10-K 1 str12311510k.htm 10-K 10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___to ___

(Exact name of registrant as specified in its charter)
Commission file number
State or other jurisdiction of incorporation or organization
(I.R.S. Employer
Identification No.)
Questar Corporation
001-08796
Utah
87-0407509
Questar Gas Company
333-69210
Utah
87-0155877
Questar Pipeline Company
000-14147
Utah
87-0307414
333 South State Street, P.O. Box 45433, Salt Lake City, Utah 84145-0433
(Address of principal executive offices)
Registrants' telephone number, including area code (801) 324-5900
Web site http://www.questar.com

Securities registered pursuant to Section 12(b) of the Act:
Questar Corporation
Common stock without par value, listed on the New York Stock Exchange
Questar Gas Company
None
Questar Pipeline Company
None
Securities registered pursuant to Section 12(g) of the Act:
Questar Corporation
None
Questar Gas Company
None
Questar Pipeline Company
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Questar Corporation
Yes [X]   No [   ]
Questar Gas Company
Yes [   ]   No [X]
Questar Pipeline Company
Yes [   ]   No [X]
Indicate by check mark whether the registrant (1) has filed all reports required 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.
Questar Corporation
Yes [X]   No [   ]
Questar Gas Company
Yes [X]   No [   ]
Questar Pipeline Company
Yes [X]   No [   ]

1



Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
Questar Corporation
Yes [X]   No [   ]
Questar Gas Company
Yes [X]   No [   ]
Questar Pipeline Company
Yes [X]   No [   ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Questar Corporation
[   ]
Questar Gas Company
[   ]
Questar Pipeline Company
[   ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Do not check non-accelerated filer if a smaller reporting company (Check one).
Questar Corporation
Large accelerated filer
[X]
Accelerated filer
[   ]
Non-accelerated filer
[   ]
Smaller reporting company [   ]
Questar Gas Company
Large accelerated filer
[   ]
Accelerated filer
[   ]
Non-accelerated filer
[X]
Smaller reporting company [   ]
Questar Pipeline Company
Large accelerated filer
[   ]
Accelerated filer
[   ]
Non-accelerated filer
[X]
Smaller reporting company [   ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Questar Corporation
Yes [   ]   No [X]
Questar Gas Company
Yes [   ]   No [X]
Questar Pipeline Company
Yes [   ]   No [X]
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter (June 30, 2015). The aggregate market value was calculated by excluding all shares held by directors and executive officers of the registrant and three nonprofit foundations established by the registrant without conceding that all such persons are affiliates for purposes of federal securities laws.
Questar Corporation
$3.6 billion
Questar Gas Company
None
Questar Pipeline Company
None
Indicate the number of shares outstanding of each of the registrants' classes of common stock, as of January 31, 2016.
Questar Corporation
without par value
175,008,184
Questar Gas Company
$2.50 per share par value
9,189,626
Questar Pipeline Company
$1.00 per share par value
6,550,843

Documents Incorporated by Reference:
Portions of Questar Corporation's definitive Proxy Statement, to be filed in connection with its 2016 Annual Meeting of Shareholders, are incorporated by reference into Part III of this Annual Report.

Questar Gas Company and Questar Pipeline Company, as wholly-owned subsidiaries of a reporting company, meet the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K and are therefore filing this form with the reduced disclosure format.

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TABLE OF CONTENTS
 
 
Page
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
Item 1A.
 
 
 
Item 1B.
 
 
 
Item 2.
 
 
 
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
Item 7.
 
 
 
Item 7A.
 
 
 
Item 8.
 
 
 
Item 9.
 
 
 
Item 9A.
 
 
 
Item 9B.
 
 
 
 
 
 
Item 10.
 
 
 
Item 11.
 
 
 
Item 12.
 
 
 
Item 13.
 
 
 
Item 14.
 
 
 
 
 
 
Item 15.
 
 
 

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FILING FORMAT
This Annual Report on Form 10-K is a combined report being filed by three separate registrants: Questar Corporation, Questar Gas Company and Questar Pipeline Company. Questar Gas Company and Questar Pipeline Company are wholly-owned subsidiaries of Questar Corporation. Separate financial statements for Wexpro Company have not been included since Wexpro is not a registrant. See Note 15 to the accompanying financial statements in Item 8 of Part II of this Annual Report on Form 10-K for a summary of operations by line of business. Information contained herein related to any individual registrant is filed by such registrant solely on its own behalf. Each registrant makes no representation as to information relating exclusively to the other registrants.

Item 8 of Part II of this Annual Report includes separate financial statements (i.e. statements of income, statements of comprehensive income, balance sheets, statements of common shareholders' equity and statements of cash flows, as applicable) for Questar Corporation, Questar Gas Company and Questar Pipeline Company. The notes accompanying the financial statements are presented on a combined basis for all three registrants. Management's Discussion and Analysis of Financial Condition and Results of Operations included under Item 7 of Part II is presented by line of business.

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Where You Can Find More Information

Questar Corporation (Questar or the Company) and two of its subsidiaries, Questar Gas Company (Questar Gas) and Questar Pipeline Company (Questar Pipeline), each file annual, quarterly, and current reports with the Securities and Exchange Commission (SEC). Questar also regularly files proxy statements and other documents with the SEC. These reports and other information can be read and copied at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C., 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the Public Reference Room. The SEC also maintains an internet site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC, including Questar, Questar Gas and Questar Pipeline.

Investors can also access financial and other information via Questar's internet site at www.questar.com. Questar and each of its reporting subsidiaries make available, free of charge through the internet site, copies of Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, definitive Proxy Statements, and any amendments to such reports, and all reports filed by executive officers and directors under Section 16 of the Securities Exchange Act of 1934, as amended (the Exchange Act) reporting transactions in Questar securities. Access to these reports is provided as soon as reasonably practical after such reports are electronically filed with the SEC. Information contained on or connected to Questar's internet site that is not directly incorporated by reference into the Company's Annual Report on Form 10-K should not be considered part of this report or any other filing made with the SEC.

Questar's internet site also contains copies of charters for various board committees, including the Finance and Audit Committee, as well as Corporate Governance Guidelines and Questar's Business Ethics and Compliance Policy.

Finally, you may request a copy of filings other than an exhibit to a filing, unless that exhibit is specifically incorporated by reference into that filing, at no cost by writing or calling Questar Corporation, Attn: Investor Relations, 333 South State Street, P.O. Box 45433, Salt Lake City, UT, 84145-0433 (telephone number 801-324-5900).

Forward-Looking Statements

This Annual Report on Form 10-K may contain or incorporate by reference information that includes or is based upon "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Exchange Act. Forward-looking statements give expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. They use words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," and other words and terms of similar meaning in connection with a discussion of future operating or financial performance. In particular, these include statements relating to future actions, prospective services or products, future performance or results of current and anticipated services or products, development efforts, expenses, the outcome of contingencies such as legal proceedings, trends in operations, and financial results.

Any or all forward-looking statements may turn out to be wrong. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Many such factors will be important in determining actual future results. These statements are based on current expectations and the current economic environment. They involve a number of risks and uncertainties that are difficult to predict. These statements are not guarantees of future performance. Actual results could differ materially from those expressed or implied in the forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, the following:

the risk factors discussed in Part I, Item 1A of this Annual Report on Form 10-K;
general economic conditions, including the performance of financial markets and interest rates;
changes in energy commodity prices;
changes in industry trends;
actions of regulators;
changes in laws or regulations; and
other factors, most of which are beyond the Company's control.

Questar undertakes no obligation to publicly correct or update the forward-looking statements in this Annual Report, in other documents, or on the internet site to reflect future events or circumstances. All such statements are expressly qualified by this cautionary statement.

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Glossary of Commonly Used Terms

B
 
Billion.

Barrel (bbl)
 
Equal to 42 U.S. gallons and is a common measure of volume of crude oil and other liquid hydrocarbons.

British Thermal Unit (Btu)
 
A measure of the amount of energy required to raise the temperature of a one-pound mass of water one degree Fahrenheit at sea level.

Conservation Enabling Tariff (CET)
 
A rate mechanism in Utah and Wyoming that decouples customer usage of natural gas from the non-gas revenues received by Questar Gas by specifying an allowed monthly revenue per customer. Differences between the allowed CET revenue and actual usage are deferred and recovered from or refunded to customers through future rate changes.
Cubic Feet (cf)
 
One standard cubic foot equals the volume of gas in one cubic foot measured at standard conditions - a temperature of 60 degrees Fahrenheit and a pressure of 30 inches of mercury (approximately 14.7 pounds per square inch).

Cubic Feet Equivalent (cfe)

 
Cubic feet of natural gas equivalents.
Decatherm (dth)
 
Ten therms. One dth equals one million Btu or approximately one Mcf.
Energy-Efficiency Program (EEP)
 
Costs incurred by Questar Gas to promote energy conservation in the form of rebates and promotions. EEP costs are recovered from customers through periodic rate adjustments.

Developed Reserves
 
Reserves of any category that can be expected to be recovered through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well. Reserves are reported on a net revenue interest basis. See 17 C.F.R. § 210.4-10(a)(6).

Development Well
 
A well drilled into a known producing formation in a previously discovered field.
Dry Hole
 
A well drilled and found to be incapable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of production exceed expenses and taxes.
Exploratory Well
 
A well drilled into a previously untested geologic prospect to determine the presence of natural gas or oil.
FERC
 
Federal Energy Regulatory Commission.
Gas
 
All references to "gas" in this report refer to natural gas.
Gross
 
Gross natural gas and oil wells or gross acres are the total number of wells or acres in which the Company has a working interest.
Heating Degree Days
 
A measure of the number of degrees the average daily outside temperature is below 65 degrees Fahrenheit.
M
 
Thousand.
MM
 
Million.
Natural Gas Equivalents
 
Oil and NGL volumes are converted to natural gas equivalents using the ratio of one barrel of crude oil, condensate or NGL to 6,000 cubic feet of natural gas.
Natural Gas Liquids (NGL)
 
Liquid hydrocarbons that are extracted and separated from the natural gas stream. NGL products include ethane, propane, butane, natural gasoline and heavier hydrocarbons.


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Net
 
Net gas and oil wells or net acres are determined by the sum of the fractional ownership working interest the Company has in those gross wells or acres.
Proved Reserves
 
Those quantities of natural gas, oil, condensate and NGL which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from known reservoirs under existing economic conditions, operating methods and government regulations. Reserves are reported on a net revenue interest basis. See 17 C.F.R. § 210.4-10(a)(22).
PSCU
 
Public Service Commission of Utah.
PSCW
 
Wyoming Public Service Commission.
Reserves
 
Estimated remaining quantities of natural gas, oil and related substances anticipated to be economically producible by application of development projects to known accumulations. In addition, there must exist, or there must be a reasonable expectation that there will exist, the legal right to produce. Reserves are reported on a net revenue interest basis. See 17 C.F.R. § 210.4-10(a)(26).
Reservoir
 
A porous and permeable underground formation containing a natural accumulation of producible natural gas and/or oil that is confined by impermeable rock or water barriers and is individual and separate from other reservoirs.
Royalty
 
An economic interest in a gas and oil lease that gives the owner the right to receive a portion of the production from the leased acreage or of the proceeds of the sale thereof, but generally does not require the owner to pay any portion of the costs of drilling or operating the wells on the leased acreage. Royalties may be either landowner's royalties, which are reserved by the owner of the leased acreage at the time the lease is granted, or overriding royalties, which are usually reserved by an owner of the leasehold in connection with a transfer to a subsequent owner.

SEC
 
United States Securities and Exchange Commission.
Undeveloped Reserves
 
Reserves of any category that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion. Reserves are reported on a net revenue interest basis. See 17 C.F.R. § 210.4-10(a)(31).

Wexpro Agreement
 
A long-standing comprehensive agreement with the states of Utah and Wyoming. The agreement was effective August 1, 1981, and sets forth the rights of Questar Gas to receive certain benefits from Wexpro's operations. The agreement was approved by the PSCU and PSCW in 1981 and affirmed by the Supreme Court of Utah in 1983.
Wexpro II Agreement
 
An agreement with the states of Utah and Wyoming modeled after the Wexpro Agreement that allows for the addition of properties under the cost-of-service methodology for the benefit of Questar Gas customers. The agreement was approved by the PSCU and PSCW in 2013.

Working Interest
 
An economic interest in a gas and oil lease that gives the owner the right to drill, produce and conduct operating activities on the leased acreage and receive a share of any production.

Workover
 
Operations on a producing well to restore or increase production.



Questar 2015 Form 10-K
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FORM 10-K
ANNUAL REPORT, 2015

PART I

ITEM 1.  BUSINESS.

Nature of Business
Questar is a Rockies-based integrated natural gas holding company with three principal complementary lines of business operated through wholly-owned subsidiaries:

Questar Gas provides retail natural gas distribution in Utah, Wyoming and Idaho.
Wexpro Company (Wexpro) develops and produces natural gas from cost-of-service reserves for Questar Gas customers.
Questar Pipeline operates interstate natural gas pipelines and storage facilities in the western United States and provides other energy services.

Questar is headquartered in Salt Lake City, Utah. Shares of Questar common stock trade on the New York Stock Exchange (NYSE:STR).

Questar is a holding company, as that term is defined in the Public Utility Holding Company Act of 2005 (PUHCA 2005), because Questar Gas, its subsidiary, is a natural gas utility company. Questar, however, has an exemption and waiver from provisions of the Act applicable to holding companies. Questar conducts all operations through subsidiaries. The parent holding company performs certain management, legal, financial, tax, administrative and other services for its subsidiaries.

The corporate organization structure and major subsidiaries are summarized below:

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Questar Corporation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Questar Gas Company

Retail Gas Distribution
 

Wexpro Company

Gas and Oil Development and Production
 

Questar Pipeline Company

Interstate Gas Transportation and Storage
 
 
 
 
 
 
 
 
 
 
 

See Note 15 to the financial statements included in Item 8 of Part II of this Annual Report for financial information by line of business including, but not limited to, revenues from unaffiliated customers, operating income and identifiable assets. A discussion of the Company's lines of business follows.

