UNITED STATES SECURITIES AND EXCHANGE COMMISSION  Washington, D.C.  20549  FORM 10-Q  [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the quarter ended June 30, 2008  [  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the transition period from ___ to ___  QUESTAR GAS COMPANY (Exact name of registrant as specified in its charter)  STATE OF UTAH333-6921087-0155877(State or other jurisdiction of
incorporation or organization)(Commission File No.)(I.R.S. Employer
Identification No.)  180 East 100 South Street, P.O. Box 45360 Salt Lake City, Utah 84145-0360 (Address of principal executive offices) Registrants telephone number, including area code (801) 324-5555  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 [X]     No [   ]  Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.  (Check one):  Large accelerated filer   [   ]Accelerated filer
[   ]Non-accelerated filer     [X]   (Do not check if a smaller reporting company)Smaller reporting company   [   ]  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [   ]     No [X]  On July 31, 2008, 9,189,626 shares of the registrants common stock, $2.50 par value, were outstanding. All shares are owned by Questar Corporation.  Registrant meets the conditions set forth in General Instruction H (1) (a) and (b) of Form 10-Q and is filing this form with the reduced disclosure format.


Questar Gas Company Form 10-Q for the Quarter Ended June 30, 2008  TABLE OF CONTENTS   Page PART I. FINANCIAL INFORMATION  ITEM 1. FINANCIAL STATEMENTS (Unaudited) 3  Statements of Income for the three, six and twelve months ended June 30, 2008 and 2007 3  Condensed Balance Sheets as of June 30, 2008, June 30, 2007 and December 31, 2007 4  Condensed Statements of Cash Flows for the six months ended June 30, 2008 and 2007 5  Notes Accompanying the Financial Statements 6  ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 6  ITEM 4T. CONTROLS AND PROCEDURES 9  PART II. OTHER INFORMATION  ITEM 6. EXHIBITS 10  Signatures 10    Questar Gas 2008 Form 10-Q 2  PART I. FINANCIAL INFORMATION   ITEM 1.  FINANCIAL STATEMENTS.  QUESTAR GAS COMPANYSTATEMENTS OF INCOME(Unaudited)3 Months Ended
June 30,6 Months Ended
June 30,12 Months Ended
June 30,200820072008200720082007(in millions)REVENUESFrom unaffiliated customers$159.5$141.7$549.7$548.2$929.1$958.5From affiliated companies2.32.14.33.26.05.9Total Revenues161.8143.8554.0551.4935.1964.4OPERATING EXPENSESCost of natural gas sold (excluding
operating expenses shown separately)116.8101.4409.6412.4684.4725.1Operating and maintenance19.516.241.337.377.472.1General and administrative10.511.121.022.643.944.1Depreciation and amortization10.39.620.519.140.237.8Other taxes3.63.67.17.211.411.5Total Operating Expenses160.7141.9499.5498.6857.3890.6Operating Income1.11.954.552.877.873.8Interest and other income1.62.13.04.06.47.6Interest expense(6.1)(5.9)(11.7)(11.9)(23.6)(23.6)Income (Loss) Before Income Taxes(3.4)(1.9)45.844.960.657.8Income taxes(1.4)(0.8)17.216.922.621.5Net Income (Loss)($2.0)($1.1)$28.6$  28.0$38.0$  36.3   See notes accompanying the financial statements


