UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June~~September 30, 2018

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to


Commission File Number	Exact name of registrant as specified in its charter, address of principal executive office and registrant’s telephone number	I.R.S. Employer Identification Number

333-69210	QUESTAR GAS COMPANY	87-0155877

	333 SOUTH STATE STREET SALT LAKE CITY, UTAH 84145 (801) 324-5000

State or other jurisdiction of incorporation or organization of the registrant: Utah

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 ☐ No ☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐	Emerging growth company	☐

Non-accelerated filer	☒	Smaller reporting company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act).

Yes ☐ No ☒

Questar Gas Company does not have any voting or non-voting common equity held by non-affiliates. As of ~~July~~October 1312, 2018, Questar Gas Company had 9,189,626 shares of common stock outstanding. Dominion Energy Questar Corporation (a wholly-owned subsidiary of Dominion Energy, Inc.) holds all of the outstanding stock of Questar Gas Company.

QUESTAR GAS COMPANY MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND (b) OF FORM 10-Q AND IS FILING THIS FORM 10-Q UNDER THE REDUCED DISCLOSURE FORMAT.

Questar Gas Company

		Page Number

	Glossary of Terms	3

	PART I. Financial Information

Item 1.	Financial Statements	4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 4.	Controls and Procedures	22


	PART II. Other Information

Item 1.	Legal Proceedings	23

Item 1A.	Risk Factors	23

Item 6.	Exhibits	24

GLOSSARY OF TERMS

The following abbreviations or acronyms used in this Form 10-Q are defined below:

Abbreviation or Acronym		Definition

2017 Tax Reform Act		An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018 (previously known as The Tax Cuts and Jobs Act) enacted on December 22, 2017

ARO		Asset retirement obligation

bcf		Billion cubic feet

CEO		Chief Executive Officer

CERCLA		Comprehensive Environmental Response, Compensation and Liability Act of 1980, also known as Superfund

CET		Conservation enabling tariff

CFO		Chief Financial Officer

DEQPS		Dominion Energy Questar Pipeline Services, Inc.

DES		Dominion Energy Services, Inc.

Dominion Energy		The legal entity, Dominion Energy, Inc., one or more of its consolidated subsidiaries (other than Dominion Energy Questar or Questar Gas) or operating segments, or the entirety of Dominion Energy, Inc. and its consolidated subsidiaries

Dominion Energy Gas		The legal entity, Dominion Energy Gas Holdings, LLC, one or more of its consolidated subsidiaries or operating segment, or the entirety of Dominion Energy Gas Holdings, LLC and its consolidated subsidiaries

Dominion Energy Questar		The legal entity, Dominion Energy Questar Corporation, one or more of its consolidated subsidiaries (other than Questar Gas) or operating segment, or the entirety of Dominion Energy Questar Corporation and its consolidated subsidiaries

Dominion Energy Questar Combination		Dominion Energy’s acquisition of Dominion Energy Questar completed on September 16, 2016 pursuant to the terms of the agreement and plan of merger entered on January 31, 2016

Dominion Energy Questar Pipeline		Dominion Energy Questar Pipeline, LLC, one or more of its consolidated subsidiaries, or the entirety of Dominion Energy Questar Pipeline, LLC and its consolidated subsidiaries

Dth		Dekatherm

EEP		Energy-efficiency program

EPA		U.S. Environmental Protection Agency

GAAP		U.S. generally accepted accounting principles

Gas Infrastructure		Gas Infrastructure Group operating segment

GHG		Greenhouse gas

Idaho Commission		Idaho Public Utilities Commission

IRCA		Intercompany revolving credit agreement

LNG		Liquefied natural gas

MD&A		Management’s Discussion and Analysis of Financial Condition and Results of Operations

Questar Gas		The legal entity Questar Gas Company

SEC		Securities and Exchange Commission

Utah Commission		Public Service Commission of Utah

VIE		Variable interest entity

Virginia Power		The legal entity, Virginia Electric and Power Company, one or more of its consolidated subsidiaries or operating segments, or the entirety of Virginia Electric and Power Company and its consolidated subsidiaries

Wexpro		The legal entity, Wexpro Company, one or more of its consolidated subsidiaries, or the entirety of Wexpro Company and its consolidated subsidiaries

Wyoming Commission		Wyoming Public Service Commission

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

QUESTAR GAS COMPANY

STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended						~~Six~~Nine Months Ended
	June 30,						June 30,
	September 30,						September 30,
	2018			2017			2018		2017
(millions)
Operating Revenue(1)	$	~~137~~84.41		$	~~139~~90.79		$	~~544~~628.12	$	~~536~~627.65
Operating Expenses
Purchased gas(1)		7435.09			7542.53			~~325~~361.65		~~316~~359.81
Other operations and maintenance(1)		3531.57			4430.62			80112.52		86116.35
Depreciation and amortization		1819.70			1619.54			3756.3		3252.71
Other taxes		6.3			5.6			1219.70		1117.40
Total Operating Expenses		~~134~~92.59			~~142~~97.25			~~456~~549.10		~~447~~544.27
Income (loss) from operations		2(8.98	)		(26.56	)		8879.02		8982.48
Other income		1.0.8			1.01			12.86		23.01
Interest and related charges(1)		8.9			8.5			1827.10		1725.05
Income (loss) from operations before income tax expense		(516.09	)		(1014.0	)		7154.78		7460.4
Income tax expense (benefit)		(25.23	)		(35.85	)		1510.41		2822.49
Net Income (Loss)	$	(211.86	)	$	(68.25	)	$	5644.37	$	4637.05

(1)	See Note 13 for amounts attributable to related parties.

The accompanying notes are an integral part of Questar Gas’ Financial Statements.

QUESTAR GAS COMPANY

BALANCE SHEETS

(Unaudited)

	June 30,			December 31,
	September 30,			December 31,
	2018			2017(1)
(millions)
ASSETS
Current Assets
Cash and cash equivalents	$	21.57		$	6.7
Customer receivables (less allowance for doubtful accounts of $2.1 and $1.7)		68.4			171.7
Customer receivables (less allowance for doubtful accounts of $1.5 and $1.7)		34.9			171.7
Other receivables		1.84			2.1
Affiliated receivables		~~0.1~~—			1.5
Inventories at lower of average cost or market:
Gas stored		2862.21			52.9
Materials and supplies		2322.37			25.2
Regulatory assets		510.56			16.6
Other(2)		511.65			5.3
Total current assets		~~135~~144.49			282.0
Property, Plant and Equipment
Property, plant and equipment		3,~~149~~205.5			3,041.7
Accumulated depreciation and amortization		(~~770~~786.6	)		(745.8	)
Total property, plant and equipment, net		2,~~378~~418.9			2,295.9
Deferred Charges and Other Assets
Pension and other postretirement benefit assets(2)		~~109~~111.81			107.1
Other		1819.59			12.8
Total deferred charges and other assets		~~128~~131.30			119.9
Total assets	$	2,~~642~~694.68		$	2,697.8

(1)	Questar Gas’ Balance Sheet at December 31, 2017 has been derived from the audited Balance Sheet at that date.

(2)	See Note 13 for amounts attributable to related parties.

The accompanying notes are an integral part of Questar Gas’ Financial Statements.

QUESTAR GAS COMPANY

BALANCE SHEETS—(Continued)

(Unaudited)

	June 30,		December 31,
	September 30,		December 31,
	2018		2017(1)
(millions)
LIABILITIES AND EQUITY
Current Liabilities
Securities due within one year	$	—	$	120.0
Short-term debt		67110.50		165.0
Affiliated current borrowings		2348.64		75.0
Accounts payable		2824.70		53.8
Accrued interest, payroll and taxes		2435.70		15.6
Payables to affiliates		5434.28		68.3
Regulatory liabilities		5740.69		9.9
Contract liabilities		1117.48		17.3
Other		3329.17		27.2
Total current liabilities		~~300~~340.86		552.1
Long-Term Debt		745.2		595.9
Deferred Credits and Other Liabilities
Deferred income taxes		~~261~~275.53		276.1
Regulatory liabilities		~~444~~453.03		441.0
Other(2)		~~109~~110.7		107.6
Total deferred credits and other liabilities		~~815~~839.23		824.7
Total liabilities		1,~~861~~925.21		1,972.7
Commitments and Contingencies (see Note 11)
Equity
Common stock - par value $2.50(3)		23.0		23.0
Additional paid-in capital		272.5		272.5
Retained earnings		~~485~~474.92		429.6
Total common shareholder's equity		~~781~~769.47		725.1
Total liabilities and shareholder's equity	$	2,~~642~~694.68	$	2,697.8

(1)	Questar Gas’ Balance Sheet at December 31, 2017 has been derived from the audited Balance Sheet at that date.

