Use these links to rapidly review the documentTABLE OF CONTENTS ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-K

|(Mark One) |                                                                                                                                      
|---------- | -------------------------------------------------------------------------------------------------------------------------------------
|ý          | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002     
|OR        
|o          | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM            TO

Commission File No. 1-935

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

|State of Utah(State or other jurisdiction of incorporation or organization)                      |  | 87-0155877(I.R.S. Employer Identification No.)
|------------------------------------------------------------------------------------------------ |  | ----------------------------------------------
|180 East 100 South, P.O. Box 45360, Salt Lake City, Utah(Address of principal executive offices) |  | 84145-0360(Zip code)                          
|Registrant's telephone number, including area code:(801) 324-5555                               

SECURITIES
REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None

SECURITIES
REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None

SECURITIES REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933: Notes: Medium Term Notes, 5.00% to 8.30%, due 2007 to 2023

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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 ý No o

State
the aggregate market value of the voting stock held by nonaffiliates of the registrant as of February 28, 2003: $0.

Indicate
the number of shares outstanding of each of the registrant's classes of common stock, as of February 28, 2003: 9,189,626 shares of Common Stock, $2.50 par value. (All
shares are owned by Questar Regulated Services Company.)

Registrant
meets the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K and is therefore filing this Form 10-K Report
with the reduced disclosure format.

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TABLE OF CONTENTS



|Heading         |  |                                                                                     
|--------------- |  | ------------------------------------------------------------------------------------
|PART I         
|Items 1. and 2. |  | BUSINESS AND PROPERTIES                                                             
|                |  | General                                                                             
|                |  | Gas Distribution                                                                    
|                |  | Gas Supply                                                                          
|                |  | Competition and Growth                                                              
|                |  | Regulation                                                                          
|                |  | Relationships with Affiliates                                                       
|                |  | Employees                                                                           
|                |  | Environmental Matters                                                               
|                |  | Research and Development                                                            
|Item 3.         |  | LEGAL PROCEEDINGS                                                                   
|Item 4.         |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                 
|PART II        
|Item 5.         |  | MARKET FOR REGISTRANT'S EQUITY AND RELATED STOCKHOLDER MATTERS                      
|Item 6.         |  | OMITTED                                                                             
|Item 7.         |  | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
|Item 7A.        |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                          
|Item 8.         |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                         
|Item 9.         |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|PART III       
|Items 10-13     |  | OMITTED                                                                             
|PART IV        
|Item 14.        |  | EXHIBITS AND REPORTS ON FORM 8-K                                                    
|SIGNATURES     

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FORM 10-K        ANNUAL REPORT, 2002

PART I

ITEMS 1. and 2. BUSINESS AND PROPERTIES.

General

Questar Gas Company (the "Company" or "Questar Gas") distributes natural gas to 750,128 sales and transportation customers in Utah, southwestern Wyoming, and a
small portion of southeastern Idaho. It is part of the Regulated Services group within Questar Corporation ("Questar"), which is a publicly-owned and integrated natural gas company.

The
Company, through a predecessor, began distributing natural gas in 1929 when a pipeline was built to transport natural gas from southwestern Wyoming to Salt Lake City, Utah. Between
1929 and the present time, Questar Gas expanded its system to include over 90 percent of Utah's population and to capture a market share of approximately 90 percent for furnaces and
water heaters within its service area.

The
Company has traditionally capitalized on two competitive advantagesowning natural gas reserves and offering natural gas services to customers at reasonable prices.
Questar Gas intends to maintain a competitive position in its traditional service area.

Gas Distribution

As of December 31, 2002, Questar Gas was serving 750,128 residential, commercial, and industrial customers, a 2.5 percent increase from the 731,900
customers served as of the end of 2001. (Customers are defined in terms of active meters.) The Company distributes gas to customers in the major populated area of Utah, commonly referred to as the
Wasatch Front, in which the Salt Lake metropolitan area, Provo, Ogden, and Logan are located. It also serves customers throughout the state with Price, Roosevelt, Vernal, Moab, Monticello, Fillmore,
Richfield, Cedar City, and St. George as the primary cities. Utah customers constitute over 96 percent of the Company's total customers. Questar Gas supplies natural gas in the southwestern
Wyoming communities of Rock Springs, Green River, Evanston, Kemmerer and Diamondville, and the southeastern Idaho community of Preston.

Questar
Gas added 18,228 customers in 2002, compared to 27,271 new customers added in 2001. (The 2001 figure includes 10,500 customers acquired as a result of purchasing two smaller
utilities.) Utah's population is still growing faster than the national average, although the rate of growth is slowing down.

Questar
Gas has been granted the necessary regulatory approvals by the Public Service Commission of Utah ("PSCU"), the Public Service Commission of Wyoming ("PSCW"), and the Public
Utilities Commission of Idaho ("PUCI") to serve these areas. It also has long-term franchises granted by communities and counties within its service area.

The
Company's sales to residential and commercial customers are seasonal, with a substantial portion of such sales made during the heating season. The typical residential customer in
Utah (defined as a customer using 115 decatherms ("Dth") per year) uses more than 77 percent of total gas requirements in the coldest six months of the year. (A Dth is an amount of heat energy
equal to 10 therms or 1 million Btu.) The Company's revenue forecasts used to set rates are based on normal temperatures. Historically, revenues and resulting net income have been affected by
temperature patterns that are below or above normal. As measured in degree-days, temperatures in the Company's

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service area were eight percent colder than normal in 2002, which followed eight consecutive years of warmer than normal weather.

Questar
Gas has a weather normalization mechanism for its general service customers in Utah and Wyoming. The mechanism, which has been in effect since 1997, adjusts the
non-gas portion of a
customer's monthly bill as the actual degree-days in the billing cycle are warmer or colder than normal. This mechanism reduces the sometimes dramatic fluctuations in any given customer's
monthly bill from year to year. Consequently, the mechanism also reduces fluctuations in the Company's revenues.

During
2002, Questar Gas sold 90.8 million decatherms ("MMdth") to residential and commercial customers, compared to 88.4 MMdth in 2001. General service sales to residential and
commercial customers were responsible for 87.6 percent of Questar Gas's total revenues in 2002. The increase in sales volumes reflects colder weather and increased customers. Customers,
however, are continuing to decrease their usage on a temperature-adjusted basis as they use more efficient gas-burning appliances and respond to higher commodity prices with conservation
measures. Usage per customer has decreased by an average of three percent over the last several years.

Questar
Gas has designed its distribution system and annual gas supply plan to handle design-day demand requirements. The Company periodically updates its
design-day demand, which is the volume of gas that firm customers could use during extremely cold weather. For the 2002-03 heating season, the Company used a
design-day demand of 1.084 billion cubic feet ("Bcf") for firm sales customers. Questar Gas is also obligated to have capacity, but not gas supply, for firm transportation
customers. The Company's management believes that the distribution system is adequate to meet the demands of its firm customers.

The
Company's tariff permits industrial customers to make annual elections for interruptible sales or transportation service. Questar Gas's largest transportation customers, as measured
by revenue contributions in 2002, are the Gadsby plant operated by Scottish Power (electric utility) in Salt Lake City; the mineral extraction operations of Magnesium Corporation of America in Tooele
County, west of Salt Lake City; and the Kennecott copper processing operations, located in Salt Lake County. These customers contributed $2.5 million, or approximately 35 percent, of the
$7.2 million in revenue the Company received for industrial transportation. Questar Gas's total industrial deliveries, including both sales and transportation, declined from 65.3 MMdth in 2001
to 57.2 MMdth in 2002, reflecting the economic recession and the loss of Geneva Steel due to its bankruptcy and suspension of operations.

Questar
Gas owns and operates distribution systems throughout its Utah, Wyoming and Idaho service areas and has a total of 22,815 miles of street mains, service lines, and
interconnecting pipelines. Questar Gas has a major operations center located in Salt Lake City, Utah. It also owns operations centers, field offices, and service center facilities throughout other
parts of its service area. The mains and service lines are constructed pursuant to franchise agreements or rights-of-way. Questar Gas has fee title to the properties on which
its operation and service centers are constructed.

Gas Supply

Questar Gas owns natural gas producing properties in Wyoming, Utah and Colorado that are operated by Wexpro Company ("Wexpro") and uses the gas produced from
these properties for part of its
base-load demand.    Questar Gas is unique among local distribution companies because it does own gas reserves.

The
Company's investment in these properties is included in its utility rate base. Questar Gas has regulatory approval to use this "cost-of-service" gas for firm
sales customers. During 2002, approximately 45 percent of the Company's firm sales requirement was satisfied with cost-of-service gas produced from over 700 wells in
more than 35 fields. (This percentage includes gas volumes attributable to royalty interests.) The volumes produced from such properties are transported for the

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Company by Questar Pipeline Company ("Questar Pipeline"). See "Relationships with Affiliates." During 2002, 48.7 MMdth of gas were delivered from such properties, compared to 42.2 MMdth in 2001.

Questar
Gas had estimated reserves of 442.3 billion cubic feet equivalent ("Bcfe") as of year-end 2002, compared to 427.8 Bcfe as of year-end 2001. (The
reserve numbers include oil reserves.) The average wellhead cost associated with Questar Gas's cost-of-service reserves was below the cost of field-purchased gas. During 2002,
Questar Gas recorded $1.7 million in Section 29 tax credits associated with production from wells on its cost-of-service properties that qualify for such credits.
(These tax credits are not available after 2002.)

Questar
Gas uses storage capacity at Clay Basin (a base-load storage facility owned and operated by Questar Pipeline) to provide flexibility for handling gas volumes produced
from cost-of-service properties. It stores gas at Clay Basin during the summer and withdraws it during the heating season.

Questar
Gas has a balanced and diversified portfolio of gas supply contracts with suppliers located in the Rocky Mountain states of Wyoming, Colorado, and Utah. Questar Gas includes
costs associated with hedging activities in its balancing account for pass-through treatment. When filing its most recent pass-through application with the PSCU, Questar Gas
reported using a blend of fixed-price contracts, price-indexed contracts, and price-capped contracts as well as spot purchases to fulfill its purchased-gas supply requirements. In this
same application, Questar Gas estimated that its average cost of purchased gas for 2003 would be $2.99 per Dth for gas delivered to the upstream pipeline, compared to the $2.94 price it was estimating
a year earlier.

