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QUESTAR PIPELINE CO - 10-K - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

February 25, 2014

RESULTS OF OPERATIONS

Following are comparisons of net income (loss) by line of business:

Year Ended December 31, Change 2013 2012 2011 2013 vs. 2012 2012 vs. 2011 (in millions, except per-share amounts) Questar Gas $ 52.8$ 47.1$ 46.1 $ 5.7 $ 1.0 Wexpro 110.6 103.9 95.2 6.7 8.7 Questar Pipeline(1) 8.2 64.7 67.9 (56.5 ) (3.2 ) Corporate and other (10.4 ) (3.7 ) (1.3 ) (6.7 ) (2.4 ) Net income $ 161.2$ 212.0$ 207.9$ (50.8 ) $ 4.1 Add: after-tax asset impairment charge(1) 52.4 - - 52.4 - Adjusted earnings $ 213.6$ 212.0$ 207.9 $



1.6 $ 4.1

Earnings per share - diluted $ 0.92$ 1.19$ 1.16$ (0.27 )$ 0.03 Add: diluted loss per share attributable to asset impairment charge(1) 0.29 - - 0.29 - Adjusted earnings per share - diluted $ 1.21$ 1.19$ 1.16 $



0.02 $ 0.03

Weighted-average diluted shares 176.0 177.5 178.8 (1.5 ) (1.3 )



(1) Impairment of the eastern segment of Questar Pipeline's Southern Trails Pipeline.

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 impairment charge's infrequent and nonrecurring nature. Refer to Note 16 to the financial statements included in Item 8 of Part II of this Annual Report for additional information on the impairment. Questar 2013 Form 10-K 27



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QUESTAR GASQuestar Gas reported net income of $52.8 million in 2013 compared to $47.1 million in 2012 and $46.1 million in 2011. The increases were primarily due to additional revenues from infrastructure-replacement cost recovery and increased customers. Following is a summary of Questar Gas financial and operating results: Year Ended December 31, Change 2013 2012 2011 2013 vs. 2012 2012 vs. 2011 (in millions) Net Income REVENUES Residential and commercial sales $ 910.3$ 788.4$ 893.0$ 121.9$ (104.6 ) Industrial sales 28.1 27.4 29.7 0.7 (2.3 ) Transportation for industrial customers 14.4 11.9 11.3 2.5 0.6 Service 4.8 4.5 5.1 0.3 (0.6 ) Other 28.2 30.0 29.7 (1.8 ) 0.3 Total Revenues 985.8 862.2 968.8 123.6 (106.6 ) Cost of natural gas sold From unaffiliated parties 279.7 185.6 318.4 94.1 (132.8 )



From affiliated companies 370.9 347.7 327.3

23.2 20.4



Total cost of natural gas sold 650.6 533.3 645.7

117.3 (112.4 ) Margin 335.2 328.9 323.1 6.3 5.8 OTHER OPERATING EXPENSES Operating and maintenance 113.1 119.0 118.5 (5.9 ) 0.5



General and administrative 52.5 51.2 51.0

1.3 0.2 Retirement incentive - 2.4 - (2.4 ) 2.4



Depreciation and amortization 49.7 47.2 44.5

2.5 2.7 Other taxes 18.0 16.2 15.0 1.8 1.2



Total Other Operating Expenses 233.3 236.0 229.0

(2.7 ) 7.0 OPERATING INCOME 101.9 92.9 94.1 9.0 (1.2 ) Interest and other income 5.1 5.5 5.4 (0.4 ) 0.1 Interest expense (22.3 ) (24.1 ) (25.9 ) 1.8 1.8 Income taxes (31.9 ) (27.2 ) (27.5 ) (4.7 ) 0.3 NET INCOME $ 52.8$ 47.1$ 46.1 $ 5.7 $ 1.0 Operating Statistics Natural gas volumes (MMdth) Residential and commercial sales 114.9 96.2 113.3 18.7 (17.1 ) Industrial sales 4.4 4.7 5.0 (0.3 ) (0.3 ) Transportation for industrial customers 64.5 62.0 52.5 2.5 9.5 Total industrial 68.9 66.7 57.5 2.2 9.2 Total deliveries 183.8 162.9 170.8 20.9 (7.9 ) Natural gas revenue (per dth) Residential and commercial $ 7.92$ 8.19$ 7.88$ (0.27 )$ 0.31 Industrial sales 6.47 5.79 6.03 0.68 (0.24 ) Transportation for industrial customers 0.22 0.19 0.21 0.03 (0.02 ) System natural gas cost (per dth) $ 5.00$ 4.77$ 5.05$ 0.23$ (0.28 ) Colder (warmer) than normal temperatures 8% (16%) 7% 24% (23%) Temperature-adjusted usage per customer (dth) 108.0 108.4 111.1 (0.4 ) (2.7 ) Customers at December 31, (in thousands) 946 931 919 15 12 Questar 2013 Form 10-K 28



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Margin Analysis Questar Gas's margin (revenues less gas costs) increased $6.3 million in 2013 compared to 2012 and increased $5.8 million in 2012 compared to 2011. Following is a summary of major changes in Questar Gas's margin for 2013 compared to 2012 and 2012 compared to 2011: Change 2013 vs. 2012 2012 vs. 2011 (in millions) Customer growth $ 4.2$ 3.1 Customers switching from sales to transportation service 2.0 0.3 Change in rates 0.4 0.2 Infrastructure-replacement cost recovery 8.0 5.9 DSM cost recovery (6.9 ) (3.3 ) Recovery of gas-cost portion of bad debt costs (0.5 ) (0.9 ) Other (0.9 ) 0.5 Increase $ 6.3$ 5.8 At December 31, 2013, Questar Gas served 945,971 customers, up from 930,760 at December 31, 2012, and 919,236 at December 31, 2011. Customer growth increased the margin by $4.2 million in 2013 and $3.1 million in 2012. Temperature-adjusted usage per customer was essentially flat in 2013 compared to 2012 and decreased 2% in 2012 compared to 2011. The impact on the company margin from changes in usage per customer has been mitigated by the CET. The CET adjustment decreased revenues by $1.1 million in 2013, decreased revenues by $2.9 million in 2012 and decreased revenues by $3.6 million in 2011, which offset changes in customer usage.



