PART I FINANCIAL INFORMATION

Item 1. Financial Statements

QUESTAR GAS COMPANY

STATEMENTS OF INCOME

(Unaudited)

3 Months Ended

9 Months Ended

12 Months Ended

September 30,

September 30,

September 30,

2003

2002

2003

2002

2003

2002

(In Thousands)

REVENUES

$   71,498

$   59,492

$  398,063

$  403,552

$  590,022

$  614,133

OPERATING EXPENSES

  Cost of natural gas sold

43,838

26,743

242,954

251,934

361,314

396,664

  Operating and maintenance

24,224

23,920

76,894

74,318

108,120

105,976

  Rate-refund obligation

1,462

23,462

23,462

  Depreciation and amortization

9,207

9,937

29,611

29,597

39,785

38,910

  Other taxes

2,587

2,800

8,338

8,494

9,392

9,410

   TOTAL OPERATING EXPENSES

81,318

63,400

381,259

364,343

542,073

550,960

   OPERATING INCOME (LOSS)

(9,820)

(3,908)

16,804

39,209

47,949

63,173

INTEREST AND OTHER INCOME

1,163

931

2,286

2,301

2,314

3,933

DEBT EXPENSE

(4,863)

(5,446)

(16,023)

(16,768)

(21,750)

(22,844)

   INCOME (LOSS) BEFORE INCOME

    TAXES AND CUMULATIVE EFFECT

(13,520)

(8,423)

3,067

24,742

28,513

44,262

INCOME TAXES

(5,261)

(3,756)

1,780

8,752

10,817

15,764

   INCOME (LOSS) BEFORE

    CUMULATIVE EFFECT

(8,259)

(4,667)

1,287

15,990

17,696

28,498

Cumulative effect of accounting change

for asset retirement obligations, net of

income taxes of $204

(334)

(334)

          NET INCOME (LOSS)

($  8,259)

($   4,667)

$      953

$   15,990

$   17,362

$   28,498

See notes to the financial statements

3

QUESTAR GAS COMPANY

CONDENSED BALANCE SHEETS

September 30,

December 31,

2003

2002

2002

(Unaudited)

(In Thousands)

ASSETS

Current assets

  Cash and cash equivalents

$        760

$      609

$     2,993

  Federal income taxes recoverable

21,110

2,090

  Accounts receivable, net

7,246

7,552

50,950

  Unbilled gas accounts receivable

10,424

9,305

39,788

  Inventories, at lower of average cost or market

    Gas stored underground

34,740

26,395

22,742

    Materials and supplies

4,601

4,122

4,073

  Purchased-gas adjustment

5,669

  Prepaid expenses and other

916

420

1,474

  Deferred income taxes - current

845

5,047

    Total current assets

85,466

51,338

127,067

Property, plant and equipment

1,231,009

1,175,869

1,193,553

Less accumulated depreciation and amortization

537,179

510,201

513,485

    Net property, plant and equipment

693,830

665,668

680,068

Regulatory and other assets

28,251

19,573

19,004

Goodwill

5,652

5,879

5,652

$    813,199

$    742,458

$    831,791

LIABILITIES AND SHAREHOLDER'S EQUITY

Current liabilities

  Notes payable to Questar Corp.

$   28,300

$    4,800

$   36,400

  Accounts payable and accrued expenses

74,340

54,174

85,388

  Purchased-gas adjustments

2,223

13,282

  Deferred income taxes - current

2,154

    Total current liabilities

104,794

61,197

135,070

Long-term debt

290,000

285,000

285,000

Deferred income taxes and investment tax credits

111,064

89,835

94,720

Other long-term liabilities

11,310

2,882

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

151,182

158,695

168,979

    Total common shareholder's equity

296,031

303,544

313,828

$  813,199

$  742,458

$  831,791

See notes to the financial statements

4

QUESTAR GAS COMPANY

CONDENSED STATEMENTS OF CASH FLOW

(Unaudited)

9 Months Ended

September 30,

2003

2002

(In Thousands)

OPERATING ACTIVITIES

  Net income

$       953

$      15,990

  Adjustments to reconcile net income to net cash provided

    from operating activities:

    Depreciation and amortization

31,919

31,864

    Deferred income taxes and investment tax credits

23,750

1,560

    Net (gain) loss from asset sales

153

(4)

    Cumulative effect of accounting change

334

57,109

49,410

    Change in operating assets and liabilities

8,266

69,664

       NET CASH PROVIDED FROM OPERATING ACTIVITIES

65,375

119,074

INVESTING ACTIVITIES

  Capital expenditures

(46,253)

(42,489)

  Proceeds from (cash used in) disposition of assets

495

(167)

       NET CASH USED IN INVESTING ACTIVITIES

(45,758)

(42,656)

FINANCING ACTIVITIES

  Issuance of long-term debt

110,000

  Repayment of long-term debt

(105,000)

  Decrease in notes payable to Questar Corp.

