2014Annual Report.pdf

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GAS UTILITIES
ANNUAL REPORT
Questar Gas Company
Utah Business Entity Number: 558729-0142
TO THE
PUBLIC SERVICE COMMISSION
OF UTAH
For Galendar Year
2014
Annual Report
(RGS)(Rev. JaniO7)
Questar Gas
Annual Report
(RGS)
CalendarYear 2014
ATTESTATION / CERTI FICATION
OF
RESPONSIBILITY
I certify that I have examined the information contained in this report submitted to the Utah
Division of Public Utilities, and that, to the best of my knowledge, information, and beliel all
statements of fact c,ontained in this report are true and represent an accurate statement of the
affairs of the respondent company as of the date shown below.
Signature:
Print Name:
Title:
Phone Number:
Fax Number:
David M. Curtis April 15,2015
Vice-President and Controller
[phone] Extension:
Email:dave. curtis@questar. com
Pleas send one completed hard copy and email one copy to the following:
Hard copy to:
Utah Division of Public Utilities
Heber Wells Building, 4th Floor
160 East 300 South
Salt Lake City, UT W111-6751
Email copy to: (using State approved e-filing protocol.)
[e-mail]
(Rev. Jan/07)
General Gompany & Contact lnformation
Company Name: Questar Gas Company
DBA Name (if different):
FKA Name (if different):
Address: 333 South State
City: Salt Lake City State: UT Zip: 84145
Phone Number: [phone] Fax Number:
(800) Number:
Principle Business Address: 333 South State
City: Salt Lake City State: UT Zip: 84145
Gorporate Book Address: 333 South State
City: Salt Lake City State: UT Zlp: 00008-4145
Report Gontact Person
Name: Connie Marshall Title: Director - Accounting
Phone Number: [phone] Extension:
Fax Number:Email: [e-mail]
Corporate Book Gustodian
Name: Julie Wray Title: CorporateSecretary
Phone Number: $A0324-2736 Extension:
Email:Fax Number:iulie.wrav@questar. com
-1-
Gontact lnformation
Attorney:
Name:
Firm Name:
Address:
City:
Phone Number:
(800) Number:
Colleen Bell Title: General Counsel
Questar Corporation
333 South State
Salt Lake City State: UT 84145
[phone] Extension:
Fax Number:
Accountant:
Name:
Firm Name:
Address:
Gity:
Phone Number:
(800) Number:
Title:
zip:
Extension:
Fax Number:
Other Contacts:
Name:
Phone Number:
Fax Number:
Extension:
E-mail:
Title:Name:
Phone Number:
Fax Number:
Name:
Phone Number:
Fax Number:
Extension:
E-mail:
Title:
Extension:
E-mail:
OFFICERS AND DIRECTORS
Report below the officers and directors of respondent at the end of the year. lf there were any changes
during the year, show name, title, and address of previous officer or director and date of change.
;;;;;;;;;
Number of board of directors meetings held during year..................
Number of directors required to constitute a quorum......... 3
Total amount of directors'fees paid during year................. ....-
S State SLC, UT 84145
333 S State SLC, UT 84145
333 S State SLC, UT 84145
333 S State SLC, UT 84145
333 S State SLC, UT 84145
333 S State SLC, UT 84145
333 S State SLC, UT 84145
333 S State SLC, UT 84145
333 S State SLC, UT M145
333 S State SLC, UT 84145
STOCKHOLDERS
Report below the names and addresses of the stockholders who, at the end of the year, owned or
held directly or indirectly 5 percent or more of the voting securities of the respondent.
Name Address
Total shares represented by above..........
Total number of shares at end of year...
Total number of stockholders at end of year...
IMPORTANT CHANGES DURING THE YEAR
Give particulars concerning the following matters. Make the statements explicit and precise.
Each inquiry must be answered. Only use "none" o[ "not applicable" if it correctly states the fact.
Important additions or changes in franchise rights, including the actual consideration, if any,
lmportant additions or extensions of the utility system such as new structures, exchanges,
toll facilities. etc.
-4-
COMPARATIVE BALANCE SHEETS
(Utah Operations Financial Statement in Accordance with GAAP)
Certificated entity onlv. Do not consolidate with other affiliated entities.
2 Federal income taxes receivable | 2,767,089.
3' Accounts and notes receivable I f 16,306,143
4 Unbilled gas accounts receivable I OS,S9O,oOO
5 Deferred income taxes - current I 2,906,377
6 Gas stored underground I as,tzz,oas
7 Materials and supplies | 12,080,748I Current regulatory assets | 30,231,563
9 Prepaid expenses and other | 3,035,038
10 Purchased gas adjustment I
11 Total curent assets I sOg,O0S,Zez
I12 Construction Work in Progress | 73,430,794
13 Property, plant and equipment | 2,129,606,690
14 Less allowances for depreciation | (745,278,183',
15 Net property, plantand equipment l75Zi5md0
I
16 Other long-term assets I17 Goodwill I 5,652,450
18 Regulatory assets | rcJzo,s't+
19 Other long-term assets | 3,938,584
2o TotalAssets l--T:792,1@
I
2'l Notes payable to affiliates I 1Z,ZOO,OOo
1 Cash and cash
29 Purchased gas adjustment
30 Total current liabilities
31 Long-term debt, Iess current portion
32 Other liabilities
33 Asset retirement obligation
34 Defered investment tax credits
35 Defered income taxes
36 Customer contributions-in-aid-of-construction
37 Regulatory and other noncurrent liabilities
38 TotalLiabilities
39 Common stock
40 Additional paid-in capital
41 Retained earnings
42 T otal shareholder's equity
43 Total liabilities and equity
Account
22 Federal income taxes payable
23 Accounts payable and accrued expenses I 191,298,328
24 Customer credit balance I 19,796,785
25 Gurrent regulatory Iiabilities 3,665,044
26 Interest payable I 5,185,063
27 Other taxes payable | 10,463,101
28 Deferred income taxes - current
7,432,556
116,306,143
93,390,066
2,906,377
39,172,683
12,080,748
30,231,563
3,035,038
19,836,938
111,338,658
93,664,096
41,866,681
19,188,538
38,816,090
3,544,129
54,414,554
2,297.878J60
308,665,732
73,430,794
2,129,606,690
1,457,759,300
5,652,450
16,129,514
1,572,008,300
5,652,450
21,288,541
119,300,000
6,390,531
179,397,509
29,394,468
12,24,458
6,765,065
7,028,303
6,320,344
255,540,876
534,500,000
432,524
2,589,294
340,725,134
29,131,278
366,840,678
534,500,000
453,182
2,279,063
377,463,990
29,155,903
1,215,952,164
22,974,065
263,856,316
1,371,605,902
22,974,065
265,331,469
COMPARATIVE STATEMENTS OF INCOME
(Utah Operations FinancialStatement in Accordance with GAAP)
Certificated entitv onlv. Do not consolidate with other affiliated entities.
Account
Amount for
Preceding
Year
Amount for
Current
Year
1 Operating Revenues
2 Utility Operating Expenses:
3 Gas Purchases
4 Operating Expense
5 Maintenance Expense
6 Depreciation and Amortization
7 Taxes Other Than Income Taxes
8 Income Taxes
9 lncome Taxes - Defered
10 Total Utility Operating Expenses
11 Net Operating lncome
12 Other Income
13 Other Income Deductions
14 Total Other lncome and Deductions
15 lnterest Charges
16 Net lncome
985,803,929
650,552,084
'154,091,612
11,527,623
49,683,325
18,061,994
2,220,422
28.351.301
960,839,257
604,765,358
161,950,983
13,366,387
53,526,546
17,863,864
-8,559,860
39.303.408
914,488,360
71,315,569
3,940,839
(227.O59\
882,216,686
78,622,571
5,200,818
@16.140\,
3,713,740
22,251,307
4,784,678
28,252,843
52.774.OO2 55.154.406
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COMPARATIVE STATEMENTS OF CASH FLOW
(Utah Operations FinancialStatement in Accordance with GAAP)
Certificated entitv only. Do not consolidate with other affiliated entities.
