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Questar (NYSE:STR)

Q2 2012 Earnings Call

July 26, 2012 9:30 am ET

Executives

Kevin W. Hadlock - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Ronald W. Jibson - Chairman, Chief Executive Officer, President, Chief Executive Officer of Questar Gas Company, President of Questar Gas Company, Chief Executive Officer of Wexpro and President of Wexpro

James R. Livsey - Executive Vice President and Chief Operating Officer of Wexpro

Craig C. Wagstaff - Executive Vice President and Chief Operating Officer of Questar Gas

R. Allan Bradley - Executive Vice President, Chief Executive Officer Questar Pipeline and President of Questar Pipeline

Analysts

Kevin A. Smith - Raymond James & Associates, Inc., Research Division

Carl L. Kirst - BMO Capital Markets U.S.

Christopher P. Sighinolfi - UBS Investment Bank, Research Division

Daniel M. Fidell - U.S. Capital Advisors LLC, Research Division

Operator

Good morning. My name is Nick and I will be your conference operator today. At this time, I would like to welcome everyone to the Questar's Second Quarter 2012 Earnings Conference Call. [Operator Instructions] Questar's Corporation Chief Financial Officer, Kevin Hadlock, you may begin your conference.

Kevin W. Hadlock

Thank you Nick. Good morning, everyone and thank you for joining us for Questar's Second Quarter 2012 Earnings Conference Call. I am Kevin Hadlock, Questar's Chief Financial Officer. With me today are Ron Jibson, Chairman, President and CEO of Questar Corporation; Jim Livesey, Executive Vice President and Chief Operating Officer of Wexpro; Allan Bradley, Executive Vice President and CEO of Questar Pipeline; and Craig Wagstaff, executive Vice President and Chief Operating Officer of Questar Gas.

During this call, we will be referring to our second quarter 2012 earnings presentation that can be found on our website at questar.com. Moving to Slide 2.

Before we begin, let me remind you that we will be making forward-looking statements during our call today and actual results could differ from our estimates for a variety of reasons that we describe in our SEC filings. Also, this call may reference non-GAAP financial measures, our slides in the appendix provide the reconciliations to these measures. Let's begin on Slide 4.

Yesterday, we reported second quarter 2012 net income of $39.2 million or $0.22 per diluted share. This compares to net income of $40.3 million or $0.22 per diluted share in the same period of 2011.

Operating cash flow was strong in the first half of 2012 totaling $271.6 million, up about 5% versus the same period last year. Overall, capital investment was $86.6 million, up more than 28% from the second quarter of 2011.

As we discussed on our first quarter earnings call, we accelerated our share repurchase program in the second quarter, spending about $52 million to buy back just over 2.6 million shares.

Turning to Slide 5. All 3 business units performed in line with our forecast in the second quarter of 2012. Corporate was flat compared to last year. Overall, net income in the second quarter of 2012 was down $1.1 million or flat on an earnings per share basis versus the same period last year. Year-to-date, net income is 4% higher than the same period last year.

Moving to Slide 6. Questar Gas, our retail gas distribution utility, saw an increase in gross margin of $500,000. EBITDA was lower by $3.4 million and net income was down $2.7 million compared to the same period last year.

Questar Gas's capital investments in the second quarter of 2012 was $41.1 million, an increase of $11.8 million over last year's second quarter.

Turning to Slide 7. Wexpro, our cost of service natural gas development company, grew EBITDA to $59.6 million, up $7.4 million or 14% compared to the second quarter of 2011. Net income was up $2.1 million to $25.8 million, an increase of 9% over the same period last year. These results were driven largely by a higher average investment base, which saw a year-over-year increase of $38 million or about 90%. Wexpro invested capital of $30.6 million in the second quarter of 2012 compared to $22.6 million in last year's second quarter.

