section 7. Stock Options
(a) Grant. Subject to the provisions of the Plan, the Committee shall have sole and complete authority to determine the individuals
to whom Options shall be granted, the number of shares to be covered by each Option, the option price therefor and the conditions
and limitations, applicable to the exercise of the Option. The Committee shall have the authority to grant Incentive Stock Options,
Nonqualified Stock Options, or both types of Options.
(b) Special Rules, Incentive Stock Options. In the case of Incentive Stock Options, the terms and conditions of such grants shall be
subject to and comply with such rules as may be prescribed by Section 422 of the Code and any implementing regulations.
Incentive Stock Options shall not be granted to Participants who are not employees of the Company or its subsidiaries. The
aggregate Fair Market Value of Common Stock for which any Incentive Stock Options are exercisable for the first time by a
Participant during any calendar year under the Plan or any other Plan of the Company or any subsidiary shall not exceed
$100,000. To the extent the Fair Market Value of the shares of Common Stock attributable to Incentive Stock Options first
exercisable in any calendar year exceeds $100,000, the Option shall be treated as a Nonqualified Stock Option.
(c) Option Price. The Committee shall establish the option price at the time each Option is granted, which price shall not be less
than 100 percent of the Fair Market Value of the Common Stock on the date of grant.
(d) Exercise. Each Option shall be exercisable at such times and subject to such terms and conditions as the Committee, in its sole
discretion, may specify in the applicable Award or thereafter; provided, however, that in no event may any Option granted
hereunder be exercisable earlier than six months after the date of such grant or after the expiration of ten years from the date of
such grant. The Committee may impose such conditions with respect to the exercise of Options, including without limitation, any
conditions relating to the application of federal or state securities laws, as it may deem necessary or advisable.
No shares shall be delivered pursuant to any exercise of an Option until payment in full of the option price is received by the
Company. Such payment may be made in cash, or its equivalent, or, if and to the extent permitted by the Committee, by
exchanging shares of Common Stock owned by the Participant (that are not the subject of any pledge or other security interest),
or by a combination of the foregoing, provided that the combined value of all cash and cash equivalents and the Fair Market Value
of any such Common Stock so tendered to the Company, valued as of the date of such tender, is at least equal to such option
price. A Participant may tender shares of Common Stock by actual delivery or by attestation.
(e) The Committee may provide one or more means to enable Participants and the Company to defer delivery of shares of
Common Stock upon exercise of an Option on such terms and conditions as the Committee may determine, including by way of
example the manner and timing of making a deferral election, the treatment of dividends paid on shares of Common Stock during
the deferral period and the permitted distribution dates on events.
(f) Transferability. Participants are allowed to transfer vested Nonqualified Stock Options to Family Members or family trusts,
provided that such options were granted as of and after February 10, 1998 and provided that such transfers are made and
transferred Options are exercised in accordance with procedural rules adopted by the Committee.
Section 8. Stock Appreciation Rights
(a) The Committee may, with sole and complete authority, grant Rights in tandem with an Option. Rights shall not be exercisable
earlier than six months after grant, shall not be exercisable after the expiration of ten years from the date of grant and shall have
an exercise price of not less than 100 percent of the Fair Market Value of the Common Stock on the date of grant.
(b) A Right shall entitle the Participant to receive from the Company an amount equal to the excess of the Fair Market Value of a
share of Common Stock on the exercise of the Right over the grant price thereof. The Committee shall determine whether such
Right shall be settled in cash, shares of Common Stock or a combination of cash and shares of Common Stock.
Section 9. Performance Shares
(a) The Committee shall have sole and complete authority to determine the Participants who shall receive Performance Shares
and the number of such shares for each Performance Period and to determine the duration of each Performance Period and the
value of each Performance Share. There may be more than one Performance Period in existence at any one time, and the
duration of Performance Periods may differ from each other.
(b) Once the Committee decides to use Performance Shares, it shall establish Performance Goals for each Period on the basis of
criteria selected by it. Any Performance Goals for Covered Participants shall be set and measured under the provisions of Section
12.
(c) As soon as practicable after the end of a Performance Period, the Committee shall determine the number of Performance
Shares that have been earned on the basis of performance in relation to the established Performance Goals. Payment Values of
earned Performance Shares shall be distributed to the Participant or as soon as practicable after the expiration of the Performance
Period and the Committee's determination. Any Payment Values payable for Covered Participants shall be determined under the
provisions of Section 12. The Committee shall determine whether Payment Values are to be distributed in the form of cash and/or
shares of Common Stock.
Section 10. Restricted Stock and Restricted Stock Units
(a) Subject to the provisions of the Plan, the Committee shall have sole and complete authority to determine the Participants to
whom shares of Restricted Stock and Restricted Stock Units shall be granted, the number of shares of Restricted Stock and the
number of Restricted Stock Units to be granted to each Participant, the duration of the Restricted Period during which and the
conditions under which the Restricted Stock and Restricted Stock Units may be forfeited to the Company, and the other terms and
conditions of such Awards.
(b) Shares of Restricted Stock and Restricted Stock Units may not be sold, assigned, transferred, pledged or otherwise
encumbered, except as herein provided, during the Restricted Period. At the expiration of the Restricted Period, the Company
shall deliver such certificates to the Participant or the Participant's legal representative. Payment for Restricted Stock Units shall
be made to the Company in cash and/or shares of Common Stock, as determined at the sole discretion of the Committee.
Section 11. Other Stock Based Awards
(a) In addition to granting Options, Rights, Performance Shares, Restricted Stock, Restricted Stock Units, the Committee shall
have authority to grant Stock Unit Awards to Participants that can be in the form of Common Stock or units, the value of which is
based, in whole or in part, on the value of Common Stock. Subject to the provisions of the Plan, Stock Unit
Awards shall be subject to such terms, restrictions, conditions, vesting requirements and payment rules as the Committee may
determine in its sole and complete discretion at the time of grant.
(b) Any shares of Common Stock that are part of a Stock Unit Award may not be assigned, sold, transferred, pledged or
otherwise encumbered prior to the date on which the shares are issued or, if later, the date provided by the Committee at the time
of grant of the Stock Unit Award.
Stock Unit Awards shall specify whether the Participant is required to pay cash in conjunction with such Award, provided,
however, that the Participant shall be required to pay at least 50 percent of the Fair Market Value of any Common Stock
purchased in connection with a Stock Unit Award, with such Fair Market Value calculated on the date the Award is granted.
Stock Unit Awards may relate in whole or in part to certain performance criteria established by the Committee at the time of
grant. Stock Unit Awards may provide for deferred payment schedules and/or vesting over a specified period of employment. In
such circumstances as the Committee may deem advisable, the Committee may waive or otherwise remove, in whole or in part,
any restriction or limitation to which a Stock Unit Award was made subject at the time of grant.
(c) In the sole and complete discretion of the Committee, an Award, whether made as a Stock Unit Award under this Section 11
or as an Award granted pursuant to Sections 7 through 10, may provide the Participant with dividends or dividend equivalents
(payable on a current or deferred basis) and cash payments in lieu of or in addition to an Award.