Proposed Merger with Dominion Resources
On January 31, 2016, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among the Company, Dominion Resources, Inc., a Virginia corporation (“Parent”) and Diamond Beehive Corp., a Utah corporation and a direct wholly-owned subsidiary of Parent (“Merger Sub”).

The Merger Agreement provides for the merger of Merger Sub with and into the Company on the terms and subject to the conditions set forth in the Merger Agreement (the “Merger”), with the Company continuing as the surviving corporation in the Merger and becoming a direct, wholly-owned subsidiary of Parent. At the effective time of the Merger (the “Effective

Questar 2015 Form 10-K
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Time”), by virtue of the Merger and without any action on the part of the Company, Parent or Merger Sub or any holder of any shares of common stock, no par value per share, of the Company (the “Company Common Stock”) or any shares of capital stock of Merger Sub, each share of the Company Common Stock issued and outstanding immediately prior to the Effective Time (other than Dissenting Shares and shares of Company Common Stock that are owned by Parent or Merger Sub or any of their respective subsidiaries, in each case immediately prior to the Effective Time) will be converted automatically into the right to receive $25.00 in cash, without interest.

Closing of the Merger is subject to the satisfaction or waiver of specified closing conditions, including (i) the approval of the Merger by the holders of a majority of the outstanding shares of Company Common Stock, (ii) the receipt of regulatory approvals required to close the Merger, including approvals from the Public Service Commission of Utah (if required) and the Public Service Commission of Wyoming, (iii) the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, (iv) the absence of any law, statute, ordinance, code, rule, regulation, ruling, decree, judgment, injunction or order of a governmental authority that prohibits the consummation of the Merger, and (v) other customary closing conditions, including (a) the accuracy of each party’s representations and warranties (subject to customary materiality qualifiers), (b) each party’s compliance in all material respects with its obligations and covenants contained in the Merger Agreement, and (c) the absence of a material adverse effect on the Company. In addition, the obligations of Parent and Merger Sub to consummate the Merger are subject to the required regulatory approvals not imposing or requiring any undertakings, terms, conditions, liabilities, obligations, commitments or sanctions, or any structural or remedial actions that constitute a Company Material Adverse Effect (as defined in the Merger Agreement).

The Merger Agreement also contains customary representations, warranties and covenants of both the Company and Parent. These covenants include, among others, an obligation on behalf of the Company to use reasonable best efforts to conduct its business in all material respects in the ordinary course until the Merger is consummated, subject to certain exceptions. The Company has made certain additional customary covenants, including, among others, subject to certain exceptions, (a) causing a meeting of the Company’s shareholders to be held to consider approval of the Merger Agreement, and (b) a customary non-solicitation covenant prohibiting the Company from soliciting, providing non-public information or entering into discussions or negotiations concerning proposals relating to alternative business combination transactions, except as permitted under the Merger Agreement. In addition, the parties are required to use reasonable best efforts to obtain any required regulatory approvals.

The Merger Agreement may be terminated by each of the Company and Parent under certain circumstances, including if the Merger is not consummated by February 28, 2017 (subject to certain extension rights, up to a maximum of nine months, as specified in the Merger Agreement). The Merger Agreement contains certain termination rights for both Parent and the Company, and provides that, upon termination of the Merger Agreement under specified circumstances, Parent would be required to pay a termination fee of $154 million to the Company (the “Parent Termination Fee”) and the Company would be required to pay Parent a termination fee of $99 million (the “Company Termination Fee”). The Company Termination Fee is payable under certain specified circumstances, including (i) termination of the Merger Agreement by the Company in order to enter into a definitive agreement with respect to certain business combinations, and (ii) termination of the Merger Agreement by Parent following a withdrawal by the Company Board of its recommendation of the Merger Agreement. The Company will also be required to pay Parent the Company Termination Fee in the event the Company signs an alternative transaction within twelve months following the termination of the Merger Agreement under certain specified circumstances. In addition, upon termination of the Merger Agreement in certain specified circumstances, the Company would be required to reimburse Parent for certain expenses incurred by Parent and its affiliates and representatives in connection with transaction, in an amount not to exceed $5 million. The Parent Termination Fee is payable by the Parent in certain specified circumstances if the Merger Agreement is terminated under certain circumstances due to the failure to obtain certain regulatory approvals as a result of the imposition of a Burdensome Condition or the material breach by Parent of its obligations to obtain certain regulatory approvals.

Subject to approval by the Company's shareholders, regulatory approval and the satisfaction of other applicable conditions, the Company expects the Merger to be completed by the end of 2016.

RETAIL GAS DISTRIBUTION - Questar Gas
General: Questar Gas distributes natural gas as a public utility in Utah, southwestern Wyoming and a small portion of southeastern Idaho. It generated approximately 33% of the Company's operating income in 2015. Wexpro provides the majority of Questar Gas's natural gas supply and Questar Pipeline provides the majority of Questar Gas's transportation and storage services. As of December 31, 2015, Questar Gas was serving 990,381 sales and transportation customers. Questar Gas is the only non-municipal gas-distribution utility in Utah, where 97% of its customers are located. The Public Service Commission of Utah (PSCU), the Wyoming Public Service Commission (PSCW) and the Public Utility Commission of Idaho have granted

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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.

Questar Gas's growth is tied to the economic growth of Utah and southwestern Wyoming. It has a market share of over 93% of residential space and water heating in its service area. During 2015, Questar Gas added 28,156 customers, a 2.9% increase. The customer growth rate without the initial Eagle Mountain acquisition was 2.3%.

Questar Gas faces the same risks as other local distribution companies. These risks include revenue variations based on seasonal changes in demand, changes in natural gas prices, availability of natural gas supplies, declining residential usage per customer, aging of distribution facilities and adverse regulatory decisions. Questar Gas's sales to residential and commercial customers are seasonal, with a substantial portion of such sales made during the heating season. The typical residential customer in Utah (defined as a customer using 80 dth per year) consumes more than 80% of their annual gas usage during the coldest six months of the year. Questar Gas, however, has a weather-normalization mechanism for its general-service customers. This billing mechanism adjusts the non-gas portion of a customer's monthly bill as the actual heating-degree days in the billing cycle are warmer or colder than normal. This mechanism reduces volatility in any given customer's monthly bill from year to year and reduces volatility in Questar Gas gross margin.

Questar Gas has a revenue decoupling mechanism called the conservation enabling tariff (CET), which allows it to collect its allowed revenue per customer and promote energy conservation. Under the CET, Questar Gas non-gas revenues are decoupled from the temperature-adjusted usage per customer. The tariff specifies an allowed monthly revenue per customer, with differences to be deferred and recovered from or refunded to customers through periodic rate adjustments. These adjustments are limited to 5% of distribution non-gas revenues. Under the CET, Questar Gas recorded a $9.9 million revenue increase in 2015 compared to an $11.1 million decrease in 2014 and a $1.1 million decrease in 2013, which offset changes in customer usage.

Questar Gas has an energy-efficiency program (EEP). Under the EEP, Questar Gas encourages the conservation of natural gas through advertising, rebates for efficient homes and appliances, and home energy plans. The costs related to the EEP are deferred and recovered from customers through periodic rate adjustments. Questar Gas received revenues for recovery of EEP costs amounting to $23.5 million in 2015, compared to $37.8 million in 2014 and $29.7 million in 2013. As of December 31, 2015, Questar Gas had a regulatory asset of $1.1 million for EEP costs not yet recovered from customers in excess of costs incurred.

Questar Gas's gas-supply risk is partly mitigated by Wexpro cost-of-service gas supply. During 2015, Questar Gas satisfied the majority of its supply requirements with cost-of-service gas volumes. Wexpro designs its development program to meet 65% of Questar Gas's weather-normalized gas-supply requirements. Wexpro produces gas, which is then gathered by Wexpro or third parties, transported by Questar Pipeline, and delivered at cost of service to Questar Gas. See Item 2 of Part I and Note 20 to the financial statements included in Item 8 of Part II of this Annual Report for more information on the Company's proved reserves. Questar Gas also has a balanced and diversified portfolio of third-party gas-supply contracts for volumes produced in Wyoming, Colorado, and Utah. In addition, Questar Gas has regulatory approval to pass through in its balancing account the economic results associated with commodity-price hedging activities if it were to utilize such hedges.

Questar Gas has designed its distribution system and annual gas-supply plan to handle peak design-day demand, which is defined as the estimated volume of gas that firm customers could use when the weather is extremely cold. For the 2015-2016 heating season, Questar Gas had an estimated peak sales and firm transportation design-day demand of 1,694 Mdth.

Questar Gas has long-term contracts with Questar Pipeline for transportation and storage services. The storage contracts reserve capacity at Questar Pipeline's Clay Basin storage facility and three peak-day storage aquifers. Questar Gas also has transportation contracts to take deliveries at several locations from Kern River Pipeline.

Competition and Customers: Questar Gas currently does not face direct competition from other distributors of natural gas for residential and commercial customers in its service territory. Natural gas has historically enjoyed a favorable price comparison with other energy sources used by residential and commercial customers, with the occasional exception of electricity from coal-fired power plants. Questar Gas provides transportation service to large commercial and industrial customers who buy gas directly from other suppliers. Questar Gas faces the risk that it could lose transportation customers to competitors who may be able to connect and transport natural gas to large industrial customers.

Regulation: As a public utility Questar Gas is subject to the jurisdiction of the PSCU and PSCW. Natural gas sales and transportation services are provided under rate schedules approved by the two regulatory commissions. Questar Gas is authorized to earn a return on equity of 9.85% in Utah and 9.5% in Wyoming. The changes in rates were effective March 1,

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2014 and March 1, 2015, respectively. Both the PSCU and PSCW permit Questar Gas to recover gas costs through a balancing-account mechanism and to reflect natural gas price changes on a periodic basis, typically twice a year in the spring and the fall. Questar Gas recovers bad debt costs related to the gas-cost portion of rates in its Utah operations through a purchased-gas adjustment to rates.

Questar Gas's significant relationships with affiliates have allowed it to lower its costs and improve efficiency. These relationships are subject to scrutiny by regulators.

Questar Gas is subject to the requirements of the Pipeline Safety, Regulatory Certainty and Jobs Creation Act of 2011 and the Pipeline Safety Improvement Act of 2002. The 2011 Act is designed to examine and improve the state of pipeline safety regulations and gives enhanced safety authority to the Pipeline and Hazardous Materials Safety Administration (PHMSA) and is intended to improve pipeline transportation by strengthening enforcement capabilities. The 2002 Act and the rules issued by the U.S. Department of Transportation require interstate pipelines and local distribution companies to implement a 10-year program of risk analysis, pipeline assessment and remedial repair for transportation pipelines located in high-consequence areas such as densely populated locations. The PSCU has allowed Questar Gas to recover $7.0 million per year for the operating costs of complying with these Acts. Costs incurred in excess of these amounts will be recovered through future rate changes.

GAS AND OIL DEVELOPMENT AND PRODUCTION - Wexpro
General: Wexpro develops, produces and delivers natural gas from cost-of-service reserves for gas utility affiliate Questar Gas under the terms of the Wexpro Agreement and the Wexpro II Agreement (Wexpro agreements), comprehensive agreements with the states of Utah and Wyoming. In 2015, 93% of Wexpro's revenues were from its affiliate, Questar Gas, with the remaining revenues coming mostly from the sale of natural gas and oil. Wexpro generated 39% of the Company's operating income during the year ended December 31, 2015. Pursuant to the Wexpro agreements, Wexpro recovers its costs and receives an after-tax return on its investment base. Wexpro's investment base is its costs of acquired properties and commercial wells and related facilities, adjusted for working capital and reduced for deferred income taxes and accumulated depreciation, depletion and amortization. Property acquisition costs only pertain to properties that have been approved under the Wexpro II Agreement by the PSCU and PSCW. The return on investment base is currently approximately 20% on development drilling costs and approximately 8% on costs to acquire properties. The terms of the Wexpro agreements coincide with the productive lives of the gas and oil properties covered therein. Wexpro's investment base totaled $642.9 million at December 31, 2015. See Note 11 to the financial statements included in Item 8 of Part II of this Annual Report for more information on the Wexpro agreements.

Wexpro delivers natural gas production to Questar Gas at cost of service. Cost-of-service gas satisfied the majority of Questar Gas's supply requirements. Wexpro sells crude oil and natural gas liquids (NGL) production from certain producing properties at market prices, with the revenues used to recover operating expenses and to provide Wexpro a return on its investment. Any operating income remaining after recovery of expenses and Wexpro's return on investment is divided between Wexpro and Questar Gas customers, with Wexpro retaining 46%.

Wexpro's properties are located in the Rocky Mountain region, primarily in the Vermillion, Pinedale, Moxa Arch, and Uinta Basin producing fields. The Company completed eight third-party-operated wells in Pinedale and participated in 17 wells in Piceance Basin during 2015. In 2016, Wexpro will continue to participate in a limited number of wells in Pinedale and return to drilling in Vermillion. Advances in technology, including increased density drilling and multi-stage hydraulic fracture stimulation, have identified additional unexploited development potential on many properties.

Competition and Growth: Wexpro faces competition in its business, including the marketing of oil and NGL, and obtaining goods, services and labor. Its growth strategy depends, in part, on its ability to develop reserves in a low-cost and efficient manner.

Regulation: Wexpro operations are subject to various government controls and regulation at the federal, state and local levels. Wexpro must obtain permits to drill and produce; maintain bonding requirements to drill and operate wells; submit and implement spill-prevention plans; and file notices relating to the presence, use, and release of specified contaminants incidental to gas and oil production. Wexpro is also subject to various conservation matters, including the regulation of the size of drilling and spacing units, the number of wells that may be drilled in a unit and the unitization or pooling of gas and oil properties. In addition, the Utah Division of Public Utilities and the staff of 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 petroleum engineer to monitor the performance of the agreements.

Most Wexpro leasehold acreage in the Rocky Mountain area is held under leases granted by the federal government and administered by federal agencies, principally the Bureau of Land Management (BLM). Current federal regulations restrict activities during certain times of the year on portions of Wexpro leaseholds due to wildlife activity and/or habitat. Wexpro, as

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the operator in the Vermillion area, and its third-party operator for the Pinedale area have worked with federal and state officials to obtain authorization for winter-drilling activities and have developed measures, such as drilling multiple wells from a single pad location, to minimize the impact of their activities on wildlife and wildlife habitat. Various wildlife species inhabit Wexpro leaseholds. The presence of wildlife, including species that are protected under the federal Endangered Species Act, could limit access to leases held by Wexpro on public lands.