Competition and Growth

Questar Gas has historically enjoyed a favorable price comparison with all energy sources used by residential and commercial customers except coal and
occasionally fuel oil. This historic price advantage, together with the convenience and handling advantages associated with natural gas, has permitted Questar Gas to retain approximately
90 percent of the residential space and water heating markets in its service area and to distribute more energy, in terms of Btu content, than any other
energy supplier to residential and commercial markets in Utah. Questar Gas has close to 100 percent of the space heating and water heating offered in new homes within its service area that are
connected to its system.

Questar
Gas is a public utility and currently has no direct competition from other distributors of natural gas for residential and commercial customers. It does compete with other energy
sources and continues to monitor its competitive position, in terms of commodity costs and efficiency of usage, with them.

Questar
Gas is also interested in Utah's economic development in order to enhance market growth and is encouraging the use of natural gas in additional appliances. Its market share for
other gas appliances, e.g., ranges and dryers, has historically been less than 35 percent, which is significantly lower than its approximately 90 percent market share for furnaces and
water heaters. Questar Gas continues to focus marketing efforts to develop incremental load in existing homes and new construction.

Questar
Gas believes that it must maintain a competitive price advantage in order to retain its residential and commercial customers and to build incremental load by convincing current
customers to convert additional secondary appliances to natural gas. Historically, the Company's competitive position has been strengthened as a result of owning natural gas producing properties and
satisfying as much as approximately 40-50 percent of its system requirements with the cost-of-service gas produced from such properties. Questar Gas develops
an annual gas supply plan that provides for a judicious balance between cost-of-service gas and purchased gas. The Company believes that it is important to continue

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owning gas reserves, producing them in a manner that will serve the best short- and long-term interests of its customers, and satisfying a significant portion of its supply requirements
with gas produced from such properties.

No
other major distributor markets natural gas sales service in direct competition with the Company in its service area, but marketing firms are arranging direct purchase contracts
between large users in the Company's service area and producers. The Company's sales rates are competitive when compared to other energy sources, but can be higher (or lower) than the delivered price
of spot-market gas volumes transported through its system to large customers.

The
existence of the pipeline owned by Kern River Gas Transmission Company ("Kern River"), however, coupled with the open-access status of Questar Pipeline's transmission
system, has changed the nature of market conditions for the Company. The Kern River pipeline, which was built to transport gas from southwestern Wyoming to Kern County, California, runs through
portions of the Company's service area and can provide an alternative delivery source to transportation customers. Large industrial customers in Utah's Wasatch Front area can acquire taps on Kern
River's system or direct taps on Questar Pipeline's system. The Company itself has taps on the Kern River line that enable it to obtain delivery of additional peak-day supplies to meet
increasing demand. The existence and location of the Kern River pipeline system also made it possible for Questar Gas to develop additional sources of
supply for its central and southern Utah system and to take delivery of additional supplies to meet increasing demand in the Wasatch Front.

The
Company has significantly reduced its costs by centralizing key functions, such as call center activities; cross-training employees to handle different responsibilities; and
utilizing technology, such as automated meter reading. Questar Gas will continue to examine its costs, take advantage of technological developments and improve its overall efficiency.

Regulation

As a public utility, Questar Gas is subject to the jurisdiction of the PSCU and PSCW. (Questar Gas's customers in Idaho are served under the provisions of its
Utah tariff. Pursuant to a special contract between the PUCI and the PSCU, rates for Questar Gas's Idaho customers are regulated by the PSCU.) Questar Gas's natural gas sales and transportation
services are made under rate schedules approved by the two regulatory commissions. It is authorized to earn a return on equity of 11.2 percent in Utah (recently increased from
11.0 percent) and 11.83 percent in Wyoming.

On
December 30, 2002, the PSCU issued an order in Questar Gas's general rate case that was originally filed in May of 2002. The order authorized Questar Gas to increase its annual
rates by $11,162,550, which reflects an allowed rate of return on equity of 11.2 percent. The PSCU also approved a stipulation that had been reached earlier in the case dealing with all revenue
issues except the cost of common equity and capital structure and reflecting a test year primarily based on calendar year 2002. In addition to resolving revenue issues, the approved stipulation
changes Questar Gas's accounting for contributions in aid of construction, by crediting them against investment rather than treating them as revenues. The stipulation also provides for the
establishment of special groups to review cost allocation/rate-design issues and demand side management issues. In its order, the PSCU also approved Questar Gas's capital structure.

The
PSCU, on August 14, 2002, authorized Questar Gas to recover $3.76 million, plus interest, for costs associated with removing carbon dioxide from natural gas volumes for
the period from June 1, 1999 to August 10, 2000. The PSCU's order was issued after the Utah Supreme Court, in a decision issued on October 23, 2001, determined that the PSCU was
not precluded from considering Questar Gas's 1999 request for pass-through treatment of such costs according to previously approved balancing account procedures and remanded the case to
the PSCU for a decision on the merits of the case.

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Questar
Gas is still involved in another appeal concerning its processing costs. After the PSCU granted permission for it to recover a portion of such costs on a prospective basis in its
2000 general rate case, the Committee of Consumer Services filed an appeal. This case has not been heard.

Both
the PSCU and the PSCW have authorized Questar Gas to use a balancing account procedure for changes in the cost of natural gas, including supplier non-gas costs, and to
reflect changes on at least a semi-annual basis. In the last pass-through application that became effective on or December 30, 2002, Questar Gas was allowed to decrease
its rates to reflect annualized gas costs of $336,707,257 in its Utah rates. The PSCW authorized Questar Gas to decrease its rates to reflect annualized gas costs of $13,072,863 effective
January 1, 2003. The typical residential customer in Utah will have an annual bill of $673.89, using rates in effect as of January 1, 2003, compared to an annual bill of $681.02, using
rates in effect on January 1, 2002.

Questar
Gas is still concerned about the continuing effect of declining use per customer and the authorized return on equity allowed in Utah. Consequently, the Company may determine to
file another general rate case in Utah during 2003.

During
its 2003 session, the Utah state legislature adopted statutory provisions that should benefit Questar Gas and other utilities serving Utah customers. These provisions require the
PSCU to use a "test year" that is most representative of conditions when new rates become effective, allowing the use of a test year that extends 20 months from the date of filing; encourage
settlements by strengthening and simplifying settlement negotiation procedures; and limit the binding effect of regulatory orders to the utility specifically involved in such orders.

Responsibility
for gas acquisition activities involves inherent risks of regulatory scrutiny. The Company has been periodically involved in regulatory proceedings in which the prudence
of its gas supply activities and gas processing costs has been challenged. The PSCU and PSCW have jurisdiction to examine the Company's relationships with its affiliates and the costs paid by the
Company for services rendered by or goods purchased from its affiliates. A 1981 settlement agreement involving cost-of-service gas and defining certain contractual obligations
between the Company and Wexpro continues to be monitored by the Utah Division of Public Utilities and its agents.

Under
Utah law, Questar Gas must report dividends paid on its common stock to the PSCU and must allow at least 30 days between declaring and paying dividends. The PSCU can
investigate any dividend declared by the Company to determine if payment of such dividend would impair its capital or service obligations. The PSCW and the PUCI, but not the PSCU, have jurisdiction to
review the issuance of long-term securities by Questar Gas. (The PUCI, however, has granted the Company an exemption from the provision.)

The
PSCU and PSCW have adopted regulations or issued orders that affect the Company's business practices in such areas as main extensions, credit and collection activities, and
termination of service standards.

The
Pipeline Safety Improvement Act of 2002 imposes new requirements on Questar Gas. It tightens federal inspection and safety requirements and increases civil penalties that may be
assessed by the Department of Transportation. The new safety requirements include integrity assessments of all intrastate and interstate pipelines located in high-density population areas.

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Relationships with Affiliates

The Company has significant business relationships with affiliated companies. The following diagram shows the corporate structure of the Company and its primary
affiliates:

GRAPHIC

The
Company's relationships with its primary affiliates are described below.

Questar Regulated Services Company.The Company's direct parent, Questar Regulated Services Company ("QRS"), is a subholding
company that links Questar Gas and Questar Pipeline. QRS is a wholly-owned subsidiary of Questar. The same group of officers manages all entities within the group. QRS provides various
servicesadministrative, accounting, engineering, regulatory, legalfor all entities within it. The creation of the Regulated Services group allowed its members to lower
administrative costs.

Questar Pipeline Company.Questar Pipeline owns a two-pronged transmission system running from southwestern
Wyoming and western Colorado into the Company's Utah service area. Questar Gas has reserved capacity of about 898,902 Dth per day or about 58 percent of Questar Pipeline's reserved capacity
during the three coldest months of the year.

Questar
Gas transports both cost-of-service gas and purchased gas on Questar Pipeline's transmission system. (The Company also transports gas volumes on the
transmission systems owned by The Williams Companies, Inc. and Colorado Interstate Gas Company. Questar Gas purchases "city gate" gas supplies from transportation customers on Kern River's
system.) The Company releases its firm transportation capacity, pursuant to capacity release procedures adopted by the Federal Energy Regulatory Commission ("FERC"), when it does not need such service
for its sales customers. Because Questar
Gas has sufficient capacity on the system to meet peak-demand periods, it has unused capacity for the balance of the year.

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During
2002, Questar Pipeline transported 111.7 MMdth of gas for Questar Gas, compared to 110.3 MMdth in 2001. Under Questar Pipeline's "straight fixed-variable" rate schedules, Questar
Gas is obligated to pay demand charges for firm capacity, regardless of the volumes actually transported. The Company, in 2002, paid approximately $52.4 million in demand charges to Questar
Pipeline for firm transportation capacity and "no notice" transportation. Questar Gas's primary transportation agreement with Questar Pipeline expires on June 30, 2017. The Company has formally
requested capacity on a new pipeline project under development by Questar Pipeline that would provide it with additional flexibility and reliability.

Questar
Gas purchases storage capacity at Clay Basin, a large base-load storage facility operated by Questar Pipeline, and also has peaking storage capacity at three
additional storage reservoirs owned by Questar Pipeline. The Company paid Questar Pipeline $13.9 million during 2002 in connection with firm storage services at Clay Basin.

A
subsidiary of Questar Pipeline also operates a processing plant near Price, Utah, that removes the carbon dioxide from gas volumes delivered to Questar Gas's system. During 2002, the
Company paid $5.9 million for services provided at the plant.

The
Company combined some operation activities with Questar Pipeline after an early 2000 retirement program. In some areas, Questar Gas and Questar Pipeline share service centers and
operations employees are cross-trained to handle responsibilities for both entities.