Weather, as measured in degree days, was 8% colder than normal in 2013, 16% warmer than normal in 2012 and 7% colder than normal in 2011. A weather-normalization adjustment on customer bills generally offsets financial impacts of temperature variations.

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, and do it upon the completion of each project. Questar Gas realized an increase in margin of $8.0 million in 2013 and $5.9 million in 2012 under this mechanism. Lower recovery of DSM costs decreased Questar Gas margin in 2013 and 2012. DSM costs are incurred to promote energy conservation by customers. Changes in the margin contribution from DSM recovery revenues are offset by equivalent changes in program expenses. Questar Gas has an allowed return on equity of 10.35% in Utah. Questar Gas filed a general rate case in Utah in July 2013, requesting a $19 million increase in revenues and a continuation of its 10.35% authorized return on equity. Hearings were held in January 2014 and a decision in the case was received on February 21, 2014, which authorized an allowed return on equity of 9.85% and an annual increase in revenues of $7.6 million effective March 1, 2014. Questar Gas filed a general rate case in Wyoming in December 2011 and received an order in 2012, which increased rates by $0.6 million per year and authorized a return on equity of 9.16%. Cost of Natural Gas Sold Cost of natural gas sold increased 22% in 2013 compared to 2012 and decreased 17% in 2012 compared to 2011. The 2013 increase was due to an 18% increase in volumes sold and a 5% increase in the purchase cost of natural gas. The 2012 decrease was due to a 15% decrease in volumes sold and a 6% decrease 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 increased 7% in 2013 and 6% in 2012 due to Wexpro's higher investment in gas development properties resulting in higher volumes of cost-of-service gas. Wexpro provided 59% of Questar Gas's natural gas supply in 2013, 68% in 2012 and 52% in 2011. Questar Gas accounts for purchased-gas costs in accordance with procedures authorized by the PSCU and the PSCW. Purchased-gas costs that are different from those provided for in present rates are accumulated and recovered or credited through future rate changes. As of December 31, 2013, Questar Gas had a $7.4 million over-collected balance in the purchased-gas adjustment account representing costs recovered from customers in excess of costs incurred. Refer to Note 1 to the



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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 5% in 2013 compared to 2012. The decrease was primarily driven by a $6.9 million decrease in DSM costs recovered from customers, a $1.3 million decrease in labor and pension costs, and a $0.9 million decrease in bad debt costs. These reductions were partially offset by higher expenses for communication and other services. Operating and maintenance expenses were essentially flat in 2012 compared to 2011. General and administrative costs increased 3% in 2013 compared to 2012 and were flat in 2012 compared to 2011. The 2013 increase was primarily due to higher allocated corporate expenses. The sum of operating, maintenance, general and administrative expenses not including DSM costs per customer was $144 in 2013 compared to $143 in 2012 and $141 in 2011.



Other taxes increased 11% in 2013 compared to 2012 and increased 8% in 2012 compared to 2011 due to increased property tax valuations and rates.

Depreciation and amortization expense was 5% higher in 2013 compared to 2012 and increased 6% in 2012 compared to 2011 due to higher depreciation expense from plant additions driven by customer growth and feeder-line replacements.



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WEXPRO

Wexpro reported net income of $110.6 million in 2013 compared to $103.9 million in 2012 and $95.2 million in 2011. The growth in net income resulted from increased investment in cost-of-service gas development wells and the September 2013 Trail acquisition. Following is a summary of Wexpro financial and operating results: Year Ended December 31, Change 2013 2012 2011 2013 vs. 2012 2012 vs. 2011 (in millions) Net Income REVENUES Operator service fee $ 294.0$ 273.0$ 253.5$ 21.0$ 19.5 Oil and NGL sales 40.9 37.0 31.3 3.9 5.7 Natural gas sales and other 5.0 0.2 0.3 4.8 (0.1 ) Total Revenues 339.9 310.2 285.1 29.7 25.1 OPERATING EXPENSES Operating and maintenance 27.8 26.8 22.3 1.0 4.5 Gathering and other handling 0.8 - - 0.8 - General and administrative 28.7 26.8 24.2 1.9 2.6 Retirement incentive - 0.2 - (0.2 ) 0.2 Production and other taxes 28.3 20.8 25.6 7.5 (4.8 ) Depreciation, depletion and amortization 85.8 77.4 63.9 8.4 13.5 Oil and NGL income sharing 0.6 2.5 3.3 (1.9 ) (0.8 )