Moving to Slide 8. Questar Pipeline, our interstate natural gas pipeline and storage business, delivered solid performance in the second quarter of 2012. Revenue was down slightly, driven primarily by lower natural gas liquid revenues. Net income was $16.1 million, down $500,000 compared to the second quarter of 2011. Capital investment in the second quarter of 2012 was $2 million lower than the same period last year driven by the completion of several key projects in 2011.

Moving to Slide 9. With regard to costs, Questar's second quarter 2012 consolidated operating and maintenance costs were flat compared [ph] to prior year. General and administrative expenses were up by $3.7 million primarily due to higher employee related costs. Production and other taxes were $500,000 lower due to lower natural gas prices, partially offset by property taxes on higher plant investment.

Depreciation in the second quarter of 2012 was up $6.6 million compared to the second quarter of 2011 due to higher capital investment. Consolidated interest expense was $300,000 higher as we replace short-term borrowings with long-term debt.

Turning to Slide 10. The company continues to generate strong cash flow. For the first half of 2012, operating cash flow before working capital changes totaled about $272 million, a 5% increase over the same period last year. At June 30, Questar had net available liquidity of $310 million, in the form of unused commercial paper capacity.

From a Capital Markets perspective, we are anticipating issuing long-term debt at Questar Gas in the second half of 2012 to refinance about $132 million of maturing debt and to fund a portion of the ongoing infrastructure replacement program.

With that, let me turn the time over to Questar's Chairman, President and CEO, Ronald Jibson, to discuss operations and Questar's outlook.

Ronald W. Jibson

Good morning, everyone, and thanks, Kevin, for that summary. We do appreciate all of you joining us today. With the first half of the year behind us, we are pleased with the performance of Questar's businesses. All 3 business units executed in line with our expectations for the quarter.

Let's begin on Slide 12. Questar Gas continues to demonstrate consistent performance. During the second quarter, Questar Gas's gross margin increased by $500,000 driven by $800,000 of cost recovery related to the multiyear infrastructure replacement program. The programs cost tracker allows us to earn a return as we place the new facilities into service. This program and associated tracker are extremely important for Questar Gas, our customers and our shareholders.

Everyone benefits as necessary improvements are made to the distribution system without the need to file frequent general rate cases to add in the investment to rate base. Questar Gas is expected to spend about $55 million in 2012 on the infrastructure replacement program.

During the second quarter, Questar Gas's investment in this program was $19.9 million compared to $14.5 million in the second quarter of 2011.

Questar Gas's results also benefited from customer growth. Over the past 12 months, Questar Gas added over 10,000 new customers, an increase of 1.2%, which continues to outpace the national average.

Let's move to Wexpro, which delivered impressive results in the quarter. The Wexpro model has created tremendous benefits for Questar Gas customers over the years. Most importantly, it provides a long-term hedge against natural gas price volatility. Wexpro continues to focus its operations to reduce overall finding costs. We have consolidated our focus in the Vermillion basin to our most prolific and low-cost fields of Canyon Creek and Trail. Drilling performance in these areas continues to exceed expectations.

For the second quarter, Wexpro average drilling times of 4.2 days per well. These faster drilling times are also helping to keep finding cost low. In the second quarter, Wexpro's 12-month trailing average finding cost were $1.12 per Mcfe, consistent with the 2011 average. This includes both Wexpro operated wells in the Vermillion basin, as well as non-operated wells in Pinedale.

With the continuing development activity, Wexpro's investment base at the end of the second quarter rose to $517.7 million, an increase of 75 -- $74.2 million compared to the end of the second quarter last year.

Operationally, Wexprox's production was 15.2 billion cubic feet equivalent in the second quarter of 2012, an increase of 23% over the year-ago period. This higher production volume, combined with the low-cost natural gas coming from our current drilling program in Vermillion, has driven a $0.42 per decatherm reduction in the cost of Wexpro gas delivered to Questar Gas's customers in the second quarter of 2012 versus the prior year.