(2)	See Note 13 for amounts attributable to related parties.

(3) 50.0 million shares authorized; 9.2 million shares outstanding at ~~June~~September 30, 2018 and December 31, 2017.

The accompanying notes are an integral part of Questar Gas’ Financial Statements.

QUESTAR GAS COMPANY

STATEMENTS OF CASH FLOWS

(Unaudited)

Six Months Ended June 30,	2018			2017
Nine Months Ended September 30,	2018			2017
(millions)
Operating Activities
Net income	$	5644.37		$	4637.05
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3756.3			3252.71
Deferred income taxes		~~(16~~4.73	)		2858.50
Other adjustments for non-cash items		(0.25	)		0.57
Changes in operating assets and liabilities		~~150~~117.59			6511.09
Net cash provided by operating activities		~~227~~223.27			~~172~~160.72
Investing Activities
Property, plant and equipment purchased		(~~110~~171.18	)		(75135.42	)
Other		(13.59	)		0(3.27	)
Net cash used in investing activities		(~~111~~175.67	)		(75138.29	)
Financing Activities
Repayment of short-term debt, net		(97.5	)		(65.0	)
Issuance (repayment) of short-term debt, net		(55.0	)		25.0
Issuance of long-term debt		150.0			—
Repayment of long-term debt		(120.0	)		—
Repayment of affiliated current borrowings, net		(5126.46	)		(3848.0	)
Other		(01.94	)		—
Net cash used in financing activities		(~~119~~53.80	)		(~~103~~23.0	)
Decrease in cash and equivalents		(45.20	)		(51.57	)
Cash, restricted cash and equivalents at beginning of period(1)		6.7			7.6
Cash, restricted cash and equivalents at end of period(1)	$	21.57		$	25.19
Supplemental Cash Flow Information
Significant noncash investing activities:
Accrued capital expenditures	$	1310.10		$	1821.83

(1)	No amounts were held in restricted cash and equivalents in any of the periods presented.

The accompanying notes are an integral part of Questar Gas’ Financial Statements.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Note 1. Nature of Operations

Questar Gas is a wholly-owned subsidiary of Dominion Energy Questar which is a wholly-owned subsidiary of Dominion Energy.

Questar Gas distributes natural gas as a public utility in Utah, southwestern Wyoming and a small portion of southeastern Idaho. The Utah, Wyoming and Idaho Commissions have granted Questar Gas the necessary regulatory approvals to serve these areas. Questar Gas also has long-term franchises granted by communities and counties within its service area.

Revenue generated by Questar Gas is based primarily on rates established by the Utah and Wyoming Commissions. The Idaho Commission has contracted with the Utah Commission for rate oversight of Questar Gas’ operations in Idaho.

Wexpro, an affiliate, provides the majority of Questar Gas’ natural gas supply and Dominion Energy Questar Pipeline, an affiliate, provides the majority of Questar Gas’ transportation and storage services.

Note 2. Significant Accounting Policies

As permitted by the rules and regulations of the SEC, Questar Gas’ accompanying unaudited Financial Statements contain certain condensed financial information and exclude certain footnote disclosures normally included in annual audited financial statements prepared in accordance with GAAP. These unaudited Financial Statements should be read in conjunction with the Financial Statements and Notes in Questar Gas’ Annual Report on Form 10-K for the year ended December 31, 2017.

In the opinion of management, the accompanying unaudited Financial Statements contain all adjustments necessary to present fairly its financial position at ~~June~~September 30, 2018, its results of operations for the three and ~~six~~nine months ended ~~June~~September 30, 2018 and 2017 and its cash flows for the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017. Such adjustments are normal and recurring in nature unless otherwise noted.

Questar Gas makes certain estimates and assumptions in preparing its Financial Statements in accordance with GAAP. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues, expenses and cash flows for the periods presented. Actual results may differ from those estimates.

The results of operations for interim periods are not necessarily indicative of the results expected for the full year. Information for quarterly periods is affected by seasonal variations in sales, rate changes, purchased gas expenses and other factors.

Certain amounts in Questar Gas’ 2017 Financial Statements and Notes have been reclassified to conform to the 2018 presentation for comparative purposes. The reclassifications did not affect Questar Gas’ net income, total assets, liabilities, equity or cash flows.

The effect of the adoption of revised accounting guidance for revenue recognition from contracts with customers is described below. There have been no other significant changes from Note 2 to the Financial Statements in Questar Gas’ Annual Report on Form 10-K for the year ended December 31, 2017.

Operating Revenue

Operating revenue is recorded on the basis of services rendered, commodities delivered or contracts settled and includes amounts yet to be billed to customers. Questar Gas collects sales taxes; however, these amounts are excluded from revenue. Questar Gas’ customer receivables include accrued unbilled revenue based on estimated amounts of natural gas delivered but not yet billed to its customers.

The primary types of sales and service activities reported as operating revenue for Questar Gas, subsequent to the adoption of revised guidance for revenue recognition from contracts with customers, are as follows:

Revenue from Contracts with Customers

•

Regulated gas sales consist of state-regulated delivery of natural gas to residential, commercial and industrial customers;

•

Regulated gas transportation sales consist of state-regulated transportation of natural gas for commercial and industrial customers to buy their own natural gas supply;

•

Other regulated revenue consists primarily of miscellaneous product sales, connection fees and forfeited discounts; and

• Other nonregulated revenue consists primarily of sales of natural gas production at market-based rates and sales of extracted products.

•

Other nonregulated revenue consists primarily of sales of natural gas production at market-based rates and sales of oil and extracted products.

Other Revenue

•

Other revenue consists primarily of royalty revenues.

The primary types of sales and service activities reported as operating revenue for Questar Gas, prior to the adoption of revised guidance for revenue recognition from contracts with customers, were as follows:

•

Regulated gas sales consisted of delivery of natural gas to residential, commercial and industrial customers;

•

Gas transportation consisted of transportation of gas for commercial and industrial customers who buy their own gas supply; and

•

Other consisted of connection fees, royalties, miscellaneous product sales, etc.

Revenues from gas sales are recognized over time, as the customers of Questar Gas consume the gas as it is delivered. Transportation contracts are primarily stand-ready service contracts that include fixed reservation and variable usage fees. Fixed fees are recognized ratably over the life of the contract, which is less than 12 months, as the stand-ready performance obligation is satisfied, while variable usage fees are recognized when Questar Gas has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the performance obligation completed to date. As a local distribution company, substantially all of Questar Gas’ revenues are derived from performance obligations satisfied over time, rather than recognized at a single point in time, and are month-to-month contracts billed according to the terms of its tariff. Payment for most sales varies by contract type, but is typically due within a month of billing.

New Accounting Standards

Revenue Recognition

In May 2014, the Financial Accounting Standards Board issued revised accounting guidance for revenue recognition from contracts with customers. Questar Gas adopted this revised accounting guidance for interim and annual reporting periods beginning January 1, 2018 using the modified retrospective method. The adoption of the revised standard had no impact on the amount of revenue recognized.