Total Operating Expenses 172.0 154.5 139.3

17.5 15.2 Net gain (loss) from asset sales (0.2 ) 2.4 (0.1 ) (2.6 ) 2.5 OPERATING INCOME 167.7 158.1 145.7 9.6 12.4 Interest and other income 5.0 2.8 4.2 2.2 (1.4 ) Interest expense (0.1 ) - - (0.1 ) - Income taxes (62.0 ) (57.0 ) (54.7 ) (5.0 ) (2.3 ) NET INCOME $ 110.6$ 103.9$ 95.2 $ 6.7 $ 8.7 Operating Statistics Production volumes Natural gas - cost-of-service deliveries (Bcf) 59.2 57.5 50.5 1.7 7.0 Natural gas - sales (Bcf) 1.4 - - 1.4 - Oil and NGL (Mbbl) 617 665 467 (48 ) 198 Natural gas average sales price (per Mcf) $ 3.74 $ - $ - $ 3.74 $ - Oil and NGL average sales price (per bbl) $ 85.20$ 80.61$ 82.11$ 4.59$ (1.50 ) Investment base at Dec. 31, (in millions) $ 589.7$ 531.1$ 474.4$ 58.6$ 56.7 Revenues Wexpro earned a 19.7% after-tax return on average investment base in 2013 compared to 19.9% in 2012 and 20.0% in 2011. Pursuant to the Wexpro Agreement, Wexpro recovers its costs and receives an after-tax return on its investment base. Wexpro's investment base includes its costs of commercial wells and related facilities adjusted for working capital and reduced for deferred income taxes and accumulated depreciation, depletion and amortization. Wexpro's return on investment base is determined based on authorized returns from a group of rate-regulated companies plus an 8% risk premium for natural gas development drilling. The authorized returns for this group of companies have declined in recent years, resulting in lower returns on investment base for Wexpro. Questar 2013 Form 10-K 31



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Following is a summary of changes in the Wexpro investment base:

Year Ended December 31, 2013 2012 2011 (in millions) Investment base at beginning of year $ 531.1$ 474.4$ 456.6 Successful development wells and related equipment 158.5 149.3



118.0

Depreciation, depletion and amortization (79.2 ) (73.9 ) (60.2 ) Change in deferred taxes (20.7 ) (18.7 ) (40.0 ) Investment base at end of year $ 589.7$ 531.1



$ 474.4

This investment base does not yet include the cost of the Trail acquisition. The PSCU and PSCW authorized the inclusion of this acquisition in Wexpro II in January 2014.

Wexpro produced 59.2 Bcf of cost-of-service natural gas for Questar Gas during 2013, compared to 57.5 Bcf in 2012 and 50.5 Bcf in 2011. The higher production levels are due to increased investment in gas-development wells. Cost-of-service natural gas production provided approximately 59% of Questar Gas's supply requirements in 2013 compared to 68% in 2012 and 52% in 2011. The higher percentages in 2013 and 2012 were primarily due to higher production from increased development drilling activities. The 2012 percentage was also higher due to significantly warmer than normal weather. Revenues from oil and NGL sales increased 11% in 2013 compared to 2012 after increasing 18% in 2012 compared to 2011. The 2013 increase was driven by a 6% increase in average selling price for oil and NGL and higher volumes of oil and NGL for which revenue is shared with Questar Gas customers pursuant to the Wexpro Agreement. Volumes of oil and NGL increased 42% in 2012 from increased liquid production related to the Vermillion drilling program. The average selling price for oil and NGL decreased 2% in 2012 compared to 2011. Revenues from natural gas sales in 2013 were primarily attributable to the Trail acquisition, which closed in September 2013. See below and Note 17 to the financial statements included in Item 8 of Part II of this Annual Report for additional information regarding this acquisition.



Expenses

Operating and maintenance expenses were up 4% in 2013 compared to 2012 and were up 20% in 2012 compared to 2011. The 2013 increase was due to higher workover and water-disposal costs. The 2012 increase was due to increased water-disposal costs and higher costs of outside operated properties. Lease operating expense was $0.43 per Mcfe in 2013, $0.44 per Mcfe in 2012 and $0.42 per Mcfe in 2011. General and administrative expenses were 7% higher in 2013 compared to 2012 and 11% higher in 2012 compared to 2011. The increases were due to higher compensation, employee benefits and allocated corporate expenses. Production and other taxes were 36% higher in 2013 compared to 2012 and 19% lower in 2012 compared to 2011. These taxes were $0.44 per Mcfe in 2013, $0.33 per Mcfe in 2012 and $0.48 per Mcfe in 2011. The variability in production and other taxes is due to changes in the production volumes and the prices of natural gas, oil and NGL. The average price of natural gas used to calculate production taxes was $3.85 per Mcf in 2013, $2.87 per Mcf in 2012 and $4.22 per Mcf in 2011. Depreciation, depletion and amortization expense was $1.56 per Mcfe in 2013 and $1.49 per Mcfe in 2012 and 2011. The depreciation, depletion and amortization rate in 2013 increased compared to 2012 and 2011 because of higher development costs and the depletion of older lower-cost natural gas reserves. Under the terms of the Wexpro Agreement, Wexpro shares 54% of its operating income from oil and NGL production with Questar Gas after recovery of expenses and a return on Wexpro's investment in successful wells. Questar Gas received oil and NGL income sharing amounting to $0.6 million in 2013, $2.5 million in 2012 and $3.3 million in 2011, which was credited to customers. Wexpro II Wexpro and Questar Gas received approval of the Commissions for a Wexpro II Agreement to add properties under the cost-of-service pricing methodology for the benefit of Questar Gas customers. The agreement is modeled after the terms of the original Wexpro Agreement. Under the Wexpro II Agreement, Wexpro may acquire gas development properties and Questar Gas may submit an application to the Commissions to treat these properties similar to the original Wexpro properties. If the Commissions approve the applications, the gas will be developed for the benefit of Questar Gas customers. Wexpro will be



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entitled to a return on the acquisition costs based on Questar Gas's approved cost of capital. Future development costs will earn returns consistent with the original Wexpro Agreement. Acquisition of Producing Properties and Inclusion in Wexpro II In September 2013, Wexpro completed a transaction to acquire an additional interest in natural gas-producing properties in the Trail Unit of southwestern Wyoming'sVermillion Basin for $104.3 million, after post-closing adjustments. In January 2014, the Commissions approved a stipulation for inclusion of these properties in the Wexpro II Agreement. As part of this stipulation, Wexpro agreed to a provision 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.