Section 12. Special Provisions, Covered Participants
Awards subject to Performance Goals for Covered Participants under this Plan shall be governed by the conditions of this Section
in addition to other applicable provisions of the Plan.
All Performance Goals relating to Covered Participants for a relevant Performance Period shall be established by the Committee
by such date as is permitted under Section 162(m) of the Code. Performance Goals may include alternate and multiple goals and
may be based on one or more business and or financial criteria. In establishing the Performance Goals for the Performance
Period, the Committee may include one or any combination of the following criteria in either absolute or relative terms, for the
Company or any business unit within it: (a) total shareholder return; (b) return on assets, equity, capital or investment; (c) pre-tax
or after-tax profit levels including earnings per share; earnings before interest and taxes; earnings before interest, taxes,
depreciation and amortization; net operating profits after tax; net income; (d) cash flow and cash flow return on investment; (e)
economic value added and economic profit; (f) growth in earnings per share; (g) levels of operating expense or other expense
items as reported on the income statement, including operating and maintenance expense; (h) measures of customer satisfaction
and customer service as surveyed; (i) reserve growth, production growth or ratio of reserves to production; (j) efficiency
measures such as throughput or production increases; and (k) revenue and return on revenue.
Performance Goals must be objective and must satisfy third party "objectivity" standards under Section 162(m) of the Code and
regulations promulgated pursuant to it. The Award and payment of any Award under this Plan to a Covered Participant with
respect to a relevant Performance Period shall be contingent upon the attainment of the Performance Goals that are specified in
advance by the Committee. The Committee shall certify in
writing prior to approval of any such Award that such applicable Performance Goals relating to the Award are satisfied.
(Approved minutes of the Committee may be used for this purpose.)
The maximum Award that may be paid to any Covered Participant under the Plan pursuant to Sections 9, 11 and 12 for any
Performance Period shall be $2 million, if paid in cash, or 200,000 shares of stock, if paid in stock.
Section 13. General Provisions
(a) Withholding. The Employer shall have the right to deduct from all amounts paid to a Participant in cash any taxes required by
law to be withheld in respect of Awards under this Plan. In the case of payments of Awards in the form of Common Stock, the
Committee shall require the Participant to pay to the Employer the amount of any taxes required to be withheld with respect to
such Common Stock, or, in lieu thereof, the Employer shall have the right to retain (or the Participant may be offered the
opportunity to elect to tender) the number of shares of Common Stock whose Fair Market Value equals the amount required to be
withheld.
(b) Awards. Each Award shall be evidenced in writing delivered to the Participant and shall specify the terms and conditions and
any rules applicable to such Award.
(c) Nontransferability. Except as provided in Section 7(f), no Award shall be assignable or transferable, and no right or interest of
any Participant shall be subject to any lien, obligation or liability of the Participant, except by will or the laws of descent and
distribution.
(d) No Rights as Stockholder. Subject to the provisions of the applicable Award, no Participant or Designated Beneficiary shall
have any rights as a stockholder with respect to any shares of Common Stock to be distributed under the Plan until becoming the
holder. Notwithstanding the foregoing, in connection with each grant of Restricted Stock hereunder, the applicable Award shall
specify if and to what extent the Participant shall not be entitled to the rights of a stockholder in respect of such Restricted Stock.
(e) Construction of the Plan. The validity, construction, interpretation, administration and effect of the Plan and of its rules and
regulations, and rights relating to the Plan, shall be determined solely in accordance with the laws of Utah.
(f) Effective Date. Subject to the approval of the stockholders of the Company, the Plan as amended and restated, shall be
effective on March 1, 2001. Any Options or Awards granted under the Plan, as of or after March 1, 2001, are granted subject to
the receipt of shareholder approval within 12 months of such date.
(g) Duration of Plan. The Plan, as amended and restated, shall terminate on February 28, 2011, unless the term is extended with
approval of the Company's shareholders.
(h) Amendment of Plan. The Board of Directors may amend, suspend or terminate the Plan or any portion thereof at any time,
provided that no amendment shall be made without stockholder approval if such approval is necessary to comply with any tax or
legal requirement.
(i) Amendment of Award. The Committee may amend, modify or terminate any outstanding Award with the Participant's consent
at any time prior to payment or exercise in any manner not inconsistent with the terms of the Plan, including without limitation, to
change the date or dates as of which an Option or Right becomes exercisable; a Performance Share is deemed earned; Restricted
Stock becomes nonforfeitable; or to cancel and reissue an Award under such different terms and conditions as it determines
appropriate.
(j) Repricing. Except for adjustments pursuant to Section 5, the per share price for any outstanding Option or Right granted under
terms of the Plan may not be decreased after the dates on which such Option or Right was granted. Participants do not have the
ability to surrender an outstanding Option or Right as consideration for the grant of a new Option or Right with a lower price.
Section 14. Change of Control.
In the event of a Change of Control of the Company, all Options, Restricted Stock, and other Awards granted under the Plan shall
vest immediately.
A Change in Control of the Company shall be deemed to have occurred if
(i) any "Acquiring Person" (as such term is defined in the Rights Agreement dated as of February 13, 1996, between the Company
and ChaseMellon Shareholder Services L.L.C. ("Rights Agreement")) is or becomes the beneficial owner (as such term is used in
Rule 13d-3 under the Securities Exchange Act of 1934) of securities of the Company representing 25 percent or more of the
combined voting power of the Company; or (ii) the following individuals cease for any reason to constitute a majority of the
number of directors then serving: individuals who, as of May 19, 1998, constitute the Company's Board of Directors and any new
director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest,
including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or
election by the Board or nomination for election by the Company's stockholders was approved or recommended by a vote of at
least two-thirds of the directors then still in office who either were directors on May 19, 1998, or whose appointment, election or
nomination for election was previously so approved or recommended; or (iii) the Company's stockholders approve a merger or
consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than a merger
or consolidation that would result in the voting securities of the Company outstanding immediately prior to such merger or
consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving
entity or any parent thereof) at least 60 percent of the combined voting power of the securities of the Company or such surviving
entity or its parent outstanding immediately after such merger or consolidation, or a merger or consolidation effected to implement
a recapitalization of the Company (or similar transaction) in which no person is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 25 percent or more of the combined voting power of the Company's then
outstanding securities; or (iv) the Company's stockholders approve a plan of complete liquidation or dissolution of the Company or
there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets,
other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 60 percent
of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the
same proportions as their ownership of the Company immediately prior to such sale. A Change in Control, however, shall not be
considered to have occurred until all conditions precedent to the transaction, including but not limited to, all required regulatory
approvals have been obtained.
QUESTAR CORPORATION
DEFERRED COMPENSATION PLAN FOR DIRECTORS
(As Amended and Restated October 26, 2000)
1. Purpose of Plan.
The purpose of the Deferred Compensation Plan for Directors ("Plan") is to provide Directors of Questar Corporation (the
"Company") with an opportunity to defer compensation paid to them for their services as Directors.