Questar Pipeline, our natural gas transportation and storage business performed in line with the second quarter of 2011 and consistent with our expectations. Revenue from natural gas liquids sales was down versus last year reflecting lower NGL pricing partially offset by higher volumes. On the cost side, Questar Pipeline's combined operating, maintenance, general and administrative expenses were down despite higher labor costs.

Following the quarter end on July 19, Questar Pipeline accepted the first order issuing a certificate to construct the Uinta basin high-BTU gas transportation project. While not large dollars, this project demonstrates Questar Pipeline's ability to execute on a strategy that grow as a regional market center.

Now let me bring you up to date on our Questar Fueling, which we introduced a few months ago. The company was formed to provide national consulting, design, packaging and installation of natural gas vehicle fueling stations. We've made some good headway and we believe we're well-positioned to serve the transportation industry as it turns to abundant, low-cost and clean-burning natural gas.

We've been meeting with key national trucking businesses. We've had discussions with regional truck stop station owners and management. We've stayed in contact with kit manufacturers and we've also met with some utilities to assess their ability to build fueling facilities within their service areas. Our experience is proving very valuable as the market increases its focus on natural gas for transportation.

On the financial side, we took the opportunity to repurchase $52.2 million of Questar common stock in the second quarter. Last year, the Board of Directors approved a $100 million share repurchase program that expires at the end of 2012. So far, we have spent almost $60 million under the authorization.

Let's turn to Slide 13. Over the past year, we have been working closely with Utah and Wyoming regulators to create a mechanism that would allow Wexpro to add new properties. Given the current low priced natural gas environment, we believe that Questar Gas customers and company shareholders could benefit by expanding the Wexpro agreement to include new assets for future development. We would not expect that adding properties to the Wexpro agreement would materially change our current 5-year drilling plan, but would accomplish our objective of extending the life of cost of service production.

The Wexpro II agreement would provide a mechanism to acquire Rockies gas properties for future development. It is modeled on provisions of the current Wexpro Agreement. The Wexpro II Agreement is structured such that the upfront acquisition cost would earn the utilities cost of capital. All post acquisition investment and development cost would earn Wexpro's aftertax return on investment base. Wexpro would evaluate and purchase properties at its own risk and submit a property for inclusion on a case-by-case basis.

The dialogue with state regulators continues to move forward. Over the past several months, we have participated in technical conferences to discuss the specifics of the Wexpro II Agreement. These technical conferences are focused on the mechanics of the agreement. We have not encountered opposition to the Wexpro II concept from any of the participating parties. We are in the closing stages of finalizing the agreement. The next step will be the signing of the agreement with the Utah Office of Consumer Services, the Utah Division of Public Utilities and the Wyoming commissions staff. And then, the subsequent filings with the Utah and Wyoming public service commissions for final approval. We hope to file the agreement in the next few weeks.

Moving to Slide 14. Questar's return on equity continues to be industry-leading. For the 12 months ended June 30, 2012, we saw a consolidated return on equity of 19.7%. This superior return is supported by Wexpro, which provided an ROE of 20.5%. Questar Pipeline delivered an ROE of 11.4%, which is near its authorized return. On a financial basis, Questar Gas's return on equity was 9.9%.

Moving to Slide 15. Looking at 2012, we remain confident in our guidance range in spite of lower natural gas and liquids prices, higher pension costs and property taxes. We remain comfortable that net income could range from $1.15 to $1.19 per diluted share.

The outlook for growth at Questar gas remains strong. We continue to project compound annual rate base and earnings growth of 7% to 9% over the 5-year planning horizon. This growth rate reflects customer growth expectations for 2012 of 1% increasing to 2% over the 5-year plan. We are encouraged by the uptick in customer growth to 1.2% in the second quarter.

Wexpro expects to invest between $550 million and $700 million through 2016. This capital program should result in compound annual earnings growth at Wexpro of 4% to 8% through the 5-year planning horizon. We continue to project capital investment of about $130 million for 2012.