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QUESTAR PIPELINEQuestar Pipeline reported 2013 net income of $8.2 million compared to $64.7 million in 2012 and $67.9 million in 2011. The primary driver of the significant decrease in 2013 earnings was a $52.4 million after-tax write-down of the eastern segment of Southern Trails Pipeline in the third quarter of 2013. The $3.2 million decrease in 2012 was due to lower NGL revenues and increased operating costs, depreciation and interest expense, partially offset by a gain on sale of assets and lower property taxes. Following is a summary of Questar Pipeline financial and operating results: Year Ended December 31, Change 2013 2012 2011 2013 vs. 2012 2012 vs. 2011 (in millions) Net Income REVENUES Transportation $ 194.6$ 194.5$ 195.2 $ 0.1 $ (0.7 ) Storage 37.3 38.3 38.3 (1.0 ) - NGL sales - transportation 7.7 7.1 8.9 0.6 (1.8 ) NGL sales - field services 1.9 8.4 8.3 (6.5 ) 0.1 Energy services 12.7 15.3 16.2 (2.6 ) (0.9 ) Gas processing 1.6 2.7 2.5 (1.1 ) 0.2 Natural gas sales 3.8 4.4 - (0.6 ) 4.4 Other 6.6 6.8 2.4 (0.2 ) 4.4 Total Revenues 266.2 277.5 271.8 (11.3 ) 5.7 OPERATING EXPENSES Operating and maintenance 32.5 35.2 35.3 (2.7 ) (0.1 )



General and administrative

46.7 50.0 46.5 (3.3 ) 3.5 Retirement incentive - 0.9 - (0.9 ) 0.9 Depreciation and amortization 55.5 54.3 51.2 1.2 3.1 Asset impairment 80.6 - - 80.6 - Other taxes 9.3 9.1 10.1 0.2 (1.0 ) Cost of sales 6.1 6.7 3.1 (0.6 ) 3.6



Total Operating Expenses 230.7 156.2 146.2

74.5 10.0 Net gain from asset sales - 2.7 0.3 (2.7 ) 2.4 OPERATING INCOME 35.5 124.0 125.9 (88.5 ) (1.9 ) Interest and other income 1.8 0.6 0.9 1.2 (0.3 ) Income from unconsolidated affiliate 3.7 3.7 3.8 - (0.1 ) Interest expense (25.8 ) (26.3 ) (24.5 ) 0.5 (1.8 ) Income taxes (7.0 ) (37.3 ) (38.2 ) 30.3 0.9 NET INCOME $ 8.2$ 64.7$ 67.9$ (56.5 )$ (3.2 ) Operating Statistics Natural gas transportation volumes (MMdth) For unaffiliated customers 753.4 785.4 665.8 (32.0 ) 119.6 For Questar Gas 119.5 107.2 116.9 12.3 (9.7 ) Total transportation 872.9 892.6 782.7 (19.7 ) 109.9 Transportation revenue (per dth) $ 0.22$ 0.22$ 0.25 $ - $ (0.03 ) Net firm-daily transportation demand at December 31, (including White River Hub of 1,020 Mdth in 2013, 2012 and 2011) 5,121 5,039 4,973 82 66 Natural gas processing NGL sales (Mbbl) 163 253 233 (90 ) 20 NGL average sales price (per bbl) $ 59.00$ 61.16$ 73.77$ (2.16 )$ (12.61 ) Questar 2013 Form 10-K 34



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Revenues

As of December 31, 2013, Questar Pipeline had firm transportation contracts of 5,121 Mdth per day, including 1,020 Mdth per day from Questar Pipeline's 50% ownership of White River Hub, compared with 5,039 Mdth per day as of December 31, 2012, and 4,973 Mdth per day as of December 31, 2011. During 2013, Questar Pipeline completed two system expansions, which added approximately 118 Mdth per day. Firm contract volumes associated with these expansions were partially offset by contract terminations. The increase in contracted volumes for 2012 was primarily driven by production increases on Questar Pipeline's southern system. Transportation revenue for 2013 was flat with 2012 levels as new contracts offset decreases resulting from reduced-rate contracts and lower flexing revenue. Transportation revenue decreased $0.7 million in 2012 when compared with 2011. This decrease was driven by reduced-rate contracts along with lower commodity and interruptible volumes. For 2013, storage revenue fell $1.0 million from 2012 levels due to a terminated park-and-loan contract and lower interruptible volumes. Energy services revenue fell $2.6 million in 2013 when compared to 2012 and $0.9 million when comparing 2012 with 2011. These decreases were driven by lower demand for products and services due to lower drilling activity in the Rockies. Gas processing revenue fell $1.1 million in 2013 compared to 2012 due primarily to a terminated processing contract. Questar Pipeline earns more revenue from Questar Gas than from any other single customer, with contracts for 916 Mdth per day during the heating season and 841 Mdth per day during off-peak months. The majority of Questar Gas transportation contracts extend through mid-2017. Rockies Express Pipeline has leased capacity on the Questar Overthrust Pipeline for 625 Mdth per day through 2027. Wyoming Interstate Company has contracts on Questar Overthrust Pipeline for 544 Mdth per day with a weighted-average remaining life of 7.4 years. White River Hub's contracts have a weighted-average remaining life of 12.3 years. Questar Pipeline owns and operates the Clay Basin underground storage complex in eastern Utah. This facility is 100% subscribed under long-term contracts. In addition to Clay Basin, Questar Pipeline owns and operates three smaller aquifer gas storage facilities. Questar Gas has contracted for 26% of firm storage capacity at Clay Basin with contracts expiring in 2017, 2019 and 2020 and 100% of the firm storage capacity at the aquifer facilities with contracts extending through 2018. In 2011, Questar Pipeline increased its working capacity in Clay Basin by 2.7 Bcf. Questar Pipeline charges FERC-approved transportation and storage rates that are based on straight-fixed-variable rate design. Under this rate design, all fixed costs of providing service, including depreciation and return on investment, are recovered through the demand charge. About 95% of Questar Pipeline costs are fixed and recovered through these demand charges. Questar Pipeline's earnings are driven primarily by demand revenues from firm shippers.