2. Eligibility.
Subject to the conditions specified in this Plan or otherwise set by the Executive Committee of 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 or any income recognized by him as a result of
exercising options under the Company's Stock Option Plan for Directors.
(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 the Company's 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 the Company's 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 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 the Company's 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 "Consumer Savings Rates" on the
Thursday closest to the end of the month or other published source of such rates as identified by Questar Corporation's Treasury
department. 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 or upon appointment as a non-voting Senior Director, 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. Upon appointment as a non-voting Senior Director of the Company, a Participant shall also receive payment of
account balances under any other Deferred Compensation Plans maintained by the Company's affiliates unless the Participant
serves as a Director of the affiliate maintaining the account balance.
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. Payment, Change in Control
Notwithstanding any other provisions of this Plan or deferral elections made pursuant to Section 4 of this Plan, a Director, in the
event of a Change in Control of the Company, shall be entitled to elect a distribtuion of his account balance within 60 days
following the date of a Change in Control.
A "Change in Control" of the Company shall be deemed to have occurred if (i) any "Acquiring Person" (as such term is defined in
the Rights Agreement dated as of February 13, 1996, between the Company and ChaseMellon Shareholder Services L.L.C.
("Rights Agreement")) is or becomes the beneficial owner (as such term is used in Rule 13d-3 under the Securities Exchange Act
of 1934) of securities of the Company representing 25 percent or more of the combined voting power of the Company; or
(ii) the following individuals cease for any reason to constitute a majority of the number of directors then serving:
individuals who, as of May 19, 1998, constitute the Company's Board of Directors ("Board") and any new director (other than a
director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to
a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or
nomination for election by the Company's stockholders was approved or recommended by a vote of at least two-thirds of the
directors then still in office who either were directors on May 19, 1998, or whose appointment, election or nomination for election
was previously so approved or recommended; or (iii) the Company's stockholders approve a merger or consolidation of the
Company or any direct or indirect subsidiary of the Company with any other corporation, other than a merger or consolidation that
would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to
represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof)
at least 60 percent of the combined voting power of the securities of the Company or such surviving entity or its parent outstanding
immediately after such merger or consolidation, or a merger or consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no person is or becomes the beneficial owner, directly or indirectly, of securities of the
Company representing 25 percent or more of the combined voting power of the Company's then outstanding securities; or (iv) the
Company's stockholders approve a plan of complete liquidation or dissolution of the Company or there is consummated an
agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or
disposition by the Company of all or substantially all of the Company's assets to an entity, at least 60 percent of the combined
voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as
their ownership of the Company immediately prior to such sale. A Change in Control, however, shall not be considered to have
occurred until all conditions precedent to the transaction, including but not limited to, all required regulatory approvals have been
obtained.
10. Hardship Withdrawal.
Upon petition to and approval by the Executive Committee, 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 Executive Committee shall have sole discretion to
determine the circumstances under which such withdrawals are permitted.
11. 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 of Directors has the right to make lump-sum payments of all Account balances on such date as it may
determine.
12. 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.
13. 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.
14. Effective Date.
The Plan shall become effective on October 15, 1984, and shall remain in effect until it is discontinued by action of the Company's
Board of Directors. The Plan was amended and restated effective May 1, 1991, was amended and restated effective February 13,
1996, and was further amended and restated effective May 19, 1998.
QUESTAR CORPORATION
DEFERRED COMPENSATION PLAN
FOR HIGHLY COMPENSATED EMPLOYEES
(As Amended and Restated Effective October 26, 2000)
Questar Corporation hereby amends this DEFERRED COMPENSATION PLAN FOR HIGHLY COMPENSATED
EMPLOYEES, effective October 26, 2000. This Plan, which was originally adopted effective November 1, 1993, is an unfunded
plan established to provide highly compensated employees with an opportunity to defer receipt of up to a specified portion of their
annual compensation in order to reduce current tax obligations.
1. Definitions.
"Affiliated Company" means the Company and any corporation that is a member of a controlled group of corporations (as defined
in
Section 414(b) of the Code), which includes the Company.
"Beneficiary" means that person or persons who become entitled to receive a distribution of benefits under the Plan in the event of
the death of a Participant prior to the distribution of all benefits to which he is entitled.
"Code" means the Internal Revenue Code of 1986 and amendments thereto. Reference to a section of the Code shall include that
section and any comparable section or sections of any future legislation that amends, supplements or supersedes said section.
"Common Stock" means common stock of the Company.
"Company" means Questar Corporation, a corporation organized and existing under the laws of the State of Utah, or its successor
or successors.
"Compensation" means an Employee's salary or wages and payments under incentive compensation plans paid by the Employer
and includable in taxable income during the applicable Plan Year, but exclusive of any other forms of additional Compensation
such as the Employer's cost for any public or private employee benefit plan or any income recognized by the employee as a result
of exercising stock options. An Employee's Compensation for any Plan Year shall include any Elective Deferrals of the Employee
under the Company's Employee Investment Plan or other tax-qualified plans. An Employee's Compensation also shall include the
amount of any reduction in Compensation for a Plan Year agreed upon under one or more Compensation reduction agreements
entered into pursuant to the Questar Corporation Cafeteria Plan.
"Disability" means a condition that renders a Participant unable to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be expected to result in death or to be of long-continued and
indefinite duration. A Participant shall not be considered to be disabled unless he furnishes proof of the
existence of such disability in such form and manner as may be required by regulations promulgated under Code Section 72(m)(7).
"Employee" means any officer or key manager of an Employer who meets the eligibility criteria set out in Paragraph 4 of this Plan.
"Employer" means the Company and each Affiliated Company that consents to the adoption of the Plan.
"Fair Market Value" means the closing price of the Company's common stock as reported on the composite tape of the New York
Stock Exchange for any given valuation date or the next preceding day on which sales took place if no sales occurred on the
actual valuation date.
"Participant" means an Employee who has made an election under Paragraph 5 of this Plan.
"Plan" means the plan set forth in and created by this document and all subsequent amendments thereto.
"Plan Year" means the fiscal year of the Plan, which shall coincide with the Company's fiscal year.
"Tax-Qualified Plan" means the Questar Corporation Employee Investment Plan, as amended from time to time, or any
tax-qualified plan adopted by the Company.
2. Purpose of Plan.
The purpose of the Plan is to provide eligible Employees with the opportunity to defer receipt of up to a specified portion of their
annual Compensation in order to reduce current tax payment obligations.
3. Administration.
The Management Performance Committee of the Company's Board of Directors shall construe and administer the Plan and shall
have full authority to make such rules and regulations deemed necessary or desirable to carry out such administration. The
Management Performance Committee may appoint an officer or department to assist with the administration of the Plan. All
interpretations of the Plan by the Committee shall be final and binding on all parties, including Participants, Beneficiaries and
Employers.
4. Eligibility.
All officers and any key manager whose annual Compensation is expected to exceed $125,000 are eligible to participate in the
Plan.
