Questar Corporation (STR)

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Questar Corporation (STR)

New York Analyst Day & Webcast Conference Transcript

November 7, 2012 12:15 PM ET

Executives

Kevin Hadlock - Executive Vice President and CFO

Jim Livsey - Executive vice president and COO, Wexpro

Jim Harmon - Director

Analysts

Presentation

Kevin Hadlock

We're going to go ahead and get started, I know we do have some folks with me and to the webcast, so we would like to welcome you all to our Fall Analyst Day here in New York City.

As I mentioned I'm Kevin Hadlock, Executive Vice President and CFO, Ron Jibson, our CEO, our Chairman, President and CEO, sends his regrets as I mentioned he returned to Salt Lake this morning to avoid some of this inclement weather that we're just now starting to see roll into the New York City area. I certainly do appreciate all of you for making the trip here today to join us in person and certainly welcome those on the phone.

You do have the presentation books in front of you. I'll try to refer to the page numbers for those on the webcast and I am not Ron Jibson, as featured in the case, but I will try do my best impression of Ron here in this early part of the presentation.

So logistically I'll present in behalf of Ron and Craig Wagstaff for Questar Gas and then I'll turn the presentation over to Jim Livsey, who is joining me here up on the stage. Jim is our Executive Vice President and Chief Operating Officer of Wexpro, and he'll walk through the Wexpro portion of the presentation and I'll come back and talk about Questar Pipeline on behalf of Allan Bradley and then finish up with some financial information. And we'll open up to take your questions and hopefully we can get all that wrapped up here in about an hour and 15 minutes.

As we've often talked about Questar is quite a unique company in the natural gas space. We are an integrated natural gas company from well head to burner tip. We provide a very good return on the investments that we make, incurred with Wexpro. On a consolidated basis we have earned almost a 20% return on equity over the last 12 months. Within the regulated businesses we have a history of earning our allowed returns, it's great to have a allowed returns north of 10% in utilities, and something entirely different to actually to be able to earn that allowed return.

Jim, will have the opportunity to talk a little bit more in detail about Wexpro, but it's a very unique asset that really anchors and is really the roof of our Company, that dates back to the 1930s.

We continue to see solid growth within the businesses, Questar Gas is expected to grow between 7% and 9% over the five-year term. Wexpro continues to forecast a 4% to 8% growth rate and what Questar pipeline lacks for growth it is providing very strong cash flow to help fund the growth in the other businesses.

We're now approaching our target of 60% dividend payout. We're now at about 58% and as we move forward we expect to be at or slightly above that 60% payout and then allowing the dividend to grow along with earnings growth. And all of this is supported by a very strong balance sheet with ample liquidity to support the growth and the dividend.

Our operations are primarily based in the Rockies. This chart simply shows that set of operations you'll see in the callout chart much of our production is located in the Green River basin, with most of our transmission pipeline situated in the heart of the Rockies and the gas distribution utility primarily in Utah with a small part of Wyoming and as even smaller part of Idaho.

As I mentioned, we -- following the restructuring in 2010 we returned to a much more balanced portfolio with Wexpro contributing about 46% of our net income in 2011, Questar Pipeline providing about a third of our net income and Questar Gas making up the balance.

So let's jump right into the Questar Gas story, Questar Gas serves about 277 cities in Utah. We are the primary franchise for natural gas distribution in Utah with the exception of few municipalities. We do have that opportunity to provide gas service to all of those customers. One of the things that makes Questar Gas very unique in the United States is that we are the lowest - provide the lowest residential rates for our customers. The average in the country is about $12.44, we are providing an all in cost to our customers of $8.82, which does have a [shrink] rate there at the bottom.

If you look over time we've consistently been below the national average and saw that gap out and lot of this is to do with Wexpro and this cost of service model that we have that provides a great long-term hedge against volatility in the natural gas market. We described Questar Gas as the top performing utility.

Our return on equity we've been able to earn at or above that ROE for the last seven consecutive years and as we look forward we do have an aggressive investment program, for both pipeline replacement and other infrastructure replacements as well as customer growth.

We do expect to be back in for a rate case next year as required by the Public Service Commission. Following the 2010 settlement they wanted us to come back in within three years, so we will be back in the first half of next year. We are cognizant of the pressure that lot of companies has seen on ROEs and certainly expect that to be part of the conversation with the Commission.

We have shown our ability to keep our O&M per customer very low. In fact when you compare us against the AGA companies we're among the lowest 5% in O&M per customer, which makes us one of the most efficient utilities in providing that service, as I mentioned our customer rates are the lowest in the country.

And customer growth we're starting to see an uptick here, where some areas of the country saw a reduction in customers. We have consistently shown customer growth, I think the lowest amount of customer growth we've seen over the last several years is about 0.9%. So we have certainly outpaced the national average and we're starting to see an uptick in that.

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