Questar Pipeline has three primary sources of NGL revenue. These sources include two major regulated processing facilities (transportation NGL sales) and an unregulated subsidiary that provides third-party processing services (field services NGL sales).

Regulated processing facilities at Clay Basin condition gas to meet pipeline gas-quality specifications. These facilities are part of an agreement that allows Questar Pipeline to recover any shortfall between the NGL revenues and the cost of service for conditioning the gas. Other processing facilities on Questar Pipeline's transmission system are not subject to the Clay Basin gas processing agreement. NGL sales for the regulated operations increased 8% in 2013 compared to 2012 and decreased 20% in 2012 compared to 2011. For 2013, volumes increased 15%, partially offset by a 5% decrease in net revenue per barrel when compared to 2012. For 2012, volumes decreased 5% and net revenue per barrel decreased 17% when compared to 2011. NGL sales for the unregulated subsidiary decreased 77% in 2013 compared to 2012 and increased 1% in 2012 compared to 2011. The 2013 decrease was driven by a 79% decrease in volumes that was slightly offset by a 5% increase in net revenue per barrel. The 2012 increase was driven by a 24% increase in volumes that was mostly offset by an 18% decrease in net revenue per barrel. The decrease in 2013 volumes was due largely to upstream processing. During 2013, Questar Pipeline sold 1.1 MMdth of natural gas, with revenues approximating cost. In 2012, Questar Pipeline sold 1.3 MMdth of natural gas for a net gain of $1.3 million. Questar Pipeline received this gas to settle the shortfall between NGL revenue and the cost of service for conditioning gas at Clay Basin.



Expenses

Operating and maintenance expenses decreased 8% in 2013 compared to 2012 and were flat in 2012 compared to 2011. The decrease in 2013 was due to lower maintenance expense and lower processing product costs. General and administrative expenses decreased 7% in 2013 compared to 2012 and increased 8% in 2012 compared to 2011. The decrease in 2013 was



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primarily due to lower communication expense. The increase in 2012 was due to higher compensation, employee benefits and allocated corporate expenses. Operating, maintenance, general and administrative expenses per dth transported were $0.09 in 2013 and were $0.10 in 2012 and 2011. Operating, maintenance, general and administrative expenses include processing and storage costs. Other taxes increased 2% in 2013 compared to 2012 and decreased 10% in 2012 compared to 2011. The 2013 increase was due to increased property taxes. The 2012 decrease was due primarily to lower property taxes resulting from refunds of prior years' taxes.



Depreciation and amortization expense increased 2% in 2013 compared to 2012 and increased 6% in 2012 compared to 2011 due to investment in pipeline expansions.

Strategic Review of Questar Southern Trails Pipeline and Impairment of Eastern Segment In the fourth quarter of 2012, Questar Pipeline initiated a strategic review of the noncore Questar Southern Trails Pipeline. All strategic options were analyzed, including joint ventures, asset sales and other alternatives. The eastern segment of Southern Trails Pipeline is in natural gas service and extends 487 miles from the San Juan Basin in New Mexico to connections with other pipelines in the eastern portion of Southern California. The western segment of Southern Trails Pipeline extends 96 miles from Whitewater to Long Beach, California. This segment has not been placed in service. As a result of that review, Questar Pipeline entered into an agreement with an affiliate of Spectra Energy Corp to evaluate and potentially recommission the western portion of its Southern Trails Pipeline to its original purpose as a crude oil transport pipeline and to develop a rail terminal to offload crude into the pipeline for transportation to refineries in Southern California. Questar Pipeline's net book value of the western segment of Southern Trails Pipeline is approximately $22 million. This project is in the marketing and engineering phase and a decision whether or not to proceed with the development is expected in 2014. During the third quarter of 2013, Questar Pipeline updated its five-year forecast for the eastern segment of Southern Trails Pipeline, which resulted in revised projections of higher operating expenses including right-of-way and pipeline safety costs. Current and projected market rates for natural gas transportation between the San Juan Basin and California markets did not cover these increasing operating expenses over the forecast period. Because of changes in expected cash flows in the third quarter of 2013 and the lack of progress in selling or recontracting this pipeline, Questar Pipeline recorded a noncash impairment of its entire investment in the eastern segment of Southern Trails Pipeline of $80.6 million, or $52.4 million after income taxes. Questar Pipeline used a probability-weighted discounted cash flow analysis that included significant inputs such as Questar Pipeline's cost of capital and assumptions regarding future transportation rates and operating costs.



Other Consolidated Results

Questar Fueling Other consolidated results include losses from the start-up of Questar Fueling Company (Questar Fueling) operations of $0.8 million in 2013 and $0.4 million in 2012. Questar Fueling began its operation in mid-2012 to provide natural gas fueling infrastructure nationally, with specific focus on the medium- to heavy-duty vehicle market. Questar Fueling placed two facilities in service during 2013 and has contracts to develop several additional facilities. Retirement Incentive In 2012 Questar offered a retirement incentive to eligible employees of six months additional salary. Approximately 100 employees accepted this offer and retired in early 2013. The $4.9 million incentive cost was recognized in 2012. Net Gain from Asset Sales In 2012 Questar Pipeline sold real estate for a gain of $2.4 million before income taxes. Also in 2012, Wexpro sold real estate for a gain of $2.4 million; however, this gain was credited back to Questar Gas customers through the operator service fee. Questar 2013 Form 10-K 36



