PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

QUESTAR GAS COMPANY

STATEMENT OF INCOME

(Unaudited)

3 Months Ended

12 Months Ended

March 31,

March 31,

2003

2002

2003

2002

(In Thousands)

REVENUES

$235,403

$261,259

$569,655

$655,243

OPERATING EXPENSES

  Cost of natural gas sold

144,635

177,129

337,800

445,520

  Operating and maintenance

28,540

26,651

107,433

104,989

  Depreciation

10,603

9,723

40,651

35,992

  Other taxes

2,919

2,866

9,601

8,797

    TOTAL OPERATING EXPENSES

186,697

216,369

495,485

595,298

    OPERATING INCOME

48,706

44,890

74,170

59,945

INTEREST AND OTHER INCOME

489

466

2,352

4,216

DEBT EXPENSE

(5,915)

(5,729)

(22,681)

(23,623)

    INCOME BEFORE INCOME TAXES

         AND CUMULATIVE EFFECT

43,280

39,627

53,841

40,538

INCOME TAXES

17,276

15,461

19,604

14,219

    INCOME BEFORE CUMULATIVE

         EFFECT

26,004

24,166

34,237

26,319

Cumulative effect of accounting change

    for asset retirement obligations, net

    of income taxes of $204

(334)

(334)

          NET INCOME

$ 25,670

$ 24,166

$ 33,903

$ 26,319

QUESTAR GAS COMPANY

CONDENSED BALANCE SHEET

March 31,

December 31,

2003

2002

2002

(Unaudited)

(In Thousands)

ASSETS

Current assets

  Cash and cash equivalents

$   11,755

$         -

$     2,993

  Notes receivable from Questar Corp.

50,000

10,500

  Accounts receivable, net

103,618

121,404

90,738

  Inventories, at lower of average cost or market

    Gas stored underground

13,504

913

22,742

    Materials and supplies

4,360

3,154

4,073

  Prepaid expenses and other

1,475

987

1,474

  Deferred income taxes - current

7,865

9,063

5,047

    Total current assets

192,577

146,021

127,067

Property, plant and equipment

1,201,824

1,152,389

1,193,553

Less accumulated depreciation and amortization

523,221

499,006

513,485

    Net property, plant and equipment

678,603

653,383

680,068

Regulatory and other assets

25,884

22,351

19,004

Goodwill

5,652

5,879

5,652

$  902,716

$  827,634

$  831,791

LIABILITIES AND SHAREHOLDER'S EQUITY

Current liabilities

  Checks outstanding in excess of cash balances

$         -

$     1,317

$         -

  Notes payable to Questar Corp.

36,400

  Accounts payable and accrued expenses

88,568

102,035

85,388

  Purchased-gas adjustments

20,698

23,849

13,282

  Current portion of long-term debt

64,000

    Total current liabilities

173,266

127,201

135,070

Long-term debt, less current portion

290,000

285,000

285,000

Deferred income taxes and investment tax credits

95,386

85,394

94,720

Other long-term liabilities

10,816

6,069

3,173

Common shareholder's equity

  Common stock

22,974

22,974

22,974

  Additional paid-in capital

121,875

121,875

121,875

  Retained earnings

188,399

179,121

168,979

    Total common shareholder's equity

333,248

323,970

313,828

$  902,716

$  827,634

$  831,791

See notes to the financial statements

QUESTAR GAS COMPANY

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

3 Months Ended

March 31,

2003

2002

(In Thousands)

OPERATING ACTIVITIES

  Net income

$ 25,670

$ 24,166

  Depreciation

11,169

10,518

  Deferred income taxes and investment tax credits

(1,947)

(11,099)

  Net (gain) loss from selling assets

94

(47)

  Cumulative effect of accounting change

334

35,320

23,538

  Change in operating assets and liabilities

6,815

62,986

        NET CASH PROVIDED FROM OPERATING

          ACTIVITIES

42,135

86,524

INVESTING ACTIVITIES

  Purchase of property, plant and equipment

(9,926)

(9,419)

  Proceeds from disposition of assets

203

437

        NET CASH USED IN INVESTING

          ACTIVITIES

(9,723)

(8,982)

FINANCING ACTIVITIES

  Checks outstanding in excess of cash balance

1,317

  Issuance of long-term debt

110,000

  Repayment of long-term debt

(41,000)

  Increase in notes receivable from Questar Corp.