Account
Amount for
Preceding
Year
Amount for
Current
Year
Operating Activities
Net lncome
Adjustments to reconcile net income to net cash provided
from operating activities:
Depreciation, depletion and amortization
Deferred income taxes
Shared-based compensation
Changes in operating assets and liabilities
Accounts receivable
lnventories
Prepaid expenses and other
Accounts payable and accrued expenses
Federal income taxes
Other taxes
Purchased gas adjustments
Other assets
Regulatory assets(current)
Regulatory liabilities(current)
Other liabilities
NET CASH (USED lN) PROVTDED FROM OPERATTNG
lnvesting Activities
Gapital expenditures
Property, plant and equipment
Proceeds from disposition of assets
NET CASH (USED rN) PROVIDED FROM TNVESTTNG
Financing Activities
Common stock issued
Long-term debt issued, net of issue costs
Long-term debt repaid
Change in short-term debt
Dividends paid
Excess tax benefits from share-based compensation
NET CASH(USED rN) PROVIDED FROM FTNANCTNG
Change in cash and cash equivalents
Beginning cash and cash equivalents
Ending cash and cash equivalents
52,778,002
54,755,164
37,713,903
672,025
(21,836,318)
554,949
25,533
17,520,639
(2,767,089)
857,726
22,654,296
(640,163)
(4,392,471)
(613,66e)
6,147,886
55,154,406
47,751,674
45,965,577
398,152
18,250,570
(e,801,787)
(50e,0e1)
(1,283,146)
9,157,619
(3,434,798)
(45,060,191)
(6,028,323)
(8,584,527)
8,579,415
8.112.280
(166,184,585)
(3.630.413)
163,430,414
(174,725,313)
414.830
118,667,830
(16e,814,ee8)
90,681,227
'148,942,318
(42,000,000)
(148,400,000)
(35,500,000)
0
(174,31O,484)
1,077,001
26,565
101,600,000
(36,000,000)
13,723,545
7,338,960
1,437,O6e
66,703,566
1 1 ,060,912
8.776,026
8,776.026 19.836.938
(Utah Operations FinancialStatement in Accordance with GAAP)
Provide the notes to the financial statements and sign the certification below.
See Attached
QUESTARGAS COMPANY
NOTES ACCOMPANYING THE FINANCIAL STATEMENTS
The following are exffacts ofthe notes to Questar's 2014 financial statements which are relevant to Questar Gas
Company:
Note 1 - Summary of Significant Accounting Policies
Nature of Business
Questar Gas Company (Questar Gas) provides retail natural gas distribution in Utah, Wyoming and Idaho.
Questar is headquartered in Salt Lake City, Utah. Shares of Questar comrnon stock trade on the New York Stock
Exchange (NYSE:STR).
Use of Estimates
The preparation of financial statements and notes in conformity with GAAP requires that management formulate
estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the
disclosure of contingent assets and liabilities. The Company also incorporates estimates of proved developed and
total proved gas and oil reserves in the calculation ofdepreciation, depletion and amortization rates ofits gas and oil
properties. Changes in estimated quantities of the Company's reserves could impact its reported fi:rancial results as
well as disclosures regarding the quantities of proved gas and oil reserves. Actual results could differ from these
estimates.
Revenue Recognition
Questar Gas records revenues in the period that gas is delivered, including gas delivered to residential and
commercial customers but not billed as of the end of the accounting period. Unbilled gas deliveries are estimated for
the period from ttre date meters are read to the end of the month. Approximately one-half month of revenue is
esrimated in any period. Gas costs and other variable costs are recorded on the same basis to ensure proper matching
of revenues and expenses. Questar Gas's tariffallows for monthly adjushents to customer bills to approximate the
effect of abnormal weather on non-gas revenues. The weather-normalization adjustrnent sipificantly reduces the
impact of weather on gas-disfribution eanrings. The PSCU and PSCW approved a conservation enabling tariff
(CET) to promote energy conservation. Under the CET, Questar Gas non-gas revenues are decoupled from the
volume of gas used by customers. The tariffspecifies an allowed monttrly revenue per customer, with differences to
be deferred and recovered from or refunded to customers through periodic rate adjustments. Rate
adjustuents occur every six months under the CET. The adjustnents amortize defened CET amounts over a 12 -
month period. These adjustments are limited to 5olo of non-gas revenues.
Questar Gas allows customers the option of paying an estimated fixed monthly bill tbroughout the year on a budget-
billing program. The estimated payments are adjusted to actual usage aurually. Amounts collected from customers
under this program in excess of gas deliveries are recorded on the Consolidated Balance Sheets as customer
advances. The budget-billing option does not impact revenue recopition. Questar Gas may collect revenues subject
to possible refirnds and establish reservss pending fiiral orders from regulatory agencies.
Cost of Sales
Questar Gas obtains the majonty of its gas supply from Wexpro's cost-of-service production and pays Wexpro an
operator service fee based on the terms of the Wexpro agreements. Questar Gas also obtains transportation and
storage services from Questar Pipeline. These intercompany revenues and expenses are elirninalgd in tle Questar
Consolidated Statements of Income by reducing revenues and cost of sales. The underlying costs of Wexpro's
production and Questar Pipeline's tansportation and storage services are disclosed in other categories in tle
Consolidated Statements of Income, including operating and mafurtenance expense and depreciation, depletion and
amortization expense. During the second and third quarters of the year, a significant portion of the natural gas from
Wexpro production is injected into underground storage. This gas is withdrawn from storage as needed during the
heating season in tle fust and fourth quarters. The cost of natural gas sold is credited with the value of natural gas as
it is iqjected into storage and debited as it is withdrawn from storage. The reported balance in consolidated cost of
sales may be a negative amount during the second and third quarters because of the entries to record injection of gas
into storage and the elimination of intercompany hansactions.
The details of Questar's consolidated cost of sales are as follows:
Year Ended December 31,
20t4 2013 2012
Questar Gas
Gas purchases
Operator service fee
Transportation and storage
Gathering
Royalties
Storage (injection) witldrawal, net
Purchased-gas account adjustnent
Other
136.s $
349.7
79.6
21.0
60.1
(1.1)
(4s.8)
4.8
(inmillions)
186.6 $
294.6
80.1
18.8
44.3
(0.8)
22.0
5.0
t04.2
274.0
79.6
20.5
32.0
1.9
i6.1
5.0
Total Questar Gas cost ofnatural gas sold
Elimination of Questar Gas cost ofnatural gas sold - affiliated
companies
604.8
(423.4)
650.6
(370.e)
533.3
(347.7)
Total Questar Gas cost of natural gas sold - unaffiliated parties 181.4 279.7 185.6
Regulation
The Company applies the regulatory accounting principles to its rate-regulated businesses. Under these principles,
the Company records regulatory assets and liabilities that would not be otherwise recorded under GAAP for non-
rate-regulated entities. Regulatory assets and liabil.ities record probable future revenues or expenses associated with
certain charges or credits that will be recovered from or refirnded to customers through the rate-making process.
Questar Gas accounts for pwchased-gas costs in accordance with procedures authorized by the PSCU and the
PSCW. Purchased-gas costs that are different from those provided for in present rates are accumulated and
recovered or credited through future rate changes. Questar Gas may hedge a portion ofits natural gas supply to
mitigate price fluctuations for gas-distribution customers. The regulatory commissions allow Questar Gas to record
periodic mark-to-market adjustnents for commodity-price derivatives in the purchased-gas adjustment account.
Questar did not have any commodity-price derivatives at December 37,2014 or 2013. See Note 11 for a description
and comparison ofregulatory assets and liabilities as of December 31,2014 and2013.
Wexpro manages and produces cost-of-service reserves for gas utility afEliate Questar Gas under the terms of the
Wexpro agreements, comprehensive agreements with the states of Utah and Wyoming (see Note 10).