Questar Gas Management Company.Questar Gas Management Company ("QGM"), an entity within Questar's Market Resources segment,
owns the gathering facilities that were originally built to gather production from the Company's cost-of-service properties. During 2002, QGM gathered 40.7 MMdth of natural gas
for Questar Gas, compared to 37.2 MMdth in 2001. Under the terms of the gathering agreement between the parties, QGM will gather gas volumes produced from cost-of-service
properties for the life of such properties and charge cost-of-service rates.

Wexpro Company.Wexpro, another company within Questar's Market Resources segment, operates certain properties owned by
Questar Gas. Under the terms of a 1981 settlement agreement, which was approved by the PSCU and PSCW and upheld by the Utah Supreme Court, the Company owns gas produced from specified properties that
were productive as of August 1, 1981 (the effective date of the settlement agreement). Such gas is reflected in rates at cost-of-service prices based on rates of return
established by the settlement agreement. In addition, Wexpro produces gas from specified properties
for Questar Gas and is reimbursed for its costs plus a current rate of return that, in 2002, averaged 18.6 percent (adjusted annually using a specified formula) on its net investment in such
properties, adjusted for working capital and deferred taxes. At year-end 2002, Wexpro's net investment in cost-of-service operations was $164.5 million
compared to $161.3 million at year-end 2001. Under the terms of the settlement agreement, the costs of unsuccessful wells are borne by Wexpro. The settlement agreement also permits
Questar Gas to share income from hydrocarbon liquids produced from certain properties operated by Wexpro after Wexpro recovers its expenses and a specified rate of return. The income received by
Questar Gas from Wexpro is used to reduce natural gas costs reflected in the Company's rates.

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Questar InfoComm, Inc.The Company receives data processing and telecommunication services from its affiliate, Questar
InfoComm. Questar Gas utilizes a customer information system and related software systems that are maintained by Questar InfoComm. Questar InfoComm is assisting the Company evaluate a new customer
information system.

Other Affiliates.Questar Energy Services, Inc. ("QES"), another member of the Regulated Services group, offers a
variety of non-regulated products and services. In addition to QGM and Wexpro, the Market Resources segment of Questar includes Questar Energy Trading Company and Questar Exploration and
Production Company. Questar Gas does not have significant business relationships with these entities.

Questar,
the Company's ultimate parent, provides certain administrative services, e.g., public and government relations, financial, and audit, to the Company and other members of the
consolidated group. Questar also sponsors the qualified and welfare benefit plans in which the Company's employees participate. Questar Gas is responsible for a proportionate share of the costs
associated with these services and benefit plans.

Employees

As of December 31, 2002, the Company had 761 employees, compared to 789 at year-end 2001. Regulated Services, the Company's parent, has 369
employees, compared to 361 at year-end 2001. Questar Gas has reduced its employee count because it utilizes employees who work for an affiliate, Questar Project Employee Company, and is
responsible for their labor costs. The Company's employees are nonunion employees who are not represented under collective bargaining agreements. Employee relations are generally deemed to be
satisfactory.

Environmental Matters

The Company is subject to the National Environmental Policy Act and other federal and state legislation regulating the environmental aspects of its operations.
Although Questar Gas does not believe that environmental protection laws and regulations will have any material effect on its
competitive position, it does believe that such provisions have added and will continue to add to the Company's expenditures and annual maintenance and operating expenses.

Questar
Gas has an obligation to treat waste water and monitor the effectiveness of an underground slurry wall that was constructed in 1988 at its operations center in Salt Lake City,
Utah. The slurry wall was built to contain contaminants from an abandoned coal gasification plant that operated on the site from 1908 to 1929.

Questar
Gas emphasizes the environmental advantages of natural gas in its marketing campaign. The Company actively promotes the use of natural gas in motorized vehicles.

Research and Development

The Company conducts limited studies of gas conversion equipment, gas piping and operating technology, and engines using natural gas and has funded demonstration
projects using such equipment. The total dollar amount spent by the Company on research activities is not material.

ITEM 3. LEGAL PROCEEDINGS.

Questar Gas is involved in various legal and regulatory proceedings. While it is currently impossible to predict or determine the outcome of these proceedings,
management believes that the outcome will not have a material adverse effect on the Company's financial position, operating results or liquidity. Significant cases are discussed below.

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The
Company is a named defendant in two cases that have been filed by Jack Grynberg, an independent producer that has sued Questar Gas and its affiliates a number of times during the
last ten years. The most active case,United States ex rel. Grynberg v. Questar Corporation,involves claims brought by Mr. Grynberg under the
Federal False Claims Act and is substantially similar to cases filed by Grynberg against pipelines and their affiliates that have been consolidated for discovery and pre-trial discovery
motions in Wyoming's federal district court. Grynberg has filed an appeal from the order issued by the trial judge dismissing his valuation claims from the lawsuits. To sustain claims under the False
Claims Act, Grynberg must demonstrate that he is the original source of information concerning the allegations and that he has "direct and independent knowledge" of the claimed mismeasurement
practices. The Company and other Questar defendants participate in a joint defense group that is attacking Grynberg's eligibility to bring such claims.

Another
Grynberg case,Grynberg and L & R Exploration Venture v. Questar Pipeline Co.,was filed against Questar Gas and several
affiliates in 1997, and is pending in a Wyoming federal district court. This case involves claims of fraud and antitrust violations in addition to some take-or-pay, breach of
contract, and intentional interference claims. The judge, in June of 2001, entered an order granting the motion for partial summary judgment filed by the Questar defendants that dismissed the
antitrust claims from the case, but has not yet ruled on other motions for summary judgment dealing with "ratable take" and fraud.

Questar
Gas and several affiliates are among the numerous named defendants inPrice v. Gas Pipelines, in a case been filed against the
pipeline industry. Pending in a Kansas state district court, this case is similar to the cases filed by Grynberg, but the allegations of a conspiracy by the pipeline industry to set standards that
result in the systematic mismeasurement of natural gas volumes and resulting underpayment of royalties are made on behalf of private and state lessors, rather than on behalf of the federal government.
The numerous defendants are opposing class certification and are requesting dismissal for lack of personal jurisdiction, including the Company, that do not conduct business activities in Kansas.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

The Company did not submit any matters to a vote of its stockholder during the last quarter of 2002.

PART II

ITEM 5. MARKET FOR REGISTRANT'S EQUITY AND RELATED STOCKHOLDER MATTERS.

All of the Company's outstanding shares of common stock, $2.50 par value, are owned by Regulated Services. Information concerning the dividends paid on such stock
and the ability to pay dividends is reported in the Statements of Common Shareholder's Equity and the Notes to Financial Statements included in Item 8.

ITEM 6. SELECTED FINANCIAL DATA.

The Company, as the wholly-owned subsidiary of a reporting company under the Securities Exchange Act of 1934 ("the Act"), is entitled to omit the information
requested in this Item.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

RESULTS OF OPERATIONS

Questar Gas conducts natural gas-distribution operations. Following is a summary of financial results and operating information:

|                                                |                                         | Year Ended December 31,  |                 
|----------------------------------------------- | --------------------------------------- | ------------------------ | ----------------
|
|
|OPERATING INCOME                                |                                         |                          |                 
|Revenues                                        |                                         |                          |                 
|                                                | Residential and commercial sales        |                          | $               
|                                                | Industrial sales                        |                          |                 
|                                                | Industrial transportation               |                          |                 
|                                                | Other                                   |                          |                 
|                                                |                                         |                          |                 
|                                                |                                         | Total revenues           |                 
|                                                | Cost of natural gas sold                |                          |                 
|                                                |                                         |                          |                 
|                                                |                                         |                          | Margin          
|Operating expenses                              |                                         |                          |                 
|                                                | Operating and maintenance               |                          |                 
|                                                | Depreciation and amortization           |                          |                 
|                                                | Other taxes                             |                          |                 
|                                                |                                         |                          |                 
|                                                |                                         | Total operating expenses |                 
|                                                |                                         |                          |                 
|                                                |                                         |                          | Operating income
|                                                |                                         |                          |                 
|OPERATING STATISTICS                            |                                         |                          |                 
|Natural gas volumes (Mdth)                      |                                         |                          |                 
|                                                | Residential and commercial sales        |                          |                 
|                                                | Industrial deliveries                   |                          |                 
|                                                |                                         | Sales                    |                 
|                                                |                                         | Transportation           |                 
|                                                |                                         |                          |                 
|                                                |                                         |                          | Total industrial
|                                                |                                         |                          |                 
|                                                |                                         |                          |                 
|                                                |                                         |                          |                 
|Natural gas revenue (dth)                       |                                         |                          |                 
|                                                | Residential and commercial              |                          | $               
|                                                | Industrial sales                        |                          |                 
|                                                | Transportation for industrial customers |                          |                 
|System natural gas cost (dth)                   |                                         | $                        | 3.14            
|Heating degree dayscolder (warmer) than normal |                                         |                          | 8               
|Temperature-adjusted usage per customer (dth)   |                                         |                          | 116.2           
|Number of customers at December 31,             |                                         |                          |                 
|                                                | Residential and commercial              |                          |                 
|                                                | Industrial                              |                          |                 
|                                                |                                         |                          |                 
|                                                |                                         |                          | Total customers 
|                                                |                                         |                          |                 

---

Margin (revenues less cost of gas sold)

Questar Gas's margin increased $19.6 million in 2002 when compared with 2001 due to several factors including recovery of gas-processing costs
incurred in 1999 and 2000, changes in the method of recovery of bad-debt expenses, increased connection fees from customers and a growing customer base. The margin represents the nongas
cost of service and includes a rate of return on the company's investment in gas-distribution facilities. Questar Gas does not earn a return on the cost of gas, or on the cost of gathering
and transporting gas for its customers. Gas costs, including gathering and transportation costs, are passed through to ratepayers without markup. In 2002, the Public Service Commission of Utah (PSCU)
allowed Questar Gas to recover $3.76 million of gas-processing costs that had previously been denied. In 2002, the PSCU and PSCW authorized Questar Gas to begin recovering the
gas-cost portion of bad debt expense in its pass-through costs, which improved Questar Gas's 2002 margin by $3.8 million. Customer connection fees associated with large
real estate development projects represents $5.6 million of the increase. At the end of 2002 the PSCU issued an order that changes the way the company accounts for contributions in aid of
construction (CIAC). Beginning in 2003, CIAC will be credited to rate base. Customer growth accounted for $4.8 million of the year-to-year increase in the margin. Usage
per customer continued to decline, reducing the margin by $3.9 million. The margin increased $3 million in 2001 compared with 2000, primarily as the result of a $13.5 million
annualized general rate increase in Utah, effective August 11, 2000, and a 3.9% larger customer base.

