Questar Corporation (Questar or the Company) is a natural gas-focused energy
company with four major lines of business – gas and oil exploration and
production, midstream field services, interstate gas transportation, and retail
gas distribution – which are conducted through its three principal subsidiaries.
Questar Market Resources, Inc. (Market Resources) engages in gas and oil exploration,
development and production and midstream field services-gas gathering and processing,
as well as wholesale gas and oil marketing and gas storage. Questar Pipeline
Company (Questar Pipeline) provides interstate natural gas transportation and
storage services. Questar Gas Company (Questar Gas) provides retail natural
gas distribution.
Questar is a holding company, as that term is defined in the Public Utility
Holding Company Act of 2005 (PUHCA 2005), because its subsidiary Questar Gas
is a gas utility company. Questar, however, qualifies for and will file for
an exemption and waiver from provisions of the Act applicable to holding companies.
PUHCA 2005 supersedes the Public Utility Holding Company Act of 1935 under which
Questar qualified for an exemption. Questar conducts most of its operations
through subsidiaries. The parent-holding company performs certain management,
legal, tax, administrative and other services for its subsidiaries
Questar operates in the Rocky Mountain and Midcontinent regions of the United
States of America and is headquartered in Salt Lake City, Utah. Shares of Questar
common stock trade on the New York Stock Exchange under the symbol STR.
Questar E&P – Competition and Customers
Questar E&P faces competition in every part of its business, including
the acquisition of reserves and leases. Its longer-term growth strategy depends,
in part, on its ability to purchase reasonably priced reserves and develop them
in a low-cost and efficient manner. Competition is particularly intense when
prices are high, as has been the case in recent years.
Questar E&P, through Energy Trading, sells natural gas production to a variety
of customers, including pipelines, gas-marketing firms, industrial users and
local-distribution companies. It regularly evaluates counterparty credit and
may require financial guarantees from parties that fail to meet its credit criteria.
Energy Trading sells equity crude-oil production to refiners, remarketers and
other companies, including some with pipeline facilities near company producing
properties. In the event pipeline facilities are not available, Energy Trading
transports crude oil by truck to storage, refining or pipeline facilities.
Questar Pipeline – Customers, Growth and Competition
Questar Pipeline faces risk of recontracting firm capacity as contract terms
expire. Questar Pipeline’s transportation system is nearly fully subscribed,
and firm contracts had a weighted-average remaining life of 10.9 years.
Questar Gas remains Questar Pipelines largest transportation customer.
Questar Pipeline also transported 259.3 MMdth for nonaffiliated customers to
pipelines owned by Kern River Pipeline, Northwest Pipeline, Colorado Interstate
Gas, TransColorado, Wyoming Interstate Company and other systems. Questar Pipeline
may be adversely affected by proposals before the FERC to establish natural
gas-quality standards, specifically for hydrocarbon dewpoint. Questar Pipelines
tariff allows a higher hydrocarbon dewpoint specification than most other systems,
which requires less processing by producers before natural gas volumes are delivered
into Questar Pipelines system. As a consequence, Questar Pipeline must incur
higher costs to blend lower dewpoint-processed gas with wet gas and in some
instances isolate processed gas for delivery to other pipelines. In effect,
Questar Pipeline currently provides a bundled gas-transportation and dewpoint-management
service for shippers at certain delivery points. Questar Pipeline may need to
restructure its tariff to unbundle these services.
Questar Gas – Regulation
As a public utility, Questar Gas is subject to the jurisdiction of the PSCU
and PSCW. Natural gas sales and transportation services are made under rate
schedules approved by the two regulatory commissions. Questar Gas is authorized
to earn a return on equity of 11.2% in Utah and 11.83% in Wyoming. Both the
PSCU and PSCW permit Questar Gas to recover gas costs through a balancing-account
procedure and to reflect natural gas-price changes on a periodic, generally
semi-annual basis. Questar Gas has also received permission from the PSCU and
PCSW to reflect in its gas costs specified costs associated with hedging contracts.
Questar Gas has significant relationships with affiliates that have allowed
it to lower its costs and improve efficiency. These affiliate relationships,
however, are subject to oversight by regulatory commissions for evidence of
subsidization and above-market payments.
Questar Gas – Competition
Questar Gas is a public utility and currently has no direct competition from
other distributors of natural gas for residential and commercial customers.
It has historically enjoyed a favorable price comparison with other energy sources
used by residential and commercial customers except coal and occasionally fuel
oil. It provides transportation service to industrial customers that can buy
volumes of gas directly from others. Questar Gas earns lower margins on this
transportation service than firm-sales service and could lose customers to Kern
River.
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