UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C.  20549FORM 10-Q

[X]

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



For the quarter ended September 30, 2006



[  ]

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 1-935



QUESTAR GAS COMPANY(Exact name of registrant as specified in charter)



STATE OF UTAH                                                                                             87-0155877

(State or other jurisdiction of                                                            (I.R.S. Employer

incorporation or organization)                                                          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, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer [  ]                              Accelerated filer [  ]                         Non-accelerated filer [X]



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 October 31, 2006, 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 10-Q with the reduced disclosure format.

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Questar Gas Company

Form 10-Q for the Quarter Ended September 30, 2006



Table of Contents





Page

PART I.

FINANCIAL INFORMATION



Item 1.

Financial Statements(Unaudited)

3



Statements of Income for the three, nine and twelve months ended

3

September 30, 2006 and 2005



Condensed Balance Sheets as of September 30, 2006, September 30, 2005

4

and December 31, 2005



Condensed Statements of Cash Flows for the nine months ended

5

September 30, 2006 and 2005



Notes Accompanying the Financial Statements

6



Item 2.

Managements Discussion and Analysis of Financial Condition and

8

Results of Operations



Item 4.

Controls and Procedures

12



PART II.

OTHER INFORMATION



Item 1.

Legal Proceedings

13



Item 6.

Exhibits

13



Signatures

14



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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,  
|                                  | 2006           | 2005           | 2006           
|                                  |                |                | (in thousands) 
|REVENUES                          |                |                |                
|From unaffiliated customers       | $ 98,975       | $109,575       | $747,767       
|From affiliated companies         | 1,728          | 1,769          | 4,542          
|TOTAL REVENUES                    | 100,703        | 111,344        | 752,309        
|                                  |                |                |                
|OPERATING EXPENSES                |                |                |                
|Cost of natural gas sold          | 72,649         | 81,042         | 581,757        
|Operating and maintenance         | 16,664         | 17,998         | 55,062         
|General and administrative        | 10,237         | 9,480          | 30,596         
|Other taxes                       | 3,475          | 3,468          | 10,809         
|Depreciation and amortization     | 8,951          | 11,875         | 31,116         
|                                  |                |                |                
|TOTAL OPERATING EXPENSES          | 111,976        | 123,863        | 709,340        
|                                  |                |                |                
|OPERATING INCOME (LOSS)           | (11,273)       | (12,519)       | 42,969         
|                                  |                |                |                
|Interest and other income         | 1,848          | 1,166          | 4,529          
|Interest expense                  | (5,478)        | (4,842)        | (16,417)       
|                                  |                |                |                
|INCOME (LOSS) BEFORE INCOME
TAXES | (14,903)       | (16,195)       | 31,081         
|Income taxes                      | (5,746)        | (6,290)        | 11,567         
|                                  |                |                |                
|NET INCOME (LOSS)                 | ($  9,157)     | ($  9,905)     | $  19,514      



See notes accompanying the financial statements



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QUESTAR GAS COMPANY

CONDENSED BALANCE SHEETS

(Unaudited)