In September 2008, the BLM issued a Record of Decision (ROD) on the Final Supplemental Environmental Impact Statement (FSEIS) for long-term development of natural gas resources in the Pinedale Anticline Project Area (PAPA). Under the ROD, Wexpro, through its third-party operator, is allowed to drill and complete wells year-round in one of five concentrated development areas defined in the PAPA. The ROD contains additional requirements and restrictions on development in the PAPA.

INTERSTATE GAS TRANSPORTATION - Questar Pipeline
General: Questar Pipeline provides natural gas transportation and underground-storage services in Utah, Wyoming and Colorado. Questar Pipeline and subsidiaries generated approximately 31% of the Company's operating income in 2015. As a "natural gas company" under the Natural Gas Act of 1938, Questar Pipeline and certain subsidiary pipeline companies are regulated by the FERC as to rates and charges for storage and transportation of natural gas in interstate commerce, construction of new facilities, extensions or abandonments of service and facilities, and accounting and other activities.

Questar Pipeline and its subsidiaries operate 2,667 miles of interstate pipeline, including 10 miles owned by a third party. Questar Pipeline's consolidated firm capacity commitments totaled 5,221 Mdth per day at December 31, 2015. Questar Pipeline's core transportation system is strategically located near large reserves of natural gas in six major Rocky Mountain producing areas. Questar Pipeline transports natural gas from these producing areas to other major pipeline systems, Questar Gas's distribution system and other utility systems. In addition to this core system, Questar Pipeline, through wholly-owned subsidiaries, owns and operates the Overthrust Pipeline in southwestern Wyoming and the eastern segment of Southern Trails Pipeline, a 487-mile line that extends from the Blanco hub in New Mexico's San Juan Basin to just inside the California state line near the Arizona border. An additional 96 miles of Southern Trails Pipeline in California is not in service. Questar Pipeline operates and owns 50% of the White River Hub in western Colorado. White River Hub facilities connect with six interstate-pipeline systems and a major processing plant near Meeker, Colorado.

Questar Pipeline owns and operates the Clay Basin storage facility, the largest underground-storage reservoir in the Rocky Mountain region. Through a subsidiary, Questar Pipeline also owns gathering lines and processing facilities near Price, Utah, through which it provides gas-processing services. Another Questar Pipeline subsidiary provides wellhead automation and measurement services for Rockies oil and gas producers.

Customers, Growth and Competition: Questar Pipeline's transportation system is nearly fully subscribed. The weighted-average remaining life of Questar Pipeline's firm contracts was 7.0 years as of December 31, 2015. All of Questar Pipeline's storage capacity is fully contracted with a weighted-average remaining life of 3.8 years as of December 31, 2015. Questar Pipeline faces the risk that it may not be able to recontract firm capacity at current terms when contracts expire.

Questar Gas, an affiliated company, provides Questar Pipeline's largest share of transportation revenues. During 2015, Questar Pipeline transported 107.6 MMdth for Questar Gas compared to 116.2 MMdth in 2014. Questar Gas has reserved firm transportation capacity of 916 Mdth per day during the heating season and 841 Mdth per day during off-peak months under long-term contracts. Questar Pipeline's primary transportation agreement with Questar Gas will expire on June 30, 2017. In 2015, 28% of Questar Pipeline's revenues were from its affiliate, Questar Gas.

Questar Pipeline also transported 740.8 MMdth during 2015, up 3% from 2014, for unaffiliated customers to pipelines owned by Kern River Pipeline, Northwest Pipeline, Colorado Interstate Gas, TransColorado, Wyoming Interstate Company, Rockies Express Pipeline, Ruby Pipeline and other systems. Rocky Mountain producers, marketers and end-users seek capacity on interstate pipelines that move gas to California, the Pacific Northwest or Midwestern markets. Questar Pipeline provides access for many producers to these third-party pipelines.

Questar Pipeline competes for market growth with other natural gas transmission companies in the Rocky Mountain region and with other companies providing natural gas storage services. In addition, Questar Pipeline faces growing competition from third-party gathering companies that build gathering lines to allow producers to make direct connections to competing pipeline systems.

Regulation: Questar Pipeline's natural gas transportation and storage operations are regulated by the FERC under the Natural Gas Act of 1938 and the Natural Gas Policy Act of 1978, as amended. The FERC has authority to set rates for natural gas

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transportation, storage and related services; set rules governing business relationships between the pipeline subsidiary and its affiliates; approve new pipeline and storage-facility construction; and establish policies and procedures for accounting, purchases, sales, abandonments and other activities. FERC policies may adversely affect Questar Pipeline's profitability. Questar Pipeline maintains a rigorous compliance program to address all areas of FERC compliance, including undue preference, market manipulation, shipper-must-have-title, bidding, capacity release, reporting, filings, postings and record retention. The Company annually trains board members, executives, senior management and functional employees on compliance rules.

Questar Pipeline is required to comply with the Pipeline Safety, Regulatory Certainty and Jobs Creation Act of 2011 and the Pipeline Safety Improvement Act of 2002. The 2011 Act is designed to examine and improve the state of pipeline safety regulations and gives enhanced safety authority to the PHMSA and is intended to improve pipeline transportation by strengthening enforcement capabilities. The 2002 Act and the rules issued by the U.S. Department of Transportation require interstate pipelines and local distribution companies to implement a 10-year program of risk analysis, pipeline assessment and remedial repair for transportation pipelines located in high-consequence areas such as densely populated locations. The PHMSA completed integrated compliance and control-room management audits of Questar Pipeline and a subsidiary in 2013 and 2014. There were no proposed fines resulting from these audits.

Questar Southern Trails Pipeline: Questar Pipeline has begun a process to sell the assets of Questar Southern Trails Pipeline. Questar Pipeline's net book value of the western segment of Southern Trails Pipeline is approximately $24 million. The eastern segment of Southern Trails Pipeline continues to operate at a loss. The Company recorded an impairment on the eastern segment of Southern Trails Pipeline in 2013, reducing its book value to zero. The Company's objective is to sale the Questar Southern Trails Pipeline during 2016.

Corporate and Other
Corporate employees provide compliance, legal, finance, tax, treasury, human resources, audit, information technology, purchasing, warehousing, fleet, communication and insurance services for Questar's subsidiaries.

Corporate and other operations also include Questar Fueling Company (Questar Fueling). Questar Fueling builds, owns and operates compressed natural gas (CNG) fueling stations for fleet operators with medium- and heavy-duty trucks and tractors. These stations are customized to provide high-volume, high-speed CNG fueling for fleet operators and are also open to the general public. In 2014, the company had five CNG stations in operation: Houston, DeSoto and Dallas, Texas; and Topeka and Kansas City, Kansas. During 2015, Questar Fueling opened additional stations in Salt Lake City, Utah, San Antonio, Texas, Phoenix, Arizona and Buttonwillow, California. The Company is planning and developing other stations along major transportation corridors in California and Colorado. Questar Fueling's financial results are not currently material to Questar's consolidated operations.

Employees
At December 31, 2015, the Company had 1,759 employees, including 930 in Questar Gas, 143 in Wexpro, 269 in Questar Pipeline and 417 in Corporate and other.



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Executive Officers of the Registrant
Primary Positions Held with the Company
and Affiliates, Other Business Experience
 
 
 
 
Ronald W. Jibson
62

 
Chairman, President and Chief Executive Officer, Questar (2012 to present); Chairman, Questar Gas, Questar Pipeline and Wexpro (2010 to present). Previous titles with Questar: President and Chief Executive Officer, Questar (2010 to 2012); Senior Vice President, Questar (2008 to 2010); President, Chief Executive Officer and Director, Questar Gas (2008 to 2010); Executive Vice President, Questar Gas (2008 to 2010); Vice President, Operations, Questar Gas (2004 to 2008).
 
 
 
 
Colleen L. Bell
56

 
Vice President and General Counsel, Questar (2015 to present). Previous titles with Questar: Assistant General Counsel, Questar (2011 to 2015); General Counsel, Questar Gas (2008 to 2011); Senior Corporate Counsel, Questar (1999 to 2008).
 
 
 
 
David M. Curtis
60

 
Vice President and Corporate Controller, Questar (2011 to present); Vice President and Controller, Wexpro (2010 to present); Vice President and Controller, Questar Gas and Questar Pipeline (2003 to present).
 
 
 
 
Micheal G. Dunn
50

 
Executive Vice President, Questar (2015 to present); President, Questar Pipeline (2015 to present); Director Questar Pipeline (2015 to present); Chairman of the White River Hub, LLC Management Committee (2015 to present). Prior to joining Questar: President and Chief Executive Officer for PacifiCorp Energy (2010 to 2015); President for Kern River Gas Transmission Company (2007 to 2010); Vice President, Operations, IT and Engineering for Kern River Gas Transmission (2005 to 2007).
 
 
 
 
Kevin W. Hadlock
43

 
Executive Vice President and Chief Financial Officer, Questar (2011 to present); Director, Questar Gas, Wexpro and Questar Pipeline (2011 to present). Prior to joining Questar: Senior Vice President and Chief Financial Officer for Baltimore Gas and Electric Company, a subsidiary of the Constellation Energy Group (2008 to 2010); Vice President of Investor Relations and Financial Planning and Analysis for Constellation Energy Group (2007 to 2008).
 
 
 
 
Brady B. Rasmussen
45

 
Executive Vice President, Questar (2015 to present); Chief Operating Officer, Wexpro (2015 to present); Previous titles with Questar: Vice President Administration, Wexpro (2013 to 2015); General Manager, Wexpro Accounting (2011 to 2013); Manager, Questar Market Resources Accounting (2006 to 2011).
 
 
 
 
Patrick D. Teuscher
60

 
Vice President, Audit and Chief Risk Officer, Questar (2014 to present). Previous titles with Questar: General Manager and Director, Audit Services, Questar (2007 to 2013); Director, Financial and Administrative Services, Questar InfoComm/Questar Service Corp (2000-2006).
 
 
 
 
Craig C. Wagstaff
52

 
Executive Vice President, Questar (2012 to present); President, Questar Gas (2015 to present); Director, Questar Gas (2010 to present): Previous titles with Questar: Executive Vice President and Chief Operating Officer, Questar Gas (2012 to 2015); Senior Vice President, Questar (2011 to 2012); Senior Vice President and General Manager, Questar Gas (2011 to 2012); Vice President and General Manager, Questar Gas (2010 to 2011); General Manager, Customer Relations, Questar Gas (2006 to 2010).
 
 
 
 
Julie A. Wray
47

 
Corporate Secretary and Vice President, Human Resources, Questar (2016 to present). Previous titles with Questar: Corporate Secretary and General Manager Human Resources (2014 to 2015), Assistant Corporate Secretary and Director, Compensation and Benefits, Questar (2010 to 2014); Senior Corporate Counsel, Questar (2006 to 2010).

There is no "family relationship" between any of the listed officers or between any of them and the Company's directors. The executive officers serve at the pleasure of the Board of Directors. There is no arrangement or understanding under which the officers were selected.



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ITEM 1A. RISK FACTORS.

Investors should read carefully the following factors as well as the cautionary statements referred to in "Forward-Looking Statements" herein. If any of the risks and uncertainties described below or elsewhere in this Annual Report actually occur, the Company's business, financial condition or results of operations could be materially adversely affected.

Risks Associated with the Proposed Merger with Dominion Resources

The proposed Merger with Dominion Resources is subject to shareholder and regulatory approval. As disclosed in Item 1. Business, the Company and Dominion Resources entered into a Merger Agreement on January 31, 2016. Closing of the merger is subject to the satisfaction or waiver of specified closing conditions, including (i) the approval of the merger by the holders of a majority of the outstanding shares of Company Common Stock, (ii) the receipt of regulatory approvals required to consummate the Merger, including approvals from the Public Service Commission of Utah (if required) and the Public Service Commission of Wyoming, (iii) the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, (iv) the absence of any law, statute, ordinance, code, rule, regulation, ruling, decree, judgment, injunction or order of a governmental authority that prohibits the consummation of the Merger, and (v) other customary closing conditions, including (a) the accuracy of each party’s representations and warranties (subject to customary materiality qualifiers), (b) each party’s compliance in all material respects with its obligations and covenants contained in the Merger Agreement, and (c) the absence of a material adverse effect on the Company. In addition, the obligations of Parent and Merger Sub to consummate the Merger are subject to the required regulatory approvals not imposing or requiring any undertakings, terms, conditions, liabilities, obligations, commitments or sanctions, or any structural or remedial actions that constitute a company material adverse effect.

The Company may not receive the required statutory approvals and other clearances for the Merger, or they may not be received in a timely manner. If such approvals are received, they may impose terms, conditions or restrictions (i) that cause a failure of the closing conditions set forth in the Merger Agreement, or (ii) could have a detrimental impact on the combined company following completion of the Merger. A substantial delay in obtaining the required authorizations, approvals or consents or the imposition of unfavorable terms, conditions or restrictions could prevent the completion of the Merger. Even after the expiration of the waiting period under the Hart-Scott Rodino Act, government authorities could seek to block or challenge the Merger as they deem necessary or desirable in the public interest.

Failure to complete the Merger could adversely affect the Company's stock price and future business operations and financial results. Completion of the Merger is subject to risks as described above. If the Company is unable to complete the Merger, holders of Company common stock will not receive any payment for their shares pursuant to the Merger Agreement. The Company's ongoing business may be adversely affected and would be subject to a number of risks, including the following:
the Company would have paid significant transaction costs, and in certain circumstances, a termination fee to Dominion Resources of $99 million,
the attention of management may have been diverted to the Merger rather than to operations and the pursuit of other opportunities,
the potential loss of key personnel as personnel may experience uncertainty about their future with the combined company,
the Company will have been subject to certain restrictions on the conduct of business, which may prevent the Company from making certain acquisitions or dispositions or pursuing other business opportunities, and
the trading price of the Company's stock may decline if the market believes the Merger may not be completed.