Questar
Gas pays an affiliated company to remove carbon dioxide from its natural gas at a plant that was placed into service in June 1999. The PSCU approved the recovery of up to
$5 million of processing costs per year beginning in August 2000, but did not allow recovery of the costs for the 14-month period between the startup of the plant and
August 2000. The Utah Supreme Court ruled that the PSCU had erred in not considering pass-through treatment for these costs. In August 2002, the PSCU ruled on remand that
Questar Gas be allowed to recover $3.76 million of these costs plus approximately $200,000 of interest.

The
PSCU allowed Questar Gas to include the gas-cost portion of bad-debt expenses in Utah's semi-annual gas-cost filings effective
January 1, 2002. A similar measure was approved by the Public Service Commission of Wyoming (PSCW) effective July 1, 2002.

Usage
per residential customer has been declining 2 to 3% per year over the past decade. The decline has been attributed to more energy-efficient appliances and home construction, and
customer response to higher energy prices. Usage, calculated on a temperature-adjusted basis, has decreased by 3%, 5% and 2% in 2002, 2001 and 2000, respectively.

The
PSCU previously used a historical test year to set rates. The company challenged this practice in a general rate case filed in May 2002. Effective December 30, 2002,
the PSCU approved an $11.2 million general rate increase and an 11.2% rate of return on equity. The PSCU based the 2003 rate increase on year-end 2002 costs and usage per customer.
This change in test year may mitigate the impact of declining usage per customer in 2003.

Temperatures
were colder than normal in 2002; however, temperatures have been warmer than normal for five of the last six years. The financial impact of actual weather variations from
normal, both upside and downside, is minimized by a weather-normalization adjustment (WNA) in rates. Generally, under WNA, customers pay for nongas costs based on normal temperatures.

Gas
volumes delivered to industrial customers were 12% lower in 2002 due to reduced deliveries for manufacturing and power generation. A major steel manufacturer suspended its gas
deliveries when it filed for Chapter 11 bankruptcy and shut down its facilities early in 2002. Questar Gas received $812,000 in transportation revenues from this customer in 2001.

---

Operating expenses

Operating and maintenance expenses were 2% higher in both 2002 and 2001 when compared with previous years. An economic recession, increased number of bankruptcies
and higher energy costs resulted in higher bad-debt expense. Depreciation expense increased 14% in 2002 and 2% in 2001 when compared with previous years due to higher capital spending.

Interest and other income

Interest and other income decreased in 2002 compared to 2001 as a result of less interest earned on the purchased-gas adjustment balance. The company
earns a carrying charge on the under-collected purchased-gas adjustment and pays a carrying charge on the over-collected balance. Interest and other income increased in 2001
compared with 2000 due to the return from larger gas-storage volumes, interest earned on higher purchased-gas balances and gains from selling assets.

Debt expense

Debt expense decreased 5% in 2002 compared to 2001 as a result of lower short-term interest rates and borrowings. Interest expense increased 13% in
2001 compared with 2000 primarily from higher debt balances.

Income taxes

The effective combined federal and state rate was 35.4% in 2002, 34.9% in 2001 and 34.8% in 2000. The effective income tax rate was below the combined federal and
state statutory rate of about 38% primarily due to noncoventional fuel credits related to production of gas from certain properties. These credits amounted to $1.7 million in 2002, and
$1.8 million in both 2001 and 2000. Under current law, the federal income tax credit for production sold from a nonconventional source will be discontinued for production sold after
December 31, 2002.

---



LIQUIDITY AND CAPITAL RESOURCES
Operating Activities

|                                            |                                             | Year Ended December 31, |       
|------------------------------------------- | ------------------------------------------- | ----------------------- | ------
|
|
|Net income                                  |                                             | $                       | 32,399
|Noncash adjustments to net income           |                                             |                         | 45,447
|Changes in operating assets and liabilities |                                             |                         | 43,881
|                                            |                                             |                         |       
|                                            | Net cash provided from operating activities |                         | $     
|                                            |                                             |                         |       

Higher
net income and the timing differences between the purchase and sale of gas resulted in an increase in net cash provided from operating activities. Net cash provided from operating
activities decreased in 2001 compared with 2000 due primarily to the higher amounts paid to purchase gas, which
were partially offset by the collection of customer accounts receivable and purchased-gas costs undercollected through customer rates at December 31, 2000.

Investing Activities

Following is a summary of capital expenditures for 2002 and 2001, and a forecast of 2003 expenditures.

|                                           |  | 2003
Forecast |        | 2002 |   | 2001  
|------------------------------------------ |  | ------------- | ------ | ---- | - | ------
|
|Distribution system and customer additions |  | $             | 49,500 |      | $ | 54,855
|General                                    |  |               | 29,800 |      |   | 14,550
|                                           |  |               |        |      |   |       
|                                           |  | $             | 79,300 |      | $ | 69,405
|                                           |  |               |        |      |   |       

Questar
Gas added 222 miles of main, feeder and service lines to accommodate the addition of 18,228 customers.

Financing Activities

Questar Gas generated sufficient net cash provided from operating activities to fund capital expenditures, pay cash dividends and repay $30.2 million of
short-term debt. In 2001 Questar Gas issued $60 million of long-term debt and $40 million of common equity and used the proceeds to repay a portion of
short-term debt and to fund capital expenditures. Forecasted 2003 capital expenditures are expected to be financed with net cash provided from operations and borrowing from Questar.

On
February 27, 2003, Questar Gas filed a shelf registration statement for the issuance of up to $70 million of medium-term notes. In March 2003, Questar
Gas sold $70 million of 15-year notes with a 5.31% coupon rate. Proceeds from the offering will be used to replace higher-cost debt issued in 1992 and 1993 with a
weighted-average interest rate of 8.11%

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

The
company typically has negative net working capital at December 31 because of short-term borrowing. The borrowing is seasonal and generally peaks at the end of the
year because of the lag in customer receivables and related cold-weather gas purchases.

---

Questar
Gas's capital structure at December 31, 2002, was composed of 48% long-term debt and 52% common equity.

In
November 2002, Moody's downgraded debt ratings of Questar and subsidiaries one level after completing a review that began May 2, 2002. Moody's established an A2 senior
unsecured debt rating for Questar Gas. Also, Moody's established a stable outlook for each Questar entity. A lower debt rating may increase the company's cost of debt; however, Moody's revised ratings
are solidly investment grade. Standard & Poor's has assigned an A+ to the long-term debt issued by Questar Gas. Standard & Poor's has a negative outlook.

Critical Accounting Policies

The company's financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of statements
requires management to make assumptions and estimates that affect the reported results of operations and financial position. Management believes that the following accounting policies may involve a
higher degree of complexity and judgment on the part of management.

Rate Regulation

Regulatory agencies establish rates for the transportation, distribution and sale of natural gas. Regulation is intended to permit the recovery, through rates, of
the cost of service, including a return on investment. Questar Gas follows Statement of Financial Accounting Standards (SFAS) 71, "Accounting for the Effects of Certain Types of Regulation" that
requires the recording of regulatory assets and liabilities by companies subject to cost-based regulation. The PSCU and PSCW have approved the recording of regulatory assets and
liabilities.

Recording of Unbilled Revenues

Questar Gas records revenues on a calendar basis even though bills are sent to customers on a cycle basis throughout the month. The revenues for the period from
the date the bills are sent to customers to the end of the month are estimated each month and "trued up" on an annual basis in the summer. The gas costs and other variable costs are recorded on the
same basis to ensure proper matching of revenues and expenses.

Weather Normalization

Questar Gas has provisions in its rates to adjust the amounts charged to customers on a monthly basis to approximate the impact of normal temperatures on nongas
revenues. Questar Gas estimates the weather-normalization adjustment for the unbilled revenue each month. The amount of weather-normalization adjustment is evaluated each month and
"trued-up" on an annual basis in the summer to agree with the amount billed to customers. This accounting treatment has been approved by the PSCU and PSCW.

Group Depreciation

Questar Gas uses group depreciation for the majority of its fixed assets. Under this policy, assets are depreciated in groups of similar assets rather than on an
individual-asset basis. When an asset is retired, the original cost and a like amount of accumulated depreciation are removed from the books. The method has the typical impact of increasing
depreciation expense from what would be recognized under the individual-asset method, and eliminating gains and losses when a group-depreciated asset is retired. Assets that can be separately
identified, such as buildings, vehicles and computers, are depreciated on an individual-asset basis. The PSCU and PSCW have approved the use of group depreciation.

---

New Accounting Standard:SFAS 143, "Accounting for Asset Retirement Obligations," was issued in June of 2001.
SFAS 143 addresses the financial accounting and reporting of the fair value of legal obligations associated with the retirement of tangible long-lived assets. The new standard
requires that plant abandonment costs be estimated at fair value, capitalized and depreciated over the life of the related assets. The new standard will impact recording abandonment costs of gas
wells. Recognition of abandonment costs for a majority of the gas distribution properties will be postponed indefinitely due to the nature of the assets as defined by SFAS 143. The company has
not completed its evaluation of the impact of SFAS 143. However, these expenses are noncash until abandonment takes place. SFAS 143 is effective beginning January 1, 2003.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

All of the company's long-term debt is borrowed at fixed rates. As the need arises, the company borrows funds on short-term basis with
variable-interest rates.

Forward-Looking Statements

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

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

Changes
in general economic conditions;

Changes
in prices and supplies;

Changes
in rate-regulatory policies;

Regulation
of the Wexpro agreement;

Rate
of inflation and interest rates;

Weather
and other natural phenomena;

The
effect of environmental regulation;

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

Competition
from other forms of energy;

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

Adverse
repercussion from terrorist attacks or acts of war;

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

Lower
credit ratings.

---



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Financial Statements:



|Report of Independent Auditors                                                
|------------------------------------------------------------------------------
|Statements of Income, three years ended December 31, 2002                     
|Balance Sheets at December 31, 2002 and 2001                                  
|Statements of Common Shareholders' Equity, three years ended December 31, 2002
|Statement of Cash Flows, three years ended December 31, 2002                  
|Notes to Financial Statements                                                 
|Financial Statement Schedules:                                                
|For the three years ended December 31, 2002                                   
|                                                                              

All
other schedules are omitted because they are not applicable or the required information is shown in the Financial Statements or Notes thereto.