Note 3. Operating Revenue

Questar Gas’ operating revenue, subsequent to the adoption of revised guidance for revenue recognition from contracts with customers, consists of the following:

	Three Months Ended		~~Six~~Nine Months Ended
	June 30, 2018		June 30, 2018
	September 30, 2018		September 30, 2018
(millions)
Regulated gas sales:
Residential	$	8860.79	$	~~392~~448.09
Commercial		328.47		~~115~~127.18
Industrial		10.49		3.4.3
Regulated gas transportation		6.25		1320.72
Other regulated revenue		01.9		46.76
Other nonregulated revenue(1)		4.3		9.2
Other nonregulated revenue(1)(2)		3.4		12.6
Total operating revenue from contracts with customers		~~133~~82.93		~~538~~620.14
Other revenue		3.5		6.0
Other revenue(1)		1.8		7.8
Total operating revenue	$	~~137~~84.41	$	~~544~~628.12

(1)	See Note 13 for amounts attributable to related parties.

~~Contract~~(2) ~~liabilities~~The ~~represent~~amounts anabove ~~entity’s~~include ~~obligation~~sales toof ~~transfer~~oil ~~goods or services to a customer for which the entity has received consideration, or the amount that is due, from the customer. At June 30, 2018~~ and ~~December 31,~~extracted ~~2017,~~products ~~Questar~~of ~~Gas’ contract liability balances were~~ $112.40 million and $177.37 million, ~~respectively.~~for ~~During~~ the ~~six~~three and nine months ended ~~June~~ September 30, 2018, ~~Questar~~respectively, ~~Gas~~which ~~recognized~~are ~~revenue~~considered ofto ~~$17.3~~be ~~million~~goods ~~from~~transferred ~~the~~at ~~beginning~~a ~~contract~~point ~~liability~~in ~~balance as Questar Gas fulfilled its obligations to provide service to its customers~~time.

Contract liabilities represent an entity’s obligation to transfer goods or services to a customer for which the entity has received consideration, or the amount that is due, from the customer. At September 30, 2018 and December 31, 2017, Questar Gas’ contract liability balances were $17.8 million and $17.3 million, respectively. During the nine months ended September 30, 2018, Questar Gas recognized revenue of $17.3 million from the beginning contract liability balance as Questar Gas fulfilled its obligations to provide service to its customers.

Questar Gas’ operating revenue, prior to the adoption of revised guidance for revenue recognition from contracts with customers, consisted of the following:

	Three Months Ended		~~Six~~Nine Months Ended
	June 30, 2017		June 30, 2017
	September 30, 2017		September 30, 2017
(millions)
Residential and commercial gas sales	$	~~122~~75.03	$	~~500~~575.58
Industrial gas sales		32.16		68.39
Gas transportation		6.31		1319.23
Other(1)		86.39		1623.65
Total operating revenue	$	~~139~~90.79	$	~~536~~627.65

(1)	See Note 13 for amounts attributable to related parties.

Note 4. Income Taxes

For continuing operations, the statutory U.S. federal income tax rate reconciles to Questar Gas’ effective income tax rate as follows:

Six Months Ended June 30,	2018			2017
Nine Months Ended September 30,	2018			2017
U.S. statutory rate		21.0	%		35.0	%
Increases (reductions) resulting from:
State taxes, net of federal benefit		3.7			3.1
Reversal of excess deferred income taxes		(24.26	)		—
State legislative change		(01.70	)		—
Other, net		(0.36	)		—(0.2	)
Effective tax rate		2118.5	%		3837.19	%

The 2017 Tax Reform Act reduced the statutory federal income tax rate to 21% beginning in January 2018. Accordingly, current income taxes, and deferred income taxes that originate in 2018, are being recorded at the new 21% rate. Deferred taxes will reverse at the weighted average rate used to originate the deferred tax liability, which in some cases will be 35%. For the ~~six~~nine months ended ~~June~~September 30, 2018, Questar Gas has recorded an estimate of the portion of excess deferred income tax amortization expected to occur in 2018. The reversal of these excess deferred income taxes will impact the effective tax rate, and may ultimately impact rates charged to customers. As described in Note 8 to the Financial Statements, Questar Gas decreased revenue and increased regulatory liabilities to offset these deferred tax impacts in accordance with applicable regulatory commission orders or formula rate mechanisms.

Questar Gas continues to evaluate the changes in accelerated depreciation for tax purposes and state conformity to the provisions of the 2017 Tax Reform Act. As of ~~June~~September 30, 2018, ~~there~~Questar ~~have~~Gas ~~been~~has noapplied ~~changes~~the toprovisions of recently proposed regulations addressing the ~~provisional~~availability ~~amounts~~of ~~recorded~~federal atbonus depreciation for the period beginning after September 27, 2017 through December 31, 2017. The application of these proposed regulations had no impact on income tax expense as the changes in, and remeasurement of, deferred tax liabilities were recorded as increases to regulatory liabilities of $4.4 million. These amounts represent Questar Gas’ best estimate based on available information, and could be subject to change based on additional guidance in yet to be finalized regulations. See Note 4 to the Financial Statements in Questar Gas’ Annual Report on Form 10-K for the year ended December 31, 2017 for a discussion of the impacts of the 2017 Tax Reform Act.

Note 5. Fair Value Measurements

Questar Gas’ fair value measurements are made in accordance with the policies discussed in Note 5 to the Financial Statements in Questar Gas’ Annual Report on Form 10-K for the year ended December 31, 2017. See Note 6 in this report for further information about Questar Gas’ derivatives and hedge accounting activities.

Questar Gas enters into certain physical forwards, which are considered Level 3 as they have one or more inputs that are not observable and are significant to the valuation. The discounted cash flow method is used to value Level 3 physical forward contracts. The discounted cash flow model for forwards calculates mark-to-market valuations based on forward market prices, original transaction prices, volumes, risk-free rate of return, and credit spreads. For Level 3 fair value measurements, forward market prices are considered unobservable. The unobservable inputs are developed and substantiated using historical information, available market data, third-party data, and statistical analysis. Periodically, inputs to valuation models are reviewed and revised as needed, based on historical information, updated market data, market liquidity and relationships, and changes in third-party pricing sources.

~~The~~third-party ~~following~~data, ~~table~~and ~~presents~~statistical ~~Questar~~analysis. ~~Gas’~~Periodically, ~~quantitative~~inputs ~~information~~to ~~about~~valuation ~~Level~~models 3are ~~fair~~reviewed ~~value~~and ~~measurements~~revised atas ~~June 30~~needed, ~~2018. The~~based ~~range~~on ~~and~~historical ~~weighted~~information, ~~average~~updated ~~are~~market ~~presented~~data, inmarket ~~dollars~~liquidity ~~for~~and ~~market~~relationships, ~~price~~and ~~inputs~~changes in third-party pricing sources.

	Fair Value (millions)		Valuation Techniques	Unobservable Input			Range	Weighted Average(1)
Assets
Physical forwards:
Natural gas(2)	$	3.9	Discounted cash flow	Market price (per Dth)	(3	)	1.7 - 3.4		2.5
Total assets	$	3.9

The following table presents Questar Gas’ quantitative information about Level 3 fair value measurements at September 30, 2018. The range and weighted average are presented in dollars for market price inputs.

Fair Value

(millions)

Valuation Techniques

Unobservable Input

Range

Weighted

Average⁽¹⁾

Assets

Physical forwards:

Natural gas⁽²⁾

6.9

Discounted cash flow

Market price (per Dth)

⁽³

⁾

1.8 - 4.1

2.7

Total assets

6.9

(1)	Averages weighted by volume.

(2)	Includes basis.

(3)	Represents market prices beyond defined terms for Level 1 and 2.

Sensitivity of the fair value measurements to changes in the significant unobservable inputs is as follows:

Significant Unobservable

Inputs

Position

Change to Input

Impact on Fair Value

Measurement

Market price

Buy

Increase (decrease)

Gain (loss)

Market price

Sell

Increase (decrease)

Loss (gain)

Recurring Fair Value Measurements

The following table presents Questar Gas’ assets and liabilities that are measured at fair value on a recurring basis for each hierarchy level, including both current and noncurrent portions.

