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EX-32 - EX-32 - QUESTAR GAS COck0000068589-ex32_8.htm
EX-31.B - EX-31.B - QUESTAR GAS COck0000068589-ex31b_6.htm
EX-31.A - EX-31.A - QUESTAR GAS COck0000068589-ex31a_7.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark one)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to

 

 

Commission File Number

Exact name of registrant as specified in its charter

I.R.S. Employer

Identification Number

 

 

 

333-69210

QUESTAR GAS COMPANY

87-0155877

 

 

 

 

333 SOUTH STATE STREET

SALT LAKE CITY, UTAH 84145

(801) 324-5000

 

 

State or other jurisdiction of incorporation or organization of the registrant: Utah

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes      No   

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes     No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

  (Do not check if a smaller reporting company)

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act).

Yes     No  

Questar Gas does not have any voting or non-voting common equity held by non-affiliates. As of October 13, 2017, Questar Gas had 9,189,626 shares of common stock outstanding.

QUESTAR GAS COMPANY MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND (b) OF FORM 10-Q AND IS FILING THIS FORM 10-Q UNDER THE REDUCED DISCLOSURE FORMAT.

 

 

 

 


 

Questar Gas Company

 

 

 

 

 

Page

Number

 

 

 

 

 

 

 

Glossary of Terms

 

3

 

 

 

 

 

 

 

PART I. Financial Information

 

 

 

 

 

 

 

Item 1.

 

Financial Statements

 

4

 

 

 

 

 

Item 2.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

18

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

21

 

 

 

 

 

 

 

 

 

 

 

 

PART II. Other Information

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

22

 

 

 

 

 

Item 1A.

 

Risk Factors

 

22

 

 

 

 

 

Item 6.

 

Exhibits

 

23

 

 

 

 

 

 

2


 

GLOSSARY OF TERMS

The following abbreviations or acronyms used in this Form 10-Q are defined below:

 

Abbreviation or Acronym

 

Definition

 

 

 

ARO

 

Asset retirement obligation

 

 

 

bcf

 

Billion cubic feet

 

 

 

CEO

 

Chief Executive Officer

 

 

 

CERCLA

 

Comprehensive Environmental Response, Compensation and Liability Act of 1980, also known as Superfund

 

 

 

CET

 

Conservation enabling tariff

 

 

 

CFO

 

Chief Financial Officer

 

 

 

DEQPS

 

Dominion Energy Questar Pipeline Services, Inc. (formerly known as QPC Services Company)

 

 

 

Dominion Energy

 

The legal entity, Dominion Energy, Inc. (formerly known as Dominion Resources, Inc.), one or more of its consolidated subsidiaries (other than Dominion Energy Questar or Questar Gas) or operating segments, or the entirety of Dominion Energy, Inc. and its consolidated subsidiaries

 

 

 

Dominion Energy Gas

 

The legal entity, Dominion Energy Gas Holdings, LLC (formerly known as Dominion Gas Holdings, LLC), one or more of its consolidated subsidiaries or operating segment, or the entirety of Dominion Energy Gas Holdings, LLC and its consolidated subsidiaries

 

 

 

Dominion Energy Questar

 

The legal entity, Dominion Energy Questar Corporation (formerly known as Dominion Questar Corporation), one or more of its consolidated subsidiaries or operating segment, or the entirety of Dominion Energy Questar Corporation and its consolidated subsidiaries

 

 

 

Dominion Energy Questar Combination

 

Dominion Energy's acquisition of Dominion Energy Questar completed on September 16, 2016 pursuant to the terms of the agreement and plan of merger entered on January 31, 2016

 

 

 

Dominion Energy Questar Pipeline

 

Dominion Energy Questar Pipeline, LLC (formerly known as Questar Pipeline, LLC), one or more of its consolidated subsidiaries, or the entirety of Dominion Energy Questar Pipeline, LLC and its consolidated subsidiaries

 

 

 

Dth

 

Dekatherm

 

 

 

EEP

 

Energy-efficiency program

 

 

 

EPA

 

Environmental Protection Agency

 

 

 

FERC

 

Federal Energy Regulatory Commission

 

 

 

GAAP

 

U.S. generally accepted accounting principles

 

 

 

Gas Infrastructure

 

Gas Infrastructure Group operating segment

 

 

 

GHG

 

Greenhouse gas

 

 

 

Idaho Commission

 