---



Report of Independent Auditors

Board
of Directors
Questar Gas Company

We
have audited the accompanying balance sheets of Questar Gas Company as of December 31, 2002 and 2001, and the related statements of income, common shareholder's equity, and
cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the company's management. Our audits also included the
financial statement schedule listed in the Index at Item 8. These financial statements and schedule are the responsibility of the company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

We
conducted our audits in accordance with the auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Questar Gas Company at December 31, 2002 and 2001,
and the results of their operations and its cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the
United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.

|/s/ Ernst & Young LLPErnst & Young LLP
Salt Lake City, UT
March 26, 2003 |  | 
|------------------------------------------------------------------------ |  | 

---



QUESTAR GAS COMPANY  STATEMENTS OF INCOME

|                          |                               | Year Ended December 31,     |                               
|------------------------- | ----------------------------- | --------------------------- | ------------------------------
|
|
|REVENUES                  |                               |                             |                               
|                          | From unaffiliated customers   |                             | $                             
|                          | From affiliated companies     |                             |                               
|                          |                               |                             |                               
|                          |                               |                             | 595,511                       
|OPERATING EXPENSES        |                               |                             |                               
|                          | Cost of natural gas sold      |                             |                               
|                          |                               | From affiliated companies   |                               
|                          |                               | From unaffiliated companies |                               
|                          |                               |                             |                               
|                          |                               |                             | Total cost of natural gas sold
|                          | Operating and maintenance     |                             |                               
|                          | Depreciation and amortization |                             |                               
|                          | Other taxes                   |                             |                               
|                          |                               |                             |                               
|                          |                               |                             | TOTAL OPERATING EXPENSES      
|                          |                               |                             |                               
|                          |                               |                             | OPERATING INCOME              
|INTEREST AND OTHER INCOME |                               |                             | 2,329                         
|DEBT EXPENSE              |                               |                             | (22,495                       
|                          |                               |                             |                               
|                          | INCOME BEFORE INCOME TAXES    |                             |                               
|INCOME TAXES              |                               |                             | 17,789                        
|                          |                               |                             |                               
|                          | NET INCOME                    |                             | $                             
|                          |                               |                             |                               

See
notes to financial statements.

---

QUESTAR GAS COMPANY  BALANCE SHEETS

|                                     |                                                                                                        | December 31,                     
|------------------------------------ | ------------------------------------------------------------------------------------------------------ | ---------------------------------
|
|
|ASSETS                               |                                                                                                        |                                  
|CURRENT ASSETS                       |                                                                                                        |                                  
|                                     | Cash and cash equivalents                                                                              |                                  
|                                     | Accounts receivable, net                                                                               |                                  
|                                     | Unbilled gas accounts receivable                                                                       |                                  
|                                     | Accounts receivable from affiliates                                                                    |                                  
|                                     | Federal income taxes recoverable                                                                       |                                  
|                                     | Inventories, at lower of average cost or market                                                        |                                  
|                                     |                                                                                                        | Gas stored underground           
|                                     |                                                                                                        | Materials and supplies           
|                                     | Purchased-gas adjustments                                                                              |                                  
|                                     | Prepaid expenses and other                                                                             |                                  
|                                     | Deferred income taxes                                                                                  |                                  
|                                     |                                                                                                        |                                  
|                                     |                                                                                                        | TOTAL CURRENT ASSETS             
|PROPERTY, PLANT AND EQUIPMENT        |                                                                                                        |                                  
|                                     | Distribution                                                                                           |                                  
|                                     | Production                                                                                             |                                  
|                                     | General                                                                                                |                                  
|                                     | Construction in progress                                                                               |                                  
|                                     |                                                                                                        |                                  
|                                     |                                                                                                        |                                  
|                                     | Less accumulated depreciation and amortization                                                         |                                  
|                                     |                                                                                                        |                                  
|                                     |                                                                                                        | NET PROPERTY, PLANT AND EQUIPMENT
|OTHER ASSETS                         |                                                                                                        |                                  
|                                     | Regulatory assets                                                                                      |                                  
|                                     | Goodwill                                                                                               |                                  
|                                     | Other noncurrent assets                                                                                |                                  
|                                     |                                                                                                        |                                  
|                                     |                                                                                                        | TOTAL OTHER ASSETS               
|                                     |                                                                                                        |                                  
|                                     |                                                                                                        | $                                
|                                     |                                                                                                        |                                  
|LIABILITIES AND SHAREHOLDER'S EQUITY |                                                                                                        |                                  
|CURRENT LIABILITIES                  |                                                                                                        |                                  
|                                     | Notes payable to Questar                                                                               |                                  
|                                     | Accounts payable and accrued expenses                                                                  |                                  
|                                     |                                                                                                        | Accounts and other payables      
|                                     |                                                                                                        | Accounts payable to affiliates   
|                                     |                                                                                                        | Federal income taxes             
|                                     |                                                                                                        | Deferred income taxes            
|                                     |                                                                                                        | Other taxes                      
|                                     |                                                                                                        | Interest                         
|                                     |                                                                                                        |                                  
|                                     |                                                                                                        |                                  
|                                     |                                                                                                        | Purchased-gas adjustments        
|                                     |                                                                                                        |                                  
|                                     |                                                                                                        | TOTAL CURRENT LIABILITIES        
|LONG-TERM DEBT                       |                                                                                                        |                                  
|DEFERRED INCOME TAXES                |                                                                                                        |                                  
|DEFERRED INVESTMENT TAX CREDITS      |                                                                                                        |                                  
|OTHER LONG-TERM LIABILITIES          |                                                                                                        |                                  
|COMMITMENTS AND CONTINGENCIES        |                                                                                                        |                                  
|COMMON SHAREHOLDER'S EQUITY          |                                                                                                        |                                  
|                                     | Common stockpar value $2.50 per share; authorized 50 million shares; 9,189,626 issued and outstanding |                                  
|                                     | Additional paid-in capital                                                                             |                                  
|                                     | Retained earnings                                                                                      |                                  
|                                     |                                                                                                        |                                  
|                                     |                                                                                                        | TOTAL COMMON SHAREHOLDER'S EQUITY
|                                     |                                                                                                        |                                  
|                                     |                                                                                                        | $                                
|                                     |                                                                                                        |                                  

See notes to financial statements.

---



QUESTAR GAS COMPANY  STATEMENTS OF COMMON SHAREHOLDER'S EQUITY

|                              |                           | Common
Stock |        | Additional
Paid-in
Capital |   | Retained
Earnings |       
|----------------------------- | ------------------------- | ------------ | ------ | -------------------------- | - | ----------------- | ------
|
|Balances at January 1, 2000   |                           | $            | 22,974 |                            | $ | 81,875            |       
|                              | 2000 net income           |              |        |                            |   |                   |       
|                              | Cash dividends            |              |        |                            |   |                   |       
|                              |                           |              |        |                            |   |                   |       
|Balances at December 31, 2000 |                           |              | 22,974 |                            |   | 81,875            |       
|                              | 2001 net income           |              |        |                            |   |                   |       
|                              | Issuance of common equity |              |        |                            |   |                   | 40,000
|                              | Cash dividends            |              |        |                            |   |                   |       
|                              |                           |              |        |                            |   |                   |       
|Balances at December 31, 2001 |                           |              | 22,974 |                            |   | 121,875           |       
|                              | 2002 net income           |              |        |                            |   |                   |       
|                              | Cash dividends            |              |        |                            |   |                   |       
|                              |                           |              |        |                            |   |                   |       
|Balances at December 31, 2002 |                           | $            | 22,974 |                            | $ | 121,875           |       
|                              |                           |              |        |                            |   |                   |       

See
notes to financial statements.

---

QUESTAR GAS COMPANY  STATEMENTS OF CASH FLOWS

|                                    |                                                                                    | Year Ended December 31,                                   |       
|----------------------------------- | ---------------------------------------------------------------------------------- | --------------------------------------------------------- | ------
|
|
|OPERATING ACTIVITIES                |                                                                                    |                                                           |       
|                                    | Net income                                                                         |                                                           | $     
|                                    | Adjustments to reconcile net income to net cash provided from operating activities |                                                           |       
|                                    |                                                                                    | Depreciation and amortization                             |       
|                                    |                                                                                    | Deferred income taxes and deferred investment tax credits |       
|                                    |                                                                                    | Net (gain) loss from asset sales                          |       
|                                    |                                                                                    |                                                           |       
|                                    |                                                                                    |                                                           | 77,846
|                                    | Changes in operating assets and liabilities                                        |                                                           |       
|                                    |                                                                                    | Accounts receivable                                       |       
|                                    |                                                                                    | Inventories                                               |       
|                                    |                                                                                    | Prepaid expenses and other                                |       
|                                    |                                                                                    | Accounts payable and accrued expenses                     |       
|                                    |                                                                                    | Federal income taxes                                      |       
|                                    |                                                                                    | Purchased-gas adjustments                                 |       
|                                    |                                                                                    | Other assets                                              |       
|                                    |                                                                                    | Other liabilities                                         |       
|                                    |                                                                                    |                                                           |       
|                                    |                                                                                    | NET CASH PROVIDED FROM OPERATING ACTIVITIES               |       
|INVESTING ACTIVITIES                |                                                                                    |                                                           |       
|                                    | Capital expenditures                                                               |                                                           |       
|                                    | Proceeds from disposition of property, plant and equipment                         |                                                           |       
|                                    |                                                                                    |                                                           |       
|                                    |                                                                                    | NET CASH USED IN INVESTING ACTIVITIES                     |       
|FINANCING ACTIVITIES                |                                                                                    |                                                           |       
|                                    | Issuance of common equity                                                          |                                                           |       
|                                    | Issuance of long-term debt                                                         |                                                           |       
|                                    | Change in notes payable to Questar                                                 |                                                           |       
|                                    | Dividend payments                                                                  |                                                           |       
|                                    |                                                                                    |                                                           |       
|                                    |                                                                                    | NET CASH PROVIDED FROM (USED IN) FINANCING ACTIVITIES     |       
|                                    |                                                                                    |                                                           |       
|Change in cash and cash equivalents |                                                                                    |                                                           | (1,373
|Beginning cash and cash equivalents |                                                                                    |                                                           | 4,366 
|                                    |                                                                                    |                                                           |       
|Ending cash and cash equivalents    |                                                                                    | $                                                         | 2,993 
|                                    |                                                                                    |                                                           |       

See
notes to financial statements.