	Level 1		Level 2		Level 3		Total
(millions)
At June 30, 2018
At September 30, 2018
Assets:
Derivatives:
Commodity	$	—	$	—	$	36.9	$	36.9
Total assets	$	—	$	—	$	36.9	$	36.9
At December 31, 2017
Assets:
Derivatives:
Commodity	$	—	$	—	$	2.4	$	2.4
Total assets	$	—	$	—	$	2.4	$	2.4

The following table presents the net change in Questar Gas’ assets and liabilities measured at fair value on a recurring basis and included in the Level 3 fair value category.

	Three Months Ended June 30,					Six Months Ended June 30,
	Three Months Ended September 30,					Nine Months Ended September 30,
	2018		2017			2018			2017
(millions)
Beginning balance	$	13.49	$	(10.32	)	$	2.4		$	—
Total realized and unrealized gains (losses):
Included in earnings(1)		—		—			0.1			(0.1	)
Included in regulatory assets/liabilities		23.50		1.0.3			14.5			~~(0.3~~—	)
Settlements		—		—			(0.1	)		0.1
Purchases		—		~~0.1~~—			—			0.1
Ending balance	$	36.9	$	(0.21	)	$	36.9		$	(0.21	)

(1)	The gains and losses included in earnings were classified in purchased gas.

There were no unrealized gains or losses included in earnings in the Level 3 fair value category relating to assets/liabilities still held at the reporting date for the three and six months ended June 30, 2018 and 2017.

There were no unrealized gains or losses included in earnings in the Level 3 fair value category relating to assets/liabilities still held at the reporting date for the three and nine months ended September 30, 2018 and 2017.

Fair Value of Financial Instruments

Substantially all of Questar Gas’ financial instruments are recorded at fair value, with the exception of the instruments described below, which are reported at historical cost. Estimated fair values have been determined using available market information and valuation methodologies considered appropriate by management. The carrying amount of cash and cash equivalents, customer and other receivables, affiliated receivables, short-term debt, affiliated current borrowings, accounts payable and payables to affiliates are representative of fair value because of the short-term nature of these instruments. For Questar Gas’ financial instruments that are not recorded at fair value, the carrying amounts and estimated fair values are as follows:

June 30, 2018

December 31, 2017

September 30, 2018

December 31, 2017

Carrying Amount

Estimated Fair Value(1)

Carrying Amount

Estimated Fair Value(1)

(millions)

Long-term debt, including securities due within one year(2)

745.2

~~784~~781.50

715.9

783.2

(1)	Fair value is estimated using market prices, where available, and interest rates currently available for issuance of debt with similar terms and remaining maturities. The fair value measurements are classified as Level 2.

(2)	Carrying amount includes amounts which represent the unamortized debt issuance costs, discount or premium.

Note 6. Derivatives and Hedge Accounting Activities

Questar Gas’ accounting policies, objectives and strategies for using derivative instruments are discussed in Note 2 to the Financial Statements in the Questar Gas’ Annual Report on Form 10-K for the year ended December 31, 2017. See Note 5 in this report for further information about fair value measurements and associated valuation methods for derivatives.

Derivative assets and liabilities are presented gross on Questar Gas’ Balance Sheets. Questar Gas’ derivative contracts include over-the-counter transactions, which are bilateral contracts that are transacted directly with a counterparty. At ~~June~~September 30, 2018, substantially all of Questar Gas’ derivative assets and liabilities were not subject to a master netting or similar arrangement.

Volumes

The following table presents the volume of Questar Gas’ derivative activity at ~~June~~September 30, 2018. These volumes are based on open derivative positions and represent the combined absolute value of their long and short positions, except in the case of offsetting transactions, for which they represent the absolute value of the net volume of their long and short positions.

	Current		Noncurrent
Natural Gas (bcf):
Basis		7.3		19.1

Fair Value and Gains and Losses on Derivative Instruments

The following table presents the fair values of Questar Gas’ derivatives and where they are presented in its Balance Sheets.

	Fair Value - Derivatives not under Hedge Accounting		Total Fair Value
(millions)
At June 30, 2018
At September 30, 2018
ASSETS
Current Assets
Commodity	$	1.2.4	$	1.2.4
Total current derivative assets(1)		1.2.4		1.2.4
Noncurrent Assets
Commodity		24.75		24.75
Total noncurrent derivative assets(2)		24.75		24.75
Total derivative assets	$	36.9	$	36.9
At December 31, 2017
ASSETS
Current Assets
Commodity	$	0.4	$	0.4
Total current derivative assets(1)		0.4		0.4
Noncurrent Assets
Commodity		2.0		2.0
Total noncurrent derivative assets(2)		2.0		2.0
Total derivative assets	$	2.4	$	2.4

(1) Current derivative assets are presented in other current assets in Questar Gas’ Balance Sheets.

(2)	Noncurrent derivative assets are presented in other deferred charges and other assets in Questar Gas’ Balance Sheets.

The following table presents the gains and losses on Questar Gas’ derivatives, as well as where the associated activity is presented in its Statements of Income.

	Amount of Gain (Loss) Recognized in Income on Derivatives (1)
	Three Months Ended June 30,				Six Months Ended June 30,
	Three Months Ended September 30,				Nine Months Ended September 30,
Derivatives not designated as hedging instruments	2018		2017		2018		2017
(millions)
Derivative Type and Location of Gains (Losses)
Commodity(2)	$	—	$	—	$	0.1	$	(0.5	)
Total	$	—	$	—	$	0.1	$	(0.5	)

(1)	Includes derivative activity amortized out of regulatory assets/liabilities. Amounts deferred into regulatory assets/liabilities have no associated effect in Questar Gas’ Statements of Income.

(2)	Amounts recorded in Questar Gas’ Statements of Income are classified in purchased gas.

Note 7. Regulatory Assets and Liabilities

Regulatory assets and liabilities include the following:

	June 30,		December 31,
	September 30,		December 31,
	2018		2017
(millions)
Regulatory assets:
Pipeline integrity costs(1)	$	2.0	$	2.0
EEP(2)		16.91		3.3
Deferred royalties(3)		1.68		—
Purchased gas adjustment(4)		—		10.7
Other		—		0.6
Cost of reacquired debt(5)		0.5		—
Regulatory assets-current		5.5		16.6
Other		0.2		0.6
Deferred production imbalance(5)		4.7		—
Regulatory assets-current		10.6		16.6
Cost of reacquired debt(6)		2.5		2.7
Deferred production imbalance(6)		4.7		—
Cost of reacquired debt(5)		1.9		2.7
Pipeline integrity costs(1)		0.6		0.6
Regulatory assets-noncurrent(7)		7.82		3.3
Total regulatory assets	$	1317.38	$	19.9
Regulatory liabilities:
Purchased gas adjustment(4)	$	3116.68	$	—
CET(8)		107.54		4.4
Cost-of-service impact of 2017 Tax Reform Act(9)		9.6		—
Cost of plant removal and AROs(10)		4.2		4.2
Other		12.79		1.3
Regulatory liabilities-current		5740.69		9.9
Income taxes refundable through future rates(11)		~~244~~253.73		244.9
Cost of plant removal and AROs(10)		~~196~~195.35		194.0
Other		34.05		2.1
Regulatory liabilities-noncurrent		~~444~~453.03		441.0
Total regulatory liabilities	$	~~501~~494.62	$	450.9

(1)	The costs of complying with pipeline-integrity regulations are recovered in rates subject to a Utah Commission order. Questar Gas is allowed to recover $7.0 million per year. Costs incurred in excess of this amount will be recovered in future rate changes.

(2)

The EEP relates to funds expended for promoting the conservation of natural gas through advertising, rebates for efficient homes and appliances and home energy audits. Costs are recovered from customers through periodic rate adjustments. Costs incurred in excess of recoveries result in an asset; recoveries in excess of costs result in a liability.

(3)	Royalties on cost-of-service gas produced are recovered from customers through future rates.

(4)	Purchased gas costs that are different from those provided for in present rates are accumulated and recovered or credited through future rate changes.