We are estimating long-term earnings growth of 4% to 6% over the planning horizon and targeting a dividend payout ratio of about 60%. During the remainder of 2012, we will continue to look for opportunities to execute on our $100 million share repurchase program.

Let's wrap up on Slide 16. Let me conclude by emphasizing the unique strengths of Questar's business model. We have strong, integrated operations that span across the entire natural gas value chain from wellhead to burner tip. Each business is supported by constructive regulatory relationships and produces an appropriate risk-adjusted return. We have excellent organic growth opportunities at Questar Gas and Wexpro supported by strong cash flow generation at Questar Pipeline.

Finally, we manage a conservative balance sheet with ample cash flow and liquidity that not only supports our earnings growth, but also an increasing dividend in our $100 million share repurchase program.

With that, we would be happy to take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from Kevin Smith from Raymond James.

Kevin A. Smith - Raymond James & Associates, Inc., Research Division

My first question, I guess, is on Wexpro's. Kind of surprised by how much capital you invested this quarter, especially when you talk about the movement in gas. Is there -- or how should I think about that going forward? Are you comfortable with your kind of investment level on the quarterly run rate?

Ronald W. Jibson

Yes, we are. I think we're quite comfortable with that proposal and our strategy. I'd like to-- maybe Jim Livesey, who heads up Wexpro, he could give you a little color on that.

James R. Livsey

Yes, we're -- essentially, our philosophy is to maintain a consistent drilling program and we've got 1 rig that we're operating that's drilling in our Canyon Creek and Trail fields and we've had that now for a period of time and we want to keep that rig employed as we go forward and the gas that -- the cost of service for the gas that we're developing up there in Canyon Creek and Trail is really giving our customer access to cost of service in the 350 range that will be there for decades. So we feel good that we're delivering a value proposition for the customers on a long-term basis.

Kevin A. Smith - Raymond James & Associates, Inc., Research Division

Okay. In the next -- I appreciate the comments on Wexpro II, and assuming everything goes as planned, how should we think about investment dollars per assets that fall into Wexpro II? Is that something that once you get the documents signed, that you hope to make immediate announcement for, or is that something that's going to be slower in developing?

James R. Livsey

This is Jim again. I think our view is that we'll be opportunistic should we see things that make sense in the long run for our customers. We might have an opportunity to do something in this lower gas price environment, but more importantly, as Ron mentioned and we've discussed before, that our 5-year program is solid with identifiable opportunities. What this really allows us to do is extend the life of Wexpro beyond what we've identified currently.

Ronald W. Jibson

Kevin, I would just add to that, that we look at Wexpro II as that opportunity right now. We see a window with low commodity prices that we believe we might be able to acquire those low-cost assets but at the, I guess, real value of Wexpro II is the fact that we would have that agreement in place for the future and when those opportunities come along at any time in the future, we'd have the ability to take advantage of those.

Kevin A. Smith - Raymond James & Associates, Inc., Research Division

Okay. I guess, reword my question a little bit differently, would you expect the materials that change in your capital spend in Wexpro once Wexpro II gets signed? Or do you think it's going to be more a marginal increase as new properties come along?

Ronald W. Jibson

No, I do appreciate the question. We would stay with our strategy as far as our capital spending. The completion of Wexpro II would really extend the life of Wexpro more than change the capital spending in our 5-year plan.

Kevin W. Hadlock

Kevin, one additional thought on that, this is Kevin Hadlock. To the extent we are successful in finding properties that we think fit into Wexpro II. You could do some investment dollars flow into that but in the ongoing capital program, we don't expect that Wexpro II would modify the development program materially.

Kevin A. Smith - Raymond James & Associates, Inc., Research Division

All right, fair enough. And then lastly, in Questar Gas, as far as the prices per DTH for residential and industrial sales, those seem to continue to kind of going the opposite directions, is that a trend that we should expect to further? or do you think industrial sales revenue is kind of bottomed out and hopefully will start growing?