---



QUESTAR GAS COMPANY  NOTES TO FINANCIAL STATEMENTS

Note 1Summary of Accounting Policies

Questar
Gas Company (the company or Questar Gas), is a wholly owned subsidiary of Questar Regulated Services Company (Regulated Services). Regulated Services is a holding company and a
wholly owned subsidiary of Questar Corporation (Questar). Regulated Services was organized in 1996 and provides administrative, accounting, engineering, legal and regulatory functions for its three
subsidiaries, Questar Gas, Questar Pipeline Company (Questar Pipeline) and Questar Energy Services. Significant accounting policies are presented below.

Business and Regulation:Questar Gas distributes natural gas to residential, commercial and industrial customers in Utah,
southwestern Wyoming and southeastern Idaho. The company is regulated by the Public Service Commission of Utah (PSCU) and the Public Service Commission of Wyoming (PSCW). The Idaho Public Utilities
Commission has deferred to the PSCU for rate oversight of Questar Gas's operations in a small area of southeastern Idaho. These regulatory agencies establish rates for the sale and transportation of
natural gas. Regulation is intended to permit the recovery, through rates, of the cost of service including a return on investment.

The
financial statements are presented in accordance with regulatory requirements. Methods of allocating costs to time periods, in order to match revenues and expenses, may differ from
those of other businesses because of cost-allocation methods used in establishing rates

Use of Estimates:The preparation of financial statements in conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions that
affect the amounts of assets and liabilities and disclosure of contingent liabilities reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Revenue Recognition:Revenues are recognized in the period that services are provided or products are delivered. Questar Gas
records gas-distribution revenues for gas delivered to residential and commercial customers but not billed at the end of the accounting period. The impact of abnormal weather on gas
distribution earnings during the heating season is partially reduced by a weather- normalization adjustment. The company may establish reserves for revenues collected subject to refund pending final
orders from regulatory commissions.

Purchased-Gas Adjustments:Questar Gas accounts for purchased-gas costs in accordance with procedures
authorized by the PSCU and the PSCW under which purchased-gas costs that are different from those provided for in present rates are accumulated and recovered or credited through future
rate changes. Questar Gas may hedge a portion of its natural gas supply to mitigate energy-price fluctuations for gas-distribution customers. The benefits and the costs of hedging are
included in the purchased-gas adjustment account. The regulatory commissions also allow Questar Gas to record periodic mark-to-market adjustments for energy-hedging
contracts in the purchased-gas adjustment account.

Other Regulatory Assets and Liabilities:Questar Gas is permitted to defer recognition of certain costs under regulatory
accounting rules. Gains and losses on the reacquisition of debt are deferred and amortized as debt expense over either the would-be remaining life of the retired debt or the life of the
replacement debt. The reacquired debt costs had a weighted-average life of approximately 15 years as of December 31, 2002. The cost of the early retirement windows offered to employees
was capitalized and amortized over a five-year period, which will conclude in 2005. Cumulative increases in deferred taxes are recorded as income taxes recoverable from customers, all of
which are expected to be

---

recovered by 2004. Production taxes on cost-of-service production are recorded when the gas is produced and recovered from customers when taxes are paid, generally within
12 months.

Cash and Cash Equivalents:Cash equivalents consist principally of repurchase agreements with maturities of three months or
less. In almost all cases, the repurchase agreements are highly liquid investments in overnight securities made through commercial bank accounts that result in available funds the next business day.

Property, Plant and Equipment:Property, plant and equipment are stated at cost. The provision for depreciation and
amortization is based upon rates that will systematically charge the costs of assets over their estimated useful lives. Major categories of fixed assets are grouped together for depreciation purposes.
Salvage value is not considered when determining depreciation rates under the group method. Gains and losses on disposals of grouped assets are recorded as adjustments to accumulated depreciation. The
costs of natural gas distribution property, plant and equipment are depreciated using the straight-line method ranging from 3% to 33% per year. Investment in gas wells is depreciated using
the unit of production method. The average depreciation and amortization rates used for the year ended December 31, were as follows:

|                               |  | 2002 |      | 2001 |   | 2000 |  
|------------------------------ |  | ---- | ---- | ---- | - | ---- | -
|Distribution and general plant |  |      | 3.9  | %    |   | 3.8  | %
|Gas wells, per Mcf             |  | $    | 0.14 |      | $ | 0.14 |  

Test for Impairment of Long-Lived Assets:Properties are evaluated on a specific-asset basis or in groups of
similar assets, as applicable in accordance with Statement of Financial Accounting Standards (SFAS) 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." An impairment is
indicated when a triggering event occurs and the estimated undiscounted future net cash flows of an evaluated asset are less than its carrying value. If an impairment is indicated, fair value is
calculated using a discounted cash flow approach. Cash flow estimates require forecasts and assumptions for many years into the future for a variety of factors including operating costs.

Goodwill and Other Intangible Assets:Intangible assets consist primarily of goodwill acquired through business combinations
completed after June 2001. The excess of the cost over the fair value of net assets of acquired businesses is recorded as goodwill. On January 1, 2002, the company adopted
SFAS 142, "Goodwill and Other Intangible Assets." According to SFAS 142, goodwill is no longer amortized, but is tested for impairment at a minimum of once a year or when an event
occurs. When a triggering event occurs, the undiscounted net cash flows of the asset or entity to which the goodwill relates are evaluated. If undiscounted cash flows are less than the carrying value
of the assets, an impairment is indicated. The amount of the impairment is measured using a discounted-cash-flow model considering pricing, operating costs, a
risk-adjusted discount rate and other factors. In 2002, the company sold an asset that resulted in a $224,000 reduction in goodwill.

Allowance for Funds Used During Construction:The company capitalizes the cost of capital during the construction period of
plant and equipment using a method required by regulatory authorities. Capitalized financing costs, called allowance for funds used during construction (AFUDC), consist of debt and equity portions.
The debt portion of AFUDC is recorded as a reduction of interest costs and the equity portion is recorded in other income. Debt expense was reduced by $212,000 in 2002,
$476,000 in 2001 and $909,000 in 2000. No amounts of equity AFUDC were recorded in the three years ended December 31, 2002.

Credit Risk:The company's primary market area is located in Utah, southwestern Wyoming and southeastern Idaho. Exposure to
credit risk may be impacted by the concentration of customers in this area due to changes in economic or other conditions. Customers include individuals and numerous industries that may be affected
differently by changing conditions. Management believes that its credit-

---

review procedures, loss reserves, customer deposits and collection procedures have adequately provided for usual and customary credit-related losses. Loss reserves are periodically reviewed for
adequacy and may be established on a specific case basis. Bad debt expense amounted to $6.1 million, $6.5 million and $2.8 million for the years ended December 31, 2002,
2001 and 2000, respectively. The allowance for bad debt expenses was $2.5 million and $2.2 million at December 31, 2002 and 2001 respectively.

Income Taxes:The company accounts for income tax expense on a separate return basis. Pursuant to the Internal Revenue Code
and associated regulations, the company's operations are consolidated with those of Questar and its subsidiaries for income tax reporting purposes. The company receives payments from Questar for such
tax benefits as they are utilized on the consolidated return. Questar Gas records tax benefits as they are generated. Deferred income taxes have been provided for temporary difference caused by the
differences between the book and tax carrying amounts of assets and liabilities. These differences create taxable or tax deductible amounts for future periods. Questar Gas uses the deferral method to
account for investment tax credits as required by regulatory commissions.

Energy-Price Financial Instruments:The company follows the accounting provisions of SFAS 133, as amended, "Accounting
for Derivative Instruments and Hedging Activities." SFAS 133 addresses the accounting for derivative instruments, including certain derivative instruments embedded in other contracts. Under the
standard, entities are required to carry all derivative instruments in the balance sheet at fair value. The accounting for changes in fair value, which result in gains or losses, of a derivative
instrument would be reported in the purchased-gas adjustment account. The company has identified a number of contracts that are derivative instruments as defined by SFAS 133, but
are specifically excluded from the provisions of SFAS 133 on the basis of normal sales and purchase transactions.

New Accounting Standard:SFAS 143, "Accounting for Asset Retirement Obligations," was issued in June of 2001.
SFAS 143 addresses the financial accounting and reporting of the fair value of legal obligations associated with the retirement of tangible long-lived assets. The new standard
requires that plant abandonment costs be estimated at fair value, capitalized and depreciated over the life of the related assets. The new standard will impact recording abandonment costs of gas
wells. Recognition of abandonment costs for a majority of the gas distribution properties will be postponed indefinitely due to the nature of the assets as defined by SFAS 143. The company has
not completed its evaluation of the impact of SFAS 143. However, these expenses are noncash until abandonment takes place. SFAS 143 is effective beginning January 1, 2003.

Reclassifications:Certain reclassifications were made to the 2001 and 2000 financial statements to conform with the 2002
presentation.

---

Note 2Regulatory Assets

In addition to purchased-gas adjustments, the company has other regulatory assets. The regulated entities recover these costs but do not receive a
return on these assets. A list of regulatory assets at December 31 follows:

|                                        |  | 2002 |        | 2001
|--------------------------------------- |  | ---- | ------ | ----
|
|Cost of reacquired debt                 |  | $    | 6,634  |     
|Early retirement costs                  |  |      | 4,334  |     
|Income taxes recoverable from customers |  |      | 47     |     
|Deferred-production taxes               |  |      | 2,719  |     
|Other                                   |  |      | 208    |     
|                                        |  |      |        |     
|                                        |  | $    | 13,942 |     
|                                        |  |      |        |     

Note 3Debt

Questar makes loans to Questar Gas under a short-term borrowing arrangement. Short-term notes payable to Questar totaled
$36.4 million at December 31, 2002 with an interest rate of 1.64% and $66.6 million at December 31, 2001 with an interest rate of 2.31%.

Questar
Gas's long-term debt consists of medium-term notes with interest rates ranging from 6.3% to 8.43%, due 2007 to 2024. There are no maturities of
long-term debt for the five years following December 31, 2002 and no long-term debt provisions restricting the payment of dividends.

On
February 27, 2003, Questar Gas filed a shelf registration statement for the issuance of up to $70 million of medium-term notes. In March 2003, Questar
Gas sold $70 million of 15-year notes with a coupon rate of 5.31%. Proceeds from the offering will be used to replace higher-cost debt issued in 1992 and 1993 with a
weighted-average interest rate of 8.11%.

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

Cash
paid for interest was $22.1 million in 2002, $22.7 million in 2001 and $21.2 million 2000.