Questar Gas is regulated by the PSCU and the PSCW. The Idaho Public Utilities Commission has contracted with
the PSCU for rate oversight of Questar Gas operations in a small area of southeastem ldaho. Questar Pipeline is
regulated by the FERC. These regulatory agencies establish rates for the sale, storage and transportation of natmal
gas. The regulatory agencies also regulate, among other things, the extension and enlargement or abandonment of
jurisdictional natural gas facilities. Regulation is intended to permit the recovery, tfuough rates, of the cost of
service, including a retum on investnent.
Cash and Cash Equivalents
Cash equivalents consist principally of repurchase agreements with maturities of three months or less. In almost all
cases, the repurchase agreements are highly liquid investments in overnight securities made through commercial
bank accounts that result in available funds the next business day.
Notes Payable to and Notes Receivable from Questar
Notes payable to or receivable from Questar appearing in the financial statements and disclosures of Questar Gas
represent interest bearing demand notes for cash borrowed from Questar for use in operations or loaned to Questar
until needed in operations. The funds are centrally managed by Questar. Amounts loaned to Questar earn an interest
rate that is identical to the interest rate paid by the companies for borrowings from Questar.
Property, Plant and Equipment
Proper[y, plant and equipment balances are stated at historical cost. Maintenance and repair costs are expensed as
incurred.
Contributions in aid of construction
Customer contributions in aid of construction reduce plant unless the amounts are refirndable to customers.
Contributions for main-line extensions may be refundable to customers if additional customers connect to the main-
line segment within five years. Refundable contributions are recorded as liabilities urtil refirnded or the five -year
period expires without additional customer connections. Amounts not reflrnded reduce plant. Capital expenditures in
the Consolidated Statements of Cash Flows are reported net of non-refundable contributions. As a result of Questar
Gas's recent Utah general rate case, effective March 1,2014,the Company does not expect to record any trew
refirndable customer contributions in aid of consfruction for Utah customers.
D epreciation, depletion and amortization
Major categories of fixed assets in gas distibution, tansportation and storage operations are grouped together and
depreciated using a straight-line method. Gains and losses on asset disposals are recorded as adjusfinents in
accumulated depreciation. The Company has not capitalized future abandonment costs on a majority of its long-
lived gas distribution and transpor[ation assets due to a lack ofa legal obligation to restore the area surrounding
abandoned assets. In these cases, the regulatory agencies have opted to leave retired facilities in the ground
undisturbed rather than excavate and dispose ofthe assets. Depreciation rates for Questar Gas are established
tlrough rate proceedin gs.
The following represent average depreciation, depletion and amortization rates of the Company's capitalized costs:
Year Ended December 31,
2014 2013 2012
Questar Gas distibution plant 2.7Yo 2.7%
Questar Gas's depreciation rates include a component for the cost of plant removal. Accordingly, Questar Gas
recognizes the cost of plant removal as depreciation expense. The related cost of removal accrual is reflected as a
regulatory liability on the Questar Gas Balance Sheets (see Note 11). At the time property, plant and equipment is
retired, removal expenses less salvage, are charged to the regulatory cost of plant removal liability.
Impairment of Long-Lived Assets
Properties are evaluated on a specific-asset basis or in groups of similar assets, as applicable. TmFairment is
indicated when a triggering event occurs and the sum of the estimated undiscounted future net cash flows of an
evaluated asset is less than the asset's carrying value. lf impairment is indicated, fair value is estimated using a
discounted cash flow approach that incorporates market interest rates or, if available, other market data. The amount
ef impainnent loss recorded, if any, is the difference between the fair value of the asset and the crurent net book
value. Cash flow estimates require forecasts and assumptions for many years into the future for a variety of factors,
including commodity prices, commodity transportation rates and operating costs. There were no impairments in
2014.
Goodwill
Goodwill represents the excess of the amount paid over the fair value of net assets acquired in a business
combination, and is not subject to amortization. Goodwill and indefiniteJived intangible assets are tested for
impairment at least once a year or when a tiggering event occurs. The Company evaluates whether it is more likely
than not that the carrying value of a reporting unit is greater than its fair value ysing events and circumstances such
* ".sn6mic conditions, industry changes, fi:rancial performance, etc. Fair value is measured using actively traded
market values of other comparable companies in the same businesses. If the fair value of the reporting unit exceeds
its carrying value then goodwill is considered not to be impaired. If the carrying value of the business unit is greater
than the fair value, an impairrnent of goodwill is recognized equal to the excess of the carrying amount of goodwill
over its fair value.
Capitalized Interest and Allowance for Funds Used During Construction
The Company capitalizes interest costs when applicable. The PSCU, PSCW and FERC require the capitalization of
an allowance for funds used during construction (AFIJDC) for rate-regulatedplant and equipment. The Wexpro
agreements require capitalaation of AFUDC on cost-of-service gas and oil development projects. Amounts recorded
in the Consolidated Statements of Income for the capitalization of AFUDC and interest costs are disclosed in the
table below:
Year Ended December 31,
2014 2013 2012
(in millions)
AIUDC (recorded as au increase in interest and other income)
QuestarGas $ 0.9 $ - $ -
Capitalized interest costs (recorded as areduction ofinterest
expense)
Questar Gas
Derivative Instruments and Hedging Activities
The Company may elect to designate a derivative instnrment as a hedge of exposure to changes in fair value or cash
flows. A derivative instrument qualifies as a hedge if all of the following tests are met:. The item to be hedged exposes the Company to market risk.. The derivative reduces the risk exposure and is desipated as a hedge at the inception of the hedging
0.s $0.2 $0.1
relationship.. At the inception ofthe hedge and throughout the hedge period, there is a high conelation between changes
in the fair value of the derivative instrument and the fair value of the underlying hedged item.
If the hedged exposure is a fair value exposwe, the gain or loss on the derivative instrument is recognized in
earnings in the period of the change together with the offsetting gain or loss from the change in fair value of the
hedged item. If the hedged exposure is a cash flow exposrue, the effective portion of the gain or loss on the
derivative instrument is reported initially as a component of accumulated other comprehensive income (loss)
(AOCD and subsequently reclassified into eamings when the forecasted transaction affects earnings. Any amount
excluded from the assessment ofhedge effectiveness, as well as the ineffective porlion ofthe gain or loss, is
reported currently in eamings. When a derivative instrument is designated as a cash flow hedge of a forecasted
transaction that becomes probable of not occurring, the gain or loss on the derivative is immediately reclassified into
eamings from AOCI. See Note 6 for fi:rther discussion on derivatives and hedging.
Credit Risk
The Roclry Mountain region is the Company's primary market axea. Exposure to credit risk may be affected by the
concenhation of customers in this region due to changes in economic or other conditions. Customers include
individuals and numerous commercial and industrial enterprises that may react dffierently to changing conditions.
Management believes that its credit-review procedures, loss reserves, customer deposits and collection procedures
have adequately provided for usual and customary credit-related losses. Loss reseryes are periodically reviewed for
adequacy and may be established on a specific-case basis.
Baddebtexpenseassociatedwithaccountsreceivableamountedto$1.7millionta.20l4,$0.2mittionin2013 and
$1.2 m;ttion :rr-2012. The allowance forbad debts was $1.7 million at December 31,2014 and 2013. Questar Gas's
retail gas operations account for a majority of the bad debt expense. Questar Gas estimates bad debt expense as a
percentage of general-service revenues with periodic adjushents. Uncollected accounts are generally written offsix
months after gas is delivered and interest is no longer accrued. Questar Gas recovers bad debt costs related to the
gas-cost portion ofrates in its Utah operations through a purchased-gas adjustment to rates.
Asset Retirement Obligations
Questar records an asset retirement obligation (ARO) when there is a legal obligation associated with the retirement
of a tangible long-lived asset. Questar's AROs appty primarily to abandonment costs associated with Wexpro gas
and oil wells, production facilities and certain other properties. The Company has not capitalized future
abandonment costs on a majority of its longJived transportation and distibution assets because the Company does
not have a legal obligation to restore the area surrounding abandoned assets. In these cases, the regulatory agencies
have opted to leave retired facilities in the ground undisturbed rather than requiring the Company to excavate and
dispose of the assets. The fah value of retirement costs is estimated by Company person:rel based on abandonment
costs of similar properlies available to field operations and depreciated over the life of the related assets. Revisions
to estimates result from material changes in the expected timing or amormt of cash flows associated with AROs.