(5) ~~Production~~Gains ~~imbalances~~and ~~will~~losses beon ~~recovered~~the ~~from~~reacquisition ~~customers~~of atdebt by rate-regulated companies are deferred and amortized as interest expense over the ~~end~~would-be remaining life of the ~~related~~reacquired ~~gas~~debt. ~~wells’~~The ~~useful~~reacquired debt costs had a weighted-average life of approximately 4.3 years as of September 30, 2018.

(6) ~~Gains~~Production ~~and~~imbalances ~~losses~~will onbe ~~the~~recovered ~~reacquisition~~from ofcustomers ~~debt~~at ~~by rate-regulated companies are deferred and amortized as interest expense over~~ the ~~would-be~~end ~~remaining life~~ of the ~~reacquired~~related ~~debt.~~gas ~~The~~wells’ ~~reacquired~~useful ~~debt costs had a weighted-average~~ life ~~of approximately 4~~.~~6 years as of June 30, 2018.~~

(7)	Noncurrent regulatory assets are presented in the other deferred charges and other assets in the Balance Sheets.

(8)	The CET represents the difference between actual and allowed revenues. Any deficiency or excess in amounts collected is recovered or refunded through periodic rate adjustments.

(9)	Balance refundable to customers related to the decrease in revenue requirements for recovery of income taxes. See Note 8 for more information.

(10)	Cost of plant removal and AROs represent amounts recovered from customers for costs of future activities to remove assets that are expected to be incurred at the time of retirement.

(11)	Amounts recorded to pass the effect of reduced income tax rates from the 2017 Tax Reform Act to customers in future periods, which will reverse at the weighted-average tax rate that was used to build the reserves over the remaining book life of the property.

Note 8. Regulatory Matters

As a public utility, Questar Gas is subject to the jurisdiction of the Utah Commission and the Wyoming Commission. Natural gas sales and transportation services are provided under rate schedules approved by the two regulatory commissions.

In March 2018, Questar Gas submitted a filing to the Wyoming Commission with a proposal to return the benefit of lower federal income tax rates to customers through a surcredit beginning in June 2018. In October 2018, the Wyoming Commission approved Questar Gas’ request to return $0.5 million per year through a surcredit beginning November 1, 2018. The surcredit will remain in effect until rates become effective in the next Wyoming general rate case. Questar Gas has proposed to calculate the impact of the 2017 Tax Reform Act on excess deferred income taxes in a separate filing by the first quarter of 2019. ~~This matter is pending.~~

In April 2018, Questar Gas submitted a filing to the Utah Commission to return the benefit of lower federal income tax rates to customers through a surcredit effective June 2018. In May 2018, the Utah Commission approved a stipulation to reduce the cost-of-service component of rates by $14.5 million annually beginning in June 2018. In addition, in July 2018 the Utah Commission approved a stipulation for Questar Gas to return $9.5 million to customers beginning in August 2018 for the cost-of-service component of rates collected from customers during the period January through May 2018. Questar Gas has proposed to calculate the impact of the 2017 Tax Reform Act on excess deferred income taxes in a separate filing to be submitted in the first quarter of 2019.

The determination of the amounts of any surcredits associated with the above mentioned March and July filings could be material to Questar Gas’ operating cash flows. Questar Gas has recorded a reasonable estimate of net income taxes refundable through future rates in the jurisdictions in which it operates. Through actions by the Utah, Wyoming or Idaho Commissions, the estimates may be subject to changes that could have a material impact on Questar Gas’ results of operations, financial condition and/or cash flows.

In the second quarter of 2018, Questar Gas filed a request with the Utah Commission for pre-approval to construct an LNG peaking storage facility with a liquefaction rate of 8.2 million cubic feet per day. This pre-approval process allows Questar Gas to receive a prudency determination from the Commission before making a capital investment in the facility. ~~Under~~In ~~the~~October ~~preapproval statute~~2018, the Utah Commission ~~has~~denied ~~180~~Questar ~~days~~Gas’ torequest ~~make~~for apre-approval. Questar ~~prudency~~Gas ~~determination. Based~~is onreviewing ~~this~~the ~~timeline~~order and assessing its options, awhich ~~determination~~could isinclude ~~expected~~filing bysupplemental information with the ~~end~~Utah ofCommission ~~October~~for ~~2018~~reconsideration.

In May 2018, Questar Gas submitted filings with both the Utah Commission and the Wyoming Commission for an approximately $86.0 million gas cost decrease reflecting forecasted decreases in commodity costs, combined with reductions in Wexpro’s operator service fee related to the 2017 Tax Reform Act. The Utah Commission and the Wyoming Commission both approved the filings in May 2018 with rates effective June 2018.

In September 2018, Questar Gas submitted a filing with the Utah Commission to increase customer rates by $3.5 million annually to recover costs related to Questar Gas’ infrastructure replacement program. The Utah Commission approved the filing with rates effective October 1, 2018.

In October 2018, Questar Gas submitted filings with both the Utah Commission and the Wyoming Commission for an approximately $47.6 million gas cost decrease reflecting forecasted decreases in commodity costs. The Utah Commission and the Wyoming Commission both approved the filings in October 2018 with rates effective November 2018.

In October 2018, Questar Gas submitted filings with both the Utah Commission and the Wyoming Commission for an approximately $9.3 million non-gas cost decrease relating to the CET and an approximately $5.9 million non-gas cost increase relating to the EEP. These matters are pending.

Note 9. Variable Interest Entities

The primary beneficiary of a VIE is required to consolidate the VIE and to disclose certain information about its significant variable interest in the VIE. The primary beneficiary of a VIE is the entity that has both: (1) the power to direct activities that most significantly impact the entity’s economic performance and (2) the obligation to absorb losses or receive benefits from the entity that could potentially be significant to the VIE.

DEQPS, an affiliated VIE, provides operational services to certain Dominion Energy subsidiaries, including Questar Gas, as a subsidiary service company. Questar Gas purchased shared services from DEQPS of $0.3 million ~~for~~and ~~both~~$0.4 million for the three months ended ~~June~~September 30, 2018 and 2017, respectively, and $0.69 million and $01.71 million for the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017, respectively. The Balance Sheets at ~~June~~September 30, 2018 and December 31, 2017, included amounts due to DEQPS of $0.1 million and less than $0.1 million, ~~at both dates~~respectively.

Questar Gas entered into a service agreement with DES, an affiliated VIE, effective January 2018. DES provides accounting, legal, finance, and certain administrative and technical services to Dominion Energy and its subsidiaries including Questar Gas. Questar Gas purchased shared services from DES of $12.9 million for the three months ended June 30, 2018 and $25.1 million for the six months ended June 30, 2018. The Balance Sheet at June 30, 2018 included amounts due to DES of $4.2 million.15

Questar Gas entered into a service agreement with DES, an affiliated VIE, effective January 2018. DES provides accounting, legal, finance, and certain administrative and technical services to Dominion Energy and its subsidiaries including Questar Gas. Questar Gas purchased shared services from DES of $11.6 million for the three months ended September 30, 2018 and $36.7 million for the nine months ended September 30, 2018. The Balance Sheet at September 30, 2018 included amounts due to DES of $3.7 million.

Questar Gas determined that it is not the primary beneficiary of DEQPS or DES as it does not have both the power to direct the activities that most significantly impact their economic performance nor the obligation to absorb losses and benefits which could be significant to it. Questar Gas has no obligation to absorb more than its allocated share of DEQPS and DES costs.

Note 10. Significant Financing Transactions

Credit Facilities and Short-term Debt

Questar Gas uses short-term debt to fund working capital requirements and as a bridge to long-term debt financings. The levels of borrowing may vary significantly during the course of the year, depending upon the timing and amount of cash requirements not satisfied by cash from operations.

In March 2018, Dominion Energy replaced its two existing joint revolving credit facilities with a $6.0 billion joint revolving credit facility. Questar Gas’ short-term financing is supported through its access as co-borrower to the joint revolving credit facility with Dominion Energy, Virginia Power and Dominion Energy Gas. This credit facility can be used for working capital, as support for the combined commercial paper programs of Dominion Energy, Virginia Power, Dominion Energy Gas and Questar Gas and for other general corporate purposes.