Questar Gas 2008 Form 10-Q 3


QUESTAR GAS COMPANYCONDENSED BALANCE SHEETSJune 30,December 31,200820072007(Unaudited)(in millions)ASSETSCurrent AssetsCash and cash equivalents$       4.1Note receivable from Questar$16.8Accounts receivable, net$54.041.076.1Unbilled gas accounts receivable12.27.678.2Accounts receivable from affiliates2.32.52.7Gas stored underground34.233.542.9Materials and supplies11.511.39.3Regulatory assets13.97.49.4Prepaid expenses and other1.13.54.5Purchased-gas adjustment12.0Total Current Assets141.2123.6227.2Property, plant and equipment1,596.91,460.61,539.2Accumulated depreciation and amortization(644.6)(612.7)(630.3)Net Property, Plant and Equipment952.3847.9908.9Regulatory assets18.519.019.1Goodwill5.65.65.6Other noncurrent assets7.96.26.9Total Assets$1,125.5$1,002.3$1,167.7LIABILITIES AND COMMON SHAREHOLDERS EQUITYCurrent LiabilitiesChecks outstanding in excess of cash balances$2.3$3.8Notes payable to Questar51.4$     72.9Accounts and other payables58.256.2134.6Accounts payable to affiliates47.731.232.6Customer-credit balances9.016.434.1Purchased-gas adjustment54.158.1Current portion of long-term debt53.043.0Total Current Liabilities168.6214.7375.3Long-term debt, less current portion370.0270.0270.0Deferred income taxes134.5119.8123.0Other long-term liabilities66.253.458.7COMMON SHAREHOLDERS EQUITYCommon stock23.023.023.0Additional paid-in capital147.3116.3116.7Retained earnings215.9205.1201.0Total Common Shareholders Equity386.2344.4340.7Total Liabilities and Common Shareholders Equity$1,125.5$1,002.3$1,167.7   See notes accompanying the financial statements


Questar Gas 2008 Form 10-Q 4


QUESTAR GAS COMPANYCONDENSED STATEMENTS OF CASH FLOWS(Unaudited)6 Months Ended June 30,20082007(in millions)OPERATING ACTIVITIESNet income$28.6$28.0Adjustments to reconcile net income to netcash provided from operating activities:Depreciation and amortization22.321.0Deferred income taxes16.21.1Share-based compensation0.60.3Changes in operating assets and liabilities(39.1)42.9Net Cash Provided From Operating Activities28.693.3INVESTING ACTIVITIESCapital expenditures(82.3)(57.5)Cash used in asset dispositions(3.0)(0.3)Proceeds from asset dispositions0.11.2Affiliated-company property, plant and equipment transfers(0.6)Net Cash Used In Investing Activities(85.2)(57.2)FINANCING ACTIVITIESChecks outstanding in excess of cash balances2.33.8Change in notes receivable from Questar(16.8)Change in notes payable to Questar(21.5)(13.2)Long-term debt issued, net of issuance costs148.4Long-term debt repaid(93.0)Equity contribution30.0Dividends paid(13.7)(13.5)Net Cash Provided From (Used In) Financing Activities52.5(39.7)Change in cash and cash equivalents(4.1)(3.6)Beginning cash and cash equivalents4.13.6Ending Cash and Cash Equivalents$   -$   -   See notes accompanying the financial statements