Income or expense resulting from ttre settlement of ARO liabilities is included in net gain (loss) from asset sales on
the Consolidated Statements of Income. The ARO liability is adjusted to present value each period through an
accretion calculation using a credit-adjusted risk-free interest rate. See Note 4 for frirther discussion on AROs.
Income Taxes
Questar and its subsidiaries flle a consolidated federal income tax retum. Questar Gas accounts for income taxes on
a separate return basis and records tax expenses and benefits as they are generated. Questar Gas makes payments to
or receives payments from Questar for such tax expenses or benefits as they are generated on the consolidated
income tax return. Deferred income taxes axe recorded for the temporary differences arising between the book and
tax carrying amounts of assets and liabilities. These differences create taxable or tax-deductible amounts for future
periods. Questar Gas uses the deferral method to account for investnent tax credits as required by regulatory
commissions. The Company records interest eamed on income tax refunds in interest and other income and records
penalties and interest charged on tax deflciencies in interest expense.
Accounting standards for income taxes speciff the accounting for uncertainty in income taxes by prescribing a
minimum recognition threshold for a tax position to be reflected in the financial statements. If recognized, the tax
benefit is measured as the lmgest amount of tax benefit that is more-likely-than-not to be realized upon ultimate
settlement. Management has considered the amormts and the probabilities of the outcomes that could be realized
upon ultimate settlement and believes that it is more-likely-than-not that the Company's recorded income tax
benefits will be firlly realized. There were no unrecomized tax benefits at the beginning or end of the years ended
December 31,2014 ,2013 or20l2 .T\e 2014 federal income tax retum has notbeen filed.
Inthe 2012 tax year, Questar began participating in the IRS's Compliance Assurance Process (CAP). For the 2014
and 2015 tax years, Questar was accepted into the CAP Maintenance program. The CAP employs real-time
resolution to improve federal tax compliance by resolving all or most tax positions prior to filing the related tax
return. Successful conclusion ofthe CAP allows the IRS to achieve an acceptable level of assurance regarding the
accuracy of the taxpayer's filed tax retum and to eliminate or substantially reduce the need for a traditional
examination. The CAP Maintenance program is administered by the IRS and indicates that the Company is a
csmpliant taxpayer. The IRS has closed its review of all prior year tax retunN.
Federal tax statutes allowed taxpayers a deduction ofbonus depreciation related to capital expenditures of50% in
2012 ,2013 , and20l4. The effects of bonus depreciation and ottrer significant book/tax timing differences resulted
in a net operating loss (NOL) carryforward for federal income tax purposes of $26.9 million at December 31,2012.
Questar utilized the entire December 31,2012 NOL on its 2013 federal income tax retum. See Note 8 for further
discussion on income taxes.
Share-Based Compensation
Questar may issue stock options, restricted shares, RSUs and perforrnance shares to certain officers, employees and
11sn-smFloyee directors under the LTSIP. The Company uses the Black-Scholes-Merton mathematical model in
estimating the fair value of stock options and the Monte Carlo simulation method in estimating the fair value of
performance shares for accounting purposes. The granting of restuicted shares and RSUs results in recognition of
compensation cost measured at the grant-date market price. Questar uses an accelerated method in recoE:zng
share-based compensation costs wittr graded vesting periods. See Note i2 for further discussion on share-based
compensation.
Recent Accounting Developments
lnMay 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09,
Revenuefrom Contracts with Customers Qopic 606) (ASU 2014-09), to supersede nearly all existing revenue
recognition guidance under U.S. GAAP. The core principle ofASU 20L4-09 is to recognize revenues when
promised goods or services are transferred to customers in an amount that reflects ttre consideration that is expected
to be received for those goods or services. ASU 2014-09 is effective for the Company beginning on January 1,2017
using either of two methods: (i) retospective application to each prior repoding period presented with the option to
elect certain pructical expedients as defi:red in the ASU; or (ii) retospective application with the cumulative effect
of initially applying the guidance recognized at the date of initial application and providing certain additional
disclosures as defined in the ASU. Early adoption is not permitted. The Company is curently evaluating the ASU's
impact on its financial position, results of operations and cash flows, as well as which tansition approach it will
take.
Reclassifications
Certain reclassifications were made to prior year furancial statements and notes to conform to tbe2014 presentation.
All dollar amounts in this Amual Report are in millions, except per-share information and where otherwise noted-
Note 4 - Asset Retirement Obligations
Questar's consolidated AROs by line of business are sunm.arized in the table below:
December 31,
2014 2013
Questar Gas
(inmillion$
0.6 $
Wexpro collects from Questar Gas and deposits in trust certain funds related to estimated ARO costs. The funds are
recorded as other noncurent assets on the Consolidated Balance Sheets and are used to satisfy retirement
obligations as ttre properties are abandoned. The accounting treatuent of reclamation activities associated with
AROs for properties administered under the Wexpro agreements is defined in a guideline letter between Wexpro and
the Utah Division of Public Utilities and the staff of the PSCV/.
Note 5 - Fair Value Measurements
Questar complies with the accounting standards for fair value measurements and disclosures. These standards define
fair value in applying GAAP, establish a frnmework for measuring fair value and require disclosures about fair value
measurements. The standards establish a fair value hierarchy. Level 1 inputs are unadjusted quoted prices for
identical assets or liabilities in active markets that the Company has the ability to access at the measurement date.
Level2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. The Compaay
had no assets or liabilities measured using Level 3 inputs at December 31, 2014 or 2013 . Fair value accounting
standarfu also apply to certain nonfinancial assets and liabilities that are measured at fair value on a nonrecurring
basis. Questar did not have any assets or liabilities measured at fair value on a nonrecurring basis at December 31,
2014 or2013.
Questar primarily applies the market approach for recuring fair value measurements and maximizes its use of
observable inputs and minimizes its use of unobservable inputs. Questar considers bid and ask prices for valuing the
majority of its assets and liabilities measured and reported at fair value. I;r addition to using market data, Questar
makes assumptions in valuing its assets and liabilities, including assumptions about the risks inherent in the inputs to
ttre valuation tecb:rique.
Qaestar Gos
The following table discloses the carrying amount estimated fair value and level within the fair value hierarchy of
certain financial instruments not disclosed in other notes to Questar Gas's financial statements in thit Anaual Report:
0.6
Hierarchy
Level ofFairValue Carrying Estimated Carrying Estimated
Estimates Amount Fair Value Amount Fair Value
December 3112014 December 31,2013
Financial assets
Cash and cash equivalents
Financial liabilities
Notes payable to Questar
Long-term debt
1
2
19.8 $
119.3
534.5
(inmillions)
19.8 $ 8.8 $
119.3 17.7
607-2 534.5
8.8
17.7
s68.0
The carrying amounts of cash and cash equivalents approximate fair value. The carrying amounts of notes payable
to Questar approximate fair value because of their short maturities and market-based interest rates. The fair value of
fixed-rate long-term debt is based on the discounted present value of cash flows using Questar Gas's current credit
risk-adjusted f 6p6'eein g rates.
Note 7 - Debt
The Company has a revolving credit facility with various banks to provide back-up credit liquidity support for its
commercial paper program. Credit ssmmitments under this revolvirg credit facility totaled $750.0 million at
December 3I, 2014, with no amounts borrowed. This revolving credit facility has interest-rate options generally
below the prime interest rate and carries commituent fees on the unused balance. In April 2013, Questar amended
and restated its revolving credit facility to increase its size from $500.0 million to $750.0 rnillion and extend its
maturity from August 31, 2016 to April 19, 20 1 8. A covenant associated with the revolving credit facility stipulates
that consolidated firnded debt cannot exceed 70%o of consolidated capitalization. The Company was in compliance
with this covenant at December 31,2014.