Idaho Public Utilities Commission

 

 

 

IRCA

 

Intercompany revolving credit agreement

 

 

 

MD&A

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

 

 

Questar Gas

 

The legal entity Questar Gas Company

 

 

 

SEC

 

Securities and Exchange Commission

 

 

 

Utah Commission

 

Public Service Commission of Utah

 

 

 

VIE

 

Variable interest entity

 

 

 

Virginia Power

 

The legal entity, Virginia Electric and Power Company, one or more of its consolidated subsidiaries or operating segments, or the entirety of Virginia Power and its consolidated subsidiaries

 

 

 

Wexpro

 

The legal entity, Wexpro Company, one or more of its consolidated subsidiaries, or the entirety of Wexpro Company and its consolidated subsidiaries

 

 

 

Wyoming Commission

 

Wyoming Public Service Commission

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3


 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

QUESTAR GAS COMPANY

STATEMENTS OF INCOME

(Unaudited)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

(millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Revenue(1)

$

90.9

 

 

$

87.9

 

 

$

627.5

 

 

$

624.0

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales(1)

 

42.3

 

 

 

39.7

 

 

 

359.1

 

 

 

364.4

 

Other operations and maintenance(1)

 

30.2

 

 

 

47.5

 

 

 

116.5

 

 

 

131.4

 

Depreciation and amortization

 

19.4

 

 

 

15.3

 

 

 

52.1

 

 

 

45.0

 

Other taxes

 

5.6

 

 

 

5.2

 

 

 

17.0

 

 

 

15.8

 

Total Operating Expenses

 

97.5

 

 

 

107.7

 

 

 

544.7

 

 

 

556.6

 

Income (loss) from operations

 

(6.6

)

 

 

(19.8

)

 

 

82.8

 

 

 

67.4

 

Other income

 

1.1

 

 

 

0.9

 

 

 

3.1

 

 

 

2.8

 

Interest expense(1)

 

8.5

 

 

 

7.3

 

 

 

25.5

 

 

 

22.5

 

Income (loss) from operations before income tax expense

 

(14.0

)

 

 

(26.2

)

 

 

60.4

 

 

 

47.7

 

Income tax expense (benefit)

 

(5.5

)

 

 

(8.5

)

 

 

22.9

 

 

 

19.4

 

Net Income (Loss)

$

(8.5

)

 

$

(17.7

)

 

$

37.5

 

 

$

28.3

 

(1)

See Note 12 for amounts attributable to related parties.

The accompanying notes are an integral part of Questar Gas' Financial Statements.

4


 

QUESTAR GAS COMPANY

BALANCE SHEETS

(Unaudited)

 

 

 

September 30,

 

 

December 31,

 

 

 

2017

 

 

2016(1)

 

(millions)

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

5.9

 

 

$

7.6

 

Customer receivables (less allowance for doubtful accounts of $1.5 and $1.7 )

 

 

35.7

 

 

 

163.7

 

Receivable from affiliates

 

 

15.7

 

 

 

0.6

 

Inventories at lower of average cost or market:

 

 

 

 

 

 

 

 

Gas stored underground

 

 

58.9

 

 

 

49.3

 

Materials and supplies

 

 

28.6

 

 

 

27.6

 

Regulatory assets

 

 

47.3

 

 

 

9.6

 

Other

 

 

4.3

 

 

 

3.7

 

Total current assets

 

 

196.4

 

 

 

262.1

 

Property, Plant and Equipment

 

 

 

 

 

 

 

 

Property, plant and equipment

 

 

2,976.1

 

 

 

2,883.0

 

Accumulated depreciation and amortization

 

 

(739.5

)

 

 

(737.6

)

Total property, plant and equipment, net

 

 

2,236.6

 

 

 

2,145.4

 

Deferred Charges and Other Assets

 

 

 

 

 

 

 

 

Receivable from affiliates

 

 

101.0

 

 

 

87.8

 

Other noncurrent assets

 

 

11.6

 

 

 

11.2

 

Total deferred charges and other assets

 

 

112.6

 

 

 

99.0

 

Total assets

 

$

2,545.6

 

 

$

2,506.5

 

(1)

Questar Gas' Balance Sheet at December 31, 2016 has been derived from the audited Balance Sheet at that date.

The accompanying notes are an integral part of Questar Gas' Financial Statements.