5. Election to Defer Compensation.
In order to participate in the Plan during 1993, an Employee must make an election to defer at least $500 per month of
participation. For the first Plan Year, which is a partial Plan Year, such election must be made at or prior to the effective date of
this Plan and can only be made as to Compensation to be paid for future services. In order to participate in subsequent Plan
Years, an Employee must make an election to defer an amount from $5,000 to 50 percent of annual Compensation. Such elections
must be made prior to the first day of the Plan Year in which it is to become effective and can only be made with respect to
Compensation to be paid for future services. A deferral election, once made, shall remain in effect for subsequent Plan Years until
it is revoked or modified by the Participant. A Participant can modify or revoke his deferral election with respect to Compensation
to be paid for future services by submitting a new election or a revocation prior to the beginning of the Plan Year in which such
new deferral election or revocation is to become effective. All notices of election or revocation shall be made on forms prepared
by the Company's Secretary and shall be dated, signed, and filed with the Company's Secretary.
6. Elections, Deemed Investments.
When making an election to defer Compensation, an Employee must 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
shares of the Company's Common Stock (the "Common Stock Option") or he may choose to have earnings calculated by adding
100 basis points to the interest payable on a 10-Year Treasury Note (the "Treasury Note Option"). An Employee may also choose
to allocate his deferred Compensation between the options in increments of 25 percent, 50 percent, or 75 percent.
The Participant must designate his deemed investment for all of the Compensation he elects to defer in any given year. He may
change the deemed investment for future deferred Compensation by filing the appropriate notice with the Company's Corporate
Secretary before the first day of each calendar year, but such change shall not affect the method of determining earnings of any
Compensation deferred in a prior year.
Any deferred Compensation accounted for under the Common Stock Option shall be accounted for as if invested in shares of
Common Stock purchased at a price equal to the average price paid for shares of Common Stock purchased by the trustee of the
Tax-Qualified Plan during the month (quarter prior to January 1, 1996) in which the deferrals are made under this Plan. This
amount shall be credited to a Participant's account on a monthly (quarterly prior to January 1, 1996) basis. In addition, a
Participant's account shall be credited on a quarterly basis with an amount equal to the dividends that would have become payable
during the deferral period if actual purchases of Common Stock had been made, with such dividends accounted for as if invested
in Common Stock as of the payable date for such dividends. Any credited shares treated as if they were purchased with dividends
shall be deemed to have been purchased
at a price equal to the average price of shares purchased with reinvested dividends under the Tax-Qualified Plan during the
quarter in which the deemed purchases are treated as being made under this Plan.
If a Participant elects the Treasury Note Option, his account will be credited with any Compensation deferred by the Participant in
any given month. Interest shall be calculated at a monthly rate calculated by dividing by 12 the sum of 100 basis points plus the
rate for the appropriate 10-Year Treasury Note as quoted in the Wall Street Journal under "Consumer Savings Rates" on the
Thursday closest to the end of the month or other published source of such rates as identified by Questar Corporation's Treasury
department. The appropriate 10-Year Treasury Note shall be the Note that is the closest (in terms of months) to the date on which
the interest is credited. The interest deemed to be credited to each Account shall be based on the amount credited to such
Account at the beginning of each particular month.
7. Integration with Other Plans.
If an employee elects to reduce his Compensation under the terms of this Plan, six percent of any Compensation deferred shall be
accounted for under the terms of the Questar Corporation Deferred Share Plan. A Participant's benefits (if any) under the
Company's Executive Incentive Retirement Plan shall be based on the Participant's base salary including any base salary deferred
under the terms of this Plan or the Company's Deferred Share Plan or any base salary reductions under the Company's
Tax-Qualified Plan or Cafeteria Plan. A Participant's benefits (if any) under the Company's Supplemental Executive Retirement
Plan or Equalization Benefit Plan shall be based on the Participant's Compensation plus any Compensation deferred under the
terms of this Plan or the Company's Deferred Share Plan.
8. Account Statement.
Within 60 days after the end of the calendar year, a statement shall be sent to each Participant listing the balance in his account as
of the end of the year.
9. Payment of Account Balances.
When making the first deferral election under Paragraph 5, a Participant shall determine when to receive the Compensation
deferred by him. A Participant can elect to receive such deferred Compensation at a specified date prior to his termination of
employment, e.g., December 31, 2001, upon his termination of employment or at a specified time within five years after his
termination of employment. A Participant can also elect whether to receive deferred Compensation in a lump-sum payment or in a
number of annual installments (not to exceed four). A Participant cannot change such elections for Compensation previously
deferred, but can change such elections for Compensation to be paid for future services.
Under the Common Stock Option, the account balance shall be valued using the Fair Market Value of the Company's Common
Stock on the last day of the calendar month preceding payment and
shall be converted to a cash balance based upon such Fair Market Value. Under an installment payout, the Participant's first
installment shall be equal to a fraction of the balance credited to his account (or the portion of his account to be paid in
installments) 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.
Under the Treasury Note Option, the account balance shall be valued as of the date of withdrawal, which is the last day of the
calendar month preceding payment, with interest credited to such date. Under an installment payout, the Participant's first
installment shall be equal to a fraction of the balance credited to his account (or the portion of his account to be paid in
installments) 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.
10. Miscellaneous Payment Issues.
(a) Adverse Tax Determination. If there is a determination by the Internal Revenue Service (IRS) that a Participant should be
taxed on some or all of the amounts allocated to his account prior to the distribution date(s) elected under Paragraph 9, the
Participant may elect to have all amounts determined to be currently taxable paid to him immediately prior to the time he must pay
any taxes owed as a result of such IRS determination.
(b) Change in Control. Notwithstanding any other provision of this Plan, in the event of a "Change in Control" of the Company (as
defined below), all deferred Compensation credited to a Participant's account shall be distributed to him within 60 days following
the Change in Control.
A Change in Control of the Company shall be deemed to have occurred if (i) any "Acquiring Person" (as such term is defined in
the Rights Agreement dated as of February 13, 1996, between the Company and ChaseMellon Shareholder Services L.L.C.
("Rights Agreement")) is or becomes the beneficial owner (as such term is used in Rule 13d-3 under the Securities Exchange Act
of 1934) of securities of the Company representing 25 percent or more of the combined voting power of the Company; or (ii) the
following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, as of
May 19, 1998, constitute the Company's Board of Directors ("Board") and any new director (other than a director whose initial
assumption of office is in connection with an actual or threatened election contest, including but not limited to a
consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or
nomination for election by the Company's stockholders was approved or recommended by a vote of at least two-thirds of the
directors then still in office who either were directors on May 19, 1998, or whose appointment, election or nomination for election
was previously so approved or recommended; or (iii) the Company's stockholders approve a merger or consolidation of the
Company or any direct or indirect subsidiary of the Company with any other corporation, other than a merger or consolidation that
would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to
represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof)
at least 60 percent of the combined voting power of the securities of the Company or such surviving entity or its parent outstanding
immediately after such merger or consolidation, or a merger or consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no person is or becomes the beneficial owner, directly or indirectly, of securities of the
Company representing 25 percent or more of the combined voting power of the Company's then outstanding securities; or (iv) the
Company's stockholders approve a plan of complete liquidation or dissolution of the Company or there is consummated an
agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or
disposition by the Company of all or substantially all of the Company's assets to an entity, at least 60 percent of the combined
voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as
their ownership of the Company immediately prior to such sale. A Change in Control, however, shall not be considered to have
occurred until all conditions precedent to the transaction, including but not limited to, all required regulatory approvals have been
obtained.