|                                                | September 30,  | December 31,
|----------------------------------------------- | -------------- | ------------
|                                                | 2006           | 2005        
|                                                | (in thousands)
|ASSETS                                          |                |             
|Current assets                                  |                |             
|Cash and cash equivalents                       |                | $        890
|Notes receivable from Questar                   | $    13,300    |             
|Accounts receivable, net                        | 31,477         | 29,864      
|Accounts receivable from affiliated companies   | 2,465          | 2,477       
|Unbilled gas accounts receivable                | 13,947         | 17,475      
|Federal income taxes recoverable                | 4,911          | 8,128       
|Inventories, at lower of average cost or market |                |             
|Gas stored underground                          | 60,937         | 51,161      
|Materials and supplies                          | 8,013          | 5,654       
|Prepaid expenses and other                      | 956            | 1,843       
|Purchased-gas adjustments                       |                | 18,301      
|Deferred income taxes  current                 | 1,020          |             
|Total current assets                            | 137,026        | 135,793     
|Property, plant and equipment                   | 1,388,752      | 1,360,539   
|Less accumulated depreciation and amortization  | 593,761        | 604,972     
|Net property, plant and equipment               | 794,991        | 755,567     
|Goodwill and other noncurrent assets            | 11,932         | 11,873      
|Regulatory assets                               | 23,768         | 22,148      
|                                                | $   967,717    | $  925,381  
|                                                |                |             
|LIABILITIES AND SHAREHOLDERS EQUITY            |                |             
|Current liabilities                             |                |             
|Checks in excess of cash balances               | $       1,193  |             
|Notes payable to Questar                        |                | $     50,400
|Accounts payable and accrued expenses           | 53,404         | 67,306      
|Accounts payable to affiliated companies        | 24,433         | 26,676      
|Customer-credit balances                        | 32,367         | 36,061      
|Fair value of derivative contracts              | 6,804          |             
|Purchased-gas adjustments                       | 29,292         |             
|Deferred income taxes - current                 |                | 6,023       
|Total current liabilities                       | 147,493        | 186,466     
|Long-term debt                                  | 323,000        | 273,000     
|Deferred income taxes                           | 120,951        | 123,832     
|Other long-term liabilities                     | 57,736         | 37,871      
|                                                |                |             
|Common shareholders equity                     |                |             
|Common stock                                    | 22,974         | 22,974      
|Additional paid-in capital                      | 115,827        | 115,255     
|Retained earnings                               | 179,736        | 165,983     
|Total common shareholders equity               | 318,537        | 304,212     
|                                                | $   967,717    | $  925,381  



See notes accompanying the financial statements



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QUESTAR GAS COMPANY

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)



|                                            | 9 Months Ended
|------------------------------------------- | --------------
|                                            | September 30, 
|                                            | 2006          
|                                            | (in thousands)
|OPERATING ACTIVITIES                        |               
|Net income                                  | $  19,514     
|Adjustments to reconcile net income to net  |               
|cash provided from operating activities:    |               
|Depreciation and amortization               | 34,092        
|Deferred income taxes                       | (12,217)      
|Share-based compensation                    | 572           
|Net loss from asset sales                   | 296           
|Changes in operating assets and liabilities | 131,378       
|NET CASH PROVIDED FROM OPERATING ACTIVITIES | 173,635       
|                                            |               
|INVESTING ACTIVITIES                        |               
|Capital expenditures                        | (68,180)      
|Proceeds from disposition of assets         | 721           
|NET CASH USED IN INVESTING ACTIVITIES       | (67,459)      
|                                            |               
|FINANCING ACTIVITIES                        |               
|Checks in excess of cash balance            | 1,193         
|Change in notes receivable from Questar     | (13,300)      
|Change in notes payable to Questar          | (77,400)      
|Dividends paid                              | (19,875)      
|NET CASH USED IN FINANCING ACTIVITIES       | (109,382)     
|Change in cash and cash equivalents         | (3,206)       
|Beginning cash and cash equivalents         | 3,206         
|Ending cash and cash equivalents            | $         -   
|                                            |               



See notes accompanying the financial statements



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QUESTAR GAS COMPANY

NOTES ACCOMPANYING THE FINANCIAL STATEMENTS

(Unaudited)



Note 1  Nature of Business



Questar Gas Company (Questar Gas or the Company) distributes natural gas as a public utility 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. Questar Gas is a wholly-owned subsidiary of Questar Corporation (Questar) headquartered in Salt Lake City, Utah.



Note 2  Basis of Presentation of Interim Financial Statements



The accompanying unaudited financial statements were prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and pursuant to the rules and regulations of the SEC. 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, 2005. Certain reclassifications were made to prior period financial statements to conform with the current presentation.



The preparation of 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 nine and twelve months ended September 30, 2006, are not necessarily indicative of the results that may be expected for the year ending December 31, 2006, due to a variety of factors discussed in the Forward-Looking Statements located in Part I Item 2 of this report.