Failure to complete the Merger may result in negative publicity, additional litigation against the Company or its directors and officers, and a negative impression of the Company in the investment community. The occurrence of these events, individually or in the aggregate, could have a material adverse effect on the results of operations or the price of the Company's common stock.

The Company's business will be impacted by the terms and conditions of the Agreement and Plan of Merger. The Company made certain covenants in the Merger Agreement that will impact its business until the Merger is completed or the Merger Agreement terminates. These covenants limit the Company's ability to make significant changes to its business or pursue otherwise attractive business opportunities without the consent of Dominion Resources.

The Company will incur significant costs associated with the Merger. The Company expects to incur significant costs associated with the Merger for financial advisory services, legal services, revaluation of share-based compensation and acceleration of executive compensation. Some of these costs will be incurred even if the Merger is not completed.

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The Company's business will be subject to uncertainties while the Merger is pending. Uncertainty about the effect of the Merger on employees, suppliers and customers may have an adverse effect on the Company. Although the Company intends to take steps to reduce any adverse effects, these uncertainties may impair the Company's abilities to attract, retain and motivate employees until the Merger is completed and for a period of time thereafter.

Potential future litigation against the Company and its directors and officers challenging the Merger may prevent the Merger from being completed within the anticipated timeframe. The Company and/or its directors and officers may potentially be named as defendants in class action lawsuits filed on behalf of public shareholders challenging the Merger and potentially seeking to enjoin the defendants from consummating the Merger on the agreed-upon terms.

Risks Inherent in the Company's Business

Low oil and natural gas prices impact the Company's earnings and ability to grow its Wexpro and Questar Pipeline businesses. Historically, natural gas and oil prices have been volatile and will likely continue to be volatile. The Company cannot predict the future price of natural gas and oil because the factors that drive prices are beyond its control. Under the Wexpro agreements, the pace of Wexpro's development will continue to be affected as long as market gas prices remain below Wexpro's cost of service.

Wexpro earns the majority of its revenues from the delivery of natural gas to Questar Gas under the Wexpro and Wexpro II agreements (Wexpro agreements). Pursuant to the Wexpro agreements, Wexpro recovers its costs and receives an after-tax return on its investment base. Wexpro's investment base includes its costs of acquired properties and commercial wells and related facilities, adjusted for working capital and reduced by accumulated depreciation, depletion and amortization, and deferred income taxes.

Wexpro's earnings growth depends on its ability to maintain and grow its investment base, which in turn depends on Wexpro's ability to develop gas reserves through its annual drilling programs. Wexpro generally designs its drilling program to provide cost-of-service production that is, on average, at or below the current five-year Rockies-adjusted NYMEX forward price curve. Based on current market prices for natural gas, new drilling in Wexpro's properties under the existing agreements may be limited. Therefore, until gas prices increase, Wexpro's ability to grow its investment base will be limited, and it is likely that the investment base will continue to decrease due to depreciation, depletion and amortization. Any decrease in investment base will reduce Wexpro's earnings.

In addition to the impact on Wexpro's ability to increase its investment base, low oil and natural gas prices may have other adverse impacts on Questar's business. Low prices in the Rocky Mountain region are reducing drilling activity generally, which affects Questar Pipeline's opportunities to expand its pipeline system. Low prices also increase commodity price risk. Wexpro is exposed to some commodity price risk even though most of Wexpro's revenues are based on cost of service. Questar Pipeline has commodity price risk on NGL volumes recovered in its pipeline system.

Revised terms of the Wexpro Agreements will impact Wexpro's earnings. In December 2014, Wexpro acquired an additional interest in its existing Wexpro-operated assets in the Canyon Creek Unit of southwestern Wyoming's Vermillion Basin. During 2015 Wexpro and Questar Gas submitted an application to the Commissions for approval to include the acquired Canyon Creek properties under the terms of the Wexpro II Agreement. As part of this application, Wexpro proposed significant changes to its cost-of-service program to enable future cost-of-service gas production to be more competitive with market prices. The proposed changes to the cost-of-service program were subsequently modified by a Settlement Stipulation among Questar Gas, Wexpro, the Utah Division of Public Utilities, the Utah Office of Consumer Services and the Wyoming Office of Consumer Advocate. The proposed modifications to the Wexpro Agreements, as modified by the Settlement Stipulation, were approved by the PSCU on November 17, 2015 and by the PSCW on November 24, 2015.

As modified, the Wexpro Agreements include the Canyon Creek acquisition as a Wexpro II property and provide for the following changes to the cost-of-service program:

the return on post-2015 development drilling will be lowered to the Commission allowed rate of return on investment as defined in the Wexpro II Agreement (currently 7.64%), and the pre-2016 investment base and associated returns will not be affected;
Wexpro and Questar Gas will reduce the threshold of maximum combined production from Wexpro properties from 65% of Questar Gas's annual forecasted demand to 55% in 2020;

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Dry-hole and non-commercial well costs will be shared on a 50%/50% basis between utility customers and Wexpro so long as the costs allocated to utility customers do not exceed 4.5% of Wexpro's annual development drilling program costs;
Wexpro will share in 50% of the savings when the annual price of cost-of-service production is lower than the annual average market price. However Wexpro's 50% share of any annual savings will be limited so that Wexpro will not earn a return exceeding the return earned on gas development investment under the 1981 Wexpro Agreement.

Although Wexpro's pre-2016 investment base continues to earn the higher return described above, the pre-2016 investment base will continue to decline over time due to depreciation. Wexpro's post-2015 investment base will earn the lower return described above. Due to these factors, the Company expects Wexpro's overall earnings to decrease compared to prior years.

Wexpro may not be able to economically find and develop new reserves. Wexpro's earnings growth depends on its ability to develop gas reserves that are economically recoverable. Productive natural gas and oil reservoirs are generally characterized by declining production rates that vary depending on reservoir characteristics. Because of significant production decline rates in several of Wexpro's producing areas, substantial capital expenditures are required to develop gas reserves to replace those depleted by production.

Wexpro's rate of development of cost-of-service gas may be limited. The proportion of Questar Gas's natural gas supply needs met by Wexpro has increased due to successful development of the Vermillion Basin and continued development of the Pinedale field. As described below, however, Wexpro has agreed to manage its supply to 65% or less of Questar Gas's annual forecasted demand. This threshold will decrease to 55% in 2020. Therefore, future growth depends on growth in Questar Gas's sales volumes. In addition, even if Questar Gas's sales volumes increase, Wexpro's gas-development program may be limited based on the volumes of cost-of-service gas it can supply to Questar Gas for the summer load and Questar Gas's ability to store gas during the summer for peak supply needs.

Questar Gas's large customers may elect to switch from sales to transportation service and reduce Questar Gas's need for cost-of-service gas from Wexpro. Over the last few years, certain large commercial and industrial customers of Questar Gas have elected to switch from sales service to transportation service, which reduces the volume of gas required by Questar Gas and may reduce the volume of gas Questar Gas needs Wexpro to supply. If this trend continues and fewer industrial and commercial customers use cost-of-service gas provided by Wexpro, the results of operations for Wexpro and the Company may be adversely affected.

Wexpro has market price risk if production exceeds 65% of Questar Gas's forecasted demand. In September 2013, Wexpro completed the Trail acquisition. In the first quarter of 2014, the PSCU and the PSCW approved a stipulation for inclusion of the Trail acquisition properties in the Wexpro II Agreement. The stipulation allowed Wexpro to include the cost of the Trail properties in its investment base. As part of this stipulation, Wexpro agreed to manage the combined production from the original Wexpro properties and the Trail acquisition to 65% of Questar Gas's annual forecasted demand. Beginning in June 2015 through May 2016 and for each subsequent 12-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 65% level and credit back to Questar Gas customers the higher of market price or the cost-of-service price times the sales volumes. The 65% threshold will decrease to 55% in 2020.

Gas and oil reserve estimates are imprecise and subject to revision. Wexpro's proved natural gas and oil reserve estimates are prepared annually by internal reservoir engineers. Gas and oil reserve estimates are subject to numerous uncertainties inherent in estimating quantities of proved reserves, projecting future rates of production and timing of development expenditures. The accuracy of these estimates depends on the quality of available data and on engineering and geological interpretation and judgment. Reserve estimates are imprecise and will change as additional information becomes available. Ownership interests in properties may change due to claims of ownership rights. Estimates of economically recoverable reserves prepared by different engineers, or by the same engineers at different times, may vary significantly. Results of subsequent drilling, testing and production may cause either upward or downward revisions of previous estimates. In addition, the estimation process involves economic assumptions relating to commodity prices, production costs, severance and other taxes, capital expenditures and remediation costs. Changes in field-development plans will impact the reporting of reserves because the Company limits the recording of proved undeveloped reserves to those that are expected to be developed within the next five years. Actual results most likely will vary from the estimates. Any significant variance from these assumptions could affect the recoverable quantities of reserves attributable to any particular property and the classifications of reserves.

Wexpro's disclosure of the standardized measure of discounted future net cash flows may not accurately reflect the value of these reserves. Investors should not assume that Wexpro's presentation of the standardized measure of discounted future net

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cash flows relating to non-cost-of-service proved reserves is reflective of the current market value of the estimated gas and oil reserves. In accordance with SEC disclosure rules, the estimated discounted future net cash flows from Wexpro's non-cost-of-service proved reserves are based on the first-of-the-month prior 12-month average prices and current costs on the date of the estimate, holding the prices and costs constant throughout the life of the properties and using a discount factor of 10% per year. Actual future production, prices and costs may differ materially from those used in the current estimate, and future determinations of the standardized measure of discounted future net cash flows using similarly determined prices and costs may be significantly different from the current estimate.

Wexpro may acquire properties not subject to the Wexpro or Wexpro II agreements. Wexpro may acquire gas development properties that are in locations separate from its current operations or are not approved by the Commissions for inclusion in the Wexpro II Agreement. In these cases, Wexpro will develop these properties and sell the production in the market or through contracts with other customers. Wexpro would be subject to commodity-price risk and marketing risks for these properties.

Wexpro may not be successful in entering into cost-of-service arrangements with third parties. Wexpro plans to acquire gas properties outside of the Wexpro or Wexpro II agreements and sell the production to third parties under cost-of-service arrangements. Only a few other companies have entered into similar cost-of-service arrangements and Wexpro may not be successful in negotiating such arrangements with third parties and obtaining approval from applicable regulators.

Excess pipeline capacity in the Rocky Mountain area impacts Questar Pipeline's revenues. In the last few years development of natural gas reserves in the Rocky Mountain area has slowed due to low natural gas prices and development of reserves in areas closer to major markets. As a result, export pipeline capacity exceeds current production levels. This excess capacity may impact Questar Pipeline's ability to renew contracts at current terms as contracts expire. This excess capacity may also limit growth opportunities to develop new pipelines in the area.

Questar Pipeline's natural gas liquids revenues have declined. Questar Pipeline earns NGL revenues from its processing plant and pipeline facilities. These revenues have declined in the last few years due to lower prices and the development of upstream facilities that extract NGL before the gas is transported on Questar Pipeline's system.
 
Questar Pipeline's plans to sell Questar Southern Trails Pipeline may not be successful. Questar Pipeline has begun a process to sell Questar Southern Trails Pipeline assets. Questar Pipeline's net book value of the western segment of Southern Trails Pipeline is approximately $24 million. The eastern segment of Southern Trails Pipeline continues to operate at a loss. The Company recorded an impairment on the eastern segment of Southern Trails Pipeline in 2013, reducing its book value to zero. Assuming the Company can identify a buyer and negotiate acceptable terms, the Company's objective is to sale the Questar Southern Trails Pipeline during 2016. There is no assurance that the Company will be successful in selling Questar Southern Trails Pipeline.

Questar Pipeline's investment in the eastern segment of Questar Southern Trails Pipeline has been impaired and the pipeline is operating at a loss. The eastern segment of Questar Southern Trails Pipeline is currently operating in natural gas service at a loss. Questar Pipeline recorded an impairment of its investment in the eastern segment of Southern Trails in the third quarter of 2013. Operating losses have increased as the basis differential between the San Juan basin and California markets has decreased. Questar Pipeline may incur additional costs to seek abandonment of this pipeline for natural gas service if it is unsuccessful in selling the pipeline.

Questar Gas's investment in infrastructure replacement will increase customer rates. Questar Gas is investing significant capital to replace aging pipeline infrastructure. This significant investment is expected to continue over a number of years. Replacement of aging pipeline infrastructure will increase customer safety; however, Questar Gas's return on this investment and depreciation costs will continue to increase customer rates. Over time, this may impact customer decisions on the use of natural gas versus other energy alternatives.

The legal dispute over gathering costs between Questar Gas and QEP Field Services Company could have an adverse financial impact on Questar Gas. As disclosed in Note 10 - Contingencies of the Company's consolidated financial statements included herein, Questar Gas and QEP Field Services Company are involved in a legal dispute over gathering costs. These gathering costs have been included in Questar Gas's rates as purchased-gas costs. The outcome of this dispute and its resulting financial impact on Questar Gas are uncertain at this time.

Questar Fueling may be unable to profitably compete in the natural gas fueling market. Questar Fueling was created in 2012 to design, build and operate natural gas fueling facilities in a competitive market. Questar Fueling's operations may not be profitable until demand grows and it establishes itself as a credible player in the industry. Lower oil prices may reduce the incentive for trucking companies to switch from diesel to natural gas powered trucks.

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Operations in all lines of business involve numerous risks that might result in accidents, environmental harm and other operating risks and costs. Drilling is a high-risk activity. Operating risks include: fire, explosions and blow-outs; unexpected drilling conditions such as abnormally pressured formations; abandonment costs; pipe, cement or casing failures; environmental accidents such as oil spills, natural gas leaks, ruptures or discharges of toxic gases, brine or well fluids (including groundwater contamination). The Company could incur substantial losses as a result of injury or loss of life; pollution or other environmental damage; damage to or destruction of property and equipment; regulatory investigation; fines or curtailment of operations; and legal fees and other expenses incurred in the prosecution or defense of litigation. As a working interest owner in wells operated by other companies, the Company may also be exposed to the risks enumerated above that are not within its care, custody or control.