(50,000)

(10,500)

  Decrease in notes payable to Questar Corp.

(36,400)

(66,600)

  Payment of dividends

(6,250)

(6,125)

        NET CASH USED IN FINANCIAL ACTIVITIES

(23,650)

(81,908)

  Change in cash and cash equivalents

8,762

(4,366)

  Beginning cash and cash equivalents

2,993

4,366

  Ending cash and cash equivalents

$ 11,755

$       -

See notes to the financial statements

QUESTAR GAS COMPANY

NOTES TO FINANCIAL STATEMENTS

March 31, 2003

(Unaudited)

Note 1 - Basis of Presentation

The interim financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. All such adjustments are of a normal recurring nature. Due to the seasonal nature of the business, the results of operations for the three- and twelve-month periods ended March 31, 2003, are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. The impact of abnormal weather on gas distribution earnings is mitigated by the operations of a weather-normalization adjustment. For further information refer to the financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2002.

Note 2 - New Accounting Standard

On January 1, 2003, Questar Gas adopted Statement of Financial Accounting Standards 143 (SFAS 143) "Accounting for Asset Retirement Obligations." As a result, the Company recorded a $334,000 after tax charge for the cumulative effect of this accounting change and a $582,000 long-term asset retirement obligation (liability). SFAS 143 addresses the financial accounting and reporting of the fair value of legal obligations associated with the retirement of tangible long-lived assets. The new standard requires the Company to estimate a fair value of abandonment costs and to capitalize and depreciate those costs over the life of the related assets. The provisions of SFAS 143 did not apply to a majority of the Company's long-lived distribution-system assets due to the lack of a legal obligation to abandon the assets or to an indefinite abandonment date. The new accounting rules allow deferral of an obligation until the abandonment date is known.

A regulatory asset amounting to $6.6 million was recorded by Questar Gas reflecting a retroactive charge for the abandonment costs associated with gas wells operated on its behalf by Wexpro. The regulatory asset will be amortized as the gas wells are plugged and abandoned.

The asset retirement obligation is adjusted to a present value each period through an accretion process using a credit-adjusted risk-free interest rate. Both the accretion expense associated with the liability and the depreciation associated with the capitalized abandonment costs are non-cash expenses until the asset is retired. The ongoing accretion and depreciation expenses associated with SFAS 143 that will directly affect income are insignificant.

Note 3 - Financing

On January 24, 2003, Questar Gas issued $40 million of medium-term notes with an effective interest rate of 5.02% and a ten-year life. The proceeds were used to redeem $41 million of debt with a coupon rate of 8.4%. A $1.7 million call premium was paid. This issue completed a Form S-3 shelf registration for issuance of up to $100 million of medium-term notes filed by Questar Gas in the third quarter of 2001.

On February 27, 2003, Questar Gas filed a shelf registration statement for the issuance of up to $70 million of medium-term notes. In March 2003, Questar Gas sold $70 million of 15-year notes with a coupon rate of 5.31%. On April 24, 2003, proceeds from the offering were used to replace $64 million of higher-cost debt issued in 1992 and 1993 with a weighted-average interest rate of 8.11%. A call premium of $2.6 million was paid.

Note 4 - Reclassifications

Certain reclassifications were made to the 2002 financial statements to conform with the 2003 presentation.