(c) Method of Payment. All amounts credited to a Participant's account shall be distributed to him or, in the event of his death, to
his Beneficiary, in cash and in accordance with the election made by the Participant.
(d) Source of Payments. Each participating Employer will pay all benefits for its Employees arising under this Plan, and all costs,
charges and expenses relating thereto, out of its general assets.
11. Amendment and Termination of Plan.
The Plan may be amended, modified or terminated by the Company's Board of Directors at any time. Provided, however, no such
amendment, modification or termination shall be made in the event there is a Change in Control, as defined in Paragraph
10(b). In addition, no amendment, modification, or termination shall reduce any deferred benefit under the Plan reflected in a
Participant's account prior to the date of such amendment or termination.
12. Non-assignability of Benefits.
To the extent consistent with applicable law, the Participant's deferred benefits under this Plan shall not be assigned, transferred,
pledged, or encumbered or be subject in any manner to alienation or attachment.
13. No Creation of Rights.
Nothing in this Plan shall confer upon any Participant the right to continue as an Employee of an Employer. The right of a
Participant to receive a cash distribution shall be an unsecured claim against the general assets of his Employer. Nothing contained
in this Plan nor any action taken hereunder shall create, or be construed to create, a trust of any kind, or a fiduciary relationship
between the Company and the Participants, Beneficiaries, or any other persons. All accounts under the Plan shall be maintained
for bookkeeping purposes only and shall not represent a claim against specific assets of any Employer.
14. Effective Date.
The Plan, as originally adopted, was effective November 1, 1993. The Plan, as amended and restated, is effective October 26,
2000, and shall remain in effect until it is discontinued by action of the Company's Board of Directors.
EMPLOYMENT AGREEMENT
This employment agreement is dated as of February 1, 2001 (the "Agreement") between Questar Corporation, a Utah corporation
("Company"), and Keith O. Rattie ("Executive").
WHEREAS, the Company desires to employ Executive as its President and Chief Operating Officer upon the terms and subject to
the conditions set forth in this Agreement.
NOW, THEREFORE, the Company and Executive hereby agree as follows:
ARTICLE 1
DEFINITIONS
The terms set forth below have the following meanings:
Agreement Date means the effective date of this Agreement.
Anniversary Date means any annual anniversary of the Agreement Date.
Board means the Board of Directors of the Company
Cause means any of the following: (a) Executive's conviction of a felony or of a misdemeanor involving fraud, dishonesty or moral
turpitude, or (b) Executive's willful or intentional material breach of this Agreement that results in financial detriment that is
material to the Company and its Affiliates taken as a whole.
For purposes of clause (b) of the preceding sentence, Cause shall not include any one or more of the following: (i) bad judgment,
(ii) negligence, (iii) any act or omission that Executive believed in good faith to have been in or not opposed to the interest of the
Company (without intent of Executive to gain, directly or indirectly, a profit to which he was not legally entitled), or (iv) Any act or
omission of which any member of the Board who is not a party to such act or omission has had actual knowledge for at least 12
months.
Change in Control means the following: A Change in Control of the Company shall be deemed to have occurred if (a) any
"Acquiring Person" (as such term is defined in the Rights Agreement dated as of February 13, 1996, between the Company and
ChaseMellon Shareholder Services L.L.C. ("Rights Agreement")) is or becomes the beneficial owner (as such term is sued in
Rule 13d-3 under the Securities Exchange Act of 1934) of securities of the Company representing 25 percent or more of the
combined voting power of the Company; or (b) the following individuals cease for any reason to constitute a majority of the
number of directors then serving: individuals who, as of May 19, 1998, constitute the Company's Board of Directors ("Board") and
any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election
contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment
or election by the Board or nomination for
election by the Company's stockholders was approved or recommended by a vote of at least two-thirds of the directors then still in
office who either were directors on May 19, 1998, or whose appointment, election or nomination for election was previously so
approved or recommended; or (c) the Company's stockholders approve a merger or consolidation of the Company or any direct or
indirect subsidiary of the Company with any other corporation, other than a merger or consolidation that would result in the voting
securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by
remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 60 percent
of the combined voting power of the securities of the Company or such surviving entity or its parent outstanding immediately after
such merger or consolidation, or a merger or consolidation effected to implement a recapitalization of the Company for similar
transaction) in which no person is or becomes the beneficial owner, directly or indirectly, of securities of the Company
representing 25 percent or more of the combined voting power of the Company's then outstanding securities; or (d) the Company's
stockholders approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the
sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the
Company of all or substantially all of the Company's assets to an entity, at least 60 percent of the combined voting power of the
voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of
the Company immediately prior to such sale. A Change in Control, however, shall not be considered to have occurred until all
conditions precedent to the transaction, including but not limited to, all required regulatory approvals, have been obtained.
Committee means the Management Performance Committee of the Board.
Common Stock means the common stock of the Company.
Company means Questar Corporation.
Date of Termination means the effective date of a Termination of Employment for any reason, including death or Disability,
whether initiated by the Company or by Executive.
Disability means a mental or physical condition that, in the opinion of the Board, renders Executive unable or incompetent to carry
out the material job responsibilities that such Executive held or the material duties to which Executive was assigned at the time the
disability was incurred, which has existed for at least three months and which in the opinion of a physician mutually agreed upon
by the Company and Executive (provided that neither party shall unreasonably withhold his agreement) is expected to be
permanent or to last for an indefinite duration or a duration in excess of six months.
Employment Period means that subject to termination provisions, the term of Executive's employment under this Agreement (the
"Employment Period") shall begin on the Agreement Date and end on the Anniversary Date that is three years after such date.
Good Reason means the occurrence of any one or more of the following events unless Executive specifically agrees in writing that
such event shall not be Good Reason: (a) any material breach of this Agreement by the Company, including: any material adverse
change in the status, responsibilities or perquisites of Executive; any failure to nominate or elect Executive as Chief Executive
Officer of the Company or as member of the Board; assignment of duties materially inconsistent with his position and duties; (b)
the failure of the Company to assign this Agreement to a successor to the Company or failure of a successor to the Company to
explicitly assume and agree to be bound by this Agreement. Any reasonable determination by Executive that any of the specified
events has occurred and constitutes Good Reason shall be conclusive and binding for all purposes.
Subsidiary means any entity of which the Company, directly or indirectly, owns at least 50 percent of the outstanding shares of
capital stock entitled to vote for the election of directors.
Termination For Good Reason means a Termination of Employment by Executive for a Good Reason.
Termination of Employment means a termination by the Company or by Executive of Executive's employment by the Company.