Questar centrally manages cash. Questar makes loans to Questar Gas and Questar Pipeline under a short-term
borrowing a:rangement. The interest rate paid on amoutrts borrowed is identical to tle rate eamed on amounts
loaned under the arangement. The rate is adjusted monthly based on prevailing short-term market interest rates.
The following table details the notes payable to Questar from Questar Gas and the associated interest rates. There
were no notes payable to Questar from Questar Pipeline at December 31,2014 or 2013.
December 31,
2014 2013
(in millions)
$ 119.3 $ 17.7
0.25Vo 0.30%
AII short- and long-term debt and the revolving credit facility are unsecured obligations and rank equally with all
other nnsecured liabilities. The terms of the Questar Corporation and Questar Gas long-term debt obligations do not
have dividend-payment restrictions.
Questar Gas
Notes payable to Questar
Interest rate at end ofyear
In December 2013, Questar Gas issued $90.0 million of 30 -year Senior Notes at 4.78Yo and $60.0 million of 35 -
year Senior Notes at4.83Yo in the private placement market. The proceeds of approximately $149.0 million, after
deducting estimated issuance costs, were used to repay existing indebtedness and for general corporate purposes.
The details of long-term debt are as follows:
December 31,
2014 2013
(inmillionO
Quatar Gas
5.31% afi 6.85% Medium-term Notes due 2017 and20l8
6.30% Notes due 2018
2.98% Notes due 2024
3.28%Notes &re2027
7.20% Notes due 2038
4.78% Notes due 2043
4.83% Notes due 2048
84.5
50.0
40.0
110.0
100.0
90.0
60.0
84.5
s0.0
40.0
110.0
100.0
90.0
60.0
Total Questar Gas long-term debt 534.5 534.5
The aggregate maturities of Questar Gas long-term debt for the next five years are as follows:
Questar
Gas
Years Ending December 31,
20t5
20t6
20t7
2018
2019
Note8-IncomeTaxes
(in millions)
14.5
i20.0
Qaestar Gas
Details of Questar Gas's income tax expense and deferred income taxes are provided in the following tables- The
ssmfonents of income tax expense were as follows:
Year Ended December 31,
2014 2013 20t2
(in millions)
Federal
Curent
Deferred
State
Current
Deferred
Deferred investnent tax credit recognized
(11.e) $
42.4
6.0 $
23.5
0.6
2.0
(0.2)
(18.7)
45.t
1.2
(0.4)
(1.e)
3.6
(0.2)
Total income tax expense 32.0 $31.9 $27.2
The difference between the statutory federal income tax rate and Questar Gas's efflective income tax rate is explained
as follows:
Year Ended December 31,
2014 2013 2012
Federal income taxes statutory rate
Increase (decrease) in rate as a result of:
State income taxes, net of federal income tax benefit
Amortization of investment tax credits related to rate-regulated
assets
Other
35.0o/o
1.3
(0.2)
0.6
35.0%
2,7
(0.3)
0.9
35.0%
1.0
(0.4)
1.0
Effective income tax rate 36.70h 37.7%36.6%
Signifisanl components of Questar Gas's deferred income taxes were as follows:
December 31,
2014 20t3
Deferred income taxes - noncurrent
D eferr ed tax liab ilities
Properly, plarit and equipment
Employee benefits
Other
(inmillions)
3s4.4 $ 322.6
23.5 14.0
0.5 4.9
Deferred tax liabilities - noncurrent
Deferred tox assets
Deferred compensation
378.4
0.9
34t.s
0.8
Deferred tax assets - noncurrent 0.80.9
Net deferred income tax
Deferred income taxes - current
Deferred tax assets - curre,nt
Deferred tax liabiiities - current
3.6 $
9.9
J.J
0.4
Net deferred income tax asset (liability) - current (6.3) $2.9
Note 9 - Contingencies, Commitments and Leases
Contingencies
Questar and each of its subsidiaries are involved in various commercial, environmental, and regulatory claims.
Litigation and other legal proceedings arise in the ordinary cowse of business. Except as stated below concerning
the QEP lawsuit management does not believe any litigation or other legal proceedings individually or in the
aggregate will have a material adverse effect on Questar's or Questar Gas's financial position, results of operations or
cash flows.
A liability is recorded for a loss contingency when its occlrrrence is probable and its amount can be reasonably
estimated. If some amount witlin a range of possible outcomes appears to be a better estimate than any otler
amount within the range, that amount is recorded. Otherwise, the minimum amount in the range is recorded.
Disclosures are provided for contingencies reasonably likely to occur, which would have a material adverse effect
on Questar's or Questar Gas's financial position, results of operations or cash flows. Some of the claims involve
highly complex issues relating to liability, damages and other matters subject to substantial uncertainties and,
therefore, the probabitty of liability or an estimate of loss cannot be reasonably determined.
Litigation
On May 1,2012, Questar Gas Company fi.led a legal action against QEP Field Services Company, a subsidiary of
QEP Resources, Inc. The case, entitled Questar Gas Company v. QEP Field Services Comparry , was filed in the
Third District Court in Salt Lake County, Utah. Questar Gas believes certain charges of QEP Field Services
Company for gathering services exceed the amounts contemplated under a Gas Gathering Agreement, effective
September l, 1993, pertaining to certain gas producedby Wexpro Company under the Wexpro Agreement. Questar
Gas is alleging breach of contract by QEP Field Services Company and is seeking an accounting, damages and a
declaratory judgment relating to the services and charges under the Gas Gathering Agreement. The charges under
the Gas Gathering Agreement are included in Questar Gas's rates as part of its purchased-gas costs. QEP Field
Services Company fiIed an answer and counterclaim alleging that Questar Gas breached the Agreement by failing to
allow QEP Field Services to gather and process gas from certain wells located in two fields in the state of Wyoming.
On August 13,2013, QBP Field Services Company assigned its interest in the Gas Gathering Agreement to QEPM
Gathering I,LLC, a subsidiary of the general parher of the master limited parbnership QEP Midstream Parhrers.
Plaintiffs have filed an amended complaint naming QEP Midsteam Parbters, LP; QEP Midsteam Parhrers GP,
LLC; QEP Midstream Partners Operating, LLC; and QEPM Gathering I,LLC (QEP MLP Entities). QEP Field
Services and Tesoro Logistics LP (Tesoro) entered into a Membership Interest Purchase Agreement dated October
19,2014,to transfer QEP Field Services' interest in the QEP MLP Entities and related assets and liabilities of QEP
Field Services to Tesoro, inshding control of this legal action. Tesoro closed on the tansaction for QEP's
midsteam business on December 2, 2014.
On December 2,2014, the court issued a memorandum decision granting two motions for partial summary judgment
for breach of contact f,led by Questar Gas. The court found QEP Field Services Company breached the Gas
Gathering Agreement by overcharging Questar Gas in its gathering rates. The court also denied two motions for
partial srrmmsry judgment filed by QEP Field Services to reduce or limit contract damages. The court also denied
cross-motions for partial srrmmary judgment fi.led by both parties relating to another claim of breach of conkact. The
issues raised by the cross-motions, QEP Field Services' counterclaim 6d damages on all claims are currently
reserved for trial. No trial date has been set.
While Questar Gas intends to vigorously pusue its legal rights, the claims and counterclaims involve complex legal
issues and uncertainties ttrat make it difficult to predict the outcome of the case and therefore management cannot
deterrrine at this time whether this litigation may have a material adverse effect on its fi:rancial position, results of
operations or cash flows.
Commitments
Questar Gas
Currently, the majority of Questar Gas's natural gas supply is provided by cost-of-service reserves developed and
produced by Wexpro. In20l4, Questar Gas pwchased the remainder of its gas supply from multiple third parties
under index-based or fixed-price contracts. Questar Gas has semmitments to purchase gas for $18.3 million ir 2015,
$15.2 million in 2016 , $18.2 million :m20L7 , and$21.2 million in 2018 and20l9 based on current prices.