At ~~June~~September 30, 2018, Questar Gas’ share of commercial paper and letters of credit outstanding under its joint credit facility with Dominion Energy, Virginia Power and Dominion Energy Gas, were as follows:

	Facility Limit(1)		Outstanding Commercial Paper		Outstanding Letters of Credit
(millions)
Joint revolving credit facility(1)	$	1,000.0	$	67110.50	$	—

(1) A maximum of $1.0 billion of the facility is available to Questar Gas, assuming adequate capacity is available after giving effect to uses by co-borrowers Dominion Energy, Virginia Power and Dominion Energy Gas. The sub-limit for Questar Gas is set within the facility limit but can be changed at the option of the borrowers multiple times per year. At ~~June~~September 30, 2018, the sub-limit for Questar Gas was $250.0 million. If Questar Gas has liquidity needs in excess of its sub-limit, the sub-limit may be changed or such needs may be satisfied through short-term intercompany borrowings from Dominion Energy. The maturity date for this facility is March 2023. This credit facility can be used to support bank borrowings and the issuance of commercial paper, as well as to support up to $1.0 billion (or the sub-limit, whichever is less) of letters of credit.

Long-Term Debt

In April 2018, Questar Gas issued through private placement $50.0 million of 3.30% ~~12-year~~ senior notes and $100.0 million of 3.97% ~~30-year~~ senior notes that mature in 2030 and 2047, respectively. The proceeds were used for general corporate purposes and to repay short-term debt.

Questar Gas’ short-term credit facility and long-term debt agreements contain customary covenants and default provisions. As of ~~June~~September 30, 2018, there were no events of default under these covenants.

Any new long-term debt issuance by Questar Gas is subject to approval by the Wyoming Commission.

Note 11. Commitments and Contingencies

As a result of issues generated in the ordinary course of business, Questar Gas is involved in legal proceedings before various courts and is periodically subject to governmental examinations (including by regulatory authorities), inquiries and investigations. Certain legal proceedings and governmental examinations involve demands for unspecified amounts of damages, are in an initial procedural phase, involve uncertainty as to the outcome of pending appeals or motions, or involve significant factual issues that need to be resolved, such that it is not possible for Questar Gas to estimate a range of possible loss. For such matters for which Questar Gas cannot estimate a range of possible loss, a statement to this effect is made in the description of the matter. Other matters may have progressed sufficiently through the litigation or investigative processes such that Questar Gas is able to estimate a range of possible loss. For legal proceedings and governmental examinations for which Questar Gas is able to reasonably estimate a range of possible losses, an estimated range of possible loss is provided, in excess of the accrued liability (if any) for such matters. Any accrued liability is recorded on a gross basis with a receivable also recorded for any probable insurance recoveries. Estimated ranges of loss are inclusive of legal fees and net of any anticipated insurance recoveries. Any estimated range is based on currently available information and involves elements of judgment and significant uncertainties. Any estimated range of possible loss may not represent Questar Gas’ maximum possible loss exposure. The circumstances of such legal proceedings and governmental examinations will change from time to time and actual results may vary significantly from the current estimate. For current proceedings not specifically reported below, management does not anticipate that the liabilities, if any, arising from such proceedings would have a material effect on the financial position, liquidity or results of operations of Questar Gas.

The CERCLA, as amended, provides for immediate response and removal actions coordinated by the EPA in the event of threatened releases of hazardous substances into the environment and authorizes the U.S. government either to clean up sites at which hazardous substances have created actual or potential environmental hazards or to order persons responsible for the situation to do so. Under the CERCLA, as amended, generators and transporters of hazardous substances, as well as past and present owners and operators of contaminated sites, can be jointly, severally and strictly liable for the cost of cleanup. These potentially responsible parties can be ordered to perform a cleanup, be sued for costs associated with an EPA-directed cleanup, voluntarily settle with the U.S. government concerning their liability for cleanup costs, or voluntarily begin a site investigation and site remediation under state oversight.

inclusive of legal fees and net of any anticipated insurance recoveries. Any estimated range is based on currently available information and involves elements of judgment and significant uncertainties. Any estimated range of possible loss may not represent Questar Gas’ maximum possible loss exposure. The circumstances of such legal proceedings and governmental examinations will change from time to time and actual results may vary significantly from the current estimate. For current proceedings not specifically reported below, management does not anticipate that the liabilities, if any, arising from such proceedings would have a material effect on Questar Gas’ financial position, liquidity or results of operations.

Questar Gas has determined that it is associated with two former manufactured gas plant sites that contain coal tar and other potentially harmful materials. None of the former sites with which Questar Gas is associated is under investigation by any state or federal environmental agency. Due to the uncertainty surrounding the sites, Questar Gas is unable to make an estimate of the potential financial statement impacts.

Note 12. Credit Risk

Questar Gas’ accounting policies for credit risk are discussed in Note 18 to the Financial Statements in Questar Gas’ Annual Report on Form 10-K for the year ended December 31, 2017.

Questar Gas maintains a provision for credit losses based on factors surrounding the credit risk of its customers, historical trends and other information. Management believes, based on credit policies and the ~~June~~September 30, 2018 provision for credit losses, that it is unlikely that a material adverse effect on financial position, results of operations or cash flows would occur as a result of counterparty nonperformance.

Note 13. Related-Party Transactions

Questar Gas engages in related-party transactions primarily with affiliates Wexpro, for cost-of-service natural gas supply, and Dominion Energy Questar Pipeline, for transportation and storage services. Questar Gas’ receivables and payables balances with affiliates are settled based on contractual terms or on a monthly basis, depending on the nature of the underlying transactions. A discussion of significant related-party transactions follows.

DES and other affiliates provide accounting, legal, finance and certain administrative and technical services to Questar Gas. These costs are included in other operations and maintenance in the Statements of Income on the basis of direct and allocated methods in accordance with Questar Gas’ services agreements. Where costs incurred cannot be determined by specific identification, the costs are generally allocated based on each affiliated company’s proportional share of revenues less product costs; property, plant and equipment; and labor costs for costs from Dominion Energy Questar and based on the proportional level of effort devoted by resources that is attributable to Questar Gas, determined by reference to number of employees, salaries and wages and other similar measures for the relevant DES service. Management believes that the allocation methods are reasonable. Questar Gas provides certain services to related parties, including technical services. The billed amounts of these services are allocated based on the specific nature of the charges. Management believes that the allocation methods are reasonable. The amounts of these services follow:

	Three Months Ended June 30,				Six Months Ended June 30,
	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
(millions)
Affiliated operator service fee(1)	$	6160.95	$	7974.78	$	~~131~~192.50	$	~~155~~230.64
Transportation and storage services from affiliates(1)		17.65		17.34		3755.61		3654.93
Services provided by related parties		1413.21		1117.1		2841.89		2139.90
Services provided to related parties		1.3		1.46		24.70		24.95

(1)The costs of these services were included in purchased gas in Questar Gas’ Statements of Income.

Questar Gas participates in certain Dominion Energy benefit plans as described in Note 16 to the Financial Statements in Questar Gas’ Annual Report on Form 10-K for the year ended December 31, 2017. At ~~June~~September 30, 2018 and December 31, 2017, amounts due from Dominion Energy associated with the benefit pension plan and included in pension and other postretirement benefit assets in the Balance Sheets were $109.8 million and $107.1 million, respectively. At June 30, 2018 and December 31, 2017, Questar Gas’ amounts due to Dominion Energy associated with the health and welfare plan and included in other deferred credits and other liabilities in the Balance Sheets were $12.0 million and $14.9 million, respectively.

The Dominion Energy Questar Combination resulted in merger and restructuring costs of $6.4 million and $6.7 million for the three and six months ended June 30, 2017, respectively, charged from Dominion Energy Questar. These costs primarily consist of employee related costs allocated to Questar Gas and are included in other operations and maintenance in Questar Gas’ Statements of Income.