Termination Without Cause means a Termination of Employment by the Company for any reason other than Cause or Executive's
death or Disability.
ARTICLE 2
DUTIES
Chief Operating Officer Duties. The Company shall employ Executive during the Employment Period as its President and Chief
Operating Officer, reporting to R. D. Cash, the Company's Chairman and Chief Executive Officer. At its discretion, the Board
may appoint Executive to serve in other capacities with the Company's Subsidiaries. During the first two years of Employment
Period, the Board shall determine whether the Executive has the leadership qualities and business acumen to serve as the
Company's Chief Executive Officer. Executive, during the Employment Period, shall devote substantially all of his business time,
attention, and effort to the affairs of the Company and shall use his reasonable efforts to promote the best interests of the
Company.
Director Duties. Effective February 1, 2001, the Board shall appoint Executive to serve as a Director of the Company for the
remainder of a three-year term that will expire in May of 2003. As long as the Executive serves as an employee or officer, the
Board shall continue to nominate Executive for election as a Director of the Company. At its discretion, the Board of Directors of
any Subsidiary may appoint Executive to serve as a director of such Subsidiary for the remainder of a one-year term that expires
in May of 2001.
ARTICLE 3
EMPLOYMENT PERIOD
Employment Period. Subject to termination provisions, the term of Executive's employment under this Agreement (the
"Employment Period") shall begin on the Agreement Date and end on the
Anniversary Date that is three years after such date. The employment of Executive during the Employment Period shall not be
terminated other than in accordance with Article 7.
ARTICLE 4
COMPENSATION
Salary. The Company shall pay Executive an annual base salary of $400,000, payable in semi-monthly installments ("Base
Salary"). The Committee shall review the Executive's Base Salary when it reviews the base salaries paid to the Company's other
executive officers in February of each year and can only increase, not reduce, the Executive's Base Salary. The Committee shall
also determine how to allocate the Executive's Base Salary among the Company and its principal Subsidiaries.
Annual Bonus. The Executive shall be nominated to participate in the Company's Annual Management Incentive Plan ("AMIP")
for each year of the Employment Period and shall have a Target Bonus equal to 50 percent of his base salary at the time the
target bonus is set ("Target Bonus"). (A copy of the Company's AMIP is attached as Exhibit A.) The annual minimum, target, and
maximum performance goals for the Company and its principal Subsidiaries shall be approved by the Committee each year within
90 days after the beginning of such year.
ARTICLE 5
STOCK OPTIONS, RESTRICTED
STOCK AND STOCK OWNERSHIP
Option Grants. The Company shall grant to Executive, as of the Agreement Date, an option to purchase 100,000 shares of the
Company's common stock at a per share price equal to the closing price of the Company's common stock as reported in the Wall
Street Journal on the Agreement Date. The option shall be granted pursuant to the terms of the Company's Long-Term Stock
Incentive Plan ("Stock Plan"); shall vest in four equal, annual installments, with the first installment vesting six months after being
granted; and shall have a term of 10 years. To the extent permitted under applicable tax laws, the initial option granted to the
Executive shall be an incentive stock option. The agreements for the initial option and all subsequent options granted to the
Executive shall contain a special provision that permits the Executive to have 30 days after Termination of Employment (for
reasons other than death, Disability, approved retirement, or a Change in Control) to exercise the vested portion of any options
granted to him. (If the Executive's employment is terminated for one of the specified reasons, he shall have longer periods of time
in which to exercise his options.) A copy of the Stock Plan and a copy of the form of Executive's Option Agreement are attached
to this Agreement as Exhibits B and C, respectively.
The Company shall also grant to Executive, in February of 2001, another stock option to purchase at least 100,000 shares of the
Company's common stock, as part of the annual round of options granted to the Company's officers and key employees. As long
as Executive serves as an executive officer of the Company, the Company shall grant a stock option to Executive when it takes
action to grant stock options to other officers and employees.
Restricted Stock. As of the March 1, 2001, the Company shall grant 21,000 restricted shares of the Company's common stock to
the Executive. One-third of the grant (7,000 shares) shall vest and become nonforfeitable upon each anniversary of the
Agreement Date during the Employment Period, except that all of the restricted shares shall immediately vest and become
nonforfeitable in the event of a Change in Control and that a pro rata portion of the remaining restricted shares shall immediately
vest and become nonforfeitable in the event of the Executive's Termination of Employment for a reason other than Cause. A copy
of the form of Restricted Stock Grant is attached to this Agreement as Exhibit D.
Any shares of restricted stock granted as partial payment of bonuses earned by Executive under the AMIP shall vest in
accordance with the provisions set forth in it.
The Executive shall choose between recognizing ordinary income equal to the value of the shares of restricted stock at time of
grant or recognizing ordinary income equal to the value of the shares of restricted stock as they vest and become nonforfeitable.
The Executive shall pay all withholding taxes attributable to the recognition of income and may elect to use a portion of the shares
that would otherwise be distributed to satisfy such withholding obligations.
The shares of restricted stock granted to Executive in 2001 are included within the shares reserved under the terms of the Stock
Plan and are covered by a registration statement filed with the Securities and Exchange Commission. The Company intends to
register any shares of restricted stock that may be issued under any successor to the Stock Plan.
The grant of restricted stock is being made pursuant to the Stock Plan as amended and restated effective March 1, 2001.
Consequently, the stock grant is being made subject to shareholder approval of the amendments, which is expected in May of
2001.
Stock Ownership. The Company requires all officers to own shares of the Company's common stock. Executive shall be given the
duration of the initial Employment Period to own shares of the Company's common stock (including phantom stock units) having a
value equal to one times his annual compensation.
ARTICLE 6
OTHER BENEFITS
Qualified Retirement Plans. During the Employment Period, the Executive shall be entitled to participate in the qualified plans
(including defined benefit and 401(k) savings) sponsored by the Company in accordance with the general rules applicable to other
employees participating in such plans.
Welfare Benefit Plans. During the Employment Period, the Executive shall be eligible to participate in the welfare benefit plans
and programs (including health, life insurance, catastrophe accident, cafeteria, disability, approved personal leave) sponsored by
the Company in accordance with the general rules applicable to such plans.
Vacation. During the Employment Period, the Executive shall be entitled to paid vacation time in accordance with the Company's
general rules, except that the Executive shall have the right to four weeks of paid vacation in each anniversary year. After the
Executive has five anniversary years, he shall be entitled to five weeks of paid vacation in each anniversary year.
Nonqualified Benefit Plans. During the Employment Period, the Executive shall be eligible to participate in the Company's optional
nonqualified plans such as the Deferred Share Make-up Plan, the Deferred Compensation Plan, and the Deferred Share Plan
(Collectively referred to as the "Deferred Compensation Plans") and shall be covered by the Company's nonqualified plan the
Supplemental Executive Retirement Plan (the "SERP") to make-up the difference between what can be earned by and paid to the
Executive under the Company's qualified deferred benefit plan and what could be earned by and paid to the Executive under such
plan in the absence of federal tax law limitations applicable to it. A copy of such Deferred Compensation Plan and the SERP are
attached to the Agreement as Exhibits E, F, G, and H respectively.