Craig C. Wagstaff

Kevin, this is Craig and we are seeing on the industrial sales, they are flat. In reference to the commercial and residential, you're probably aware of this, but we certainly have a much more than normal 2012 compared to 2011 about 31% decrease in our volumes we saw on residential and commercial. Again, we do have great big coupling within Altera [ph]. So we have the benefit of allowing to earn margins from each of our general customers, and we are not yet impacted by usage per customer. So we're beneficial there and then also on the transportation volumes, we did see a significant increase compared year-over-year by quarter, that mostly driven somewhat by customer growth and then also, one of our major power generators, their turbine in 2011 was down. So that's why you see a bit of a shift in the transportation volumes there.

Operator

Your next question comes from Carl Kirst from BMO Capital.

Carl L. Kirst - BMO Capital Markets U.S.

Some of my questions were hit but I really just got some minor things and, Ron, you had mentioned in the prepared remarks the $0.42 reduction -- sorry, this is at Wexpro, for the cost-of-service gas and, Jim, you just mentioned $3.50 for Canyon Creek and Trail field. I just didn't know what the $0.42, sort of collectively, where we're at now on an all-in basis.

Ronald W. Jibson

I'll ask Jim if he'll drill down on that.

James R. Livsey

Yes, so on a debt-to-term basis we're in $3.80 range with the cost-of-service gas, which is a blend of the legacy cost as well as the new production that we're bringing on at that lower cost.

Carl L. Kirst - BMO Capital Markets U.S.

Perfect. I just want to make sure I had the benchmarks. And then this is sort of a broader longer-term question with Wexpro but it was just the peaked with or the question was peaked by looking at the second quarter volume growth up almost 25% and even on a trailing 12 months, 10%. As we continue to spend the capital that we are, you guys continue to get more efficient, obviously, Questar Gas, the demand profile is not growing quite as rapidly. So the question is when you look out several years as basically Wexpro becomes an ever larger share of, essentially, Questar Gas's supply. Is there a level, at some point, that you either don't want to go beyond or Questar Gas wants to keep certain spot, I mean how should we think of that?

Ronald W. Jibson

Well, certainly the Questar Gas customer base is something that we watch very closely. We've talked about moving from the 50% to 60% of the gas and supply it to those -- to our customers at Questar Gas. And at the same time, Carl, we're always looking for that additional demand and those opportunities to use more Wexpro gas in our customer base. And maybe Jim, why don't you elaborate a little bit on your 5-year plan there of what you see.

James R. Livsey

Yes, I think we have noted as we looked at the planning process last fall that we're going to increase the percentage of Wexpro gas as part of the supply for Questar Gas. So that's something that we've been mindful of. This 22% step change we see in the second quarter is kind of a one-time step up with our concentration on Canyon Creek and Trail. And we anticipate growth in the future but not at this level, but nevertheless, it really also creates some opportunities as we think about what kind of gas supply we can develop going forward.

Carl L. Kirst - BMO Capital Markets U.S.

Okay, that's helpful. And then one small question on the repurchase for Kevin. Just as we kind of when through the release, one of the phrases kind of picked up, is sort of the 175 million share level that the repurchase was kind of targeting, but considering the $40 million you still have left you could probably get below that. So I just wasn't sure which one we should be using, is kind of the 175 million really the end goal or is it to do the whole $100 million?

Kevin W. Hadlock

Yes, Carl, thanks for that question. As we look at the share repurchase program, the intent is to get down to the 175 million shares level we do have a number of options that will expire in February of next year that we're expecting to be exercised late in the year. And as such, we won't need the full $40 million, in order to get down to the 175 million share level, even considering some of those options exercises, but we'll need the bulk of it. And so in the third quarter and into the fourth quarter, we'll continue to be opportunistic in that share buyback program. And certainly not at the pace that we saw in the second quarter but we do expect, at this point, to continue that repurchase to get down to that 175 million share count.

Operator

Your next question comes from Chris Sighinolfi from UBS.