Questar Gas 2008 Form 10-Q 5


QUESTAR GAS COMPANY  NOTES ACCOMPANYING THE FINANCIAL STATEMENTS  Note 1  Nature of Business  Questar Gas Company (Questar Gas or Company) is a wholly-owned subsidiary of Questar Corporation (Questar). The Company provides retail natural gas distribution in Utah, southwestern Wyoming and a small portion of southeastern Idaho. Questar Gas is regulated by the Public Service Commission of Utah (PSCU) and the Public Service Commission of Wyoming (PSCW). The Public Utility Commission of Idaho has contracted with the PSCU for rate oversight of Questar Gass Idaho operations.  Note 2  Basis of Presentation of Interim Financial Statements  The interim financial statements were prepared in accordance with U.S. generally accepted accounting principles (GAAP) and with the instructions for quarterly reports on Form 10-Q and Regulations S-X and S-K. The interim financial statements reflect all normal, recurring adjustments and accruals that are, in the opinion of management, necessary for a fair presentation of financial position and results of operations for the interim periods presented. Interim financial statements do not include all of the information and notes required by GAAP for audited annual financial statements. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2007. Certain reclassifications were made to prior-period financial statements to conform with the current presentation.  The preparation of the financial statements and notes in conformity with GAAP requires that management make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities. Actual results could differ from estimates. The results of operations for the three, six and twelve months ended June 30, 2008, are not necessarily indicative of the results that may be expected for the year ending December 31, 2008.  Note 3  Financing  In February 2008, Questar Gas filed a shelf registration with the Securities and Exchange Commission to sell up to $150 million of debt securities and to use the net proceeds to repay intercompany demand notes, to repay debt maturing in early 2008 and to finance certain capital expenditures as well as for general corporate purposes, including working capital. In March 2008, Questar Gas sold $50 million of 10-year notes with a 6.3% interest rate and $100 million of 30-year notes with a 7.2% interest rate.  Note 4  Questar Gas Equity Issue  In the first quarter of 2008, Questar Gas received $30.0 million of common equity from Questar and used the proceeds to repay $30.0 million of notes payable due to Questar.   ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.  The following discussion updates information as to Questar Gass financial condition provided in its previous Form 10-K filing, and analyzes the changes in the results of operations between the three-, six- and twelve-month periods ended June 30, 2008 and 2007. For definitions of commonly used terms found in this Form 10-Q, please refer to the Glossary of Commonly Used Terms provided in the Companys 2007 Form 10-K.  RESULTS OF OPERATIONS  Questar Gas, which provides retail natural gas distribution services in Utah, Wyoming and Idaho, reported a net loss of $2.0 million in the second quarter of 2008 compared with a loss of $1.1 million in the second quarter of 2007. Net income was $28.6 million in the first half of 2008 compared with $28.0 million in the first half of 2007. Net income for the 12 months ended June 30, 2008, was $38.0 million compared with $36.3 million in the 12 months ended June 30, 2007. Operating income decreased $0.8 million in the second quarter of 2008 compared to 2007. First-half 2008 operating income increased $1.7 million due primarily to higher revenues from new-customer growth. Operating income for the 12 months ended June 30, 2008, was $77.8 million compared with $73.8 million for the 12 months ended June 30, 2007. Following is a summary of Questar Gas financial and operating results:


Questar Gas 2008 Form 10-Q 6


3 Months Ended June 30,6 Months Ended June 30,12 Months Ended June 30,20082007Change20082007Change20082007ChangeOperating IncomeREVENUESResidential and commercial sales$142.0$128.2$13.8$518.0$520.4($2.4)$874.2$904.9($30.7)Industrial sales3.12.30.86.05.10.910.810.60.2Transportation for industrial customers2.12.3(0.2)4.44.6(0.2)9.78.31.4Service1.61.63.23.4(0.2)5.76.3(0.6)Other13.09.43.622.417.94.534.734.30.4Total Revenues161.8143.818.0554.0551.42.6935.1964.4(29.3)Cost of natural gas sold116.8101.415.4409.6412.4(2.8)684.4725.1(40.7)Margin45.042.42.6144.4139.05.4250.7239.311.4OTHER OPERATING EXPENSESOperating and maintenance19.516.23.341.337.34.077.472.15.3General and administrative10.511.1(0.6)21.022.6(1.6)43.944.1(0.2)Depreciation and amortization10.39.60.720.519.11.440.237.82.4Other taxes3.63.67.17.2(0.1)11.411.5(0.1)Total Other Operating Expenses43.940.53.489.986.23.7172.9165.57.4Operating Income$   1.1$1.9($0.8)$54.5$52.8$1.7$77.8$ 73.8$  4.0Operating StatisticsNatural gas volumes (MMdth)Residential and commercial sales19.215.14.169.161.08.1114.2104.210.0Industrial sales0.50.40.10.90.80.11.71.60.1Transportation for industrial customers13.411.02.429.420.98.562.340.621.7Total Industrial13.911.42.530.321.78.664.042.221.8Total Deliveries33.126.56.699.482.716.7178.2146.431.8Natural gas revenue (per dth)Residential and commercial sales$7.41$8.51($1.10)$7.50$8.53($1.03)$7.65$8.68($1.03)Industrial sales6.925.881.046.756.390.366.386.64($0.26)Transportation for industrial customers$0.16$0.21($0.05)$0.15$0.22($0.07)$0.16$0.20($0.04)Colder (warmer) than normal temperatures31%(16%)47%16%normal16%11%2%9%Temperature-adjusted usage per customer
(dth)16.416.8(0.4)65.665.40.2111.0110.50.5Customers at June 30, (thousands)881.5862.119.4  Margin Analysis Questar Gas margin (revenues less gas costs) increased $2.6 million in the second quarter of 2008 compared to the second quarter of 2007, $5.4 million in the first half of 2008 compared to the first half of 2007, and $11.4 million in the 12 months ended June 30, 2008 compared to the 12-months ended June 30, 2007. Following is a summary of major changes in Questar Gas margin:


Questar Gas 2008 Form 10-Q 7


Change in margin3 Months Ended
June 30,6 Months Ended
June 30,12 Months Ended
June 30,2008 to 20072008 to 20072008 to 2007New customers$0.9$2.9$5.0Conservation-enabling tariff(1.2)(2.3)(2.0)Change in usage per customer2.84.9Demand-side management cost recovery0.41.62.2Recovery of gas-cost portion of bad-debt costs1.50.61.1Other1.0(0.2)0.2Increase$2.6$5.4$11.4  At June 30, 2008, Questar Gas served 881,505 customers, up from 862,053 at June 30, 2007. New-customer growth increased margin by $2.9 million in the first half of 2008, and $5.0 million in the 12 months ended June 30, 2008.  Temperature-adjusted usage per customer decreased 2% in the second quarter of 2008, and increased slightly in both the first half of 2008, and the 12 months ended June 30, 2008 compared to the same periods of 2007. The impact on the Company margin from changes in usage per customer has been mitigated by a pilot conservation-enabling tariff (CET) that was approved by the PSCU beginning 2006. The CET resulted in a margin decrease of $2.3 million in the first half of 2008, partially offsetting the $2.8 million increase in margin resulting from usage per customer.  Weather, as measured in degree days, was 31% colder than normal in the second quarter of 2008, 16% colder than normal in the first half of 2008 and 11% colder than normal in the 12 months ended June 30, 2008. A weather-normalization adjustment on customer bills generally offsets financial impacts of moderate temperature variations.  Expenses Cost of natural gas sold increased 15% in the second quarter of 2008 due to increased sales volumes. Cost of natural gas sold declined 1% in the first half of 2008 and declined 6% in the 12 months ended June 30, 2008 compared to the 2007 periods. Lower expenses per dth more than offset a 13% increase in volumes sold in the first half of 2008. 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 June 30, 2008, Questar Gas had a $12.0 million under-collected balance in the purchased-gas adjustment account representing costs incurred that exceeded costs recovered from customers.  Operating and maintenance expenses increased 20% in the second quarter of 2008, 11% in the first half of 2008 and 7% in the 12 months ended June 30, 2008 compared to the same periods of 2007. The increase in operating and maintenance expense was due primarily to higher bad-debt costs. General and administrative expenses decreased 7% in the 2008 first half. Operating, maintenance, general and administrative expenses per customer were $71 in the first half of 2008 compared to $69 in the first half of 2007.  Depreciation expense increased 7% in the second quarter of 2008, 7% in the first half of 2008 and 6% in the 12 months ended June 30, 2008 compared to the 2007 periods. The increase in depreciation expense was primarily the result of plant additions from customer growth and system expansion.  General Rate Case In December 2007, Questar Gas filed a general rate case in Utah requesting an increase in rates of $27.0 million, including an authorized return on equity of 11.25%. The Company subsequently modified its request to $22.2 million to reflect a change in test year ordered by the PSCU and the impact of tax law changes on rate base. In the second quarter of 2008, Questar Gas received an order from the PSCU increasing rates by $12.0 million. The PSCU reduced the Questar Gass allowed return on equity from 11.2% to 10.0%. The new rates will be effective in mid-August 2008.