Note 3  Other Regulatory Assets and Liabilities



The Company has other regulatory assets in addition to purchased-gas adjustments that are described in Note 1 of the financial statements included in its 2005 Annual Report filed on Form 10-K. The Company recovers these costs but does not generally receive a return on these assets.



Following is a description of the Companys regulatory assets:

•

Gains and losses on the reacquisition of debt are deferred and amortized as interest expense over the would-be remaining life of the retired debt. The reacquired debt costs had a weighted-average life of approximately 11 years as of September 30, 2006.

•

Questar Gas has a regulatory asset that represents future expenses related to abandonment of Wexpro-operated gas and oil wells. The regulatory asset will be reduced over an 18 year period following an amortization schedule that commenced January 1, 2003, or as cash is paid to plug and abandon wells.

•

Production taxes on cost-of-service gas production are recorded when the gas is produced and recovered from customers when taxes are paid, generally within 12 months.

•

The costs of complying with pipeline-integrity regulations are recovered in rates subject to a PSCU order effective June 1, 2006. Costs incurred prior to June, 2006 were deferred and will now be recovered over a three-year period. Actual current costs in excess of $1.4 million annually will be deferred and recovered in future rates.



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Note 4  Share-Based Compensation



Questar issues stock options and restricted shares to certain officers, employees and non-employee directors under its Long Term Stock Incentive Plan (LTSIP). Questar has granted and continues to grant share-based compensation to certain Questar Gas employees. Prior to January 1, 2006, Questar and the Company accounted for share-based compensation using the intrinsic value method prescribed by Accounting Principles Board Opinion (APBO) 25 Accounting for Stock Issued to Employees and related interpretations. No compensation cost was recorded for stock options issued because the exercise price equaled the market price on the date of grant. The granting of restricted shares resulted in recognition of compensation cost. Restricted shares are valued at the grant-date market price and amortized to expense over the vesting period.



Questar and the Company implemented Statement of Financial Accounting Standards 123R Share Based Payment, (SFAS 123R) effective January 1, 2006 and chose the modified prospective phase-in method. The modified prospective phase-in method requires recognition of compensation costs for all share-based payments granted, modified or settled after January 1, 2006, as well as for any awards that were granted prior to the implementation date for which the required service has not yet been performed. As a result of adopting SFAS 123R, the Companys income before income taxes for the nine months ended September 30, 2006, was approximately $0.1 million lower than if the Company had continued to account for share-based compensation under APBO 25. The pro forma share-based compensation expense impact for the first nine months of 2005 was $0.1 million.



Transactions involving stock options granted to employees of Questar Gas under the LTSIP are summarized below:



|                              | Outstanding
Options | Price Range     | Weighted-Average
Price
|----------------------------- | ------------------- | --------------- | ----------------------
|                              |                     |                 |                       
|Balance at January 1, 2006    | 651,646             | $15.00  $28.01 | $25.06                
|Exercised                     | (178,426)           | 15.00    28.01 | 24.34                 
|Employee transfer             | (4,500)             | 27.11           | 27.11                 
|Balance at September 30, 2006 | 468,720             | $15.00  $28.01 | $25.31                



The number of unvested stock options held by employees of Questar Gas decreased by 61,250 shares in the first nine months of 2006.



|Options Outstanding      | Options Exercisable                 
|------------------------ | ------------------------------------
|Range of exercise
prices | Number
outstanding at Sept. 30,
2006
|                         |                                     
|$15.00  $17.00          | 46,798                              
|19.13    22.95          | 88,938                              
|$27.11  $28.01          | 332,984                             
|                         | 468,720                             



Most restricted shares vest in equal installments over a three to five year period from the grant date. Several grants vest in a single installment after a specified period. The weighted average vesting period of unvested restricted shares at September 30, 2006, was 18 months. Transactions involving restricted shares in the LTSIP in the first nine months of 2006 are summarized below:



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|                              |         |                 | Weighted Average
|----------------------------- | ------- | --------------- | ----------------
|                              | Shares  | Price Range     | Price           
|                              |         |                 |                 
|Balance at January 1, 2006    | 21,700  | $34.90  $51.00 | $42.84          
|Granted                       | 9,350   | 73.50           | 73.50           
|Distributed                   | (3,671) | 34.90           | 34.90           
|Balance at September 30, 2006 | 27,379  | $34.90  $73.50 | $54.37          



Note 5  Questar Gas Rate Changes



In October 2006, the PSCU approved a pilot program for a conservation enabling tariff (CET) effective January 1, 2006, to promote energy conservation. The Companys prior rate structure penalized the Company for declining usage per customer and rewarded the Company for increasing usage per customer. Under the CET, Questar Gas non-gas revenues are decoupled from the volume of gas used by customers. The tariff specifies a margin per customer for each month with differences to be deferred and recovered from customers or refunded to customers through periodic rate adjustments. These adjustments will be limited to one percent of total revenues for the first year. The program will be reviewed after one year. Questar Gas recorded a $0.6 million revenue reduction in the third quarter of 2006 to recognize the impact of the CET. Questar Gas will propose energy efficiency programs to reduce customers natural gas consumption.



Effective June 1, 2006, the PSCU approved a settlement of other issues and ordered Questar Gas to reduce the nongas portion of customer rates by $9.7 million to reflect a reduction in depreciation rates, a change in capital structure, and recovery of pipeline integrity costs.



Note 6  Recent Accounting Development



In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48 Accounting for Uncertainty in Income Taxes (FIN 48). The interpretation applies to all tax positions related to income taxes subject to FASB Statement 109 Accounting for Income Taxes. FIN 48 clarifies the accounting for uncertainty in income taxes by prescribing a minimum recognition threshold for a tax position to be reflected in the financial statements. If recognized, the tax benefit is measured as the largest amount of tax benefit that is more-likely-than-not to be realized upon ultimate settlement. FIN 48 is effective January 1, 2007. The Company is evaluating the effect, if any, that FIN 48 will have on its financial statements.



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



The following discussion updates information as to Questar Gas financial condition provided in its 2005 Annual Report on Form 10-K, and analyzes the changes in the results of operations between the three-, nine-and twelve-month periods ended September 30, 2006 and 2005. For definitions of commonly used gas and oil terms found in this Form 10-Q, please refer to the Glossary of Commonly Used Terms provided in our 2005 Annual Report on Form 10-K.



Summary



Questar Gas seasonal net loss narrowed by 7% in the third quarter of 2006, while net income for the first nine months of 2006 increased 27% compared with the 2005 periods. For the 12 months ended September 30, 2006, net income was $40.1 million, up $5.8 million from the year earlier period. Third quarter 2006 results reflect continued customer growth and lower bad debt and depreciation expenses. In June 2006, Questar Gas implemented lower customer rates, primarily due to reduced depreciation rates.



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Due to the seasonal nature of Questar Gas revenues, the change in customer rates and depreciation expense increased third quarter 2006 net income by $1.0 million. This seasonal shift is expected to reverse in the fourth quarter of 2006. The 2006 results also benefited from the recovery of $3.6 million gas-processing costs that were not recognized in 2005 results until the fourth quarter.



Results of Operations



Following is a summary of Questar Gas financial and operating results for the third quarter, first nine months and trailing twelve months ended September 30, 2006 compared with the same periods of 2005:



|                                                | 3 Months Ended | 9 Months Ended | 12 Months Ended
|----------------------------------------------- | -------------- | -------------- | ---------------
|                                                | September 30,  | September 30,  | September 30,  
|                                                | 2006           | 2005           | 2006           
|                                                |                |                | (in thousands) 
|OPERATING INCOME                                |                |                |                
|Revenues                                        |                |                |                
|Residential and commercial sales                | $  86,499      | $  87,849      | $690,390       
|Industrial sales                                | 2,620          | 9,873          | 20,626         
|Transportation for industrial customers         | 1,565          | 1,321          | 4,571          
|Other (primarily offsets gas costs)             | 10,019         | 12,301         | 36,722         
|Total revenues                                  | 100,703        | 111,344        | 752,309        
|Cost of natural gas sold                        | 72,649         | 81,042         | 581,757        
|Margin                                          | 28,054         | 30,302         | 170,552        
|Operating expenses                              |                |                |                
|Operating and maintenance                       | 16,664         | 17,998         | 55,062         
|General and administrative                      | 10,237         | 9,480          | 30,596         
|Depreciation and amortization                   | 8,951          | 11,875         | 31,116         
|Other taxes                                     | 3,475          | 3,468          | 10,809         
|Total operating expenses                        | 39,327         | 42,821         | 127,583        
|Operating income (loss)                         | ($ 11,273)     | ($  12,519)    | $  42,969      
|                                                |                |                |                
|OPERATING STATISTICS                            |                |                |                
|Natural gas volumes (in Mdth)                   |                |                |                
|Residential and commercial sales                | 8,751          | 9,081          | 67,708         
|Industrial sales                                | 362            | 1,348          | 2,639          
|Transportation for industrial customers         | 9,560          | 7,218          | 25,429         
|Total deliveries                                | 18,673         | 17,647         | 95,776         
|Natural gas revenue (per dth)                   |                |                |                
|Residential and commercial sales                | $9.88          | $9.67          | $10.20         
|Industrial sales                                | 7.23           | 7.32           | 7.82           
|Transportation for industrial customers         | $0.16          | $0.18          | $  0.18        
|Heating degree days colder (warmer)
than normal | 69%            | 16%            | (5%)           
|Average temperature adjusted usage              |                |                |                
|per customer (dth)                              | 7.9            | 8.8            | 76.4           
|Customers at September 30,                      | 835,025        | 803,196        |                



-9-

Margin Analysis

Questar Gas margin (revenues less gas costs) decreased $2.2 million in the third quarter and increased $6.8 million in the first nine months of 2006 and $14.0 million for the 12 months ended September 30, 2006, compared to the same periods of 2005. Following is a summary of major changes in Questar Gas margin:





|                                                 | 3 Months Ended
Sept. 30, 2006
Compared
with 2005 | 9 Months Ended
Sept. 30, 2006
Compared
with 2005 | 12 Months Ended
Sept. 30, 2006
Compared
with 2005
|------------------------------------------------ | ------------------------------------------------ | ------------------------------------------------ | -------------------------------------------------
|                                                 | (in thousands)                                  
|                                                 |                                                  |                                                  |                                                  
|New customers                                    | $     473                                        | $  4,569                                         | $ 6,747                                          
|Conservation enabling tariff adjustment          | (640)                                            | (640)                                            | (640)                                            
|Gas processing revenues
collected from customers | 999                                              | 3,604                                            | 8,468                                            
|Change in rates                                  | (804)                                            | (1,360)                                          | (1,360)                                          
|Recovery of bad debt gas costs                   | (1,166)                                          | (363)                                            | 887                                              
|Change in unbilled estimate                      | (2,329)                                          | (2,329)                                          | (2,329)                                          
|Other                                            | 1,219                                            | 3,361                                            | 2,177                                            
|Increase (decrease)                              | ($2,248)                                         | $  6,842                                         | $13,950                                          



Temperature-adjusted usage per customer was down 10% in the third quarter, 1% in the first nine months, of 2006 and 2% in the 12 months ended September 30, 2006, compared with the 2005 periods. The impact on the companys margin from changes in usage per customer has been mitigated by a conservation enabling tariff that was approved by the PSCU in October 2006. Questar Gas recorded a reduction in margin of $0.6 million in the third quarter of 2006 to reflect the impact of changes in usage per customer for the 2006 year-to-date period. See Part I Item 1 Note 5 for a discussion of the conservation enabling tariff.



Effective June 1, 2006, Utah customer rates were reduced by $9.7 million per year, primarily to reflect changes in the companys depreciation rates. Due to typically low customer usage in the third quarter, the effect of the reduced tariff had little impact on revenues; however, lower depreciation rates caused expenses to decline and resulted in a $1.0 million increase in net income. This effect is expected to reverse with higher usage in the fourth quarter. See Note 5 for a discussion of the rate changes.