Note 4Financial Instruments and Risk Management

The carrying amounts and estimated fair values of the company's financial instruments were as follows:

|                      |                           | December 31, 2002 |   | December 31, 2001
|--------------------- | ------------------------- | ----------------- | - | -----------------
|
|
|Financial assets      |                           |                   |   |                  
|                      | Cash and cash equivalents |                   | $ | 2,993            
|Financial liabilities |                           |                   |   |                  
|                      | Short-term debt           |                   |   | 36,400           
|                      | Long-term debt            |                   |   | 285,000          

The
company used the following methods and assumptions in estimating fair values: (1) Cash and cash equivalents, and short-term debtcarrying value
approximates fair value; (2) Long-term debtthe fair value of the medium-term notes is based on the discounted present value of future cash flows using

---

the company's current borrowing rates. Fair value is calculated at a point in time and does not represent the amount the company would pay to retire the debt securities.

Note 5Income Taxes

The components of income taxes were as follows:

|                                |          | Year Ended December 31, |       
|------------------------------- | -------- | ----------------------- | ------
|
|
|Federal                         |          |                         |       
|                                | Current  |                         | $     
|                                | Deferred |                         |       
|State                           |          |                         |       
|                                | Current  |                         |       
|                                | Deferred |                         |       
|Deferred investment tax credits |          |                         | (395  
|                                |          |                         |       
|                                |          | $                       | 17,789
|                                |          |                         |       

The
difference between the statutory federal income tax rate and the company's effective income tax rate is explained as follows:

|                                                                        |                           | Year Ended December 31, |     
|----------------------------------------------------------------------- | ------------------------- | ----------------------- | ----
|
|
|Federal income taxes at 35%                                             |                           | 35.0                    |     
|Increase (decrease) as a result of:                                     |                           |                         |     
|State income taxes, net of federal income                               |                           |                         |     
|tax benefit                                                             |                           | 3.1                     |     
|Nonconventional fuel credits                                            |                           | (3.4                    | )   
|Investment tax credits                                                  |                           | (0.8                    | )   
|Amortize unrecorded timing differences related to rate-regulated assets |                           | 1.8                     |     
|Other                                                                   |                           | (0.3                    | )   
|                                                                        |                           |                         |     
|                                                                        | Effective income tax rate |                         | 35.4
|                                                                        |                           |                         |     

Significant
components of the company's deferred income taxes were as follows:

|                                                |                                          | December 31,                        
|----------------------------------------------- | ---------------------------------------- | ------------------------------------
|
|
|Deferred tax liabilities                        |                                          |                                     
|                                                | Property, plant and equipment            |                                     
|                                                | Employee benefits and compensation costs |                                     
|                                                |                                          |                                     
|                                                |                                          | Total deferred tax liabilities      
|Deferred tax assets                             |                                          |                                     
|                                                | Tax attributes carried forward           |                                     
|                                                |                                          |                                     
|                                                |                                          | Net deferred income taxesnoncurrent
|                                                |                                          |                                     
|Deferred income taxescurrent (asset) liability |                                          |                                     
|                                                | Purchased-gas adjustment                 |                                     
|                                                |                                          |                                     

---

Cash
paid for income taxes was $13.3 million in 2002, $18.5 million in 2001 and $7.6 million in 2000.

Note 6Rate Regulation and Other Matters

General rate case issued

Effective December 30, 2002, the PSCU issued an order approving an $11.2 million general-rate increase for Questar Gas using an 11.2%
rate of return on equity. The rate increase also reflects year-end 2002 usage per customer and costs. Previous general-rate-case increases relied on costs and
customer-usage
patterns that were at least 12 to 24 months old. Questar Gas originally requested a $23 million rate increase and a 12.6% rate of return on equity.

Purchased-gas filings

Questar Gas files periodic applications with the PSCU and the PSCW requesting permission to reflect annualized gas-cost increases or decreases
depending on gas prices. These requests for gas-cost increases or decreases are passed on to customers on a dollar-for-dollar basis with no markup. The impact of a
gas-cost increase on customers is lessened by the fact that approximately 40 to 50% of the company's annual supply comes from its own wells and is priced to customers at
cost-of-service prices rather than market prices.

Effective
January 1, 2002, the PSCU approved, on an interim basis, a $66.9 million decrease in natural gas rates that resulted in an 11% decrease for the typical
residential Utah customer. The decrease was based on a significant drop in natural gas prices at the wellhead. Also, effective January 1, 2002, the PSCW approved a $2.9 million
pass-through gas-cost decrease for Wyoming natural gas rates. Beginning December 30, 2002, the PSCU approved a $6.5 million decrease in natural gas rates. This
represents a 1% decrease for the typical Utah residential customer. The PSCW approved a $582,000 decrease in natural gas rates effective January 1, 2003. The typical residential customer in
Wyoming will see a 3% decrease from this filing.

Questar
Gas pays an affiliated company to remove carbon dioxide from its natural gas at a plant that was placed into service in June 1999. The PSCU initially denied Questar Gas's
request to recover $5.35 million in processing costs as part of its gas-balancing-accounting proceedings. Questar Gas appealed to the Utah Supreme Court and filed for recovery of
future processing costs in a general rate case in January 2000. Subsequently, the PSCU approved the recovery of up to $5 million of processing costs per year beginning in
August 2000, but did not allow recovery of the costs for the 14-month period between the startup of the plant and the general rate case. The Utah Supreme Court ruled that the PSCU
had erred in not considering pass-through treatment. The PSCU ruled on remand that Questar Gas was allowed to recover $3.76 million plus approximately $200,000 of interest during
2002.

Note 7Litigation and Commitments

Grynberg.Questar Gas and other Questar affiliates are involved in two separate lawsuits filed by Jack Grynberg, an
independent producer. One case,United States ex rel. Grynberg v. Questar Corp., involves claims filed by Grynberg under the Federal False Claims Act
and is substantially similar to other cases filed against pipelines and their affiliates that have all 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 volumes on which royalty payments are due the federal government. Grynberg has filed an appeal from the order issued by the trial judge dismissing his valuation claims
from the lawsuits. To sustain claims under the False Claims Act, Grynberg must demonstrate that he is the original source of information concerning the allegations and that he has "direct and
independent

---

knowledge" of the claimed mismeasurement practices. The Questar defendants participate in a joint defense group that is attacking Grynberg's eligibility to bring such claims.

A
case is pending in a Wyoming federal district court against several Questar defendants, including Questar Gas. This case involves some of the same allegations that were heard in an
earlier case before the parties, e.g., breach of contract, intentional interference with a contract, but Grynberg added claims of antitrust and fraud. In June of 2001, the judge entered an order
granting the motion for partial summary judgment filed by Questar Gas dismissing the antitrust claims from the case, but has not ruled on other motions for summary judgment dealing with ratable take
and fraud.

Gas Pipelines.Questar Gas and affiliates, Questar Exploration and Production Co., Questar Gas Management, Wexpro Co., and
Questar Pipeline are among the numerous defendants in a case filed against the pipeline industry. Pending in a Kansas state district court, this case is similar to the cases filed by Grynberg, but the
allegations of a conspiracy by the pipeline industry to set standards that result in the systematic mismeasurement of natural gas volumes and resulting underpayment of royalties are made on behalf of
private and state lessors rather than on behalf of the federal government. The numerous defendants are opposing class certification and are requesting dismissal for lack of personal jurisdiction of
any defendants, including most of the named Questar parties, that do not conduct business activities in Kansas.

Other legal proceedings

There are various other legal proceedings against Questar Gas. While it is not currently possible to predict or determine the outcomes of these proceedings, it is
the opinion of management that the outcomes will not have a material adverse effect on the company's results of operations, financial position or liquidity.

Commitments

Historically, 40 to 50% of Questar Gas's gas-supply portfolio has been provided from company-owned gas reserves at the cost of service. The remainder
of the gas supply has been purchased from more than 15 suppliers under approximately 40 gas-supply contracts using index-based pricing. Generally, at the conclusion of the heating season
and after a bid process, new agreements for the upcoming heating season are put into place. Questar Gas bought significant quantities of natural gas under purchase agreements amounting to
$148 million, $261 million and $184 million in 2002, 2001, 2000, respectively. In
addition, Questar Gas makes use of various storage arrangements to meet peak-gas demand during certain times of the heating season.

Note 8Employee Benefits

Pension Plan:Substantially all of Questar Gas's employees are covered by Questar's defined benefit pension plan. Benefits
are generally based on the employee's age at retirement, years of service and highest earnings in a consecutive 72 pay-period interval during the ten years preceding retirement. The
company's policy is to make contributions to the plan at least sufficient to meet the minimum funding requirements of the Internal Revenue Code. Plan assets consist principally of equity securities
and corporate and U.S. government debt obligations. The company relies on a third-party consultant to calculate the pension plan projected benefit obligation. Pension expense was $5.3 million
in 2002, $5.8 million in 2001 and $2.1 million in 2000.

Questar
Gas's portion of plan assets and benefit obligations is not determinable because the plan assets are not segregated or restricted to meet the company's pension obligations. If
the company were to withdraw from the pension plan, the pension obligation for the company's employees would be retained by the pension plan. At December 31, 2002, Questar's accumulated benefit
obligation exceeded the fair value of plan assets.

---

Postretirement Benefits Other Than Pensions:Postretirement health-care benefits and life insurance are provided
only to employees hired before January 1, 1997. The company pays a portion of the costs of health-care benefits, as determined by an employee's years of service, and limited to 170%
of the 1992 contribution. The company's policy is to fund amounts allowable for tax deduction under the Internal Revenue Code. Plan assets consist of equity securities and corporate and U.S.
government debt obligations. The company is amortizing its transition obligation over a 20-year period, which began in 1992. The company relies on a third-party consultant to calculate the
projected benefit obligation. The cost of postretirement benefits other than pensions was $1 million in 2002, $1.5 million in 2001 and $1.1 million in 2000.

The
company's portion of plan assets and benefit obligations related to postretirement medical and life insurance benefits is not determinable because the plan assets are not segregated
or restricted to meet the company's obligations. At December 31, 2002, Questar's accumulated benefit obligation exceeded the fair value of plan assets.

Postemployment Benefits:The company recognizes the net present value of the liability for postemployment benefits, such as
long-term disability benefits and health-care and life-insurance costs, when employees become eligible for such benefits. Postemployment benefits are paid to former
employees after employment has been terminated but before retirement benefits are paid. The company accrues both current and future costs. Questar Gas's postemployment liability at December 31
was $207,000 in 2002 and $166,000 in 2001.