Generally, at the conclusion of the heating season and after a bid process, new agreements for the next heating
season are put in place. Questar Gas bought natural gas under third-parly purchase agreements arrounting to $135.8
million :n20t4, $186.5 million in 2013 and $104.1 miilion la2012 .
In addition, Questar Gas stores gas during off-peak periods (typically during the summer) and withdraws gas from
storage to meet peak gas demand (typically in the winter). The company has contacted for tansportation and
underground storage services with Questar Pipeline. Annual payments for these services amount to $74.4 million in
2015,$73.4 million in 2016 ,$46.7 million :n2017 , $13.4 million in 2018 , and $5.2 million rn2019 . Questar Gas
has third-parfy transportation and gathering comrnitments requiring yearly payments of $29.0 million in 2015
through 2017 , $26.3 million in 201 8 , and $24.9 million :n2019 .
Note 10 - Wexpro and Wexpro II Agreements
Wexpro's operations are subject to the terrns of the Wexpro and Wexpro II agreements. The original Wexpro
Agreement was effective August l, 1981, and sets forth the rigfuts of Questar Gas to receive certain benefits from
Wexpro's operations. The agreement was approved by the PSCU and PSCW (the Commissions) in i981 and
affrmed by the Supreme Court of Utah in 1983. The Wexpro II Agreement was modeled after the original Wexpro
Agreement and allows for the addition of properties under the cost-of-service methodology for the benefit of
Questar Gas customers. The Wexpro II Agreement was approved by the Commissions in 2013. The Utah Division
of Fublic Utilities and the staffof the PSCW are entitled to review the performance of Questar Gas and Wexpro
under the Wexpro agreements and have retained an independent certified public accountant and an independent
petoleum engineer to monitor the performance of the agreements. Major provisions of the agreements are as
follows:
a. Wexpro conducts gas-development drilling on productive gas properties, including properties acquired and
approved for inclusion in the We4pro II Agreement, and bears any costs of dry holes. Natural gas produced from
successful drilling on these properties is delivered to Questar Gas. Wexpro is reimbursed for the costs of producing
the natural gas plus a return on its investnnent in successfirl wells. The after-tax retum allowed Wexpro is adjusted
annually and is currently 20.0%.
b. Wexpro operates certain natural gas properties for Questar Gas. Wexpro is reimbursed for its costs of operating
these properties, including a rate of return on any investment it makes. This after-tax rate of retum is adjusted
annually and is currently I2.0%.
c. Wexpro conducts developmental-oil drilling on productive oil properties and bears any costs of dry holes. Oil and
NGL produced from these properties is sold at market prices, with the revenues used to recover operating expenses
and to give Wexpro a retum on its investment in successfirl wells. The after-tax rate of retum is adjusted an:rually
and is currently 17 .0%. A:ry operating income remaining after recovery of expenses and Wexpro's return on
investrnent is divided between Wexpro and Questar Gas, witl Wexpro retaining 46% afi. Questar Gas retaining
s4%.
d. Crude oil and NGL production from certain oil-producing properties is sold at market prices, with the revenues
used to recover operating expenses and to provide Wexpro a returr on its investment. The after-tax rate of retum on
investments in these properties is adjusted annually and is cr::rently 12.0%. Any operating income leaaining after
recovery of expenses and Wexpro's retum on investment is divided between Wexpro and Questar Gas, with Wexpro
rctainng46%o.
e. Amounts received by Questar Gas fromthe sharing of Wexpro's oii andNGL income are used to reduce natural
gas costs to utility customers.
f. Acquired natural gas production from properties approved by the Commissions for inclusion in the Wexpro tr
Agreement is delivered to Questar Gas. Wexpro is reimbursed for the costs of producing the natural gas plus a return
on its acquisition investuent. The after-tax retum allowed Wexpro is adjusted periodically and is cunently 7.6%.
g. Wexpro's return on investment base is deterrnined based on authorized retums from a group of rate-regulated
gsmpaniss plus an 8% risk premium for natmal gas development drilling costs and a 5Yo rjsk premium for oil
development drilling costs. The authorized retums for this group of companies have declined in recent years,
resulting in lower refurns on invesflnent base for Wexpro. Wexpro's return on inveshnent base for Wexpro II
properly acquisition costs is based on Questar Gas's approved cost of capital.
Tr ail Acquis ifi o n Stipulatio n
In the first quarter of 2014, the Commissions approved a stipulation for inclusion of the Trail acquisition in the
Wexpro II Agreement. As part ofthis stipulation, Wexpro agreedto manage the combined production from the
original Wexpro properties and the Trail acquisitionto 65Yo of Questar Gas's annual forecasted demand. Beginning
in June 20 1 5 through May 2016 and for each subsequent l2-month period, if the combined annual production
exceeds 65% of the forecasted demand and the cost-of-service price is greater than the Questar Gas purchased-gas
price, an amount equal to the excess production times the excess price will be credited back to Questar Gas
customers. Wexpro may also sell production to manage the 650/o level and credit back to Questar Gas customers the
higher of market price or the cost-of-service price times the sales volumes.
Note 11 - Rate Regulation
The following table details regulatory assets and fiabilities:
December 3lr20l4 December 31,2013
Crurent Noncunent Current Noncutent
Regulatory assets:
Questar Gas
Purchased-gas adjustment
Demand-side management
Contact withholding
Deferred cost-of-service gas charges
Cost ofreacquired debt
Pipeline integrity costs
39.2 $
13.6
25.5
(inmillions)
$
9.3
4.3
7.7
tt.2
8.1
10.9 2.0
4.8
9.3
Total Questar Gas regulatory assets 16.178.3 2l.s 30.2
Regulatory liabilities :
Questar Gos
Purchased-gas adjustment
Demand-side management
CET
Cost of plant removal
Income taxes refirndable to customers
$
0.3
12.1
$
60.7
0-2
7.4 $
3.3
52.7
0.3
0.40.1Other
Total Questar Gas regulatory liabilities 12.5 53.0
Questar Gas records regulatory assets and liabilities. They recover the costs ofassets but do not generally receive a
retum on these assets.
Following is a description of Questar Gas's regulatory assets and liabilities:
Purchased-gas costs that are different from those provided for in present rates are accumulated and recovered
or credited through future rate changes.
The demand-side management program relates to firnds expended for promoting the conservation of natural
gas tbrough advertising, rebates for efficient homes and appliances, and home energy audits. Costs are
recovered from customers through periodic rate adjustments. Costs incurred in excess ofrecoveries result in
an asset; recoveried in excess ofcosts incurred result in a liability.
Questar Gas recorded a regulatory asset for a disputed amount withheld from a supplier of gathering services.
The amount wittrheld will be recovered from customers if it is determined that Questar Gas is required to pay
the supplier.
Operating and maintenance, depreciation, depletion and amortization, production taxes and royalties on cost-
of-service gas production are recorded when the gas is produced and recovered from customers on a delayed
basis, generally within 12 months .
Certain cost-of-service gas charges are recovered over a period greater than 12 montfu. These include a
regulatory asset that represents future expenses related to abandonment of Wexpro-operated gas and oil wells.
The regulatory asset is reduced over an l8-year period following an amortization schedule that commenced
January 1,2003, or as cash is paidto plW and abandon wells. Noncurrent cost-of-service gas charges also
include amounts for production imbalances that will be recovered from customers at the end of the related gas
wells'usefirl lives.
Gains and losses on the reacquisition of debt by rate-regulated companies are deferred and amortized as
interest expense over the would-be remaining life of the reacquired debt. The reacquired debt costs had a
weighted-average life of approximately 8 years as ofDecember 31,2014.
The costs of complying with pipeline-integrrty regulations are recovered in rates subject to a PSCU order.
Questar Gas is allowed to recover $7.0 million per yeax. Costs incurred in excess of this amount will be
recovered in future rate changes.
The CET liability represents actual revenues received that are in excess of the allowed revenues. These
amounts are refunded tlrough periodic rate adjustments.
Cost of plant removal represents asset retirement costs recovered from customers for other than legal
obligations.
Income taxes refundable to customers arise from adjustments to deferred taxes, refunded over the life of the
related proper(y, plant and equipment.