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

QUESTAR GAS COMPANY

March 31, 2003

(Unaudited)

Operating Results

Following is a summary of financial and operating information for the Company:

3 Months Ended

12 Months Ended

March 31,

March 31,

2003

2002

2003

2002

FINANCIAL RESULTS - (In Thousands)

  Revenues

    From unaffiliated customers

$234,514

$260,958

$567,391

$653,169

    From affiliates

889

301

2,264

2,074

      Total revenues

235,403

261,259

569,655

655,243

  Cost of natural gas sold

144,635

177,129

337,800

445,520

         Margin

$ 90,768

$ 84,130

$231,855

$209,723

  Operating income

$ 48,706

$ 44,890

$ 74,170

$ 59,945

  Income before cumulative effect

$ 26,004

$ 24,166

$ 34,237

$ 26,319

  Cumulative effect of accounting change

(334)

(334)

  Net income

$ 25,670

$ 24,166

$ 33,903

$ 26,319

OPERATING STATISTICS

Natural gas volumes (in thousands of

   Decatherms)

    Residential and commercial sales

35,468

43,361

82,903

90,307

    Industrial sales

3,227

3,440

10,516

10,857

    Transportation for industrial customers

9,552

11,860

44,151

51,770

      Total industrial

12,779

15,300

54,667

62,627

      Total deliveries

48,247

58,661

137,570

152,934

  Natural gas revenue (per Decatherm)

    Residential and commercial

$   6.08

$   5.51

$   6.01

$   6.35

    Industrial sales

4.30

4.85

3.96

5.02

    Transportation for industrial customers

0.19

0.15

0.16

0.13

  Heating degree days

     colder (warmer) than normal

(11%)

21%

(8%)

8%

  Average temperature-adjusted usage per

   Customer (Decatherms)

52.1

50.9

118.6

118.9

  Number of customers at March 31,

    Residential and commercial

752,148

733,907

    Industrial

1,286

1,315

        Total

753,434

735,222

Revenues less cost of gas sold (margin)

Questar Gas's margin was 8% higher in the first quarter of 2003 compared with the first quarter of 2002 due to a general rate increase, customer additions and higher usage per customer. Effective December 30, 2002, the Public Service Commission of Utah (PSCU) issued an order approving an $11.2 million general rate increase for Questar Gas using an 11.2% return on equity. The rate increase also reflects year-end 2002 usage per customer and costs. The number of customers increased year over year by 18,212 or 2.5%. Temperature adjusted usage per customer increased 2.4% in the first quarter of 2003 compared with the first quarter of 2002.

The margin for the 12 months ended March 31, 2003, was 11% higher when compared with the same period of 2002 due to the factors discussed for the first quarter. In addition, the 2003 period benefited from the one-time recovery in August 2002 of $3.8 million of gas costs previously denied. In addition, beginning in 2002, the PSCU authorized Questar Gas to recover the gas-cost portion of bad debt expense in pass-through gas costs. Starting in 2003, contributions in aid of construction were recorded as a reduction in rate base rather than revenue as required by the Utah general rate case.

While warmer temperatures in 2003 resulted in a decrease in the gas volumes delivered, the financial effect was mitigated by a weather-normalization adjustment (WNA) in the Company's rates. The WNA has the same leveling effect when temperatures are colder than normal. Generally under the WNA, rates are designed to recover non-gas costs based on normal temperatures.

Gas volumes delivered to industrial customers were 16% lower in the first quarter and 13% in the 12 months ended March 31, 2003, due to a decrease of gas used to generate electricity and in manufacturing processes.

Expenses

Operating and maintenance expenses were 7% higher in the 3-month period and 2% higher in the 12-month period ended March 31, 2003, when compared to the same periods in the previous year, primarily due to higher labor-related costs. Labor-related expenses have increased primarily because of higher costs of pension and other long-term benefit programs and less capitalization of labor costs. Higher depreciation expense in the 2003 periods reflects increased investment in computer equipment and software, which are depreciated over a shorter life than other assets.

Debt expense was higher in the first quarter comparison due to debt refinancing. Debt expense was accrued on both the new debt and the debt to be replaced during the 30-day call period.