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Interest and Other Income Interest and other income increased $2.9 million in 2013 compared to 2012 and decreased $3.4 million in 2012 compared to 2011. The details of interest and other income for the last three years are shown in the table below: Year Ended December 31, Change 2013 2012 2011 2013 vs. 2012 2012 vs. 2011 (in millions) Interest income $ 1.3$ 1.6$ 2.4$ (0.3 )$ (0.8 ) Inventory sales 0.3 0.6 0.7 (0.3 ) (0.1 ) Allowance for other funds used during construction (AFUDC) 6.3 2.3 4.4 4.0 (2.1 ) Return earned on working-gas inventory and purchased-gas adjustment account 3.9 4.0 3.8 (0.1 ) 0.2 Other non-operating expenses (1.9 ) (1.5 ) (0.9 ) (0.4 ) (0.6 ) Total $ 9.9$ 7.0$ 10.4 $ 2.9 $ (3.4 ) Income from Unconsolidated Affiliate Income from White River Hub, Questar's sole unconsolidated affiliate, was $3.7 million in 2013 and 2012 and $3.8 million in 2011. Interest Expense Interest expense decreased 2% in 2013 compared to 2012 after increasing 2% in 2012 compared to 2011. The decrease in 2013 was due to the replacement of higher cost long-term debt with lower rates as long-term debt matured and the use of short-term debt in the period between the retirement of long-term debt and the issuance of new long-term debt. The increase in 2012 was due to higher balances of long-term debt. Interest rates on the Company's commercial-paper borrowings in 2013, 2012 and 2011 averaged less than 1% per annum. Capitalized interest charges on construction projects amounted to $0.8 million in 2013, $0.2 million in 2012 and $0.6 million in 2011. Income Taxes The effective combined federal and state income tax rate was 38.6% in 2013, 35.5% in 2012 and 35.9% in 2011. The 2013 combined effective federal and state income tax rate increased due to the impairment of Southern Trails Pipeline. There was no state tax benefit recorded in association with the impairment charge because the Company has limited state operations for Southern Trails Pipeline. The effective combined federal and state income tax rate also increased in 2013 due to adjustments to estimated state income taxes for the consolidated Questar return that were in excess of state income taxes calculated on a separate return basis for the operating companies. Due to the effects of bonus depreciation and other significant book/tax timing differences, the Company incurred a net operating loss (NOL) for federal income tax purposes in 2011. The 2011 NOL was $124.8 million. The Company's taxable income for 2012 was $94.8 million, resulting in a NOL carryforward of $30.0 million. The Company expects to utilize the remaining NOL by offsetting it against taxable income on its 2013 federal income tax return.



LIQUIDITY AND CAPITAL RESOURCES

Operating Activities Following is a summary of net cash provided by operating activities for 2013, 2012 and 2011: Year Ended December 31, Change 2013 2012 2011 2013 vs. 2012 2012 vs. 2011 (in millions) Net income $ 161.2$ 212.0$ 207.9$ (50.8 ) $ 4.1 Noncash adjustments to income 337.0 313.8 276.2 23.2 37.6 Changes in operating assets and liabilities 3.9 (58.1 ) 4.9 62.0 (63.0 ) Net cash provided by operating activities $ 502.1$ 467.7$ 489.0$ 34.4$ (21.3 ) Cash sources from operating assets and liabilities were lower in 2012 compared to both 2013 and 2011 due to customer credits of gas costs previously collected from customers in excess of costs incurred and higher pension contributions. Questar 2013 Form 10-K 37



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Investing Activities Capital spending in 2013 amounted to $503.7 million compared to $370.7 million in 2012. The details of capital expenditures, including acquisitions, in 2013 and 2012 and a forecast for 2014 are shown in the table below: Year Ended December 31, 2014 Forecast 2013 2012 (in millions) Questar Gas $ 190$ 166.2$ 162.1 Wexpro 100 249.5 144.5 Questar Pipeline 120 73.4 60.6 Corporate and other 30 14.6 3.5



Total capital expenditures including acquisitions $ 440$ 503.7

$ 370.7Questar Gas During 2013, Questar Gas added 250 miles of main, feeder and service lines to provide service to 15,211 additional customers. The 2013 capital expenditures included $56.9 million to replace infrastructure. The Company can earn on these expenditures through the infrastructure cost-tracking mechanism. Questar Gas's 2014 capital-spending forecast of about $190 million includes investments to provide service to approximately 16,300 additional customers, distribution-system upgrades and expansions, and infrastructure replacements of about $65 million.



Wexpro

During 2013, Wexpro participated in 62 gross wells (44.1 net), resulting in 41.9 net successful gas wells and no net dry or abandoned wells. The 2013 net drilling-success rate was 100%. There were 3 gross wells (2.2 net) in progress at year-end. Wexpro expects to spend about $100 million in 2014 for developmental gas drilling and property acquisitions. The 2013 Wexpro capital expenditure amount includes the cost of the Trail acquisition (refer to Note 17 to the financial statements included in Item 8 of Part II of this Annual Report). Questar PipelineQuestar Pipeline invested in several transmission system expansion projects and replacement projects in 2013. Questar Pipeline's 2014 capital-spending forecast is about $120 million for transmission-system expansions and pipeline replacements. Financing Activities Following is a summary of financing activities for 2013, 2012 and 2011: Year Ended December 31, Change 2013 2012 2011 2013 vs. 2012 2012 vs. 2011 (in millions) Common stock issues, net of repurchases $ (1.9 )$ (80.3 )$ 2.7$ 78.4$ (83.0 ) Change in long-term debt and capital lease 104.6 56.5 (7.1 ) 48.1 63.6 Change in short-term debt 13.0 44.0 (23.0 ) (31.0 ) 67.0 Dividends paid (124.6 ) (117.4 ) (110.1 ) (7.2 ) (7.3 ) Other 14.0 - 9.2 14.0 (9.2 ) Net cash provided by (used in) financing activities $ 5.1$ (97.2 )$ (128.3 ) $



102.3 $ 31.1

In 2012 Questar repurchased 4.1 million shares of its common stock on the open market for $82.4 million. These repurchases were under a $100 million program approved by the Board of Directors to reduce the share count approximately to its June 30, 2010 level. The Board of Directors has authorized additional repurchases of up to 1 million shares per year to offset share dilution from shares issued under Company incentive plans. Questar did not repurchase any shares under this program during 2013.