5


 

QUESTAR GAS COMPANY

BALANCE SHEETS—(Continued)

(Unaudited)

 

 

 

September 30,

 

 

December 31,

 

 

 

2017

 

 

2016(1)

 

(millions)

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Securities due within one year

 

$

134.5

 

 

$

14.5

 

Short-term debt

 

 

225.0

 

 

 

200.0

 

Affiliated current borrowings

 

 

 

 

 

48.0

 

Accounts payable and accrued expenses

 

 

92.9

 

 

 

117.2

 

Accounts payable to affiliates

 

 

33.5

 

 

 

43.5

 

Customer advances

 

 

24.0

 

 

 

27.9

 

Other current liabilities

 

 

8.3

 

 

 

8.2

 

Total current liabilities

 

 

518.2

 

 

 

459.3

 

Long-Term Debt

 

 

496.6

 

 

 

616.3

 

Deferred Credits and Other Liabilities

 

 

 

 

 

 

 

 

Deferred income taxes

 

 

533.8

 

 

 

475.8

 

Regulatory liabilities

 

 

193.1

 

 

 

189.1

 

Payables to affiliates

 

 

12.0

 

 

 

13.0

 

Other noncurrent liabilities

 

 

96.8

 

 

 

95.4

 

Total deferred credits and other liabilities

 

 

835.7

 

 

 

773.3

 

Total liabilities

 

 

1,850.5

 

 

 

1,848.9

 

Commitments and Contingencies (see Note 10)

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

Common stock - par value $2.50(2)

 

 

23.0

 

 

 

23.0

 

Additional paid-in capital

 

 

272.5

 

 

 

272.5

 

Retained earnings

 

 

399.6

 

 

 

362.1

 

Total common shareholder's equity

 

 

695.1

 

 

 

657.6

 

Total liabilities and shareholder's equity

 

$

2,545.6

 

 

$

2,506.5

 

(1)

Questar Gas' Balance Sheet at December 31, 2016 has been derived from the audited Balance Sheet at that date.

(2)

50.0 million shares authorized; 9.2 million shares outstanding at September 30, 2017 and December 31, 2016.

The accompanying notes are an integral part of Questar Gas' Financial Statements.

6


 

QUESTAR GAS COMPANY

STATEMENTS OF CASH FLOWS

(Unaudited)

 

Nine Months Ended September 30,

 

2017

 

 

2016

 

(millions)

 

 

 

 

 

 

 

 

Operating Activities

 

 

 

 

 

 

 

 

Net income

 

$

37.5

 

 

$

28.3

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

52.1

 

 

 

51.8

 

Deferred income taxes

 

 

58.0

 

 

 

29.6

 

Other adjustments for non-cash items

 

 

0.7

 

 

 

2.9

 

Changes in operating assets and liabilities

 

 

11.9

 

 

 

133.0

 

Net cash provided by operating activities

 

 

160.2

 

 

 

245.6

 

Investing Activities

 

 

 

 

 

 

 

 

Property, plant and equipment purchased

 

 

(134.8

)

 

 

(186.3

)

Property, plant and equipment purchased from affiliates

 

 

(0.4

)

 

 

(10.6

)

Other

 

 

(3.7

)

 

 

(3.1

)

Net cash used in investing activities

 

 

(138.9

)

 

 

(200.0

)

Financing Activities

 

 

 

 

 

 

 

 

Issuance of short-term debt, net

 

 

25.0

 

 

 

 

Repayment of affiliated current borrowings, net

 

 

(48.0

)

 

 

(28.8

)

Dividends paid to Dominion Energy Questar

 

 

 

 

 

(30.0

)

Other

 

 

 

 

 

2.7

 

Net cash used in financing activities

 

 

(23.0

)

 

 

(56.1

)

Decrease in cash and cash equivalents

 

 

(1.7

)

 

 

(10.5

)

Cash and cash equivalents at beginning of period

 

 

7.6

 

 

 

10.5

 

Cash and cash equivalents at end of period

 

$

5.9

 

 

$

 

Supplemental Cash Flow Information

 

 

 

 

 

 

 

 

Significant noncash investing activities:

 

 

 

 

 

 

 

 

Accrued capital expenditures

 

$

21.3

 

 

$

21.6

 

 

The accompanying notes are an integral part of Questar Gas' Financial Statements.