The Company's underground pipelines may be exposed to damage by third-party digging within the pipeline rights-of-way. Such damage may result in fires and explosions, which could cause injuries, loss of life and other damage. The Company works to educate contractors and other third parties, to mark rights-of-way with appropriate signs, and to encourage staking of pipeline locations before any digging.

There are also inherent operating risks and hazards in the Company's gas and oil production, processing, transportation, storage and distribution operations that could cause substantial financial losses. In addition, these risks could result in loss of human life, significant damage to property, environmental pollution, and impairment of operations. Certain Company pipelines have been in service for a number of years. As these pipelines age, the risk may increase of pipeline leakage or failure due to corrosion, fatigue, third-party damage, ground movement, or subsidence due to underground mining. The location of pipelines near populated areas, including residential areas, commercial business centers and industrial sites could increase the damages resulting from these risks. In spite of the Company's precautions, an event could cause considerable harm to people or property, and could have a material adverse effect on financial position and results of operations, particularly if the event is not fully covered by insurance. Accidents or other operating risks could further result in loss of service available to the Company's customers. Such circumstances could adversely impact the Company's ability to meet contractual obligations and retain customers.

The Company works to mitigate the risk of pipeline failures by assessing and replacing sections of more vulnerable pipelines and by implementing other measures as part of its pipeline integrity program. Questar cannot assure that these measures will be successful in avoiding serious accidents, explosions, injuries or death.

As is customary in the natural gas development and production, transportation and distribution industries, the Company maintains insurance against some, but not all, of these potential risks and losses. Questar cannot assure that insurance will be adequate to cover these losses or liabilities. Losses and liabilities arising from uninsured or under-insured events could have a material adverse effect on the Company's financial condition and operations.

Questar is dependent on bank credit arrangements and continued access to capital markets to successfully execute its operating strategies. Questar relies on access to short-term commercial paper and long-term capital markets. The Company is dependent on these capital sources to provide financing for working capital and certain projects. The availability and cost of these credit sources can vary significantly; and these capital sources may not remain available or the Company may not be able to obtain capital at a reasonable cost in the future. In lieu of commercial paper issuance, the Company at times has utilized credit facilities with banks to meet short-term funding needs. Questar has a $500 million revolving credit facility and a $250 million 364-day credit facility with various banks. The credit facilities expire upon a change of control, such as the proposed Merger with Dominion Resources. However, the credit facilities have been amended to extend through the closing of the proposed Merger with Dominion Resources. Banks may be unable or unwilling to extend credit in the future. Questar's revolving credit facilities and commercial-paper program are subject to variable interest rates. From time to time the Company may use interest-rate derivatives to fix the rate on a portion of its variable-rate debt. A downgrade of credit ratings could increase the interest cost of debt and decrease future availability of capital from banks and other sources. While management believes it is important to maintain investment-grade credit ratings to conduct the Company's businesses, the Company may not be able to keep investment-grade ratings.

Questar is exposed to credit risk. Questar has credit exposure in outstanding accounts receivable from customers in all segments of its business, which could become significant. Credit risk may increase for certain customers and counterparties in the current low oil and gas price environment. Questar maintains credit procedures, for example, by requiring deposits or prepayments to help manage this risk. Questar aggressively pursues collection of past-due accounts receivable and monitors customer-specific credit risk.


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Risks Related to Regulation

Questar is subject to complex federal, state and local environmental laws and regulations that could adversely affect its cost of doing business. Environmental laws and regulations are complex, change frequently and tend to become more restrictive over time. Some of the regulations with which Questar must comply include the National Environmental Policy Act; the Endangered Species Act; the Clean Air Act; the Clean Water Act; the National Historic Preservation Act; the Toxic Substance Control Act; the Resource Conservation and Recovery Act; the Comprehensive Environmental Response, Compensation and Liability Act; the Emergency Planning and Community Right to Know Act; the Oil Pollution Act; as well as similar state and local laws that can be stricter than federal laws.
Federal and state agencies frequently impose conditions on the Company's activities. These restrictions have become more stringent over time and can limit or prevent natural gas and oil development and production on Wexpro's leaseholds or construction of new transmission or distribution pipelines and related facilities. For example, the United States Fish and Wildlife Service may designate critical habitat areas for certain listed threatened or endangered species. A critical habitat designation could result in further material restrictions to federal land use and private land use and could delay or prohibit land access or development. The listing of certain species as threatened and endangered, could have a material impact on the Company's operations in areas where such species are found. The Clean Water Act and similar state laws regulate discharges of storm water, wastewater, oil, and other pollutants to surface water bodies, such as lakes, rivers, wetlands, and streams. Accidental releases or failure to obtain permits for discharges could result in civil and criminal penalties, orders to cease such discharges, corrective actions, and other costs and damages. These laws also require the preparation and implementation of Spill Prevention, Control, and Countermeasure Plans in connection with on-site storage of significant quantities of oil.
The U.S. Environmental Protection Agency (EPA) has enacted air-quality regulations that particularly affect Questar Pipeline and Wexpro operations. These regulations require the installation of additional pollution controls and extensive monitoring and reporting. Some states have implemented air-quality rules that are stricter than the federal regulations, making it difficult to strategically plan for long-term pollution controls. The impact of these air-quality regulations, along with greenhouse gas monitoring and reporting requirements, may result in increased costs for Questar.

In addition, the Company is subject to federal and state hazard communications and community right-to-know statutes and regulations such as the Emergency Planning and Community Right-to-Know Act that require certain record-keeping and reporting of the use and release of hazardous substances.

Certain environmental groups oppose drilling on some of Wexpro's federal and state leases. These groups sometimes sue federal and state agencies for alleged procedural violations in an attempt to stop, limit or delay natural gas and oil development on public lands.

All wells drilled in tight-gas-sand and shale reservoirs require hydraulic-fracture stimulation to achieve economic production rates and recoverable reserves. The majority of Wexpro’s current and future production and reserve potential is derived from reservoirs that require hydraulic-fracture stimulation to be commercially viable. Currently, all well construction activities, including hydraulic-fracture stimulation, are regulated by federal and state agencies that review and approve all aspects of gas- and oil-well design and operation. New environmental initiatives, proposed federal and state legislation, and rule-making pertaining to hydraulic-fracture stimulation could increase Wexpro's costs, restrict its access to natural gas reserves and impose additional permitting and reporting requirements. These potential restrictions on the use of hydraulic-fracture stimulation could materially affect the Company's ability to develop gas and oil reserves. The Company believes its well design and completion procedures are appropriate to protect the environment. Questar supports disclosure of the contents of hydraulic-fracturing fluids and submits information on the chemicals used in hydraulic-fracture stimulation on Company-operated wells through the national disclosure registry FracFocus (fracfocus.org).

In addition to the costs of compliance, substantial costs may be incurred to evaluate and take corrective actions at both owned and previously-owned facilities. These facilities include a previously-owned chemical business, manufactured gas plant sites, and transmission and production facilities. Accidental spills and leaks requiring cleanup may occur in the ordinary course of business. As standards change, the Company may incur significant costs in cases where past operations followed practices that were considered acceptable at the time but now require remedial work to meet current standards. Significant expenditures may result from remedial activities, injunctions and/or penalties.

Regulatory authorities exercise considerable discretion in the timing and scope of permit issuance. Requirements imposed by these authorities may be costly and time consuming, and may result in delays in the commencement or continuation of Wexpro's natural gas development and production operations and Questar Pipeline's construction projects. Further, the public may comment on and otherwise engage in the permitting process, including court intervention. Accordingly, needed permits

Questar 2015 Form 10-K
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may not be issued, or if issued, may not be issued in a timely fashion, or may involve requirements that restrict Questar's ability to conduct its operations or to do so profitably.

Questar may be exposed to certain regulatory and financial risks related to climate change. Federal and state courts and administrative agencies are addressing claims and demands related to climate change under various laws pertaining to the environment, energy use and development, and greenhouse-gas emissions. The EPA adopted the Greenhouse Gas Reporting Rule for the measurement and reporting of greenhouse gases emitted from combustion at large facilities (emitting more than 25,000 metric tons/year of carbon dioxide equivalent). Questar has been reporting annual greenhouse gas emissions to the EPA since the 2010 emission year. This regulation requires measurement and monitoring in the natural gas producing basins in which Wexpro operates, as well as in Questar Pipeline's compressor stations, storage fields, and processing facilities. Additionally, Questar Gas reports combustion emissions for all of its customers, as well as gate-station methane emissions. This rule has created a greenhouse gas inventory, which could be used for regulatory compliance purposes and to generate emissions fees or other potential charges.

In 2015, the federal government issued a “blueprint” outlining the policies it will adopt to address methane emissions from the oil and gas industry. The blueprint announces an overall goal to cut methane emissions by 45% from 2012 levels by 2025. This will occur through a combination of regulatory and voluntary initiatives that will be finalized in the near future. It is too early to predict how these new requirements will affect Questar's business, operations, or financial results.

The EPA has finalized rules under the Clean Air Act to reduce carbon dioxide emissions from existing fossil fuel fired electric generating power plants. These rules require states to adopt plans to reduce carbon dioxide emission by 32% from 2005 levels by 2030. Questar believes these rules provide an opportunity to further promote the energy efficiency and emissions savings benefits of natural gas.

If forthcoming climate change regulations recognize that use of natural gas in high-efficiency residential, commercial, transportation, industrial and electricity-generation applications is essential to reduce U.S. greenhouse-gas emissions, use of natural gas in these applications should increase. Similarly, natural gas will be essential in ensuring electrical-grid reliability as reliance on intermittent renewable energy increases in the future. Use of natural gas as an alternative transportation fuel has slowed as the price of oil has declined. On the other hand, federal regulation of methane and carbon dioxide could increase the price of natural gas, restrict access to or the use of natural gas, and/or reduce natural gas demand. The impact on the environment of natural gas drilling, production and transportation continues to be analyzed and debated, which could influence future laws and regulations. Federal, state, and local governments may pass laws mandating the use of alternative-energy sources, such as wind, solar, and geothermal energy. The increased use of alternative energy could reduce the future demand for natural gas. It is uncertain whether Questar's operations and properties are exposed to possible physical risks, such as severe weather patterns due to climate change, as a result of man-made greenhouse gases.

Questar is subject to changing U.S. Department of Transportation Pipeline and Hazardous Materials Safety Administration and state rules and regulations, which may increase costs. The Company is subject to PHMSA non-compliance risk due to significant legislative mandates and pending rulemaking. The reauthorization of the Pipeline Safety Act was approved by the Senate Commerce Committee in December, 2015 with five amendments. The final consensus version of the bill may include significant new or restated mandates. One of these amendments included the requirement for PHMSA to establish rules for improving the safety of underground natural gas storage facilities. Based on the current problems with the Southern California storage facility, its is expected that Congress and PHMSA will issue emergency regulation to hasten industry adoption of down-hole integrity management programs. This would increase costs to the Company.

The last reauthorization in 2011 included 42 congressional mandates directed at the natural gas and pipeline industry, of which the PHMSA has only satisfied approximately 50%. This creates a significant risk to the Company and the pipeline industry in the form of potential new legislation targeting the gaps that the PHMSA has yet to fill. Included in the 2011 reauthorization were new provisions on historical records research, maximum-allowed operating pressure validation, use of automated or remote-controlled valves on new or replaced lines, increased civil penalties, and evaluation of expanding integrity management beyond high-consequence areas. The PHMSA has not yet issued new rulemaking on most of these items.

PHMSA completed several audits of Questar Pipeline facilities and records in the last three years with only minor findings and no proposed fines. Auditors from the states of Utah, Wyoming and Idaho continue to inspect Questar Gas's records, facilities and practices but have issued only minor findings and no fines. Penalties associated with non-compliance could be substantial if violations and corrective-action orders are issued. The Company expects to continue to incur significant costs to upgrade or re-certify infrastructure to meet changing regulations and legislative mandates or to respond to escalating information requests.


Questar 2015 Form 10-K
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FERC regulates the transportation and storage of natural gas and natural gas markets. Questar Pipeline's natural gas transportation and storage operations are regulated by the FERC under the Natural Gas Act of 1938 and the Natural Gas Policy Act of 1978. The FERC has authority to: set rates for natural gas transportation, storage and related services; set rules governing business relationships between the pipeline subsidiary and its affiliates; approve new pipeline and storage-facility construction; and establish policies and procedures for accounting, purchases, sales, abandonments and other activities. FERC policies may adversely affect Questar Pipeline's profitability. Over the past several years, the FERC has issued a number of orders related to market transparency that extend FERC oversight to many Questar subsidiaries. Order No. 704 requires all natural gas companies to report gas purchases and sales and their relationship to price reporting indexes. Order No. 712 defines changes in capacity release and asset management. Order No. 717 establishes new Standards of Conduct Rules. In addition to the orders, the FERC released a policy statement on compliance in which it states that companies must have a "rigorous" FERC compliance program that extends to all subsidiaries, not just interstate pipelines. Since the enactment of the Energy Policy Act of 2005, granting the FERC increased penalty authority for non-compliance, the FERC has targeted various issues in the natural gas industry for compliance audits and investigations. In late 2010 the FERC issued a revised policy statement on penalty guidelines. These guidelines identify mitigation measures companies can take to minimize the risk of a significant FERC compliance penalty. The best mitigation measure a company can implement is a rigorous FERC compliance program with oversight by a Chief FERC Compliance Officer. This has been implemented by Questar. However, even a rigorous compliance program is no guarantee that FERC compliance issues will not arise.

State agencies regulate the distribution of natural gas. Questar Gas's natural gas distribution business is regulated by the PSCU and the PSCW. These commissions set rates for distribution services and establish policies and procedures for services, accounting, purchases, sales and other activities. PSCU and PSCW policies and decisions including an authorized return on equity and disallowed costs may adversely affect the Company's profitability. Authorized returns on equity have declined for Questar Gas and throughout the United States with the decline in interest rates, and may decline further for Questar Gas in future rate cases.

Questar is subject to health care reform regulations, which may increase costs. Questar incurs significant costs to provide health care benefits to employees and some retirees. These costs have increased at a rate greater than inflation over a number of years and are expected to continue to increase.