Questar Gas 2008 Form 10-Q 8


Forward-Looking Statements This quarterly report may contain or incorporate by reference information that includes or is based upon forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements give expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. They use words such as anticipate, estimate, expect, project, intend, plan, believe, and other words and terms of similar meaning in connection with a discussion of future operating or financial performance. In particular, these include statements relating to future actions, prospective services or products, future performance or results of current and anticipated services or products, exploration efforts, expenses, the outcome of contingencies such as legal proceedings, trends in operations and financial results.  Any or all forward-looking statements may turn out to be wrong. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Many such factors will be important in determining actual future results. These statements are based on current expectations and the current economic environment. They involve a number of risks and uncertainties that are difficult to predict. These statements are not guarantees of future performance. Actual results could differ materially from those expressed or implied in the forward-looking statements. Among factors that could cause actual results to differ materially are:  · the risk factors discussed in Part I, Item 1A of the Companys Annual Report on Form 10-K for the year ended December 31, 2007; · general economic conditions, including the performance of financial markets and interest rates; · changes in industry trends; · changes in laws or regulations; and · other factors, most of which are beyond the Companys control.  Questar Gas undertakes no obligation to publicly correct or update the forward-looking statements in this quarterly report, in other documents, or on the Web site to reflect future events or circumstances. All such statements are expressly qualified by this cautionary statement.   ITEM 4T.  CONTROLS AND PROCEDURES.  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-15(e) under the Securities Exchange Act of 1934, as amended, as of June 30, 2008. The effectiveness of the Companys internal control over financial reporting was assessed using criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control  Integrated Framework. Based on such evaluation, such officers have concluded that, as of June 30, 2008, the Companys disclosure controls and procedures are effective in alerting them on a timely basis to material information relating to the Companys reports filed or submitted under the Exchange Act. The Companys Chief Executive Officer and Chief Financial Officer also concluded that the controls and procedures were effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Companys management including its principal executive and financial officers or persons performing similar functions as appropriate to allow timely decisions regarding required disclosure.  This quarterly report does not include an attestation report of the Companys registered public accounting firm regarding internal control over financial reporting.  Changes in Internal Controls. There were no changes in the Companys internal controls over financial reporting that occurred during the quarter ended June 30, 2008, that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.


Questar Gas 2008 Form 10-Q 9


PART II.  OTHER INFORMATION     ITEM 6.  EXHIBITS.  a. The following exhibits are filed as part of this report:  Exhibit No. Exhibits   31.1. Certification signed by Alan K. Allred, Questar Gas Companys President and Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.  31.2. Certification signed by S. E. Parks, Questar Gas Companys Vice President and Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.  32. Certification signed by Alan K. Allred and S. E. Parks, Questar Gas Companys President and Chief Executive Officer and Vice President and Chief Financial Officer, respectively, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.   SIGNATURES  Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.  QUESTAR GAS COMPANY (Registrant)    August 7, 2008 /s/Alan K. Allred Alan K. Allred President and Chief Executive Officer    August 7, 2008 /s/S/ E. Parks S. E. Parks Vice President and Chief Financial Officer    Exhibits List  Exhibit No. Exhibits  31.1. Certification signed by Alan K. Allred, Questar Gas Companys President and Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.  31.2. Certification signed by S. E. Parks, Questar Gas Companys Vice President and Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.  32. Certification signed by Alan K. Allred and S. E. Parks, Questar Gas Companys President and Chief Executive Officer and Vice President and Chief Financial Officer, respectively, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


Questar Gas 2008 Form 10-Q 10