7


 

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Note 1. Nature of Operations

Questar Gas is a wholly-owned subsidiary of Dominion Energy Questar which, effective September 2016, is a wholly-owned subsidiary of Dominion Energy.

Questar Gas distributes natural gas as a public utility in Utah, southwestern Wyoming and a small portion of southeastern Idaho. The Utah, Wyoming and Idaho Commissions have granted Questar Gas the necessary regulatory approvals to serve these areas. Questar Gas also has long-term franchises granted by communities and counties within its service area.

Revenue generated by Questar Gas is based primarily on rates established by the Utah and Wyoming Commissions. The Idaho Commission has contracted with the Utah Commission for rate oversight of Questar Gas operations in Idaho.

Wexpro, an affiliate, provides the majority of Questar Gas' natural gas supply and Dominion Energy Questar Pipeline, an affiliate, provides the majority of Questar Gas' transportation and storage services.

Note 2. Significant Accounting Policies

As permitted by the rules and regulations of the SEC, Questar Gas' accompanying unaudited Financial Statements contain certain condensed financial information and exclude certain footnote disclosures normally included in annual audited financial statements prepared in accordance with GAAP. These unaudited Financial Statements should be read in conjunction with the Financial Statements and Notes in Questar Gas' Annual Report on Form 10-K for the year ended December 31, 2016.

In the opinion of management, the accompanying unaudited Financial Statements contain all adjustments necessary to present fairly its financial position at September 30, 2017, its results of operations for the three and nine months ended September 30, 2017 and 2016 and its cash flows for the nine months ended September 30, 2017 and 2016. Such adjustments are normal and recurring in nature unless otherwise noted.

Questar Gas makes certain estimates and assumptions in preparing its Financial Statements in accordance with GAAP. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues, expenses and cash flows for the periods presented. Actual results may differ from those estimates.

The results of operations for interim periods are not necessarily indicative of the results expected for the full year. Information for quarterly periods is affected by seasonal variations in sales, rate changes, purchased gas expenses and other factors.

Questar Gas reports certain contracts and instruments at fair value. See Note 4 for further information on fair value measurements.

Certain amounts in the 2016 Financial Statements and Notes have been reclassified to conform to the 2017 presentation for comparative purposes. The reclassifications did not affect Questar Gas' net income, total assets, liabilities, equity or cash flows.

Note 3. Operating Revenue

Questar Gas' operating revenue consists of the following:

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

(millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential and commercial gas sales

 

$

75.3

 

 

$

72.1

 

 

$

575.8

 

 

$

576.7

 

Industrial gas sales

 

 

2.6

 

 

 

3.5

 

 

 

8.9

 

 

 

13.0

 

Gas transportation

 

 

6.1

 

 

 

6.3

 

 

 

19.3

 

 

 

18.0

 

Other(1)

 

 

6.9

 

 

 

6.0

 

 

 

23.5

 

 

 

16.3

 

Total operating revenue

 

$

90.9

 

 

$

87.9

 

 

$

627.5

 

 

$

624.0

 

(1)

See Note 12 for amounts attributable to related parties.

8


 

Note 4. Fair Value Measurements

Questar Gas' fair value measurements are made in accordance with the policies discussed in Note 5 to the Financial Statements in Questar Gas' Annual Report on Form 10-K for the year ended December 31, 2016. See Note 5 in this report for further information about Questar Gas' derivatives and hedge accounting activities.

Questar Gas enters into certain physical forwards and options, which are considered Level 3 as they have one or more inputs that are not observable and are significant to the valuation. The discounted cash flow method is used to value Level 3 physical forward contracts. An option model is used to value Level 3 physical options. The discounted cash flow model for forwards calculates mark-to-market valuations based on forward market prices, original transaction prices, volumes, risk-free rate of return, and credit spreads. The option model calculates mark-to-market valuations using variations of the Black-Scholes option model. The inputs into the models are the forward market prices, implied price volatilities, risk-free rate of return, the option expiration dates, the option strike prices, the original sales prices, and volumes. For Level 3 fair value measurements, forward market prices and implied price volatilities are considered unobservable. The unobservable inputs are developed and substantiated using historical information, available market data, third-party data, and statistical analysis. Periodically, inputs to valuation models are reviewed and revised as needed, based on historical information, updated market data, market liquidity and relationships, and changes in third-party pricing sources.

The following table presents Questar Gas' quantitative information about Level 3 fair value measurements at September 30, 2017.  The range and weighted average are presented in dollars for market price inputs and percentages for price volatility.