Other Risks

Questar depends upon key operational and technical personnel. The successful implementation of the Company's business strategy depends, in part, on experienced operational and technical personnel, including key geologists, engineers and other professionals. Many of these key employees have the opportunity to retire within the next few years. The retirement of employees has accelerated the need for succession planning and knowledge transfer to prepare future management and key employees for critical positions.

General economic and other conditions impact Questar's results. Questar's results may be negatively affected by the following: changes in global economic conditions; changes in regulation; creditworthiness of customers and suppliers; rate of inflation and interest rates; weather and natural disasters; competition from other forms of energy, other pipelines and storage facilities; ability to renegotiate contracts, which could ultimately result in the impairment of assets; effects of accounting policies issued periodically by accounting standard-setting bodies; terrorist attacks or acts of war; changes in business or financial condition; changes in credit ratings; and availability of financing. Slower economic growth in markets served by Questar businesses may adversely impact the Company's operating results.

Questar faces risks of cyber-security attacks and loss of sensitive customer and employee data. Questar may be vulnerable to cyber-attacks by individuals or organizations intending to disrupt business operations or obtain sensitive customer and employee data. In addition, this sensitive data may be disseminated through intentional or unintentional actions by employees, agents or vendors. The Company's operations and its ability to serve customers may be significantly impacted if its operating and business systems were unavailable. The cost to remedy an unintended dissemination of sensitive information may be significant. Questar mitigates these risks through a defense-in-depth approach utilizing information technology security measures including system disaster-recovery procedures, intrusion-prevention systems, vulnerability management, network segmentation, internet scanning, anti-virus and malware scanning, system-access procedures and system-change-control procedures.

The underfunded status of the Company's defined benefit pension plans and postretirement medical and life insurance plans increases costs and may require large contributions, which may divert funds from other uses. As of December 31, 2015, the Company's defined benefit pension plans were $86.8 million underfunded and its postretirement medical and life insurance plans were $41.9 million underfunded. The level of underfunding decreased in 2015 because of contributions and an

Questar 2015 Form 10-K
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increase in the discount rate used to value the liabilities and changes in mortality tables partially offset by lower asset returns. The underfunded status of the plans may require large contributions, which may divert funds from other uses by the Company. Over time, periods of declining interest rates and asset values may result in further reduction of the funding status of the plans and require additional contributions. Questar cannot predict whether these factors will require the Company to make contributions greater than current expectations. Employees hired or rehired after June 30, 2010, are not eligible for the defined benefit pension plans and employees hired or rehired after December 31, 1996, are not eligible for the postretirement medical plan and are not eligible to receive basic life coverage once they retire.

Failure of the Company's controls and procedures to detect misstatement of financial results or fraud could negatively impact operating results and harm the Company's reputation. Questar's management, including its Chief Executive Officer and Chief Financial Officer, cannot ensure and do not expect that the Company's internal controls over financial reporting, including disclosure controls, will prevent or detect all possible errors and fraud. A control system, no matter how well designed and implemented, can provide only reasonable assurance that the purpose and intent of the control system are achieved. The design and application of a control system is based, in part, on judgments about the likelihood of future events. Over time, a control may become inadequate because of changes in conditions or the degree of compliance with Company policies. Because of inherent limitations in a control system, misstatements due to error or fraud may occur without detection.

ITEM 1B.  UNRESOLVED STAFF COMMENTS.

None.

ITEM 2.  PROPERTIES.

RETAIL GAS DISTRIBUTION - Questar Gas
Questar Gas distributes gas to customers along the Wasatch Front, the major populated area of Utah, which includes the metropolitan areas of Salt Lake, Provo, and Ogden. It also serves customers throughout the state, including the cities of Price, Roosevelt, Park City, Logan, Vernal, Moab, Monticello, Fillmore, Cedar City and St. George. Questar Gas supplies natural gas to the southwestern Wyoming communities of Rock Springs, Green River, Evanston, Kemmerer and Diamondville, and the southeastern Idaho community of Preston. To supply these communities Questar Gas owns and operates distribution systems and has a total of 28,782 miles of street mains, service lines and interconnecting pipelines. Questar Gas has a major operations center in Salt Lake City, and has operations centers, field offices and service-center facilities in other parts of its service area.

GAS AND OIL DEVELOPMENT AND PRODUCTION - Wexpro
Wexpro develops, produces and delivers cost-of-service natural gas for Questar Gas under the terms of the Wexpro agreements. The estimates of proved reserves were made by Wexpro's reservoir engineers as of December 31, 2015. All reported reserves are located in the United States. Wexpro sells crude oil and NGL production from certain producing properties at market prices. Wexpro recovers its costs and return on investment from the proceeds. Any residual operating income after recovery of costs and return is shared 54% Questar Gas, 46% Wexpro.

Property Acquisitions:
In December 2015, Wexpro acquired working interests in 75 producing wells and 112 future drilling locations in the Vermillion Basin in southwestern Wyoming for $16 million. Wexpro and Questar Gas plan to submit this property to the PSCU and PSCW for inclusion in the Wexpro II Agreement.

In December 2014, Wexpro acquired an additional interest in natural gas-producing properties in existing Wexpro-operated assets in the Canyon Creek Unit of southwestern Wyoming's Vermillion Basin (Canyon Creek acquisition). In September 2013, Wexpro acquired an additional interest in natural gas-producing properties in the Trail Unit of southwestern Wyoming's Vermillion Basin (Trail acquisition). Under the terms of the Wexpro II Agreement, these properties were submitted to the PSCU and PSCW (the Commissions). The Commissions approved the Canyon Creek and the Trail acquisition's in the fourth quarter of 2015 and the first quarter of 2014, respectively. Refer to Note 18 to the financial statements included in Item 8 of Part II of this Annual Report for additional information regarding the Trail and Canyon Creek acquisitions.

Wexpro may acquire additional gas development properties that are in locations separate from its current operations or are not approved by the Commissions for inclusion in the Wexpro II Agreement. In these cases, Wexpro will develop these properties and sell the production in the market or through contracts with other customers.

The following disclosures of gas and oil development and production properties include the acquisitions which have been approved by the Commissions.


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Reserves
The following table sets forth estimated proved natural gas and oil reserves:
 
December 31, 2015
 
December 31, 2014
 
Natural Gas
 
Oil and NGL
 
Natural Gas Equivalents
 
Natural Gas
 
Oil and NGL
 
Natural Gas Equivalents
 
(Bcf)
 
(Mbbl)
 
(Bcfe)
 
(Bcf)
 
(Mbbl)
 
(Bcfe)
Proved developed reserves
453.3

 
2,885

 
470.7

 
552.9

 
4,678

 
581.0

Proved undeveloped reserves
79.3

 
307

 
81.1

 
13.2

 
53

 
13.5

Total proved reserves
532.6

 
3,192

 
551.8

 
566.1

 
4,731

 
594.5


Significant changes in proved undeveloped reserves for 2015 were as follows:
 
Natural Gas Equivalents
 
(Bcfe)
Balance at December 31, 2014
13.5

Revisions of previous estimates
(0.8
)
Extensions and discoveries
81.1

Transferred to proved developed reserves
(12.7
)
Balance at December 31, 2015
81.1


Refer to Note 20 to the financial statements included in Item 8 of Part II of this Annual Report for additional information pertaining to the Company's reserves.

Wexpro will file reserves estimates as of December 31, 2015, with the Energy Information Administration of the U.S. Department of Energy on Form EIA-23. Although Wexpro uses the same technical and economic assumptions when it prepares the EIA-23, it is obligated to report reserves for the wells it operates, not for all wells in which it has an interest, and to include the reserves attributable to other owners in such wells.

Production
The following table sets forth the net production volumes and the production costs per Mcfe for the years ended December 31, 2015, 2014 and 2013:
 
Year Ended December 31,
 
2015
 
2014
 
2013
Volumes produced
 
 
 
 
 
Natural gas - cost-of-service deliveries (Bcf)
57.7

 
63.5

 
59.2

Natural gas - sales (Bcf)
4.4

 
0.8

 
1.4

Oil and NGL (Mbbl)
464

 
587

 
617

Total production (Bcfe)
64.9

 
67.8

 
64.3

Lifting costs (per Mcfe)
 
 
 
 
 
Lease operating expense

$0.42

 

$0.44

 

$0.43

Production taxes
0.33

 
0.56

 
0.44

Total lifting costs

$0.75

 

$1.00

 

$0.87


Productive Wells
The following table summarizes the Company's productive wells as of December 31, 2015. All wells are located in the United States.
 
Gas Wells
 
Oil Wells
 
Total
Gross
1,537

 
95

 
1,632

Net
758

 
32

 
790


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Although many wells produce both gas and oil, a well is categorized as either a gas or an oil well based upon the ratio of gas to oil produced. Each gross well completed in more than one producing zone is counted as a single well. At the end of 2015, the Company had 13 gross wells with multiple completions.

Leasehold Acres
The following table summarizes developed and undeveloped leasehold acreage in which the Company owns a working interest as of December 31, 2015. Excluded from the table is acreage in which the Company's interest is limited to royalty, overriding-royalty and other similar interests. All leasehold acres are located in the United States.
 
Developed Acres(1)
 
Undeveloped Acres(2)
 
Total Acres
 
Gross
 
Net
 
Gross
 
Net
 
Gross
 
Net
Wyoming
93,073

 
84,989

 
188,224

 
177,305

 
281,297

 
262,294

Colorado
28,934

 
25,154

 

 

 
28,934

 
25,154

Utah
14,013

 
13,773

 

 

 
14,013

 
13,773

Other
759

 
759

 

 

 
759

 
759

Total
136,779

 
124,675

 
188,224

 
177,305

 
325,003

 
301,980


(1) Developed acreage is acreage assigned to productive wells.

(2) Undeveloped acreage is leased acreage on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of natural gas and oil regardless of whether such acreage contains proved reserves.

A portion of the leases summarized in the preceding table will expire at the end of their respective primary terms unless the existing leases are renewed or production has been obtained from the acreage subject to the lease prior to that date. Leases held by production remain in effect until production ceases. The following table sets forth the gross and net undeveloped acres subject to leases summarized in the preceding table that will expire during the periods indicated:
 
 
Undeveloped Acres Expiring
 
 
Gross
 
Net
 
 
Year Ending December 31,
2016
 
27,992

 
27,992

2017
 
46,329

 
46,329

2018
 
1,960

 
1,960

2019
 

 

2020 and later
 
111,943

 
101,024

Total
 
188,224

 
177,305


Gross and net undeveloped acreage amounts in the preceding tables are subject to adjustment pending confirmation of title to certain properties acquired in the fourth quarter of 2014.

Drilling Activity
The following table summarizes the number of development wells drilled by Wexpro during the years indicated. Wexpro did not drill any exploratory wells.
 
Productive
 
Dry
 
Year Ended December 31,
 
2015
 
2014
 
2013
 
2015
 
2014
 
2013
Net Wells Completed
 
 
 
 
 
 
 
 
 
 
 
Development
5.8

 
7.7

 
41.9

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
Gross Wells Completed
 
 
 
 
 
 
 
 
 
 
 
Development
8

 
11

 
59

 

 

 


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INTERSTATE GAS TRANSPORTATION – Questar Pipeline
Questar Pipeline had consolidated firm transportation contracts of 5,221 Mdth per day at December 31, 2015. These commitments included 1,963 Mdth per day for Questar Pipeline; 2,157 Mdth per day for Overthrust Pipeline, a wholly-owned subsidiary; 81 Mdth per day for Southern Trails Pipeline, a wholly-owned subsidiary; and 1,020 Mdth per day for Questar Pipeline's 50% ownership of White River Hub. Questar Pipeline and its subsidiaries operate 2,667 miles of natural gas transportation pipelines that interconnect with other pipelines, including 10 miles owned by a third party. Its core system includes two segments, referred to as the northern system and southern system. The northern system extends from northwestern Colorado through southwestern Wyoming into northern Utah, while the southern system extends from western Colorado to Goshen, Utah. Questar Pipeline's natural gas transportation pipeline mileage includes: pipelines at storage fields and tap lines used to serve Questar Gas; 258 miles of Overthrust Pipeline; and 487 miles of the Southern Trails Pipeline; but does not include 96 miles of Southern Trails Pipeline that is not in service in Southern California. Questar Pipeline's system ranges in diameter from lines that are less than four inches to 36-inches. Questar Pipeline owns large-scale compressor stations, which boost the pressure of natural gas transported on its pipelines for delivery to utility customers and third-party pipelines. Questar Pipeline also owns processing facilities for dew-point control to meet gas-quality specifications of downstream pipelines.

Questar Pipeline owns several natural gas storage facilities. The Clay Basin storage facility in northeastern Utah has a certificated capacity of 120.2 Bcf, including 54.0 Bcf of working gas. In addition, Questar Pipeline owns three smaller storage aquifers in northeastern Utah and western Wyoming. Through a subsidiary, Questar Pipeline also owns gathering lines and processing facilities near Price, Utah, which provide gas-processing services.

ITEM 3.  LEGAL PROCEEDINGS.

In addition to the items referenced below, the Company is involved in other litigation and regulatory matters arising in the normal course of business. These other matters may include, for example, negligence claims, tax, regulatory or other governmental audits, inspections, investigations or other proceedings. These matters may involve state and federal taxes, safety, compliance with regulations, rate base, cost of service, and purchased-gas cost issues, among other things. While these normal-course matters could have a material effect on earnings and cash flows in the quarterly and annual period in which they are resolved, they are not expected to materially change the Company's financial position, results of operations or cash flows.

Commitments and Contingencies
See Note 10 to the financial statements included in Item 8 of Part II of this Annual Report for information concerning commitments and contingencies.

Regulatory Proceedings
See Note 12 to the financial statements included in Item 8 of Part II of this Annual Report for information concerning various regulatory proceedings.

ITEM 4.  MINE SAFETY DISCLOSURES.

Not applicable.