The effective income tax rate for the first quarter was 39.9% in 2003 and 39.0% in 2002. An income tax credit for non-conventional fuel credits expired for gas and oil produced after December 31, 2002. However, the lost revenue was considered in setting rates in Questar Gas's general rate increase effective December 30, 2002. The Company realized $.4 million of non-conventional fuel tax credits in the first quarter of 2002.

Cumulative effect of change in accounting method

On January 1, 2003, the Company adopted a new accounting rule, SFAS 143, "Accounting for Asset Retirement Obligations" and recorded a cumulative effect that reduced net income by $334,000. Another $6.6 million, before income taxes, was recorded as a regulatory asset representing the accumulated SFAS 143 costs incurred by Wexpro for gas wells operated on behalf of Questar Gas. This asset will be amortized as the wells are plugged and abandoned. The ongoing accretion and depreciation expenses associated with SFAS 143 that will directly affect income are insignificant.

Liquidity and Capital Resources

Operating Activities

Net cash provided from operating activities in the first quarter of 2003 was $44.4 million less than was provided during the first quarter of 2002, primarily due to changes in operating assets and liabilities. The change in the over-collected purchased-gas adjustment account was $24.7 million less in the first quarter of 2003. In addition, a warmer winter in 2003 led to reduced gas withdrawals from storage of $16 million.

Investing Activities

Capital expenditures were $9.9 million for the first quarter of 2003 and are estimated to reach $79.5 million for calendar year 2003. Questar Gas' forecasted capital investment in 2003 includes approximately $20 million to replace an aging Customer Information System. Questar Gas intends to include these costs in a future general rate case.

Financing Activities

Net cash provided from operating activities in the first quarter allowed the Company to finance capital expenditures, pay dividends, eliminate short-term debt and loan excess cash to Questar Corp. Capital expenditures for the remainder of 2003 are expected to be financed from net cash flow provided from operating activities.

Questar Gas issued $110 million of medium-term notes in the first quarter of 2003 and used the proceeds to replace existing medium-term notes that had higher coupon rates. The $64 million current portion of long-term debt at March 31, 2003 reflects a 30-day call notification period that extended past March 31, 2003.

Forward-Looking Statements

This report includes "forward-looking statements" within the meaning of Section 27(A) of the Securities Act of 1933, as amended, and Section 21(E) of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included or incorporated by reference in this report, including, without limitation, statements regarding the Company's future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "could," "expect," "intend," "project," "estimate," "anticipate," "believe," "forecast," or "continue" or the negative thereof or variations thereon or similar terminology. Although these statements are made in good faith and are reasonable representations of the Company's expected performance at the time, actual results may var y from management's stated expectations and projections due to a variety of factors.

Important assumptions and other significant factors that could cause actual results to differ materially from those expressed or implied in forward-looking statements include:

       Changes in general economic conditions;

       Changes in prices and supplies;

       Changes in rate-regulatory policies;

       Regulation of the Wexpro agreement;

       Rate of inflation and interest rates;

       Weather and other natural phenomena;

       The effect of environmental regulation;

       Changes in customers' credit ratings and their ability to pay for gas consumed;

       Competition from other forms of energy;

       The effect of accounting policies issued periodically by accounting standard-setting bodies;

       Adverse repercussion from terrorist attacks or acts of war;

       Adverse changes in the business or financial condition of the Company; and

       Lower credit ratings.

Item 4. Controls and Procedures

     a. Evaluation of Disclosure Controls and Procedures. The Company's Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, the Company's disclosure controls and procedures are effective in alerting them on a timely basis to material information relating to the Company, including its consolidated subsidiaries, required to be included in the Company's reports filed or submitted under the Exchange Act.

     b. Changes in Internal Controls. Since the Evaluation Date, there have not been any significant changes in the Company's internal controls or in other factors that could significantly affect such controls.

Part II
OTHER INFORMATION