Questar 2013 Form 10-K 38

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In December 2013, Questar Gas issued $90.0 million of 30-year Senior Notes at 4.78% and $60.0 million of 35-year Senior Notes at 4.83% in the private placement market. The proceeds were used to repay existing indebtedness and for general corporate purposes. Questar Gas repaid $91.5 million of long-term debt that matured in 2012. An additional $40.0 million of maturing long-term debt was repaid in January 2013 and $2.0 million was repaid in September 2013. These maturities had a weighted-average interest rate of 6.06%. In December 2012, Questar Gas issued $110.0 million of 15-year notes at 3.28% and $40.0 million of 12-year notes at 2.98% in the private placement market to refinance these maturing amounts and for general corporate purposes. Questar Pipeline entered into forward starting swaps totaling $150.0 million in the second and third quarters of 2011 in anticipation of issuing $180.0 million of notes in December 2011. Settlement of these swaps required payments of $37.3 million because of declines in interest rates. These swaps qualified as cash flow hedges and the settlement payments are being amortized to interest expense over the 30-year life of the debt. The effective interest rate on the $180.0 million debt after adjusting the net proceeds for issuance costs and the swap settlements was 6.66%. In December 2010, Questar issued $250.0 million of 2.75% Senior Notes due 2016. In the second quarter of 2011, Questar executed a fixed-to-floating interest rate swap transaction with a counterparty and converted $125.0 million of its 2.75% fixed-rate long-term debt to floating-rate debt. Questar settled this hedge transaction in March 2012, for a deferred gain of $7.2 million, which is being amortized to interest expense over the remaining debt term. Questar's consolidated capital structure consisted of 57% combined short- and long-term debt and 43% common shareholders' equity at December 31, 2013, compared to 58% combined short- and long-term debt and 42% common shareholders' equity at December 31, 2012. The Company does not expect the ratio of debt in the capital structure to materially change over the next several years. Questar issues commercial paper to meet short-term financing requirements. The commercial-paper program is supported by a revolving credit facility with various banks that provides back-up credit liquidity. Credit commitments under the revolving credit facility totaled $750.0 million at December 31, 2013, with no amounts borrowed. In April 2013, Questar amended and restated its revolving credit facility to increase its size from $500.0 million to $750.0 million and extend its maturity from August 31, 2016 to April 19, 2018. On October 29, 2012, the Company amended its revolving credit facility to enable Questar Gas to issue $150.0 million in the private placement market in December 2012. Under both amendments, consolidated funded debt cannot exceed 70% of consolidated capitalization. Questar is in compliance with this covenant. Commercial paper outstanding amounted to $276.0 million at December 31, 2013, compared with $263.0 million a year earlier. The Company's short-term financing requirements are seasonal and typically peak at December 31 because of Questar Gas's gas-purchasing requirements.



The Company believes current credit commitments are adequate for its working capital and short-term financing requirements during 2014. The Company also believes it will have adequate access to long-term capital based on current credit markets and its investment-grade credit ratings.

In June 2010, Questar entered into a lease agreement for a new headquarters building. The lease term is 17 years and commenced in May 2012. Questar accounts for this lease as a capital lease. The Company's lease on its former headquarters building expired in April 2012.

The Company increased its annualized dividend per share by 6% from $0.68 in 2012 to $0.72 in 2013. The Company has a dividend payout target of about 60%. The Company expects to increase future dividends as it is able to grow net income. Questar 2013 Form 10-K 39



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Contractual Cash Obligations and Other Commitments In the course of ordinary business activities, Questar enters into a variety of contractual cash obligations and other commitments. The following table summarizes the significant contractual cash obligations as of December 31, 2013: Payments Due by Year Total 2014 2015 2016 2017 2018 After 2018 (in millions) Long-term debt Questar Gas $ 534.5 $ - $ - $ - $ 14.5$ 120.0$ 400.0 Questar Pipeline 460.1 - 25.1 - - 255.0 180.0 Questar Corporation 250.0 - - 250.0 - - - Total 1,244.6 - 25.1 250.0 14.5 375.0 580.0 Interest on fixed-rate long-term debt Questar Gas 501.9 25.5 27.1 27.1 26.8 20.8 374.6 Questar Pipeline 309.7 25.3 25.0 23.7 23.7 10.3 201.7 Questar Corporation 17.1 6.9 6.9 3.3 - - - Total 828.7 57.7 59.0 54.1 50.5 31.1 576.3 Gas-purchase contracts - Questar Gas 229.2 27.4 21.0 21.1 25.3 29.4 105.0 Transportation, gathering and storage contracts - Questar Gas With unaffiliated pipelines 223.7 27.2 27.2 27.2 27.2 24.2 90.7 With Questar Pipeline 290.2 74.4 73.3 73.3 46.6 13.4 9.2 Total 513.9 101.6 100.5 100.5 73.8 37.6 99.9 Capital lease 62.0 3.0 3.4 3.5 3.6 3.7 44.8 Less: intercompany commitments (290.2 ) (74.4 ) (73.3 ) (73.3 ) (46.6 ) (13.4 ) (9.2 ) Total - Questar Consolidated $ 2,588.2$ 115.3$ 135.7$ 355.9$ 121.1$ 463.4$ 1,396.8 Total - Questar Gas $ 1,779.5$ 154.5$ 148.6$ 148.7$ 140.4$ 207.8$ 979.5 Total - Questar Pipeline $ 769.8$ 25.3$ 50.1$ 23.7$ 23.7$ 265.3$ 381.7 The Company's projected funding for its qualified defined benefit pension plan for 2014, which is not reflected in the above table, is $18.0 million. For more information regarding Questar's pension and other postretirement benefits, refer to Note 13 to the financial statements included in Item 8 of Part II of this Annual Report.