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PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Five-Year Cumulative Total Return to Shareholders
The following table and graph compare the cumulative total return of the Company's common stock with the cumulative total returns of a peer group of natural gas companies selected by Questar, and of the S&P 500 stock index:
 
 
2010
2011
 
2012
 
2013
 
2014
 
2015
Questar
 
$
100.00

$
117.97

 
$
121.38

 
$
145.50

 
$
165.21

 
$
132.46

S&P 500
 
100.00

102.11

 
118.45

 
156.82

 
178.28

 
180.75

Peer Group
 
100.00

111.73

 
110.02

 
141.96

 
160.72

 
166.19

Prior Peer Group
 
100.00

116.26

 
117.19

 
159.18

 
173.01

 
169.60



The chart assumes $100 is invested at the close of trading on December 31, 2010, in the Company's common stock, the S&P 500 index and the index of current and prior peer companies. It also assumes all dividends are reinvested. For 2015, the Company had an annual return of (19.82%) compared to 1.38% for the S&P index, 3.41% for the peer group index and (1.97%) for the prior peer company index. For the five-year period, the Company had a compound annual total return of 5.78% compared to 12.57% for the S&P 500 index, 10.69% for peer company index and 11.14% for the prior peer company index. The peer group is comprised of AGL Resources Inc.; Atmos Energy Corp.; Black Hills Corp.; Laclede Group, Inc; MDU Resources Group, Inc.; National Fuel Gas Co.; New Jersey Resources Corp.; Northwest Natural Gas Co.; One Gas, Inc.; Piedmont Natural Gas Co.; South Jersey Industries, Inc.; Southwest Gas Corp.; Vectren Corp.; and WGL Holdings, Inc. Three companies, Energen Corp., EQT Corp. and NiSource Inc.,were removed from the peer group in 2015 and replaced with Black Hills Corp., Laclede Group, Inc. and One Gas, Inc. These changes were due to acquisitions or divestitures resulting in the prior peer companies no longer being in the same line of business as Questar.

Questar 2015 Form 10-K
27
 




The foregoing graph shall not be deemed to be filed as part of this Annual Report and does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other filing of Questar under the Securities Act or the Exchange Act, except to the extent the Company specifically incorporates the graph by reference.

Questar's common stock is listed on the New York Stock Exchange (NYSE:STR). As of January 31, 2016, Questar had 6,630 shareholders of record. Following is a summary of Questar's quarterly stock-price and dividend information:
 
 
High price
 
Low price
 
Dividend
 
 
(per share)
2015
 
 
 
 
 
 
First quarter
 
$
26.44

 
$
22.47

 
$
0.2100

Second quarter
 
24.33

 
20.88

 
0.2100

Third quarter
 
22.29

 
18.29

 
0.2100

Fourth quarter
 
21.21

 
18.02

 
0.2100

 
 
 
 
 
 
$
0.8400

2014
 
 
 
 
 
 
First quarter
 
$
24.09

 
$
22.07

 
$
0.1800

Second quarter
 
24.89

 
22.83

 
0.1900

Third quarter
 
24.85

 
21.49

 
0.1900

Fourth quarter
 
26.44

 
21.06

 
0.1900

 
 
 
 
 
 
$
0.7500


Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
Questar had no unregistered sales of equity securities during the fourth quarter of 2015. The following table sets forth the Company's purchases of common stock registered under Section 12 of the Exchange Act that occurred during the quarter ended December 31, 2015:
Period
 
Total number of shares purchased(1)
 
Average price paid per share
 
Total number of shares purchased as part of publicly announced plans or programs(2)
 
Maximum number of shares that may yet be purchased under the plans or programs
Month #1 October 1, 2015
through October 31, 2015
 

 
$

 

 

Month #2 November 1, 2015
through November 30, 2015
 

 
$

 

 

Month #3 December 1, 2015
through December 31, 2015
 
9,844

 
$
19.40

 

 

Total
 
9,844

 
$
19.40

 

 
 

(1) There were 9,844 shares purchased in Month #3 in conjunction with tax-payment elections under the Company's Long-Term Stock Incentive Plan and rollover shares used in exercising stock options.

(2) Questar's Board of Directors authorized Questar to acquire, or cause to be acquired after January 1, 2013, up to 1 million shares of common stock, on an annual basis, in the name and on behalf of the Company in the open market and negotiated purchases from time to time, in accordance with all applicable Security and Exchange rules. The one million share repurchase threshold was met in the third quarter of 2015.


Questar 2015 Form 10-K
28
 



ITEM 6.  SELECTED FINANCIAL DATA.

Selected Questar financial data for the five years ending December 31, 2015, is provided in the table below. Refer to Items 7 and 8 in Part II of this Annual Report for discussion of facts affecting the comparability.
 
Year Ended December 31,
 
2015
 
2014
 
2013
 
2012
 
2011
 
(in millions, except per-share amounts)
Results Of Operations
 
 
 
 
 
 
 
 
 
Revenues
$
1,134.9

 
$
1,189.3

 
$
1,220.0

 
$
1,098.9

 
$
1,194.4

Operating income
374.4

 
405.4

 
305.8

 
375.7

 
366.9

Income from continuing operations
208.7

 
226.5

 
161.2

 
212.0

 
207.9

Net income attributable to Questar
$
208.7

 
$
226.5

 
$
161.2

 
$
212.0

 
$
207.9

Earnings per common share attributable to Questar
 
 
 
 
 
 
 
 
 
Basic
$
1.18

 
$
1.29

 
$
0.92

 
$
1.20

 
$
1.17

Diluted
$
1.18

 
$
1.29

 
$
0.92

 
$
1.19

 
$
1.16

Weighted-average common shares outstanding 
 
 
 
 
 
 
 
 
 
Used in basic calculation
176.1

 
175.8

 
175.4

 
176.5

 
177.4

Used in diluted calculation
176.3

 
176.1

 
176.0

 
177.5

 
178.8

Financial Position
 
 
 
 
 
 
 
 
 
Total assets at December 31,
$
4,377.8

 
$
4,243.9

 
$
4,044.6

 
$
3,790.3

 
$
3,556.1

Total liabilities at December 31,
$
3,062.7

 
$
2,997.7

 
$
2,845.8

 
$
2,754.7

 
$
2,522.6

Capitalization and short-term debt at Dec. 31,
 
 
 
 
 
 
 
 
 
Short-term debt
$
457.6

 
$
347.0

 
$
276.0

 
$
263.0

 
$
219.0

Current portion of long-term debt and capital lease obligation
251.4

 
26.1

 
0.9

 
42.7

 
91.5

Long-term debt and capital lease obligation, less current portion
1,004.1

 
1,257.5

 
1,285.5

 
1,138.2

 
993.0

Total equity
$
1,315.1

 
$
1,246.2

 
$
1,198.8

 
$
1,035.6

 
$
1,033.5

Book value per common share at December 31,
$
7.51

 
$
7.10

 
$
6.85

 
$
5.92

 
$
5.81

Cash Flow Of Continuing Operations
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities
$
411.4

 
$
443.6

 
$
502.1

 
$
467.7

 
$
489.0

Capital expenditures, including acquisitions
(330.4
)
 
(371.5
)
 
(503.7
)
 
(370.7
)
 
(367.7
)
Net cash used in investing activities
(335.5
)
 
(366.8
)
 
(508.0
)
 
(365.3
)
 
(370.9
)
Net cash provided by (used in) financing activities
(82.9
)
 
(60.8
)
 
5.1

 
(97.2
)
 
(128.3
)
Dividends per share
$
0.84

 
$
0.75

 
$
0.71

 
$
0.665

 
$
0.62




Questar 2015 Form 10-K
29
 



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

RESULTS OF OPERATIONS

Following are comparisons of net income (loss) by line of business:
 
Year Ended December 31,
 
Change
 
2015
 
2014
 
2013
 
2015 vs. 2014
 
2014 vs. 2013
 
(in millions, except per-share amounts)
Questar Gas
$
64.3

 
$
55.2

 
$
52.8

 
$
9.1

 
$
2.4

Wexpro(2)
98.9

 
122.8

 
110.6

 
(23.9
)
 
12.2

Questar Pipeline(1)
59.6

 
60.6

 
8.2

 
(1.0
)
 
52.4

Corporate and other(3)
(14.1
)
 
(12.1
)
 
(10.4
)
 
(2.0
)
 
(1.7
)
Net income
$
208.7

 
$
226.5

 
$
161.2

 
$
(17.8
)
 
$
65.3

Add: after-tax Pipeline asset impairment charge(1)

 

 
52.4

 

 
(52.4
)
Add: after-tax Wexpro's leasehold impairment charge(2)
7.9

 

 

 
7.9

 

Add: after-tax pension settlement charge(3)
10.3

 

 

 
10.3

 

Adjusted earnings
$
226.9

 
$
226.5

 
$
213.6

 
$
0.4

 
$
12.9

 
 
 
 
 
 
 
 
 
 
Earnings per share - diluted
$
1.18

 
$
1.29

 
$
0.92

 
$
(0.11
)
 
$
0.37

Add: diluted loss per share attributable to Pipeline asset impairment charge(3)

 

 
0.29

 

 
(0.29
)
Add: diluted loss per share attributable to Wexpro's leasehold impairment charge(2)
0.04

 

 

 
0.04

 

Add: diluted loss per share attributable to pension settlement charge(3)
0.06

 

 

 
0.06

 

Adjusted earnings per share - diluted
$
1.28

 
$
1.29

 
$
1.21

 
$
(0.01
)
 
$
0.08

 
 
 
 
 
 
 
 
 
 
Weighted-average diluted shares
176.3

 
176.1

 
176.0

 
0.2

 
0.1


(1) Third quarter 2013 impairment of the eastern segment of Questar Pipeline's Southern Trails Pipeline.
(2) Fourth quarter 2015 Wexpro's leasehold impairment.
(3) Fourth quarter 2015 pension settlement costs.

Management believes that the above non-GAAP financial measures, indicated by the word "Adjusted" in their captions, provide an indication of the Company's ongoing results of operations because of the pension settlement and impairment charges' infrequent and nonrecurring nature. Refer to Note 14 and Note 17 to the financial statements included in Item 8 of Part II of this Annual Report for additional information on the pension settlement and impairments charges.

QUESTAR GAS
Questar Gas reported net income of $64.3 million in 2015 compared to $55.2 million in 2014 and $52.8 million in 2013. The increases were primarily due to additional margin from increased customers and a 2014 Utah general rate case.

Questar 2015 Form 10-K
30
 



Following is a summary of Questar Gas financial and operating results:
 
Year Ended December 31,
 
Change
 
2015
 
2014
 
2013
 
2015 vs. 2014
 
2014 vs. 2013
 
(in millions)
Net Income
 
 
 
 
 
 
 
 
 
REVENUES
 
 
 
 
 
 
 
 
 
Residential and commercial sales
$
847.3

 
$
875.7

 
$
910.3

 
$
(28.4
)
 
$
(34.6
)
Industrial sales
23.6

 
29.9

 
28.1

 
(6.3
)
 
1.8

Transportation for industrial customers
21.2

 
17.9

 
14.4

 
3.3

 
3.5

Service
4.7

 
4.8

 
4.8

 
(0.1
)
 

Other
20.8

 
32.6

 
28.2

 
(11.8
)
 
4.4

Total Revenues
917.6

 
960.9

 
985.8

 
(43.3
)
 
(24.9
)
Cost of natural gas sold
 
 
 
 
 
 
 
 
 
From unaffiliated parties
164.6

 
181.4

 
279.7

 
(16.8
)
 
(98.3
)
From affiliated companies
393.5

 
423.4

 
370.9

 
(29.9
)
 
52.5

Total cost of natural gas sold
558.1

 
604.8

 
650.6

 
(46.7
)
 
(45.8
)
Margin
359.5

 
356.1

 
335.2

 
3.4

 
20.9

OTHER OPERATING EXPENSES
 
 
 
 
 
 
 
 
 
Operating and maintenance
111.9

 
122.5

 
113.1

 
(10.6
)
 
9.4

General and administrative
50.6

 
52.8

 
52.5

 
(2.2
)
 
0.3

Depreciation and amortization
55.1

 
53.6

 
49.7

 
1.5

 
3.9

Other taxes
19.3

 
17.8

 
18.0

 
1.5

 
(0.2
)
Total Other Operating Expenses
236.9

 
246.7

 
233.3

 
(9.8
)
 
13.4

Net gain from asset sales

 
0.1

 

 
(0.1
)
 
0.1

OPERATING INCOME
122.6

 
109.5

 
101.9

 
13.1

 
7.6

Interest and other income
4.8

 
5.9

 
5.1

 
(1.1
)
 
0.8

Interest expense
(28.3
)
 
(28.2
)
 
(22.3
)
 
(0.1
)
 
(5.9
)
Income taxes
(34.8
)
 
(32.0
)
 
(31.9
)
 
(2.8
)
 
(0.1
)
NET INCOME
$
64.3

 
$
55.2

 
$
52.8

 
$
9.1

 
$
2.4

Operating Statistics
 
 
 
 
 
 
 
 
 
Natural gas volumes (MMdth)
 
 
 
 
 
 
 
 
 
Residential and commercial sales
94.0

 
98.0

 
114.9

 
(4.0
)
 
(16.9
)
Industrial sales
3.3

 
4.3

 
4.4

 
(1.0
)
 
(0.1
)
Transportation for industrial customers
77.2

 
81.3

 
64.5

 
(4.1
)
 
16.8

Total industrial
80.5

 
85.6

 
68.9

 
(5.1
)
 
16.7

Total deliveries
174.5

 
183.6

 
183.8

 
(9.1
)
 
(0.2
)
Natural gas revenue (per dth)
 
 
 
 
 
 
 
 
 
Residential and commercial
$
9.01

 
$
8.93

 
$
7.92

 
$
0.08

 
$
1.01

Industrial sales
7.22

 
7.14

 
6.47

 
0.08

 
0.67

Transportation for industrial customers
0.27

 
0.22

 
0.22

 
0.05

 

System natural gas cost (per dth)
$
5.05

 
$
5.98

 
$
5.00

 
$
(0.93
)
 
$
0.98

Colder (warmer) than normal temperatures
(19%)

 
(17%)

 
8%

 
(2%)

 
(25%)

Temperature-adjusted usage per customer (dth)
103.3

 
108.9

 
108.0

 
(5.6
)
 
0.9

Customers at December 31, (in thousands)
990

 
962

 
946

 
28

 
16



Questar 2015 Form 10-K
31
 




Margin Analysis
Questar Gas's margin (revenues less gas costs) increased $3.4 million in 2015 compared to 2014 and increased $20.9 million in 2014 compared to 2013. Following is a summary of major changes in Questar Gas's margin for 2015 compared to 2014 and 2014 compared to 2013:
 
Change
 
2015 vs. 2014
 
2014 vs. 2013
 
(in millions)
Customer growth
$
7.4

 
$
4.7

Transportation
3.1

 
4.3

Infrastructure-replacement cost recovery
(2.7
)
 
(9.6
)
Change in rates - general service
11.8

 
12.3

Natural gas vehicle revenues
(1.4
)
 

Energy-efficiency program cost recovery
(14.3
)
 
8.1

Recovery of gas-cost portion of bad debt costs

 
0.9

Other
(0.5
)
 
0.2

Increase
$
3.4

 
$
20.9


At December 31, 2015, Questar Gas served 990,381 customers, up from 962,225 at December 31, 2014, and 945,971 at December 31, 2013. The increase from 2014 to 2015 includes the purchase of Eagle Mountain City's natural gas system for $11.4 million on March 5, 2015. The acquisition added over 6,500 natural gas customers. Customer growth increased the margin by $7.4 million in 2015 and $4.7 million in 2014.