Christopher P. Sighinolfi - UBS Investment Bank, Research Division

I appreciate the color, additional color, on Wexpro II, obviously, it's been a big focus for the last year or so. Curious as it pertains to filing the plan you say next sort of several weeks, plan will be filed. What sort of timeline from that point and I guess a related question following up on Carl's question about the repurchase. Does that influence what you're planning to do timing-wise on the repurchase if things move very quickly on Wexpro II and you have an opportunity to purchase some assets, is that where the capital is going to flow versus the repurchase or how do we think about that?

Ronald W. Jibson

Yes, I appreciate the question Chris. I'll cover the Wexpro question, and then I'll ask Kevin to talk on that repurchase. We are going very good about the progress with Wexpro II. These procedures always take longer than, I guess, we would expect and wish we, on some things, but as I mentioned, we just have not have any opposition from the participating parties. But what we feel extremely good about is the participation from those parties. We've had a lot of involvement from the regulatory groups in Utah and Wyoming. They've been very productive discussions. We've worked through the language and really the processes of the agreement to a point where, as I mentioned, we're right at the signature phase right now. We hope very soon to be able to get back to you with the fact that we have the signatures from the parties and that we will file that document. Once we file that with commissions, then we're subject to agenda and the schedule of those commissioners. Right now, we think that it's pretty good timing. We would hope to get that filed in the next few weeks and then hopefully have a hearing date that's set fairly soon. We're still very optimistic about completing this within the next quarter or so and we're just -- it's hard to say because once it's filed, we really don't have control over that schedule with the commissioners. But all indications right now are that they're ready to move this along and we're optimistic that it will not be a long schedule out there as far as waiting for the final hearing and final decision. So we'll keep you posted as we go along in between the quarters here, if we get a major steps accomplished, we'll get that information out to you.

Kevin W. Hadlock

And Chris, in terms of how we think about our capital program relative to the share buyback, we're in a fortunate situation where with our balance sheet strength and given the size of properties that we would likely evaluate for Wexpro II, I really don't see the share repurchase competing with those kinds of opportunities in Wexpro II. So certainly from a balance sheet perspective, we have the capacity to raise any incremental debt that we might need in order to fund a modest or moderate Wexpro II property acquisition.

Christopher P. Sighinolfi - UBS Investment Bank, Research Division

Okay great. And I guess, Ron, I could take from your comments that the technical conferences that have happened, no material changes to sort of the frameworks that we've talked about in your Analyst Day or at the New York Investor Lunch last month.

Ronald W. Jibson

Yes. That's a very accurate assumption, Chris. The technical conferences proved very valuable to have good dialogue. It was mostly minor wording changes. Just making sure we had all the ends covered as far as the processes that would be associated with Wexpro II and the procedures. And right now, no new technical conferences are scheduled. So we're moving forward with the actual signature phase now.

Christopher P. Sighinolfi - UBS Investment Bank, Research Division

Okay, great. I didn't know if Allan is online, but I had a question on pipeline. You've seen some pretty strong growth in process volumes, natural gas liquid process volumes, I think this recent quarter was the highest since 2010. Obviously, these the EMP community is targeting liquids and oil in mass, but is that a function of just supply growth maybe saturating the facilities at live or reside further upstream from you guys or are there extraction enhancement type of things that you've done to capture more in the way of process volumes? Would you talk about that a bit.

R. Allan Bradley

It's really both, I got to complement our operators in that they're looking at ways to enhance our liquid recovery just through the operation of the pipeline system day to day. Also, I think, you're right, in certain areas, particularly the Uinta basin, we have seen sort of a backed-up of field processing, primarily cryogenic. The reason for approval of our high BTU transportation project is an example of taking that wet gas to the cryo hub at Fiddler [ph] and as we do that, we're sort of leaning out our systems. So you're right in that first observation that, over time, we're going to see less liquid being received as we go forward. So a combination of both, you were spot on.