Rate Changes
Questar Gas is authorized to eam a retum on equity of 9 .85Yo in Utah and 9 .16% in Wyoming. Effective March 1,
2014, Questar Gas increased its rates in Utah by $7.6 million armually as a result of a general rate case fiIed in Utah
in July 2013. The order in this rate case authorized an allowed return on equity of 9.85%o.In December 2014,
Questar Gas held hearings on a general rate case in Wyoming. At the hearings the PSCW ordered an increase in
annualized revenues of $ I .5 million and an authorized return on equrty of 9.5%. The change in rates is expected to
be effective March 1,2015.
11.160.9
II
I
Note 12 - Share-Based Compensation
Questar may issue stock options, restricted shares, RSUs and performaace shares to certain officers, employees and
asl-smployee directors under the LTSIP. Questar recop,izes expense over time as the stock options, restricted
shares, RSUs and perfonnance shares vest.
Resticted shares are valued at the grant-date market price and amortized to expense over the vesting period. Most
reshicted share grants vest in equal instalLnents over a tlree -year period from the grant date. Unvested restricted
shares have voting and dividend rights; however, sale or tansfer is restricted.
Stading in the first quarter of 2013, Questar granted RSUs to certain of its officers, employees and non-employee
directors under the LTSIP. RSUs are valued at the grant-date market price and amortized to expense over the vesting
period. RSU grants typically vest in equal installments over a tbree -year period from the grant date. Certain grants
vest in a single instalLnent after a specified period. RSUs do not have voting rights until shares are distribute4 but
they do have dividend equivalent rights. Most RSU dividend equivalents are paid in cash quarterly and vest
immediately. One share of Questar common stock will be distibuted for each RSU at the time of vesting.
Questar grants performance shates to certain of its offtcers under the terms of the LTSIP. The awards are desiped
to motivate and reward these ofEcers for long-term Company perfonnance and provide an incentive for them to
remain with the Company. The target number of performance shares for each officer is subject to a payout
adjusbnent multiplier ranging from 0.00 to 3.00 based on tle ComFany's total shareholder retum relative to a
specified peer group of companies over a three -year performance period. Each three -year performance period
commences at the beginning of the year of grant. Distibutions of performance shares, if any, take place in the
quarter following the conclusion of the perforrnance period, so long as such officer was employed by the Compaay
or its affiliates as of t}e last day ofthe performance period.
The Company uses the Monte Carlo simulation method to estimate the grant-date fair value of performance share
awards. Fair value estimates rely upon subjective assumptions used in the mathematical model and may not be
representative of future results.
Forperformance shares granted n2012 and20l3, half of any award will be distributed in shares of Questar
common stock and half in cash. Subsequent awards will be distributed in shares, with no cash component. For share-
settled performance share awards, the grant-date fair value of the awards is amortized to expense over the vesting
period. The liability associated with awards to be settled in cash is adjusted to its estimated fair value through
earnings on a quarterly basis.
Questar Gas
Questar may issue stock options, restricted shares, RSUs and perfonnance shares to certain officers and employees
of Questar Gas under the LTSIP. Questar Gas recognizes expense over time as the stock options, restricted shares,
RSUs and perfonnance shares vest. Questar Gas share-based compensation expense amounted to $1.6 million in
2014 compared with $1.4 million :ri,2013 and $1.2 million ta20l2.
There were no stock options held under the LTSIP by Questar Gas officers or employees at December 31,2014.
The following table summarizes the resticted shares held under the LTSIP by Questar Gas officers and employees
at Decernber 31,2014. The weighted-average lemnining vesting periods of unvested restricted shares at December
31,2014, for Questar Gas was 2 months.
Restricted
Shares
Outstanding Price Range
Weighted-
Average Price
Questar Gas 12,635 $ 19.39 $ 19.39
The following table summarizes the RSUs held under the LTSIP by Questar Gas officers and employees at
December 31,2014. The weighted-average remaining vesting period of unvested RSUs at Decernber 31,2014, for
Questar Gas was 12 months.
RSUs Weigbted-
Outstanding Price Range Average Price
Questar Gas 82,351 $23.09 -$23.62 $ 23.61
The following table summarizes the target number of performance shares held under the LTSIP by Questar Gas
officers at December 31.,2014. The weighted-average remaining vesting period of unvested performance shares at
December 31,2014, for Questar Gas was 18 months.
TargetNumber of Weighted-Perfonnance AverageShares Grant-Date Fair Grant-DateOutstanding Value Range Fair Value
Questar Gas
Note 13 - Employee Benefits
33,826 $25.42 -$39.62 $ 31.73
Defined Benefit Pension Plans and Other Postretirement Benefits
The Company has a noncontuibutory defined benefit pension plan covering a majority of its employees and
postretirement medical and life insurance plans providing coverage to less than half of its employees. Employees
hired or rehired after June 30, 2010 are not eligible for the noncontibutory defined benefit pension plan and
employees bired or rehired after December 31, 1996 are not eligible for the postuetirement medical plan and are not
eligible to receive basic life coverage once they retire.
Postretirement health-care and life insurance benefits are provided only to employees hired before January l, 1997.
The Company pays a portion of the costs of health-care benefits determined by an employee's years of service and
generally limited to 170% of the 1992 contribution for employees who retired after January 1,1993. The Company
,mortized its transition obligation over a20 -year period that began lu;.1992 and ended 1m2012.
Questar Gas participates in Questar's qualified and nonqualified pension plans as well as its postretirement medical
and life plans. Questar Gas's pension plan and poshetirement medical and life insurance plan assets and benefit
obligations cannot be separately determined because plan assets are not segregated or restricted to meet the
companiss'pension and postretirement medical and life obligations. If the companies were to withdraw from the
plans, the pension and other postretfuement obligations for Questar Gas employees would be retained by the Questar
plans. Pension and other postetirement benefit net cost and plan contibution inforrnation for Questar Gas are
shownbelow:
Pension
Year Ended December 31,
Other Postretirement Benefits
Year Ended December 31,
2014 2013 2012 2014 2013 2012
Questar Gas
Net periodic cost $
Share oftotal plan contributions
(in millions)
8.s $ 18.1 $ rS.Z $ 0.8 $ 2.4 $ 3.3
27.8 29.6 39.4 1.1 2.0 1.9
401(k) Retirement Income PIan
The 401ft) Retirement Income Plan (a01ft) Plan), fonnerly known as the Bmployee Investment Plan, is a defined
contibution pension plan that allows eligible employees to purchase shares of Questar comrnon stock or other
investnents through payroll deduction at the fair market value on the fta:nsaction date. The Company contibutes an
overall match of 100% of employees'purchases up to a maximrun of 6% of their qualifring earnings. Starting in
January 2015, qualified employees who are not eligible for the defi:red benefit pension plans receive an additional
asa-mdshing employer contribution to their a01ft) Plan accounts equal to 4Yo of thek qualifying prior year
eanrings. To satisfy employee purchases of Questar stock, the 401(k) Plan trustee may purchase Questar shares on
the open market with cash received or Questar may issue new shares.
Questar Gas recogn2es expense equal to 401(k) Plan employer matching and non-matching contributions earned by
employees during the year. Questar Gas's 401ft) Plan expense was $4.1 million in 2014,$3.4 million in 2013 and
$3.6 million n2012 .
Note 15 - Related-Party Transactions
Qaestar Gas
Ia.20l4 and 2013 Questar Gas provided technical services to affiliates. Ia20l2, Questar Gas also provided
communication services to affiliates. Questar Gas provided these services at its cost and charged $6.1 million in
2014,$6.7 million in 2013 and $13.6 million :n2012. The majority of these costs are allocated. The allocation
methods are based on the specific nature of ttre charges. Management believes that the allocation methods are
reasonable.