CRITICAL ACCOUNTING POLICIES, ESTIMATES AND ASSUMPTIONS

Questar's significant accounting policies are summarized in Note 1 to the financial statements included in Item 8 of Part II of this Annual Report. The Company's consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles. The preparation of consolidated financial statements requires management to make assumptions and estimates that affect the reported results of operations and financial position. The following accounting policies may involve a higher degree of complexity and judgment on the part of management. Gas and Oil Reserves Gas and oil reserve estimates require significant judgments in the evaluation of all available geological, geophysical, engineering and economic data. The data for a given field may change substantially over time as a result of numerous factors including, but not limited to, additional development activity, production history, and economic assumptions relating to commodity prices, production costs, severance and other taxes, capital expenditures and remediation costs. The subjective judgments and variances in data for various fields make these estimates less precise than other estimates included in the financial statement disclosures. Changes in expected performance from the properties and economic data can result in a revision to the amount of estimated reserves held by the Company. If reserves are revised upward, operating results could be affected due to lower depreciation, depletion and amortization expense per unit of production. Likewise, if reserves are revised downward, operating results could



Questar 2013 Form 10-K 40

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be affected due to higher depreciation, depletion and amortization expense or a potential write-down of a property's book value if an impairment is warranted.

Asset Impairments Questar evaluates assets for possible impairment when a triggering event occurs. Triggering events may include operating losses or significant changes in contracts, revenues or expenses for a specific asset. Impairment losses may be recorded if the undiscounted future cash flows are less than the current net book value of the asset. If impairment is indicated, fair value is estimated using a discounted cash flow approach using market interest rates or, if available, other market data. The amount of impairment loss recorded, if any, is the difference between the fair value of the asset and the current net book value. Estimates of the undiscounted future cash flows and fair value of the asset require significant assumptions for many years into the future regarding revenues and expenses for assets evaluated for impairment. Changes in assumptions may make a difference in whether or not an asset is impaired and in the amount of the impairment. Unbilled Revenues Questar Gas estimates revenues on a calendar basis even though bills are sent to customers on a cycle basis throughout the month. The company estimates unbilled revenues for the period from the date meters are read to the end of the month, using customer-usage history and weather information. Approximately one-half month of revenues is estimated in any period. The gas costs and other variable costs are recorded on the same basis to ensure proper matching of revenues and expenses. Questar Gas has a CET. Under the CET, Questar Gas non-gas revenues are decoupled from the volume of gas used by customers. The tariff specifies an allowed revenue per customer for each month with differences to be deferred and recovered from customers or refunded to customers through periodic rate adjustments. Differences between Questar Gas's estimate of unbilled revenues and actual revenues subsequently billed do not have a significant impact on operating results because of the CET. Regulatory Assets and Liabilities Questar Gas and Questar Pipeline follow accounting standards on regulated operations that require the recording of regulatory assets and liabilities by companies subject to cost-based regulation. Regulatory assets are recorded if it is probable that a cost will be recoverable in the future through regulated rates. Regulatory liabilities are recorded if it is probable that future rates will be reduced for a current item. The Company makes assumptions about the probability of future rate changes. The Company's regulatory assets and liabilities are supported by orders, rulings and practices of the regulatory agencies. Employee Pension and Other Postretirement Benefit Plans The Company has a noncontributory defined benefit pension plan covering a majority of its employees and postretirement medical and life insurance plans providing coverage to less than half of its employees. The calculation of the Company's costs and liabilities associated with its benefit plans requires the use of assumptions that the Company deems to be critical. Changes in these assumptions can result in different costs and liabilities, and actual experience can differ from these assumptions. Independent consultants hired by the Company use actuarial models to calculate estimates of net pension and postretirement benefit costs. The models use key factors such as mortality estimations, liability discount rates, long-term rates of return on investments, rates of compensation increases, amortized gain or loss from investments and medical-cost trend rates. Management formulates assumptions based on market indicators and advice from consultants. The Company believes that the liability discount rate and the expected long-term rate of return on benefit plan assets are critical assumptions. The assumed liability discount rate reflects the current rate at which the pension benefit obligations could effectively be settled and considers the rates of return available on a portfolio of high-quality, fixed-income investments. The Company discounted its future qualified pension liabilities using rates of 4.90% as of December 31, 2013, and 4.20% as of December 31, 2012. A 0.25% decrease in the discount rate would increase the Company's 2014 estimated annual qualified net pension cost by about $2.7 million. The expected long-term rate of return on qualified benefit plan assets reflects the average rate of earnings expected on funds invested or to be invested for purposes of paying pension benefits. The Company establishes the expected long-term rate of return at the beginning of each fiscal year giving consideration to the benefit plan's investment mix and historical and forecast rates of return on these types of securities. The expected long-term rate of return determined by the Company was 7.25% as of January 1, 2014, and January 1, 2013. Net benefit plan cost typically increases as the expected long-term rate of return on plan assets decreases. A 0.25% decrease in the expected long-term rate of return would cause an approximate $1.5 million increase in the 2014 qualified net pension cost. Questar 2013 Form 10-K 41



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