Christopher P. Sighinolfi - UBS Investment Bank, Research Division

Okay. And in terms of the back half of the year, are we -- based on what you're seeing out there, I mean is this sort of, the Q2 run rate, something we should anticipate or do you think it'll begin moderating?

R. Allan Bradley

I think the 2Q run rate is probably a good way to look at the period between now and the completion of our Uinta basin transport project, which is fourth quarter, November, December timeframe. So if you let me reserve that last month, I think you will see a shift when we put the new project in service in volumes on our southern system, liquid volumes will go down. But for the most part, I think, you can assume sort of the current run rate for maybe 4 or 5 months until that project comes in service.

Operator

[Operator Instructions] Your next question comes from Dan Fidel from U.S. Capital Advisors.

Daniel M. Fidell - U.S. Capital Advisors LLC, Research Division

Just 2 quick questions on our side. I guess, first, in terms of a longer-term picture on the rate case into next year. Just wondering what you're seeing in terms of, I guess, trend into next year on cost pressures there and just if the timing is still good, maybe just kind of a clean look in terms of what you'll be looking for in that case? And I guess the second quick question on Questar Fueling, certainly appreciate the detail you provided and kind of what's been going on in the last few months. What should we be looking for into the next 6 to 12 months in terms of moving that sub forward?

Ronald W. Jibson

Great. I appreciate the questions, Dan. Maybe I'll touch on the rate case a little and then ask Craig if he'll touch on Questar fueling. We are anticipating that rate case, again, in 2013, as you mentioned. That was part of the settlement in 2010 in our last case that we had and it was a specifically designed to review the cost tracker that we have in place for the replacement work that we're doing with our high-pressure large-diameter pipelines. The trackers work very well. It's done exactly as it was designed to do. And so we feel very good about that as we go into this rate case. The case will be filed probably in the first or second quarter of next year and then we would anticipate that the majority of that case would be focused on that cost tracker and the model and how it's working. Now, we are not anticipating right now much of a revenue type part of that case. And the other issues, obviously, we'll talk about all aspects as we do on every general rate case trends with ROE and so forth. We'll be covering those issues. So, as you know, we did see an increase in our ROE in our last case in 2010 from 10% to 10.35%. So we'd like to hope that we can continue to maintain a very competitive ROE as a result of that case. And Craig, if you want to talk about Questar Fueling?

Craig C. Wagstaff

You bet. Dan, this is Craig. On the Questar Fueling, certainly, what we're finding is that we're at the table with many potential customers throughout the country. It's certainly in a mode of transition here, some of them have been vehicles and, again, they continue to like the performance they're seeing in the vehicles. So now, it's a matter of timing of them kind of rotating out their current inventory of vehicles with the new engine availability. So between now and over the next 18 months to 2 years, there'll be more and more engines available for the end users depending on the output of [ph] applications. Certainly, some are available today and what we're finding, for instance in the trash haulers, in 2011, about 40% of those vehicles that were purchased for use in trash hauling were in natural gas. So that made a significant jump. Transit, a similar scenario, 63% of the transits, nationally, now are using natural gas. So still very much in transition. So have a great dialogue discussions as we meet with the potential customers on this. So it still seems to be very viable market that continues to receive additional interest and as you may have seen last week, ARPA-E awarded about $30 million of grant money out there for natural gas vehicle developments and about 13 projects were recipients of that, and that will just help continue the transition here as we discuss and move forward, not only on large fleets but also passenger vehicles.

Operator

There are no further questions at this time. I turn the call back over to the presenters.

Ronald W. Jibson

Thank you Nick. Again, thank you to all of you for taking the time this morning. We appreciate your interest in Questar and we continue to be committed to you to provide that value that you would expect from us and you've come to expect from us over the years and we look forward to the remainder of this year and moving forward. We also look forward to seeing many of you in the coming months as we get out on the road and look forward to your -- the one on one on opportunities there. So thanks again and have a great day. I appreciate it.

Operator

This concludes today's conference call. You may now disconnect.

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