 

 

 

Fair Value

(millions)

 

 

Valuation Techniques

 

Unobservable Input

 

 

 

Range

 

Weighted

Average(1)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Physical options:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Natural gas

 

$

0.3

 

 

Option model

 

Market price (per Dth)

 

(2

)

2.9 - 3.3

 

 

3.1

 

 

 

 

 

 

 

 

 

Price volatility

 

(3

)

29.1% - 41.1%

 

 

33.7

%

Total assets

 

$

0.3

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Physical forwards:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Natural gas(4)

 

$

0.2

 

 

Discounted cash flow

 

Market price (per Dth)

 

(2

)

2.5 - 3.3

 

 

2.9

 

Total liabilities

 

$

0.2

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Averages weighted by volume.

(2)

Represents market prices beyond defined terms for Level 1 and 2.

(3)

Represents volatilities unrepresented in published markets.

(4)

Includes basis.

 

Sensitivity of the fair value measurements to changes in the significant unobservable inputs is as follows:

 

Significant Unobservable

Inputs

 

Position

 

Change to Input

 

Impact on Fair Value

Measurement

Market price

 

Buy

 

Increase (decrease)

 

Gain (loss)

Market price

 

Sell

 

Increase (decrease)

 

Loss (gain)

Price volatility

 

Buy

 

Increase (decrease)

 

Gain (loss)

Price volatility

 

Sell

 

Increase (decrease)

 

Loss (gain)

 

9


 

Recurring Fair Value Measurements

The following table presents Questar Gas’ assets and liabilities that are measured at fair value on a recurring basis for each hierarchy level, including both current and noncurrent portions.

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

(millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At September 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity

 

$

 

 

$

0.4

 

 

$

0.3

 

 

$

0.7

 

Total assets

 

$

 

 

$

0.4

 

 

$

0.3

 

 

$

0.7

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity

 

$

 

 

$

0.3

 

 

$

0.2

 

 

$

0.5

 

Total liabilities

 

$

 

 

$

0.3

 

 

$

0.2

 

 

$

0.5

 

At December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity

 

$

 

 

$

0.1

 

 

$

 

 

$

0.1

 

Total assets

 

$

 

 

$

0.1

 

 

$

 

 

$

0.1

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity

 

$

 

 

$

0.1

 

 

$

 

 

$

0.1

 

Total liabilities

 

$

 

 

$

0.1

 

 

$

 

 

$

0.1

 

 

The following table presents the net change in Questar Gas' assets and liabilities measured at fair value on a recurring basis and included in the Level 3 fair value category.

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

(millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

(0.2

)

 

$

 

 

$

 

 

$

 

Total realized and unrealized gains (losses):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Included in earnings(1)

 

 

 

 

 

 

 

 

(0.1

)

 

 

 

Included in regulatory assets/liabilities

 

 

0.3

 

 

 

1.6

 

 

 

 

 

 

1.6

 

Settlements

 

 

 

 

 

 

 

 

0.1

 

 

 

 

Purchases

 

 

 

 

 

 

 

 

0.1

 

 

 

 

Ending balance

 

$

0.1

 

 

$

1.6

 

 

$

0.1

 

 

$

1.6

 

(1)

The gains and losses included in earnings were classified in cost of sales.

There were no unrealized gains or losses included in earnings in the Level 3 fair value category relating to assets/liabilities still held at the reporting date for the three and nine months ended September 30, 2017.

10


 

Fair Value of Financial Instruments

Substantially all of Questar Gas' financial instruments are recorded at fair value, with the exception of the instruments described below, which are reported at historical cost. Estimated fair values have been determined using available market information and valuation methodologies considered appropriate by management. The carrying amount of cash and cash equivalents, customer receivables, receivable from affiliates, short-term debt, affiliated current borrowings, accounts payable and accounts payable to affiliates are representative of fair value because of the short-term nature of these instruments. For Questar Gas' financial instruments that are not recorded at fair value, the carrying amounts and estimated fair values are as follows:

 

 

 

September 30, 2017

 

 

December 31, 2016

 

 

 

Carrying

Amount

 

 

Estimated Fair

Value(1)

 

 

Carrying

Amount

 

 

Estimated Fair

Value(1)

 

(millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt, including securities due within one year(2)

 

$

631.1

 

 

$

692.0

 

 

$

630.8

 

 

$

672.6

 

(1)

Fair value is estimated using market prices, where available, and interest rates currently available for issuance of debt with similar terms and remaining maturities. The fair value measurements are classified as Level 2.