Change in Control/Indemnification. The Executive shall be nominated to participate in the Company's Executive Severance
Compensation Plan ("Change in Control Plan") and shall also be given an Indemnification Agreement. A copy of the Change in
Control Plan, the form of Change in Control Agreement, and the form of Indemnification Agreement are attached as Exhibits I, J,
and K.
Relocation Expenses. The Company shall pay the Executive a one-time relocation allowance of $50,000 for him and his family to
move from Houston, Texas, to Salt Lake City, Utah. The Company shall also reimburse Executive for any normal and customary
moving expenses, which include airfare and expenses for the Executive and his spouse to make up to three house-hunting trips.
During the first year of the Employment Period, the Company shall also pay for up to five round trips for the Executive to travel
between Salt Lake City and Houston.
Other Benefits. During the Employment Period, the Executive shall be entitled to participate in the Company's special tax
preparation and financial planning reimbursement program available to the Company's officers. The Executive shall also be entitled
to participate in any special programs adopted for the Company's executive officers.
Office and Support Staff. During the Employment Period, Executive shall be entitled to an office and secretarial assistance
appropriate to his position.
Expenses. During the Employment Period, Executive shall be entitled to receive prompt reimbursement for all reasonable
employment-related expenses incurred by him and approved in accordance with the Company's standard policies.
ARTICLE 7
TERMINATION OF EMPLOYMENT
Termination for Cause. If the Company terminates Executive's employment for Cause, the Company shall only be required to pay
Executive any earned but unpaid base salary and vacation benefits.
The Company may not terminate Executive's employment for Cause unless it has: (a) officially given the Executive written notice
at least 30 days prior to the Date of Termination of its intent to terminate Executive's employment, that contain a detailed
description of the specific reasons that form the basis for such action; (b) provided the Executive an opportunity to appear before
the Board prior to the Date of Termination to present arguments on his own behalf; and (c) received the affirmative vote of at
least two-thirds of the members of the Board that it is proper to terminate the Executive's employment for Cause. Pending the
final resolution of any disputes concerning the Executive's termination of employment for Cause, the Board may suspend
Executive with pay.
Termination for Death or Disability. If Executive's employment terminates during the Employment Period due to his death or
Disability, the Company shall pay to the Executive's beneficiaries (in the event of his death) or to the Executive (in the event of his
Disability), a lump-sum amount equal to the Executive's Base Salary for the remainder of the Employment Period. The Company,
in accordance with the AMIP, shall also pay a pro rata portion of the annual bonus that would have been paid to the Executive but
for his death or Disability; this bonus amount shall be paid in cash and shall be paid in February of the year following the
performance period and shall be prorated based on the portion of the performance period that Executive was performing his duties
(in the event of his death) or receiving short-term disability benefits (in the event of Disability). The Company shall also distribute a
pro rata portion of the one-time award of shares of stock previously granted to the Executive on the Agreement Date and all
shares of stock previously granted as partial payment of the annual bonuses earned under the AMIP.
Termination Without Cause. If the Company terminates Executive's employment during the Employment Period for some reason
other than Cause, the Company shall pay Executive a lump-sum amount equal to the Executive's Base Salary for the remainder of
the Employment Period and the Target Bonus amount for the year in which his termination occurs. The Company shall also
distribute a pro rata portion of the one-time award of shares of stock previously granted to the Executive on the Agreement Date
and all shares of stock previously granted as partial payment of the annual bonuses earned under the AMIP. The calculation of
any cash severance benefit shall be based on the Executive's Base Salary at the time of termination.
Termination by Executive. The Executive can terminate his employment for any reason, provided that he gives the Board written
notice at least 30 days' prior to his Date of Termination. If the Executive terminates his employment for other than Good Reason,
he shall only be paid his earned but unpaid Base Salary and accrued vacation benefits (up to time of termination).
If the Executive terminates his employment for Good Reason, the Company shall pay Executive a lump sum amount equal to his
Base Salary for the remainder of the Employment Period and the Target Bonus for the year in which the termination occurs. The
Company shall also distribute a portion of the one-time award of shares of stock previously granted to the Executive on the
Agreement Date and all shares of stock previously granted as partial payment of the annual bonuses earned under the AMIP. The
calculation of any cash severance benefit shall be based on the Executive's Base Salary at the time of termination.
ARTICLE 8
RESTRICTIVE COVENANTS
Non-Solicitation of Employees. During the remainder of any Employment Period for which the Executive is receiving
compensation as a result of a Termination of Employment and during the one-year period immediately following a Termination of
Employment for Cause or Termination by Executive for other than Good Reason, the Executive shall not directly or indirectly
employ or seek to employ any employees of the Company or its Subsidiaries and shall not entice or otherwise encourage any such
employee to leave such employment.
Confidentiality. During the Employment Period, the Executive shall maintain the confidential nature of information concerning the
Company's financial results and business strategies and shall not disclose such information to any person whose interests are or
may be adverse to the Company's interests or any person that may use such information to obtain personal financial gain.
After a Termination of Employment for any reason, the Executive shall not, without the prior written consent of the Company or
as may otherwise be required by law or legal process, communicate or divulge any confidential information other than the
Company and its designees.
Injunction. Executive acknowledges that monetary damages will not be an adequate remedy for the Company in the event he
breaches the provisions of this Article. Consequently, Executive agrees that the Company is entitled to an injunction to prevent
Executive from any breach of the provisions of this Article in addition to other rights that the Company may have.
ARTICLE 9
MISCELLANEOUS
Beneficiary. If Executive dies prior to receiving all of the amounts payable to him in accordance with the terms of this Agreement,
such amounts shall be paid to one or more beneficiaries designated by Executive in writing to the Company during his lifetime, or if
no such beneficiary is designated, to Executive's estate. Such payments shall be made in a lump sum to the extent so payable and,
to the extent not payable in a lump sum, in accordance with the terms of this Agreement. Executive, without the consent of any
prior beneficiary, may change his designation of beneficiary or beneficiaries at any time or from time to time by submitting to the
Company a new designation in writing.
Assignment: Successors. The Company may not assign its rights and obligations under this Agreement without the prior written
consent of Executive except to a successor of the Company's business that expressly assumes the Company's obligations in
writing. This Agreement shall be binding upon and inure to the benefit of Executive, his estate and Beneficiaries, the Company and
the successors and permitted assigns of the Company.
Nonalienation. Benefits payable under this Agreement shall not be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, charge, garnishment, execution of levy of any kind, either voluntary or involuntary, prior to
actually being received by Executive or a beneficiary, as
applicable, and any such attempt to dispose of any right to benefits payable hereunder shall be void.
Severability. If one or more parts of this Agreement are declared by any court or governmental authority to be unlawful or invalid,
such unlawfulness or invalidity shall not invalidate any part of this Agreement not declared to be unlawful or invalid. Any part so
declared to be unlawful or invalid shall, if possible, be construed in a manner which will give effect to the terms of such part to the
fullest extent possible while remaining lawful and valid.
