180 East 100 South
P.O. Box 45433
Salt Lake City, UT 84145
Connie C. Holbrook
Senior Vice President,
and Corporate Secretary
Tel: 801 324 5202
Fax: 801 324 5483
August 15, 2002
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Attention: Jonathan G. Katz, Secretary
Re: File No. S7-31-02 (Ownership Reports and
Trading by Officers and Directors)
Questar Corporation ("Questar" or the "Company") is a publicly held, integrated energy company with headquarters in Salt Lake City, Utah. The Company's common stock is listed on the New York Stock Exchange. Questar's executive officers and directors are subject to Section 16 of the Securities Exchange Act of 1934 as amended by Section 403 of the Sarbanes-Oxley Act of 2002 ("2002 Act").
The cited section of the 2002 Act contains a general requirement that executive officers and directors are subject to a two-day reporting period, and permits the Commission to establish "such other times" for disclosure of securities transactions if it determines that the two-day period is "not feasible." Questar urges the Commission to find that it is not feasible to require two-day disclosures of securities transactions involving qualified plans, nonqualified deferred compensation plans, and dividend reinvestment plans. The Company requests the Commission to provide for delayed reporting of these transactions. (As an aside, the Company urges the Commission to reconsider its over-inclusive definition of "derivative securities" to include phantom stock units.)
Questar provides the following explanation of its circumstances to support its re quests. This comment letter describes one entity's situation and experience, but this account is certainly not unique to the Company.
Qualified Plans. Questar's executive officers participate in the Company's Employee Investment Plan, which is a 401(k) plan that allows employees to make salary reduc tions each semi-monthly payroll period. The records for this plan are kept by a financial services institution that also serves as trustee. The trustee has discretion about buying andselling shares of Questar stock to satisfy plan requirements. Each participant has access to an Internet-based screen that lists the aggregate year to date contributions (both employee and employer) for him and the value of his account balance with separate line items for gains/losses and earnings. He has no access to actual price information or specific alloca tions by date.
An executive officer knows when his 401(k) salary reduction is reflected in his semi-monthly paycheck, but he does not know when Questar sends his cash salary reduction to the record keeper, when Questar sends cash or shares of stock to fund its contribution, or have advance knowledge about when the trustee actually allocates additional shares to his ac count. The record-keeper has not established (and should not be expected to establish) procedures that give special notice to either Questar or the executive officers involved of allocations to their account balances.
At the current time, Questar's executive officers do not report any information about their plan balances unless they are otherwise required to disclose a transaction. An executive officer who is required to file a Form 4 report for other transactions discloses information available for his 401(k) plan account on a total equivalent share basis as of the end of the prior month. (The record-keeper uses unitized accounting, not share accounting, for the plan.) A Form 4 report disclosing transactions in July of 2002, for example, only includes 401(k) plan account balance in total equivalent shares as of the end of June. Officers who have no mandatory disclosure transactions simply include plan shares in their ownership totals reported on annual Form 5 reports.
Under the terms of Questar's formal "insider trading" policy, the Company's execu tive officers are not permitted to transfer or sell shares of stock credited to their accounts. They, in common with other participants, can make daily elections to change the allocation of future contributions among various investments and change the amount of such contribu tions.
It is impossible for Questar's executive officers to file Form 4 reports concerning allocation of shares to their account balances within two business days following the actual allocation. They should not be required to monitor their accounts on a daily basis. Even if they did, they would not be able to retrieve specific date, price, and incremental share information typically disclosed in Form 4 reports. The Company, as the plan sponsor, should not be required to impose special requirements on the trustee/record-keeper of the plan. Questar does not believe that the Commission wants executive officers to file up to 29 reports during any given calendar year to report small acquisitions inside a 401(k) plan. (This number is based on 24 payroll periods, four dividend reinvestment dates, and one year-end allocation of a special non-matching employer contribution.)
Nonqualified Deferred Compensation Plans. Questar also sponsors nonqualified,deferred compensation plans. When his annual compensation hits the ceiling imposed by federal law on qualified plans, a Questar executive officer is moved to a nonqualified plan that is designed to "mirror" the 401(k) plan. This means that six percent of his compensa tion in excess of the ceiling (currently $200,000) is reduced and the salary reduction is accounted for as if invested in shares of phantom stock, using the closing price of Questar's stock on the applicable payroll date. Phantom stock units attributable to Questar's "match ing contribution" are also credited to the officer's account.