Questar Gas had a $23.6 million balance under the IRCA with Dominion Energy as of June 30, 2018 and a $75.0 million balance at December 31, 2017. Interest charges related to Questar Gas’ total borrowings from Dominion Energy were less than $0.1 million for both the three months ended June 30, 2018 and 2017 and were $0.2 million and less than $0.1 million for the six months ended June 30, 2018 and 2017, respectively.

~~Questar~~from ~~Gas~~Dominion ~~maintains~~Energy ~~natural~~associated ~~gas~~with ~~imbalances~~the ~~with~~benefit ~~Dominion~~pension ~~Energy~~plan ~~Questar~~and ~~Pipeline.~~included ~~The~~in ~~imbalances~~pension ~~receivable~~and ~~from~~other ~~Dominion~~postretirement ~~Energy~~benefit ~~Questar~~assets ~~Pipeline~~in the Balance Sheets were $0111.81 million and $0107.91 million, atrespectively. ~~June~~At September 30, 2018 and December 31, 2017, ~~respectively,~~Questar Gas’ amounts due to Dominion Energy associated with the health and welfare plan and included in other ~~current~~deferred ~~assets~~credits and other liabilities in the Balance Sheets were $12.2 million and $14.9 million, respectively.

The Dominion Energy Questar Combination resulted in merger and restructuring costs of $2.5 million and $9.2 million for the three and nine months ended September 30, 2017, respectively, charged from Dominion Energy Questar. These costs primarily consist of employee related costs allocated to Questar Gas and are included in other operations and maintenance in Questar Gas’ Statements of Income.

Questar Gas had a $48.4 million balance under the IRCA with Dominion Energy as of September 30, 2018 and a $75.0 million balance at December 31, 2017. Interest charges related to Questar Gas’ total borrowings from Dominion Energy were $0.3 million and less than $0.1 million for the three months ended September 30, 2018 and 2017, respectively, and were $0.5 million and $0.1 million for the nine months ended September 30, 2018 and 2017, respectively.

Questar Gas maintains natural gas imbalances with Dominion Energy Questar Pipeline. The imbalances receivable from Dominion Energy Questar Pipeline were $1.1 million and $0.9 million at September 30, 2018 and December 31, 2017, respectively, included in other current assets in the Balance Sheets.

Note 14. Operating Segment

The Corporate and Other Segment primarily includes specific items attributable to Questar Gas’ operating segment that are not included in profit measures evaluated by executive management in assessing the segment’s performance or in allocating resources.

The net expense for specific items in 2018 and 2017 primarily related to a $0.2 million ($0.2 million after-tax) and ana $1113.49 million ($78.16 million after-tax) charge for merger and restructuring costs associated with the Dominion Energy Questar Combination, respectively. These costs include employee related costs allocated to Questar Gas and are included in other operations and maintenance in Questar Gas’ Statements of Income.

The following table presents segment information pertaining to Questar Gas’ operations:

	Gas Infrastructure			Corporate and Other			Consolidated Total
(millions)
Three Months Ended June 30, 2018
Three Months Ended September 30, 2018
Operating revenue	$	~~137~~84.41		$	—		$	~~137~~84.41
Net loss		(211.85	)		—(0.1	)		(211.86	)
Three Months Ended June 30, 2017
Three Months Ended September 30, 2017
Operating revenue	$	~~139~~90.79		$	—		$	~~139~~90.79
Net income (loss)		0.7			(6.9	)		(6.2	)
Net loss		(7.0	)		(1.5	)		(8.5	)
Six Months Ended June 30, 2018
Nine Months Ended September 30, 2018
Operating revenue	$	~~544~~628.12		$	—		$	~~544~~628.12
Net income (loss)		5645.50			(0.23	)		5644.37
Six Months Ended June 30, 2017
Nine Months Ended September 30, 2017
Operating revenue	$	~~536~~627.65		$	—		$	~~536~~627.65
Net income (loss)		5346.1			(78.16	)		4637.05

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

MD&A discusses Questar Gas’ results of operations and general financial condition. MD&A should be read in conjunction with Questar Gas’ Financial Statements. Questar Gas meets the conditions to file under the reduced disclosure format, and therefore has omitted certain sections of MD&A.

Contents of MD&A

MD&A consists of the following information:

•	Forward-Looking Statements

•	Results of Operations

•	Analysis of Operations

Forward-Looking Statements

This report contains statements concerning Questar Gas’ expectations, plans, objectives, future financial performance and other statements that are not historical facts. These statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. In most cases, the reader can identify these forward-looking statements by such words as “anticipate,” “estimate,” “forecast,” “expect,” “believe,” “should,” “could,” “plan,” “may,” "continue," “target” or other similar words.

Questar Gas makes forward-looking statements with full knowledge that risks and uncertainties exist that may cause actual results to differ materially from predicted results. Factors that may cause actual results to differ are often presented with the forward-looking statements themselves. Additionally, other factors may cause actual results to differ materially from those indicated in any forward-looking statement. These factors include but are not limited to:

•	Unusual weather conditions and their effect on energy sales to customers and energy commodity prices;

•	Extreme weather events and other natural disasters, including, but not limited to, severe storms, earthquakes and flooding that can cause system disruptions and property damage to facilities;

•	Federal, state and local legislative and regulatory developments, including changes in federal and state tax laws and regulations, including provisions of the 2017 Tax Reform Act that became effective January 2018;

•	Changes to federal, state and local environmental laws and regulations, including those related to climate change, the tightening of emission or discharge limits for GHGs and other substances, more extensive permitting requirements and the regulation of additional substances;

•	Cost of environmental compliance, including those costs related to climate change;

•	Changes in implementation and enforcement practices of regulators relating to environmental standards and litigation exposure for remedial activities;

•	Difficulty in anticipating mitigation requirements associated with environmental and other regulatory approvals and/or associated appeals;

•	Fluctuations in energy-related commodity prices and the effect these could have on Questar Gas’ earnings, liquidity position and the underlying value of its assets;

•	Unplanned system disruptions at Questar Gas facilities;

•	Counterparty credit and performance risk;

•	Global capital market conditions, including the availability of credit and the ability to obtain financing on reasonable terms;

•	Fluctuations in interest rates;

•	Changes in rating agency requirements or credit ratings and their effect on availability and cost of capital;

•	Changes in financial or regulatory accounting principles or policies imposed by governing bodies;

•	Employee workforce factors;

•	Risks of operating businesses in regulated industries that are subject to changing regulatory structures;

•	Political and economic conditions, including inflation and deflation;

•	Domestic terrorism and other threats to Questar Gas’ physical and intangible assets, as well as threats to cybersecurity;

•

Changes in demand for Questar Gas’ services, including industrial, commercial and residential growth or decline in Questar Gas’ service areas, failure to maintain or replace customer contracts on favorable terms, changes in customer growth or usage patterns, including as a result of energy conservation programs and the availability of energy efficient devices;

•	Changes to regulated gas distribution and transportation rates collected by Questar Gas;

•	Changes in operating, maintenance and construction costs;

•	Timing and receipt of regulatory approvals necessary for planned projects and compliance with conditions associated with such regulatory approvals;

•	The inability to complete planned projects within the terms and time frames initially anticipated, including as a result of public involvement or intervention in such projects;

•	Adverse outcomes in litigation matters or regulatory proceedings; and

•	The impact of operational hazards, including adverse developments with respect to pipeline safety or integrity, equipment loss, malfunction or failure, operator error, and other catastrophic events.

Additionally, other risks that could cause actual results to differ from predicted results are set forth in Item 1A. Risk Factors in Questar Gas’ Annual Report on Form 10-K for the year ended December 31, 2017.

Questar Gas’ forward-looking statements are based on beliefs and assumptions using information available at the time the statements are made. Questar Gas cautions the reader not to place undue reliance on its forward-looking statements because the assumptions, beliefs, expectations and projections about future events may, and often do, differ materially from actual results. Questar Gas undertakes no obligation to update any forward-looking statement to reflect developments occurring after the statement is made.