Transportation service revenues increased the margin $3.1 million during 2015 due to higher rates more than offsetting the declining transportation volumes.

Effective March 1, 2014, Questar Gas increased its rates in Utah by $7.6 million annually as a result of a general rate case filed in Utah in July 2013. The order in this rate case authorized an allowed return on equity of 9.85%. Questar Gas has an infrastructure cost-tracking mechanism that allows the company to place into rate base and earn on capital expenditures associated with a multi-year natural gas infrastructure-replacement program upon the completion of each project. The Utah general rate case reset the recovery of costs under the infrastructure-replacement program into general rates until Questar Gas invested $84 million in new pipelines. This dollar threshold was met in November 2014. Thereafter, Questar Gas was able to recover program capital expenditures through the infrastructure-replacement mechanism. Questar Gas margin, from the infrastructure-replacement program, decreased $2.7 million in 2015.

In December 2014, Questar Gas held hearings on a general rate case in Wyoming. The Wyoming Public Service Commission (PSCW) ordered an increase in annualized revenues of $1.5 million and an authorized return on equity of 9.5%. The change in rates was effective March 1, 2015.

As described above in the Utah and Wyoming rate cases, the change in general-service rates, excluding the infrastructure-replacement program, increased the margin by $11.8 million in 2015.

Natural gas vehicle revenues decreased the margin by $1.4 million during 2015 due to lower volumes because of competing fuel prices partially offset by the fuel tax credits.

Recovery of EEP costs reduced Questar Gas margin in 2015 by $14.3 million. EEP costs are incurred to promote energy conservation by customers. Changes in the margin contribution from EEP recovery revenues are offset by equivalent changes in program expenses.

Questar Gas benefits from a conservation enabling (revenue decoupling) tariff. Under this tariff, Questar Gas is allowed to earn a specified revenue for each general-service customer per month. Differences between the allowed revenue and the amount billed to customers are recovered from customers or refunded to customers through future rate changes. Because of this tariff, changes in usage per customer do not impact the company's margin. In addition, a weather-normalization adjustment of customer bills offsets the revenue impact of temperature variations.


Questar 2015 Form 10-K
32
 




Temperature-adjusted usage per customer decreased by 5% in 2015 and was essentially flat in 2014 and 2013. The impact on the Company margin from changes in usage per customer has been mitigated by the CET. The CET adjustment increased revenues by $9.9 million in 2015, decreased revenues by $11.1 million in 2014 and decreased revenues by $1.1 million in 2013, offsetting changes in customer usage.

Weather, as measured in degree days, was 19% warmer than normal in 2015, 17% warmer than normal in 2014 and 8% colder than normal in 2013. A weather-normalization adjustment on customer bills generally offsets financial impacts of temperature variations.

Cost of Natural Gas Sold
Cost of natural gas sold decreased 8% in 2015 compared to 2014 and decreased 7% in 2014 compared to 2013. The 2015 decrease was due to a 5% decrease in volumes sold and a 16% decrease in the purchase cost of natural gas. The 2014 decrease was due to a 14% decrease in volumes sold, partially offset by a 20% increase in the purchase cost of natural gas. Cost of natural gas from affiliates includes cost-of-service gas supplies from Wexpro and transportation and storage from Questar Pipeline. These costs decreased 7% in 2015 due to lower cost-of-service gas production volumes and increased 14% in 2014 due to Wexpro's higher investment in gas development properties resulting in higher volumes of cost-of-service gas. Questar Gas accounts for purchased-gas costs in accordance with procedures authorized by the PSCU and the PSCW (the Commissions). Purchased-gas costs that are different from those provided for in present rates are accumulated and recovered or credited through future rate changes. As of December 31, 2015, Questar Gas had an $18.9 million under-collected balance in the purchased-gas adjustment account representing costs incurred in excess of costs recovered from customers. In September 2015, Questar Gas filed requests in Utah and Wyoming to reduce annualized gas costs collected from customers by $18.1 million. This request was approved by the Commissions and became effective October 2015. Gas purchase costs are expected to stay at or near their current levels for the remainder of the heating season. Refer to Note 1 to the financial statements included in Item 8 of Part II of this Annual Report for additional information regarding cost of natural gas sold.

Other Expenses
Operating and maintenance expenses decreased 9% in 2015 compared to 2014 and increased 8% in 2014 compared to 2013. The changes included EEP cost recoveries that were $14.3 million lower in 2015 and $8.1 million higher in 2014. Excluding EEP charges, operating and maintenance expenses increased 4% in 2015 and 2% in 2014.

General and administrative costs decreased 4% in 2015 compared to 2014 and were largely unchanged in 2014 compared to 2013. The 2015 decrease was primarily due to lower employee related and allocated corporate expenses. The sum of operating, maintenance, general and administrative expenses per customer, excluding EEP costs, was $140 in 2015, $143 in 2014 and $144 in 2013.

Other taxes increased 8% in 2015 compared to 2014 and decreased slightly in 2014 compared to 2013. The 2015 increase was due to increased property tax valuations and rates.

Depreciation and amortization expense was 3% higher in 2015 compared to 2014 and increased 8% in 2014 compared to 2013 due to higher depreciation expense from plant additions driven by customer growth and feeder-line replacements.

Acquisition of Eagle Mountain City's Natural Gas System
In March 2015, Questar Gas purchased Eagle Mountain City's municipal natural gas system for $11.4 million. At the time of acquisition, the city had over 6,500 natural gas customers.

WEXPRO
Wexpro reported net income of $98.9 million in 2015 compared to $122.8 million in 2014 and $110.6 million in 2013. The change in net income resulted primarily from decreased net investment in cost-of-service gas development wells and a leasehold impairment.

Questar 2015 Form 10-K
33
 



Following is a summary of Wexpro financial and operating results:
 
Year Ended December 31,
 
Change
 
2015
 
2014
 
2013
 
2015 vs. 2014
 
2014 vs. 2013
 
(in millions)
Net Income
 
 
 
 
 
 
 
 
 
REVENUES
 
 
 
 
 
 
 
 
 
Operator service fee
$
313.3

 
$
350.5

 
$
294.0

 
$
(37.2
)
 
$
56.5

Oil and NGL sales
11.4

 
30.0

 
40.9

 
(18.6
)
 
(10.9
)
Natural gas sales and other
17.3

 
5.4

 
5.0

 
11.9

 
0.4

Total Revenues
342.0

 
385.9

 
339.9

 
(43.9
)
 
46.0

OPERATING EXPENSES
 
 
 
 
 
 
 
 
 
Operating and maintenance
27.4

 
29.5

 
27.8

 
(2.1
)
 
1.7

Gathering and other handling
1.5

 
0.4

 
0.8

 
1.1

 
(0.4
)
General and administrative
33.5

 
32.6

 
28.7

 
0.9

 
3.9

Production and other taxes
21.2

 
37.6

 
28.3

 
(16.4
)
 
9.3

Depreciation, depletion and amortization
99.4

 
100.5

 
85.8

 
(1.1
)
 
14.7

Exploration
0.7

 
1.6

 

 
(0.9
)
 
1.6

Abandonment and impairment
12.5

 
2.0

 

 
10.5

 
2.0

Oil and NGL income sharing

 

 
0.6

 

 
(0.6
)
Total Operating Expenses
196.2

 
204.2

 
172.0

 
(8.0
)
 
32.2

Net gain (loss) from asset sales
1.6

 
1.6

 
(0.2
)
 

 
1.8

OPERATING INCOME
147.4

 
183.3

 
167.7

 
(35.9
)
 
15.6

Interest and other income
0.9

 
1.1

 
5.0

 
(0.2
)
 
(3.9
)
Interest expense
(0.2
)
 
(0.1
)
 
(0.1
)
 
(0.1
)
 

Income taxes
(49.2
)
 
(61.5
)
 
(62.0
)
 
12.3

 
0.5

NET INCOME
$
98.9

 
$
122.8

 
$
110.6

 
$
(23.9
)
 
$
12.2

 
 
 
 
 
 
 
 
 
 
Operating Statistics
 
 
 
 
 
 
 
 
 
Production volumes
 
 
 
 
 
 
 
 
 
Natural gas - cost-of-service deliveries (Bcf)
57.7

 
63.5

 
59.2

 
(5.8
)
 
4.3

Natural gas - sales (Bcf)
4.4

 
0.8

 
1.4

 
3.6

 
(0.6
)
Oil and NGL (Mbbl)
464

 
587

 
617

 
(123
)
 
(30
)
Natural gas average sales price (per Mcf)
$
2.79

 
$
4.57

 
$
3.74

 
$
(1.78
)
 
$
0.83

Oil and NGL average sales price (per bbl)
$
37.21

 
$
80.57

 
$
85.20

 
$
(43.36
)
 
$
(4.63
)
Investment base at Dec. 31, (in millions)
$
642.9

 
$
649.0

 
$
589.7

 
$
(6.1
)
 
$
59.3


Revenues
Wexpro earned a 17.5% after-tax return on average investment base in 2015 compared to 17.9% in 2014 and 19.7% in 2013. The decline in the 2015 and 2014 return was due to the addition of Wexpro II investments, which earn a lower return on the acquisition cost. Pursuant to the Wexpro agreements, Wexpro recovers its costs and receives an after-tax return on its investment base. In 2015, Wexpro earned a return of 19.76% on successful gas development drilling and a return of 7.65% on acquisition costs of Wexpro II properties. Wexpro's investment base includes its costs of acquired properties and commercial wells and related facilities, adjusted for working capital, deferred income taxes and accumulated depreciation, depletion and amortization. Property acquisition costs only pertain to properties that have been approved under the Wexpro II Agreement by the Commissions. The investment base remained relatively flat in 2015 compared to 2014 after increasing 10% in 2014 compared to 2013. The consistent investment base over the past two years is primarily due to property acquisitions offset by depreciation, depletion and amortization.


Questar 2015 Form 10-K
34
 




Following is a summary of changes in the Wexpro investment base:
 
 
Year Ended December 31,
 
 
2015
 
2014
 
2013
 
 
(in millions)
Investment base at beginning of year
 
$
649.0

 
$
589.7

 
$
531.1

Property acquisitions
 
46.4

 
103.7

 

Successful development wells and related equipment
 
29.3

 
44.2

 
158.5

Depreciation, depletion and amortization
 
(87.2
)
 
(97.6
)
 
(79.2
)
Change in deferred taxes
 
5.4

 
9.0

 
(20.7
)
Investment base at end of year
 
$
642.9

 
$
649.0

 
$
589.7


The December 31, 2015 investment base includes the cost of the December 2014 Canyon Creek acquisition. The Commissions authorized the inclusion of this acquisition in Wexpro II in the fourth quarter of 2015. The December 31, 2014 investment base includes the cost of the September 2013 Trail acquisition that the Commissions authorized in the first quarter of 2014.

Market prices for natural gas have declined significantly resulting in Wexpro's cost-of-service price exceeding the market price. Consequently, Wexpro has scaled back its gas development drilling program in 2015 and limited its investment to the completion of wells drilled in 2014. Wexpro designs its annual drilling program to provide cost-of-service production that is, on average, at or below the current 5-year Rockies-adjusted NYMEX forward price curve. Based on current natural gas market prices it would be difficult for new drilling under existing Wexpro and Wexpro II agreements to meet this standard. Until natural gas prices increase, Wexpro's ability to grow its investment base is limited and it is likely that the investment base will continue to decrease due to depreciation, depletion and amortization amounts exceeding continued investment.

Wexpro produced 57.7 Bcf of cost-of-service natural gas for Questar Gas during 2015, compared to 63.5 Bcf in 2014 and 59.2 Bcf in 2013. The lower production level in 2015 is largely due to reduced investment in gas-development wells. Cost-of-service natural gas production provided the majority of Questar Gas's supply requirements in 2013 through 2015.

Wexpro agreed to manage the combined production from the original Wexpro properties and the Trail acquisition to 65% of Questar Gas's annual forecasted demand. Beginning in June 2015 through May 2016 and for each subsequent 12-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 on the market to manage the 65% level and credit back to Questar Gas customers the higher of market price or the cost-of-service price times the sales volumes. The 65% threshold will decrease to 55% in 2020.

Revenues from oil and NGL sales decreased 62% in 2015 compared to 2014 after decreasing 27% in 2014 compared to 2013. The 2015 and 2014 decreases were driven by a respective 54% and 5% drop in the average selling price for oil and NGL and lower volumes for oil and NGL.

Revenues from natural gas sales in 2015 and 2014 were primarily attributable to the Canyon Creek and Trail acquisitions prior to their inclusion under the Wexpro II Agreement. See below and Note 18 to the financial statements included in Item 8 of Part II of this Annual Report for additional information regarding the Trail and Canyon Creek acquisitions.

Other revenues consist primarily of gains on the sale of property that were credited back to Questar Gas customers through reductions of the operator service fee. The sales of the Brady field and Spearhead Ranch and Powell Pressure Maintenance oil fields are described below.

Expenses
Operating and maintenance expenses were down 7% in 2015 compared to 2014 and were up 6% in 2014 compared to 2013. The