Questar Gas has reserved tuansportation capaclty on Questar Pipeline's system for 916 Mdth per day during the
heating season and 841 Mdth per day during off-peak months. Questar Gas periodically releases excess capacity and
receives a credit from Questar Pipeline for the released capacity revenues and a portion of Questar Pipeline's
intemrptible transportation revenues. Questar Gas paid fs1 6ansportation, storage and processing seryices provided
by Questar Pipeline and a subsidiary amounting to $72.9 million 1n 2014, $73.0 million n20L3 and $73.6 million in
2012 ,which included demand charges. The costs of these services were included in the cost of natural gas sold.
Under the terms of the Wexpro agreements, Questar Gas receives a portion of Wexpro's income from oil and NGL
operations after recovery of Wexpro's operating expenses and a retum on investment. This amount, which is
included in revenues and reduces amounts billed to gas distribution customers, was $0.6 million in 2013 and $2.5
million n2012 . There was no such revenue l.n2014. The amounts that Questar Gas paid Wexpro for the operation
of cost-of-service gas properties were $349.7 million n2014,$294.6 million in 2013 and$274.0 million n2OI2 .
Questar Gas reports these amounts in the cost of natural gas sold.
Questar Gas had a lease with an afEliate for space in an office builrling located in Salt Lake Cify, Utah, which
expired on April 30,2012. Rent expense was $0.4 million n2012.
Questar charged Questar Gas for certain administrative functions amounting to $47.8 million :m2014, $48.4 million
in 2013 and $49.3 million n2012 . These costs are included in operating expenses and are generally allocated based
on each affiliated company's proporlional share ofrevenues less product costs; properfy, plant and equipment; and
labor costs. Management believes that the allocation method is reasonable.
Questar Pipeline charged Questar Gas for communication services amounting to $3.7 million :m2014 and2013.
These costs are included in operating expenses and are allocated based on usage.
Questar Gas borrowed cash from Questar and incurred interest expense of $0.1 million ta,20l4, $0.5 million in 2013
and $0.6 million :m2012.
Note 17 - Wexpro Acquisitions of Producing Properties
On December 17,2014, Wexpro acquired an additional interest in natural gas-producing properlies in existing
Wexpro-operated assets in the Canyon Creek Unit of southwestem Wyoming's Vermillion Basin for about $52.4
million. This is a "bolt-on" acquisition to the company's current Canyon Creek assets, which are governed by the
1981 Wexpro Agreement. Under the terms of the Wexpro tr Agreement this property must be submitted to the
Commissions to be considered for cost-of-service treafuent for the benefit of Questar Gas customers.
On September 4,2013, Wexpro completed the tuansaction aanounced in July 2013 to acquire an additional interest
in natural gas-producing properties in the Trail Unit of southwestern Wyoming's Vermillion Basin (Trail
acquisition) for $104.3 million , after post-closing adjustnents. This acquisition was an addition to the company's
existing Trail assets, which are governed by the 1981 Wexpro Agreement. In the first quarter of 20l4,the Public
Service Commission of Utah and the Wyoming Public Service Commission (the Commissions) approved the
inclusion of these properties in the Wexpro tr Agreement effective February 1,2014.
Note 19 - Supplemental Gas and Oil Information (Unaudited)
The substantial majority of the following information relates to cost-of-service gas and oil properties managed and
developed by Wexpro and govemed by the Wexpro agreements.
In December 2014, Wexpro completed the Canyon Creek acquisition. Properties acquired in this acquisition were
not included in a cost-of-service arrangement as of December 31,20L4.In September 2013, Wexpro completed the
Trail acquisition. Lr the first quarter of 2014, the PSCU and PSCW approved the inclusion of the Trail acquisition
properties in the Wexpro II Agreement. The 2014 and2013 supplemental gas and oil infonnation includes these
acquisitions, as applicable. See Note 17 for additional information on these acquisitions.
Capitalized Costs
Capitalized costs of gas and oil properlies and the related amounts of accumulated depreciation, depletion and
amortization are shown below:
December 31,
2014 2013
(inmillions)
Net Questar Gas capitalized costs
Estimated Quantities of Proved Gas and Oil Reserves
Estimates of proved gas and oil reserves have been prepared in accordance with professional engineering standards
and the Company's established internal contols. The estimates were prepared by Wexpro's reservoir engineers,
individuals who possess professional qualifications and demonstated competency i:r reserves estimation and
evaluation. SEC guidelines with respect to standard economic assumptions are not applicable to the large proportion
of .Wexpro gas reserves that are managed, developed, produced and delivered to Questar Gas at cost of service. The
SEC acknowledges this potential circumstance and provides that companies may give appropriate recop.ition to
differences arising because of the effect of the rate-making process. Accordingly, in cases where differences arise
because of the effect of the rate-making process, Wexpro uses a minimum-producing rate or maximum well-life
limit to determine the ultimate quantrty of reserves athibutable to each well.
The Company annually reviews all proved rurdeveloped reserves to ensure an appropriate plan for development
exists. All proved undeveloped reserves are converted to proved developed reserves within five years ofthe proved
nndeveloped reserve booking. At December,2014, all of the Company's proved undeveloped reserves were
scheduled to be developed within five years from the date such locations were initially disclosed as proved
undeveloped reserves. Wexpro converted 7o/o ofprior year-end proved undeveloped reserves to developed status in
2014, 42Yo in 2013 and l5o/o :n2012 .
Revisions ofprior estimates reflect the addition ofnew proved undeveloped reserves associated with current five-
year development plans, revisions to prior proved undeveloped reserves, revisions to infill drilling development
plans, as well as the tansfer ofproved undeveloped reserves to unproved reserve categories due to changes in
development plans. The negative revisions reflected in the 2013 reserve estimates are due in part to an increase in
well spacing in the Pinedale field based on 20i3 drilling results. The negative revisions lm2014 me primarily due to
the impact on proved undeveloped reserves from significant changes in the Company's fle-year development plans
based on the drop in natural gas and oil prices at the end of20l4.
I:r establishing reserves, the SEC allows ttre use oftechniques that have been field tested and demonstrated to
provide reasonably certain results with consistency and repeatability in the formation being evaluated or in an
analogous formation. In general, the Company uses numerous data elements and analysis techniques in the
estimation of proved reserves. These data elements and techniques include, but are not limited to, production tests,
well performatce dat4 decline curve analysis, wireline logs, core data, presswe transient analysis, seismic data and
interpretation, and material balance calculations. The Company utilizes these reliable technologies to book proved
reserves, however, no reseryes were recorded from increasing recovery factor estimates or from extending down-dip
reservoir limits associated with the use of reliable technology.
Wexpro's estimates of proved reserves were made by the Company's engineers and are the responsibitity of
management. The Company requires that reserve estimates be made by qualified reserves estimators (QREs), as
defined by the Society of Petroleum Engineers' standards. The QREs interact with engineering, land, and geoscience
personnel to obtain the necessary data for projecting future production, costs, net revenues and ultimate recoverable
reserves. Management approves the QREs'reserve estimates annually. All QREs receive ongoing education on the
7.26.4
fundamentals of SEC reserves reporting tbrough internal and extemal taining over the policies for estimating and
recording reserves in compliance with applicable SEC definitions and guidance.
Estimated quantities of proved gas and oil reserves are set forth below:
Natural Gas
. Natural Gas Oil andNGL Equivalents
Proved Reserves
Balances at December 3l,20ll
(Bcfl (Nibbl) @cfe)
'758.7 5,344 790.7
697.2 6,t69 734.2
87t.2 5,6t7 844.9
566.1 4,731 594.5
Balances at December 31,2012
Balances at December 31, 2013
Balances at December 31,2014
Financial Statement Schedules:
QUESTARGAS CONIPANY
Schedule of Valuation and Quali&ing Accounts
ColumnA
Description
Column C Column D
Column B Amounts Deductions forBeginning charged accounts written Column EBalance to expense offand other Ending Balance
Year Ended December 31,2014
Allowance for bad debts
Year Ended December 31, 2013
Allowance for bad debts
Year Ended December 31, 2012
Allowance for bad debts
(inmillions)
$ 1.4 $ 1.7 $ (1.7) $ 1.4
2.8 0.2 (1.6) t.4
2.e 1.1 (r.2) 2.8