Results of Operations

Presented below is a summary of Questar Gas’ results:

	Second Quarter									Year-To-Date
	Third Quarter									Year-To-Date
	2018			2017			$ Change			2018		2017		$ Change
(millions)
Net income (loss)	$	(211.86	)	$	(68.25	)	$	(3.41	)	$	5644.37	$	4637.05	$	107.32

Overview

~~Second~~Third Quarter 2018 vs. 2017

Net loss ~~decreased~~increased 5536%, primarily due to the ~~absence of merger and restructuring costs partially offset by the~~ impacts of the 2017 Tax Reform Act.

Year-To-Date 2018 vs. 2017

Net income increased 2219%, primarily due to ~~customer growth and~~ decreased merger and restructuring costs and increased customer growth, partially offset by the impacts of the 2017 Tax Reform Act.

Analysis of Operations

Presented below are selected amounts related to Questar Gas’ results of operations:

	Second Quarter									Year-To-Date
	Third Quarter									Year-To-Date
	2018			2017			$ Change			2018		2017		$ Change
(millions)
Operating revenue	$	~~137~~84.41		$	~~139~~90.79		$	(26.38	)	$	~~544~~628.12	$	~~536~~627.65	$	70.57
Purchased gas		7435.09			7542.53			(16.54	)		~~325~~361.65		~~316~~359.81		82.84
Net revenue		6348.42			6448.26			(0.84	)		~~218~~266.57		~~219~~268.84		(1.37	)
Other operations and maintenance		3531.57			4430.62			~~(9.~~1.5	)		80112.52		86116.35		(54.83	)
Depreciation and amortization		1819.70			1619.54			2(0.24	)		3756.3		3252.71		4.62
Other taxes		6.3			5.6			0.7			1219.70		1117.40		12.30
Other income		1.0.8			1.01			—(0.3	)		12.86		23.01		(0.25	)
Interest expense		8.9			8.5			0.4			1827.10		1725.05		1.15
Income tax expense (benefit)		(25.23	)		(35.85	)		10.62			1510.41		2822.49		(1312.08	)

An analysis of Questar Gas’ results of operations follows:

~~Second~~Third Quarter 2018 vs. 2017

Net revenue decreased 1%, primarily reflecting a $42.3 million decrease due to the impacts of the 2017 Tax Reform Act on revenue, ~~substantially~~partially offset by a $1.56 million increase indue ~~infrastructure-replacement~~to ~~cost recovery, a $1.4 million increase in~~ customer growth, and a $0.65 million increase in ~~EEP~~infrastructure-replacement cost recovery.

Other operations and maintenance decreased 20%, primarily due to the absence of $11.1 million in merger and restructuring costs, partially offset by a $0.6 million increase in EEP costs.

Depreciation and amortization increased 13%, primarily due to infrastructure growth and replacement projects placed into service.

Other taxes increased 13%, primarily due to an increase in estimated property taxes as a result of infrastructure growth.

Income tax benefit decreased 424%, primarily due to the lower corporate income tax rate ($1.4 million), partially offset by higher pre-tax loss ($1.0 million).

Year-To-Date 2018 vs. 2017

Net revenue decreased 1%, primarily reflecting a $1315.14 million decrease due to the impacts of the 2017 Tax Reform Act on revenue, ~~substantially~~partially offset by a $45.26 million increase indue ~~infrastructure-replacement~~to ~~cost~~customer ~~recovery~~growth, a $4.07 million increase in ~~customer~~infrastructure-replacement ~~growth~~cost recovery, a $1.89 million increase in EEP cost recovery, and a $1.2 million increase due to the alternative fuel tax credit ~~expected~~which towas be utilized in 2018.

Other operations and maintenance decreased 74%, primarily due to ana ~~$11.2 million~~ decrease in merger and restructuring costs~~, partially offset by a $1~~.~~8 million increase in EEP cost recovery, a $1.6 million increase in employee related costs and a $0.6 million increase in line locating services.~~

~~Depreciation~~Other ~~and~~taxes ~~amortization~~ increased 1412%, primarily due to ~~infrastructure~~an ~~growth~~increase ~~and~~in ~~replacement~~estimated ~~projects~~property ~~placed~~taxes ~~into~~as ~~service~~a result of infrastructure growth.

~~Other~~Income ~~taxes~~tax ~~increased~~expense 11decreased 56%, primarily due to anthe ~~increase~~lower incorporate ~~estimated~~income ~~property~~tax ~~taxes~~rate as($9.6 amillion) ~~result~~and oflower ~~infrastructure~~pre-tax ~~growth~~income ($2.0 million).

Income tax expense decreased 46%, primarily due to the lower corporate income tax rate ($11.0 million) and lower pre-tax income ($1.0 million).

ITEM 4. CONTROLS AND PROCEDURES

Senior management of Questar Gas, including Questar Gas’ CEO and CFO, evaluated the effectiveness of Questar Gas’ disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation process, Questar Gas’ CEO and CFO have concluded that Questar Gas’ disclosure controls and procedures are effective.

There were no changes that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, Questar Gas’ internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, Questar Gas is alleged to be in violation or in default under orders, statutes, rules or regulations relating to the environment, compliance plans imposed upon or agreed to by Questar Gas, or permits issued by various local, state and/or federal agencies for the construction or operation of facilities. Administrative proceedings may also be pending on these matters. In addition, in the ordinary course of business, Questar Gas is involved in various legal proceedings.

See the following for discussions on various environmental and other regulatory proceedings to which Questar Gas is a party, which information is incorporated herein by reference:

•	Notes 10 and 17 to the Financial Statements in the Questar Gas’ Annual Report on Form 10-K for the year ended December 31, 2017.

•	Notes 8 and 11 to the Financial Statements in the Questar Gas’ Form 10-Q for the quarter ended March 31, 2018.

•	Notes 8 and 11 to the Financial Statements in the Questar Gas’ Form 10-Q for the quarter ended June 30, 2018.

•	Notes 8 and 11 to the Financial Statements in this report.

ITEM 1A. RISK FACTORS

Questar Gas’ business is influenced by many factors that are difficult to predict, involve uncertainties that may materially affect actual results and are often beyond Questar Gas’ control. A number of these factors have been identified in Questar Gas’ Annual Report on Form 10-K for the year ended December 31, 2017, which should be taken into consideration when reviewing the information contained in this report. There have been no material changes with regard to the risk factors previously disclosed in Questar Gas’ Annual Report on Form 10-K for the year ended December 31, 2017. For other factors that may cause actual results to differ materially from those indicated in any forward-looking statement or projection contained in this report, see Forward-Looking Statements in MD&A in this report.

ITEM 6. EXHIBITS

Exhibit Number		Description
3.1		Amended and Restated Consolidated Articles of Incorporation of Questar Gas Company (Exhibit 3.1, Form 8-K filed May 15, 2012, File No. 333-69210).
3.2		Bylaws of Questar Gas Company, effective as of October 17, 2016 (Exhibit 3.2, Form 10-Q for the quarter ended September 30, 2016 filed November 9, 2016, File No. 333-69210).
31.a		Certification by Chief Executive Officer of Questar Gas Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.b		Certification by Chief Financial Officer of Questar Gas Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32		Certification to the Securities and Exchange Commission by Chief Executive of Officer and Chief Financial Officer of Questar Gas Company as required by Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
101		The following financial statements from Questar Gas Company’s Quarterly Report on Form 10-Q for the quarter ended ~~June~~September 30, 2018, filed on ~~August~~November 2, 2018, formatted in XBRL: (i) Statements of Income, (ii) Balance Sheets, (iii) Statements of Cash Flows, and (iv) the Notes to Financial Statements.

SIGNATURE

Pursuant to the requirements 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.

		QUESTAR GAS COMPANY (Registrant)
August 2, 2018		/s/ Michele L. Cardiff
November 2, 2018		/s/ Michele L. Cardiff
		Michele L. Cardiff
		Vice President, Controller and Chief Accounting Officer

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