Weather, as measured in degree days, was 69% colder than normal in the third quarter of 2006 compared with 16% colder than normal in the third quarter of 2005. For the first nine months of 2006, weather was 5% warmer than normal compared with 2% warmer than normal in 2005. Weather was 5% warmer than normal in the 12 months ended September 30, 2006, compared to 2% warmer than normal in the 2005 period. A weather-normalization adjustment on customer bills generally offsets financial impacts of moderate temperature variations. At September 30, 2006, Questar Gas was serving 835,025 customers, up from 824,447 at December 31, 2005.



Industrial deliveries (including sales and transportation) increased 16% in the third quarter of 2006, 2% in the first nine months of 2006 and declined 1% in the 12 months ended September 30, 2006, compared to 2005. Questar Gas receives approximately the same margin from industrial sales and transportation.



As discussed below, Questar Gas received rate coverage for $1.0 million of gas-processing costs in the third quarter of 2006 $3.6 million for the first nine months of 2006. Rate coverage for costs incurred in the prior year was not recognized until the fourth quarter of 2005, pursuant to a February 2006 regulatory order.



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Expenses

Cost of natural gas sold decreased 10% in the third quarter of 2006 and increased 31% in the first nine months of 2006 compared with 2005 periods due primarily to changes in gas purchase expenses per dth. 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 September 30, 2006, Questar Gas had a $29.3 million over collection balance in the purchased-gas adjustment account representing gas costs recovered from customers in excess of costs incurred. In November 2005, rates were increased significantly to recover increased gas costs caused by the Gulf Coast hurricanes. Questar Gas reduced rates in Utah and Wyoming effective November 1, 2006, by more than the prior year increases.



Operating, maintenance, general and administrative expenses decreased 2% in the third quarter of 2006, increased 1% in the first nine months and 4% in the 12 months ended September 30, 2006, compared to 2005 periods. Bad debt costs were lower in the 2006 periods due to increased collections. Operating, maintenance, general and administrative expenses per customer were $103 in the first nine months of 2006 compared with $105 in the first nine months of 2005.



Depreciation expense decreased 25% in the third quarter of 2006, 9% in the first nine months and 4% in the 12 months ended September 30, 2006, compared to 2005 periods. As explained in Part I Item 1 Financial Statements Note 5, Questar Gas reduced its depreciation rates effective June 1, 2006, in accordance with a PSCU order. This offsets the depreciation impact of plant additions from customer growth.



Gas processing cost recovery

In October 2005, Questar Gas, the Utah Division of Public Utilities and the Committee of Consumer Services submitted a stipulation to the PSCU to resolve issues related to the recovery of gas-processing costs. The PSCU held a hearing on October 20, 2005, and issued an order on January 6, 2006, approving the stipulation beginning on February 1, 2005. The stipulation provides for the recovery of 90% of the non fuel cost of service for processing and 100% of the fuel costs up to 360 Mdth per year. Half of the third-party processing revenues are shared with customers after the first $0.4 million. In the fourth quarter of 2005, Questar Gas reduced expenses for recovery of gas costs by $4.9 million for the period from February 1, 2005 to December 31, 2005. A request to the PSCU for rehearing of this issue was denied. The individuals who filed this request have appealed the issue to the Utah Supreme Court.



Rate Matters

See Part I Item 1 Financial Statements Note 5 for a discussion of the Conservation Enabling Tariff and a rate reduction in Utah.



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



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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, 2005;

•

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 our 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 website to reflect future events or circumstances. All such statements are expressly qualified by this cautionary statement.



Item 4.  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 (the Exchange Act)) as of the end of the period covered by the 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, required to be included in 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.



Changes in Internal Controls.

Since the Evaluation Date, there have not been any changes in the Companys internal controls or other factors during the most recent fiscal quarter that could materially affect such controls.