(2)

Carrying amount includes amounts which represent the unamortized debt issuance costs, discount or premium.

Note 5. Derivatives and Hedge Accounting Activities

Questar Gas' accounting policies, objectives and strategies for using derivative instruments are discussed in Note 2 to the Financial Statements in the Questar Gas' Annual Report on Form 10-K for the year ended December 31, 2016. See Note 4 in this report for further information about fair value measurements and associated valuation methods for derivatives.

Derivative assets and liabilities are presented gross on Questar Gas' Balance Sheets. Questar Gas' derivative contracts include over-the-counter transactions, which are bilateral contracts that are transacted directly with a counterparty. At September 30, 2017, substantially all of Questar Gas' derivative assets and liabilities were not subject to a master netting or similar arrangement.

Volumes

The following table presents the volume of Questar Gas' derivative activity at September 30, 2017. These volumes are based on open derivative positions and represent the combined absolute value of its long and short positions, except in the case of offsetting transactions, for which they represent the absolute value of the net volume of its long and short positions.

 

 

 

Current

 

 

Noncurrent

 

Natural Gas (bcf):

 

 

 

 

 

 

 

 

Basis

 

 

11.8

 

 

 

25.9

 

 

11


 

Fair Value and Gains and Losses on Derivative Instruments

The following table presents the fair values of Questar Gas' derivatives and where they are presented in its Balance Sheets.

 

 

 

Fair Value -

Derivatives

not under

Hedge

Accounting

 

 

Total

Fair

Value

 

(millions)

 

 

 

 

 

 

 

 

At September 30, 2017

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

Commodity

 

$

0.6

 

 

$

0.6

 

Total current derivative assets(1)

 

 

0.6

 

 

 

0.6

 

Noncurrent Assets

 

 

 

 

 

 

 

 

Commodity

 

 

0.1

 

 

 

0.1

 

Total noncurrent derivative assets(2)

 

 

0.1

 

 

 

0.1

 

Total derivative assets

 

$

0.7

 

 

$

0.7

 

LIABILITIES

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Commodity

 

$

0.5

 

 

$

0.5

 

Total current derivative liabilities(3)

 

 

0.5

 

 

 

0.5

 

Total derivative liabilities

 

$

0.5

 

 

$

0.5

 

At December 31, 2016

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

Commodity

 

$

0.1

 

 

$

0.1

 

Total current derivative assets(1)

 

 

0.1

 

 

 

0.1

 

Total derivative assets

 

$

0.1

 

 

$

0.1

 

LIABILITIES

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Commodity

 

$

0.1

 

 

$

0.1

 

Total current derivative liabilities(3)

 

 

0.1

 

 

 

0.1

 

Total derivative liabilities

 

$

0.1

 

 

$

0.1

 

(1)

Current derivative assets are presented in other current assets in Questar Gas' Balance Sheets.

(2)

Noncurrent derivative assets are presented in other noncurrent assets in Questar Gas' Balance Sheets.

(3)

Current derivative liabilities are presented in other current liabilities in Questar Gas’ Balance Sheets.

The following table presents the gains and losses on Questar Gas' derivatives, as well as where the associated activity is presented in its Statements of Income. There were no gains or losses on Questar Gas’ derivatives for the three months ended September 30, 2017 and 2016.

 

 

 

Amount of Gain (Loss) Recognized in Income on Derivatives (1)

 

 

 

Nine Months Ended September 30,

 

Derivatives not designated as hedging instruments

 

2017

 

 

2016

 

(millions)

 

 

 

 

 

 

 

 

Derivative Type and Location of Gains

   (Losses)

 

 

 

 

 

 

 

 

Commodity(2)

 

$

(0.5

)

 

$

 

Total

 

$

(0.5

)

 

$

 

(1)

Includes derivative activity amortized out of regulatory assets/liabilities. Amounts deferred into regulatory assets/liabilities have no associated effect in Questar Gas' Statements of Income.

(2)

Amounts recorded in Questar Gas' Statements of Income are classified in cost of sales.

12


 

Note 6. Regulatory Assets and Liabilities

Regulatory assets and liabilities include the following:

 

 

 

September