(8,100)

(61,800)

  Payment of dividends

(18,750)

(18,375)

        NET CASH USED IN FINANCING ACTIVITIES

(21,850)

(80,175)

  Change in cash and cash equivalents

(2,233)

(3,757)

  Beginning cash and cash equivalents

2,993

4,366

  Ending cash and cash equivalents

$         760

$          609

See notes to the financial statements

5

QUESTAR GAS COMPANY

NOTES TO FINANCIAL STATEMENTS

September 30, 2003

(Unaudited)

Note 1 - Basis of Presentation of Interim Financial Statements

The accompanying financial statements of Questar Gas Company (Questar Gas or the Company), with the exception of the condensed balance sheet as of December 31, 2002, have not been audited by independent public accountants. 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-, nine- and twelve-month periods ended September 30, 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 significantly reduced by the operations of a weather-normalization adjustment. For further information refer to the financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 20 02 filed by Questar Gas.

Note 2 - Utah Supreme Court Order in Questar Gas Carbon Dioxide Case

On August 1, 2003, the Utah Supreme Court issued an order reversing a decision made by the Public Service Commission of Utah (PSCU) in August of 2000 concerning certain processing costs incurred by Questar Gas. The court ruled that the PSCU did not comply with its responsibilities and regulatory procedures when approving a stipulation in Questar Gas's general rate case filed in December of 1999. The stipulation permitted Questar Gas to collect $5 million per year in rates to recover a portion of the costs incurred to reduce the level of carbon dioxide in gas volumes delivered to customers. The Committee of Consumer Services (Committee), a Utah state agency, appealed the PSCU's decision because the PSCU did not explicitly address whether the costs were prudently incurred.

As a result of the Court's order, Questar Gas recorded a $22 million liability for a potential refund to gas distribution customers. The liability reflects revenue received for processing costs from June of 1999 through June of 2003. This charge reduced Questar Gas net income by $13.6 million. For safety reasons, the Company has decided to continue to operate the plant. The cost for the second half of 2003 will be approximately $1.6 million, before interest. Thereafter, annual costs will be approximately $3.2 million after tax, before interest. Recording the liability did not have a material impact on credit, cash or liquidity of Questar Gas. Questar Gas has requested ongoing rate coverage for CO₂ costs in its recent gas cost pass-through. Until the issue is decided by the PSCU, Questar Gas will record a liability for potential refund of the ongoing CO₂ processing costs being collected in rates.

Questar Gas believes that it acted prudently and in the best interests of its customers to incur the processing costs and that the PSCU should now decide the issues. It has requested the PSCU proceed with the original case and find Questar Gas's actions were prudent. The Committee is arguing that the PSCU is precluded from proceeding with the case and has requested the PSCU immediately order refunds. Questar Gas and the Committee filed briefs on September 25, responsive briefs on October 23 and reply briefs on November 5. The PSCU has not issued any further decisions and timing for resolution of the CO₂ case is uncertain since any PSCU order may be subject to appeals.

Note 3 - Cumulative Effect of Accounting Change -"Accounting for Asset Retirement Obligations"

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. SFAS 143 addresses the

6

to a majority of the Company's long-lived distribution-system assets due to lack of a legal obligation to abandon the assets or to an indeterminable abandonment date. The new accounting rules allow deferral of an obligation until the abandonment date is known.

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

The asset retirement obligation is adjusted to its 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.

Note 4 - Financing

On January 24, 2003, Questar Gas issued $40 million of ten year notes with an effective interest rate of 5.02%. The proceeds were used to redeem $41 million of debt with a coupon rate of 8.4%. Questar Gas paid a $1.7 million call premium. 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 redeem $64 million of higher-cost debt issued in 1992 and 1993 with a weighted-average interest rate of 8.11%. Questar Gas paid a call premium of $2.6 million.