Amendment: Waiver. This Agreement shall not be amended or modified except by written instrument executed by the Company
and Executive. A waiver of any term, covenant or condition contained in this Agreement shall not be deemed a waiver of any
other term, covenant or condition, and any waiver of any default in any such term, covenant or condition shall not be deemed a
waiver of any later default thereof.
Notices. All notices hereunder shall be in writing and delivered by hand, by nationally-recognized delivery service that guarantees
overnight delivery, or by first-class, registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Company, to Questar Corporation
180 East 100 South
Salt Lake City, Utah 84111
Attention: R. D. Cash
with a copy to: Questar's General Counsel
180 East 100 South
Salt Lake City, Utah 84111
If to Executive, to: Keith O. Rattie
[Home Address]
Either party may from time to time designate a new address by notice given in accordance with this Section. Notice shall be
effective when actually received by the addressee.
Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
Entire Agreement. This Agreement forms the entire agreement between the parties with respect to the subject matter addressed
in this Agreement. It supersedes all prior agreements, promises and representations regarding employment, compensation,
severance or other payments contingent upon termination of employment.
Applicable Law. This Agreement shall be interpreted and construed in accordance with the laws of the state of Utah, without
regard to its choice of law principles.
Survival of Executive's Rights and Obligations. All of Executive's rights and obligations shall survive the termination of Executive's
employment and/or the termination of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date first above written.
QUESTAR CORPORATION
By /s/R. D. Cash
R. D. Cash
Chairman of the Board
EXECUTIVE
/s/Keith O. Rattie
K. O. Katter
SUBSIDIARY INFORMATION
Registrant Questar Corporation has the following subsidiaries:
Questar Regulated Services Company, Questar Market Resources, Inc., Questar InfoComm, Inc., Interstate Land Corporation,
and Questar Employee Services, Inc. Each of these companies is a Utah corporation.
Questar Market Resources, Inc., has the following subsidiaries:
Wexpro Company, Questar Exploration and Production Company, Questar Energy Trading Company, and Questar Gas
Management Company. Questar Exploration and Production is a Texas corporation. The other listed companies are incorporated
in Utah.
Questar Exploration and Production has a wholly owned subsidiary, Celsius Energy Resources, Ltd., which is an Alberta
corporation. Celsius, Ltd., in turn, has a subsidiary, Canor Energy Ltd., which is also an Alberta corporation.
Questar Exploration and Production has one domestic active subsidiary: Questar URC Company, which is a Delaware
corporation. Questar Exploration and Production also does business under the names Universal Resources Corporation, Questar
Energy Company and URC Corporation.
Questar Energy Trading Company has one active subsidiary, URC Canyon Creek Compression Company, which is a Utah
corporation.
Questar Regulated Services has three subsidiaries, all of which are Utah corporations: Questar Gas Company, Questar Pipeline
Company, and Questar Energy Services, Inc. Questar Pipeline, in turn, has four wholly owned subsidiaries: Questar
TransColorado, Inc., Questar Line 90 Company, Questar Southern Trails Pipeline Company, and Questar Transportation Services
Company, which are all Utah corporations.
Questar InfoComm has one wholly owned subsidiary, Questar Baseline Industries, Inc., which is a Colorado corporation. It also
owns approximately 82 percent of Consonus, Inc., which is a Utah corporation. Consonus, in turn, has a wholly-owned subsidiary,
Consonus of Oregon, Inc., which is an Oregon corporation.
Exhibit 23.
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form S-8, No. 33-15149, Post-effective Amendment
No. 3 to No. 33-4436, No. 33-40800, No. 33-40801, and No. 33-48169; Form S-8, No. 333-04951; and Form S-8, No. 333-04913)
and the Registration Statement (Form S-3, No. 33-48168) of Questar Corporation and in the related Prospectus of our report dated
March 6, 2001, with respect to the consolidated financial statements of Questar Corporation included in this Annual Report (Form
10-K) for the year ended December 31, 2000.
Salt Lake City, Utah
March 23, 2000
POWER OF ATTORNEY
We, the undersigned directors of Questar Corporation, hereby severally constitute R. D. Cash and S. E. Parks, and each of them
acting alone, our true and lawful attorneys, with full power to them and each of them to sign for us, and in our names in the
capacities indicated below, the Annual Report on Form 10-K for 2000 and any and all amendments to be filed with the Securities
and Exchange Commission by Questar Corporation, hereby ratifying and confirming our signatures as they may be signed by the
attorneys appointed herein to the Annual Report on Form 10-K for 2000 and any and all amendments to such Report.
Witness our hands on the respective dates set forth below.
Signature Title Date
/s/ R. D. Cash Chairmanof the Board, 2-13-01
R. D. Cash Chief Executive Officer
/s/ K. O. Rattie President and 2-13-01
K. O. Rattie Chief Operating Officer
Director
/s/ Teresa Beck Director 2-13-01
Teresa Beck
/s/ Patrick J. Early Director 2-13-01
Patrick J. Early
/s/ W. Whitley Hawkins Director 2-13-01
W. Whitley Hawkins
/s/ Robert E. Kadlec Director 2-13-01
Robert E. Kadlec
/s/ Dixie L. Leavitt Director 2-13-01
Dixie L. Leavitt
/s/ Gary G. Michael Director 2-13-01
Gary G. Michael
/s/ Gary L. Nordloh Director 2-13-01
Gary L. Nordloh
/s/ Scott S. Parker Director 2-13-01
Scott S. Parker
/s/ D. N. Rose Director 2-13-01
D. N. Rose
/s/ Harris H. Simmons Director 2-13-01
Harris H. Simmons
TO BE INCORPORATED BY REFERENCE INTO REGISTRATION
STATEMENTS ON FORM S-3 (NO. 33-48168) AND ON
FORM S-8 (NOS. 33-4436, 33-15149, 33-40800, 33-40801, 33-48169, 333-04913, and 333-04951)
UNDERTAKINGS
(a) Rule 415 Offering.
The undersigned registrant hereby undertakes:
(l) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent
post-effective amendment thereof) that, individually or in the aggregate, represents a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected on the form of prospectus filed by the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate
offering price set forth in the "calculation of Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the registration statement is on Form S-3 or Form S-8
and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports
filed by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered that remain unsold
at the termination of the offering.
(b) Incorporation of Documents by Reference.
The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering
thereof.
(e) Incorporated Annual and Quarterly Reports.
The undersigned registrant hereby undertakes to deliver or cause to be delivered with the prospectus, to each person to whom the
prospectus is sent or given, the latest annual report to security holders that is incorporated by reference in the prospectus and
furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and
where interim financial information required to be presented by Article 3 of Regulation S-X are not set forth in the prospectus, to
deliver or cause to be delivered to each person to whom the prospectus is sent or given, the latest quarterly report that is
specifically incorporated by reference in the prospectus to provide such interim financial information.
(h) Registration Statements on Form S-8.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant, the registrant has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.