Officers are also permitted to make advance elections to defer the receipt of their compensation independently of the limitations imposed by qualified plans. An executive officer, for example, can elect to defer the receipt of $1,000 per month and have this nonqualified salary reduction or deferred compensation accounted for with phantom stock units. The executive officer must make an advance election prior to deferring compensation about the timing of distributions and cannot cancel an election during the course of a calen dar year.
Questar maintains the records for these phantom stock units, but reports are only generated on an as-needed basis. Executive officers currently disclose information concern ing phantom stock units credited to their accounts when they are otherwise required to disclose transactions. They only receive information concerning their account balances on a quarterly basis; this information is not available through a web site.
Questar's comment about the number of reports should be repeated at this point. Some of Questar's executive officers who elect to defer compensation on a semi-monthly basis would be required to file 28 reports each year to report small acquisitions of phantom stock units. (The number reflects 24 payroll periods and quarterly reinvestment dates.) To compound the absurdity, an executive officer may actually be required to file phantom stock acquisitions separately from qualified plan acquisitions since the crediting dates for the two types of plans aren't necessarily consistent.
The Company does not believe that the Commission can handle (or wants to receive) semi-monthly reports from executive officers of entities that sponsor qualified plans where issuer securities are used as an investment option or for employer matching contributions and that sponsor nonqualified plans where derivative securities are used as a crediting mechanism.
Dividend Reinvestment Plan Purchases. In common with many issuers, Questar offers a Dividend Reinvestment and Stock Purchase Plan to shareholders. Some statutory insiders that own shares of record elect to reinvest their quarterly dividends in additional shares of stock. The dividends are reinvested in shares purchased on the open market or issued by the Company. When the shares are purchased on the open market, the financial services institution handling such purchases does not advise Questar of the average purchaseprice for several days after the dividend payable date. Shareholders do receive statements concerning the number of shares purchased with their dividends, but such statements are not received until 7-15 days after the purchase is made.
Questar keeps the records for its Dividend Reinvestment Plan and, if required, could provide statutory insiders with the necessary price and volume information to allow transac tions to be reported within 10 days after the end of the month, but it cannot supply such information within the two-day time period currently provided for in the Sarbanes-Oxley Act of 2002. (Most dividend reinvestment plan purchases satisfy the Commission's definition of small acquisitions and have been reported on a delayed basis.)
If the Commission does not allow delayed reporting for dividend reinvestment plan purchases, companies such as Questar will be required to preclude statutory insiders from reinvesting dividends.
Directors' Fees. Questar, again in common with many companies, allows directors to defer receipt of fees and to have such fees accounted for in phantom shares of stock. Directors can elect to defer up to 100 percent of their retainers and meeting fees they earn as directors of Questar and its fee-paying subsidiaries. For attending Questar's Board meetings held on August 13, 2002, any director who defers his fees was credited with 64.3097 phan tom stock units. This calculation uses Questar's closing price and cannot be made until after the market closes on the day the meetings are held. Phantom stock units are credited with "reinvested dividends" on a quarterly basis. The directors are advised about the number of phantom stock units credited to them on an annual basis.
Directors are required to make advance elections to defer the receipt of fees and cannot change their elections in any given calendar year. They are also required to make advance elections about when they want the cash value of the phantom stock units to be distributed following retirement or resignation as directors. They cannot make decisions about their phantom stock balances on a market-timing basis.
It is not feasible for directors to be advised about the number of phantom stock units allocated to their accounts on the first business day of the month (monthly retainer), for attendance at any given meeting, or on quarterly dividend payment dates. It is not feasible for any given director who defers his fees for a year to file a minimum of 20 separate Form 4's during the course of it to report the acquisition of phantom stock units.
General Comments. Questar understands that Section 402 of the 2002 Act was adopted to ensure that other investors receive timely information about significant purchases and sales made by statutory insiders. The provision, however, casts an overly broad net that will flood the Commission's files with numerous reports of almost inconsequential informa tion that may do nothing more than frustrate and confuse the investors it was designed toassist.
The two-day disclosure requirement will inevitably force executive officers and directors to sign powers of attorney that divorce them from responsibility for monitoring their own stock ownership records. Issuers, not individuals, will be required to assume additional administrative burdens.
Conclusion. The Company requests the Commission to impose as much reason as possible on an overblown statutory requirement.
/s/ Connie C. Holbrook
Connie C. Holbrook
Senior Vice President,
and Corporate Secretary