Note 5 - Reclassifications

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

7

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

QUESTAR GAS COMPANY

September 30, 2003

(Unaudited)

Operating Results

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

3 Months Ended

9 Months Ended

12 Months Ended

September 30,

September 30,

September 30,

2003

2002

2003

2002

2003

2002

FINANCIAL RESULTS - (In Thousands)

  Revenues

    From unaffiliated customers

$71,054

$59,347

$396,162

$402,309

$587,688

$612,541

    From affiliates

444

145

1,901

1,243

2,334

1,592

      Total revenues

71,498

59,492

398,063

403,552

590,022

614,133

  Cost of natural gas sold

43,838

26,743

242,954

251,934

361,314

396,664

         Margin

$27,660

$32,749

$155,109

$151,618

$228,708

$217,469

  Operating income (loss)

($9,820)

($3,908)

$16,804

$ 39,209

$ 47,949

$ 63,173

  Income (loss) before cumulative effect

($8,259)

($4,667)

$1,287

$ 15,990

$17,696

$ 28,498

  Cumulative effect of accounting change

(334)

(334)

  Net income (loss)

($8,259)

($ 4,667)

$953

$ 15,990

$ 17,362

$ 28,498

OPERATING STATISTICS

  Natural gas volumes (In

      Thousands of Decatherms)

    Residential and commercial sales

6,719

6,954

55,186

61,099

84,883

90,338

    Industrial sales

1,710

1,882

7,138

7,678

10,189

10,588

    Transportation for industrial customers

9,873

12,774

28,846

34,465

40,840

46,383

      Total industrial

11,583

14,656

35,984

42,143

51,029

56,971

      Total deliveries

18,302

21,610

91,170

103,242

135,912

147,309

  Natural gas revenue (per Decatherm)

    Residential and commercial

$   8.46

$   6.75

$   6.31

$   5.74

$   6.12

$   5.98

    Industrial sales

5.30

3.42

4.52

4.34

4.27

4.50

    Transportation for industrial customers

0.19

0.16

0.19

0.16

0.18

0.15

  Heating degree days colder (warmer)

      than normal

(9%)

(30%)

(9%)

11%

(5%)

7%

  Average temperature adjusted usage

    per customer (Decatherms)

9.1

9.8

78.4

77.0

118.8

118.0

  Number of customers at September 30,

    Residential and commercial

754,307

733,986

    Industrial

1,236

1,281

      Total

755,543

735,267

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Third Quarter Earnings

Questar Gas's seasonal third quarter loss increased from $4.7 million in 2002 to $8.3 million in 2003. The 2002 quarter benefited from a $2.3 million after-tax settlement related to gas processing costs. However, this amount was later part of a potential liability charge in the second quarter of 2003. In addition, Questar Gas accrued an additional $900,000 after tax charge in the third quarter for gas processing costs. Questar Gas's rate structure is more seasonal as a result of a December 2002 general rate case as explained below.

Revenues less cost of natural gas sold (margin)

Questar Gas's margin for the 2003 periods benefited from a general rate increase effective December 30, 2002. The Public Service Commission of Utah (PSCU) issued an order approving an annual increase of $11.2 million using an 11.2% return on equity and end-of-test-period usage per customer and costs. The PSCU had based previous rate increases on a historical test year. Also, the PSCU's general rate order changed the regulatory accounting treatment of contributions in aid of construction (CIAC). Prior to 2003, CIAC had been treated as revenue. With the new order, CIAC will reduce rate base. The change shifted revenues to the first and fourth quarters.

Questar Gas's margin was 16% lower in the third quarter of 2003 when compared with the third quarter of 2002 primarily due to a one-time recovery of gas costs and CIAC collected in 2002. The 2002 quarter benefited from an August 2002 one-time recovery of $3.8 million of gas costs, which had been previously denied. The PSCU's order allowing the recovery was later reversed by a Utah Supreme Court ruling dated August 1, 2003. CIAC amounted to $1.5 million in the third quarter of 2002.

Higher general rates, more customers and higher usage per customer resulted in an increase in Questar Gas's margin for the first nine months of 2003. These factors more than offset the effect of the 2002 $3.8 million recovery of gas costs, CIAC received in 2002 and elimination of a new premise fee in the general rate case. The number of customers increased 20,276 or 2.8% in the year to year comparison. Temperature adjusted usage per customer grew by 2% in the first nine months of 2003 compared with the same period in 2002. The weather-normalization adjustment (WNA) mitigates the financial effect of temperatures that are either colder or warmer than normal. Generally, under the WNA customers pay for the non-gas costs reflected in rates based on normal temperatures.