PART II.  OTHER INFORMATION



Item 1.  Legal Proceedings



Questar Gas is involved in various commercial and regulatory claims and litigation and other legal proceedings that arise in the ordinary course of its business. Management does not believe any of them will have a material adverse effect on the Companys financial position. An accrual is recorded for a loss contingency when its occurrence is probable and damages can be reasonably estimated based on the anticipated most likely outcome. Some of the claims involve highly complex issues relating to liability, damages and other matters subject to substantial uncertainties and, therefore, the probability of liability or an estimate of loss cannot be reasonably determined.



Grynberg.  Questar affiliates are involved in various pending lawsuits filed by Jack Grynberg, an independent producer. In United States ex rel. Grynberg v. Questar Corp., Civil No. 99-MD-1604, consolidated as In re Natural Gas Royalties Qui Tam Litigation, Consolidated Case MDL No. 1293 (D. Wyo.), Grynberg has filed qui tamclaimsagainst Questar under the federal False Claims Act substantially



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similar to other cases filed against other industry pipelines and their affiliates which have been consolidated for discovery and pre-trial motions in Wyomings federal district court. The cases involve allegations of industry-wide mismeasurement of natural gas quantities on which royalty payments are due the federal government.



The defendants filed a motion contending that the court has no jurisdiction over the case because Grynberg cannot satisfy the statutory requirements for jurisdiction. The defendants argued that Grynbergs allegations were publicly disclosed prior to the filing of his complaint and that Grynberg is not the original source of the information on which the allegations are based. The Special Master appointed in the case issued a Report and Recommendation to the district court recommending dismissal of the Questar defendants, except for one small entity acquired by Questar Gas after these cases were filed. By order dated October 20, 2006, the district court granted defendants motion and dismissed all of Grynbergs claims against all the defendants for lack of jurisdiction. The judge found that Grynberg was not the original source and therefore could not bring the action. Grynberg will likely file a notice of appeal.



In Grynberg and L & R Exploration Venture v. Questar Pipeline Co., Civil No. 97CV0471 (D. Wyo.) Grynberg brought breach of contract claims, statutory claims and fraud claims against Questar entities related to a certain gas purchase contract for the purchase of gas produced from wells located in Wyoming. In June 2001 the federal district judge entered an order granting partial summary judgment dismissing the antitrust claims from the case. By order dated September 12, 2006, the judge also dismissed the fraud claims and ratable-take claims. The breach of contract claims are the only issues remaining to be decided. Grynberg filed a notice of appeal on October 11, 2006.



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.



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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)





November 9, 2006

/s/Alan K. Allred



Alan K. Allred

President and Chief Executive Officer







November 9, 2006

/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.



Exhibit 31.1.



CERTIFICATION



I, A. K. Allred, certify that:



1.

I have reviewed this quarterly report of Questar Gas Company on Form 10-Q for the period ending September 30, 2006;



2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;



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3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;



4.

The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and we have:



a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;



b)

evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and



c)

disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting.



5.

The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function):



a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and



b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.



November 9, 2006

/s/A. K. Allred



A. K. Allred

President and Chief Executive Officer



Exhibit 31.2.



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CERTIFICATION





I, S. E. Parks, certify that:



1.

I have reviewed this quarterly report of Questar Gas Company on Form 10-Q for the period ending September 30, 2006;



2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;



3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;



4.

The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and we have:



a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;



b)

evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and



c)

disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting.



5.

The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function):



a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and



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b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.



November 9, 2006

/s/S. E. Parks



S. E. Parks

Vice President and Chief Financial Officer



Exhibit No. 32.



CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002





In connection with the Quarterly Report of Questar Gas Company (the Company) on Form 10-Q for the period ending September 30, 2006, as filed with the Securities and Exchange Commission on the date hereof (the Report), Alan K. Allred, President and Chief Executive Officer of the Company, and S. E. Parks, Vice President and Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:



(1)

The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and



(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.









QUESTAR GAS COMPANY







November 9, 2006

/s/Alan K. Allred



Alan K. Allred

President and Chief Executive Officer







November 9, 2006

/s/S. E. Parks



S. E. Parks

Vice President and Chief Financial Officer



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