The margin for the 12-months ended September 30, 2003, was higher when compared with the corresponding period of 2002 due to several factors in addition to those discussed above. Beginning in 2002 the PSCU authorized Questar Gas to recover the gas cost portion of bad debt expense in pass through gas costs. Also, gas volumes delivered to industrial customers were lower in the 2003 periods presented due to decreased gas usage for generation of electricity and in manufacturing processes.

Expenses

Operating and maintenance expenses were higher in the 2003 periods presented when compared to the same periods in 2002 due primarily to higher labor-related costs. Labor-related expenses have increased primarily because of higher costs of pension and benefit programs and less construction-related capitalization of labor costs. Higher depreciation expense in the first nine months of 2003 reflects increased investment in computer equipment and software, which are depreciated over a shorter life than service lines and meters.

Debt expense was lower in the 2003 periods presented when compared with the 2002 periods as a result of refinancing long-term debt and a lower purchased-gas account. Questar Gas incurs a carrying charge on the purchased-gas account obligation and earns a carrying fee when the balance is an asset.

Rate Refund Obligation

The Utah Supreme Court issued an order reversing decisions made by the PSCU in August of 2000 and August of 2002. The PSCU originally permitted Questar Gas to collect $5 million per year to recover costs incurred to process

9

certain gas volumes delivered to customers. In August 2002, the PSCU allowed an additional $3.8 million of recovery from a previous period. As a result of the order, Questar Gas recorded a $22 million liability in the second quarter of 2003. The liability reflects a potential refund of gas processing costs collected in rates from June of 1999 through June of 2003. In the third quarter of 2003, Questar Gas increased the liability by a $1.5 million charge including interest.

The effective income tax rate was 58.0% for the first nine months of 2003 and was the result of a regulatory adjustment to amortize $921,000 per year of deferred taxes. The effective income tax rate for the first nine months was 35.4% in 2002. An income tax credit for non-conventional fuel credits expired for gas produced after December 31, 2002. However, the expired tax credit was considered in setting rates in Questar Gas's general rate increase effective December 31, 2002. The Company realized $1.3 million of non-conventional fuel tax credits in the first nine months 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 nine months of 2003 was $53.7 million less than was provided during the same period of 2002, primarily due to changes in operating assets and liabilities. The purchased-gas adjustment changed to an undercollected position in 2003. In addition, a mild winter and higher gas prices in 2003 resulted in more gas volumes in storage at a higher average cost.

Investing Activities

Capital expenditures were $46.2 million for the first nine months of 2003 and are estimated to reach $82.3 million for calendar year 2003. Questar Gas's forecasted capital investment in 2003 includes approximately $17.2 million to replace an aging customer information system.

Financing Activities

Net cash provided from operating activities in the first nine months of 2003 allowed the Company to finance capital expenditures and pay dividends. 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 2003 and used the proceeds to replace $105 million of existing medium-term notes that carried higher coupon rates.

OTHER INFORMATION

Federal Energy Regulatory Commission (FERC) - Notice of Proposed Rulemaking (NOPR) on Affiliated Relations

The FERC has proposed rules requiring pipelines to comply with certain "nondiscriminatory" standards when dealing with affiliated energy companies including state regulated local distribution companies. At the current time, local distribution companies (LDCs) such as Questar Gas that do not engage in unregulated gas sales are exempt from the FERC's marketing affiliate regulations. Questar Regulated Services believes that the current exemption should be continued, but the FERC has not yet made a decision on whether affiliate rules should be expanded to include gas

10

LDCs such as Questar Gas. A FERC decision to extend energy affiliate rules to include LDCs could have adverse consequences for Questar Gas. Questar Pipeline and Questar Gas realize significant cost savings by sharing the cost of administrative, engineering, gas control, technical, accounting, legal and regulatory services.

Purchased-Gas Cost Filings

Effective July 1, 2003, the PSCU approved a $146.4 million pass-on increase in annual gas costs for Utah customers. Subsequently, gas prices have fallen. Effective October 1, 2003, the PSCU approved a $43.4 million pass-on decrease in annual gas cost. The Public Service Commission of Wyoming (PSCW) granted Questar Gas permission to pass on a $6.8 million increase in gas costs to Wyoming customers also effective July 1, 2003. Also, the PSCW approved a 1.7 million pass-on decrease effective October 1, 2003 due to falling gas costs. Pass-on rate increases or decreases result in equal adjustments of revenues and gas costs without affecting the earnings of Questar Gas.

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.

11

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.

12

Part II
OTHER INFORMATION