Employee Investment Plan:Questar Gas participates in Questar's Employee Investment Plan, which allows eligible employees to
purchase shares of Questar Corporation common stock or other investments through payroll deduction. The company matches 80% of employees' pretax purchases up to a maximum of 6% of their qualifying
earnings. In addition, each year the company makes a nonmatching contribution of $200 to each eligible employee. The company's expense equals its matching contribution. The company's expense amounted
to $1.6 million, $1.4 million and $1.7 million for the years ended December 31, 2002, 2001 and 2000, respectively.

Note 9Related Party Transaction

Regulated Services provides administrative, technical, legal and accounting support to Questar Gas. The cost of this support was $32.4 million in 2002,
$35.4 million in 2001 and $34 million in 2000. The majority of these costs are allocated and included in operating and maintenance expenses. The allocation methods are based on the
nature of the charges. Management believes that the allocation methods are reasonable.

Questar
Gas has reserved transportation capacity on Questar Pipeline's system of approximately 899,000 dth per day including 50,000 dth per day of winter peaking service. The annual
demand charge for transportation service was $52.4 million in 2002. Questar Gas periodically releases excess capacity and receives a credit from Questar Pipeline for the released-capacity
revenues and a portion of Questar Pipeline's interruptible-transportation revenues. Questar Gas paid for transportation, storage and processing services provided by Questar Pipeline and a subsidiary
amounting to $73.2 million in 2002, $72.9 million in 2001 and $73.7 million in 2000, which included demand charges. The costs of these services were included in cost of gas sold.

Wexpro,
an affiliated company, manages and develops certain properties owned by Questar Gas under the terms of the Wexpro Agreement. The company receives a portion of Wexpro's income
from oil operations after recovery of Wexpro's operating expenses and a return on investment. This amount, which is included in revenues and reduces amounts billed to gas distribution customers, was
$1.7 million in 2002, $2.9 million in 2001 and $4.8 million in 2000. The amounts that Questar Gas paid Wexpro for the operation of gas properties owned by Questar Gas were
$94.8 million in 2002, $88.8 million in 2001 and $73.7 million in 2000. Questar Gas reports these amounts in cost of gas sold.

---

Also
included in cost of gas sold are amounts paid to Questar Gas Management, an affiliate, for gathering of company-owned gas and purchased gas. These costs amounted to
$9.8 million in 2002, $8.2 million in 2001 and $8.5 million in 2000. Gas purchased from Shenandoah Energy, an affiliate, amounted to $1.2 million in 2002 and $807,000 in
2001. Questar Gas purchased gas from Questar Energy Trading amounting to $817,000 in 2002, $2.1 million in 2001 and $9.3 million in 2000.

Questar
Gas has a 10-year lease with an affiliate for some space in an office building located in Salt Lake City, Utah, with an option to renew. Rent expense was
$1.4 million in 2002, $1.3 million in 2001 and $1.3 million in 2000. The annual lease payment for each of the next five years following 2002 is $1.4 million.

Questar
InfoComm Inc. is an affiliated company that provides data processing and communication services to Questar Gas. Direct charges paid by the company to Questar InfoComm were
$15.5 million in 2002, $12.8 million in 2001 and $15.4 million in 2000.

Questar
charged Questar Gas for certain administrative functions amounting to $3.5 million in 2002, $5.4 million in 2001 and $6.2 million in 2000. These costs are
included in operating and maintenance expenses and are allocated based on each affiliated company's proportional share of revenues less product costs; property, plant and equipment; and labor costs.
Management believes that the allocation method is reasonable.

Questar
Gas borrowed cash from Questar and incurred debt expense of $121,000 in 2002, $5 million in 2001 and $3.5 million in 2000.

Note 10Supplemental Gas and Oil Information (Unaudited)

The following information discusses the company's gas and oil producing activities. All of the properties are cost-of-service properties
with the return on investment established by state regulatory agencies. Wexpro, an affiliated company, develops gas and oil reserves owned by Questar Gas. Questar Gas has not incurred any costs for
gas and oil producing activities for the three years ended December 31, 2002. See Note 9 for the amounts paid by Questar Gas to Wexpro.

Estimated
Quantities of Proved Gas and Oil Reserves: The following estimates were made by Questar's reservoir engineers. Reserve estimates are based on a complex and highly interpretive
process which is subject to continuous revision as additional production and development drilling information becomes available. The quantities are based on existing economic and operating conditions
using current prices and operating costs. All gas and oil reserves reported are located in the United States.

---

Questar Gas does not have any long-term supply contracts with foreign governments or reserves of equity investees.

|                             |                            | Natural Gas |         | Oil   |     
|---------------------------- | -------------------------- | ----------- | ------- | ----- | ----
|
|Proved Reserves              |                            |             |         |       |     
|Balance at January 1, 2000   |                            | 353,683     |         | 3,289 |     
|                             | Revisions of estimates     |             | 16,523  |       | 504 
|                             | Extensions and discoveries |             | 50,351  |       | 234 
|                             | Production                 |             | (41,546 | )     | (579
|                             |                            |             |         |       |     
|Balance at December 31, 2000 |                            | 379,011     |         | 3,448 |     
|                             | Revisions of estimates     |             | (11,465 | )     | 275 
|                             | Extensions and discoveries |             | 76,042  |       | 479 
|                             | Production                 |             | (37,907 | )     | (515
|                             |                            |             |         |       |     
|Balance at December 31, 2001 |                            | 405,681     |         | 3,687 |     
|                             | Revisions of estimates     |             | (658    | )     | (122
|                             | Extensions and discoveries |             | 56,085  |       | 675 
|                             | Production                 |             | (41,208 | )     | (501
|                             |                            |             |         |       |     
|Balance at December 31, 2002 |                            | 419,900     |         | 3,739 |     
|                             |                            |             |         |       |     
|Proved-Developed Reserves    |                            |             |         |       |     
|Balance at January 1, 2000   |                            | 345,654     |         | 3,228 |     
|Balance at December 31, 2000 |                            | 362,748     |         | 3,318 |     
|Balance at December 31, 2001 |                            | 400,461     |         | 3,640 |     
|Balance at December 31, 2002 |                            | 395,821     |         | 3,481 |     

---



QUESTAR GAS COMPANY  Schedule of Valuation and Qualifying Accounts  December 31, 2002  (in thousands)

|Column A
Description         |  | Column B
Beginning Balance |       | Column C
Amounts charged
to expense |   | Column D
Deductions for
accounts written off |  | Column E
Ending Balance
|---------------------------- |  | -------------------------- | ----- | ----------------------------------- | - | -------------------------------------------- |  | -----------------------
|Year Ended December 31, 2002 |  |                            |       |                                     |   |                                              |  |                        
|Allowance for bad debts      |  | $                          | 2,206 |                                     | $ | 6,138                                        |  | $                      
|Year Ended December 31, 2001 |  |                            |       |                                     |   |                                              |  |                        
|Allowance for bad debts      |  |                            | 1,185 |                                     |   | 6,464                                        |  |                        
|Year Ended December 31, 2000 |  |                            |       |                                     |   |                                              |  |                        
|Allowance for bad debts      |  |                            | 1,006 |                                     |   | 2,760                                        |  |                        

---



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Questar Gas has not changed its independent auditors or had any disagreements with them concerning accounting matters and financial statement disclosures within
the last 24 months.

PART III

The Company, as the wholly-owned subsidiary of a reporting company under the Act, is entitled to omit all information requested in PART III (Items
10-13).

PART IV

ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K.

(3)  Exhibits.
The following is a list of exhibits required to be filed as a part of this report in Item 14(c).

|Exhibit No. |   | Description                                                                                                                                                                                                                                                                                                                         
|----------- | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1.*       |   | Restated Consolidated Articles of Incorporation dated August 15, 1980. (Exhibit No. 4(a) to Registration Statement No. 2-70087, filed December 1, 1980.)                                                                                                                                                                            
|3.2.*       |   | Certificate of Amendment to Restated Consolidated Articles of Incorporation dated May 13, 1982. (Exhibit No. 3(b) to Form 10-K Annual Report for 1982.)                                                                                                                                                                             
|3.3.*       |   | Certificate of Amendment to Restated Consolidated Articles of Incorporation dated May 10, 1983. (Included in Exhibit No. 4.1. to Registration Statement No. 2-84713, filed June 23, 1983.)                                                                                                                                          
|3.4.*       |   | Certificate of Amendment to Restated Consolidated Articles of Incorporation dated August 16, 1983. (Exhibit No. 3(a) to Form 8 Report amending the Company's Form 10-Q Report for Quarter Ended September 30, 1983.)                                                                                                                
|3.5.*       |   | Certificate of Amendment to Restated Consolidated Articles of Incorporation dated October 26, 1984. (Exhibit No. 3.5. to Form 10-K Annual Report for 1984.)                                                                                                                                                                         
|3.6.*       |   | Certificate of Amendment to Restated Consolidated Articles of Incorporation dated May 13, 1985. (Exhibit No. 3.1. to Form 10-Q Report for Quarter Ended June 30, 1985.)                                                                                                                                                             
|3.7.*       |   | Articles of Amendment to Restated Consolidated Articles of Incorporation dated February 10, 1988. (Exhibit No. 3.7. to Form 10-K Annual Report for 1987.)                                                                                                                                                                           
|3.8.*       |   | Articles of Amendment to Restated Consolidated Articles of Incorporation dated December 31, 1997. (Exhibit No. 3.7. to Form 8-K Current Report for December 31, 1997.)                                                                                                                                                              
|3.9.*       |   | Bylaws (as amended effective February 13, 2001) (Exhibit No. 3.9. to Form 10-K Annual Report for 2000.)                                                                                                                                                                                                                             
|4.*(1       | ) | Indenture dated as of May 1, 1992, between the Company and Citibank, as trustee, for the Company's Debt Securities. (Exhibit No. 4. to Form 10-Q Report for Quarter Ended June 30, 1992.)                                                                                                                                           
|10.1.*(2    | ) | Stipulations and Agreement, dated October 14, 1981, executed by the Company; Wexpro Company; the Utah Department of Business Regulations, Division of Public Utilities; the Utah Committee of Consumer Services; and the staff of the Public Service
Commission of Wyoming. (Exhibit No. 10(a) to Form 10-K Annual Report for 1981.)
|            |   |                                                                                                                                                                                                                                                                                                                                     

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|10.2*(2 | ) | Gas Gathering Agreement between the Company and Questar Pipeline Company effective September 1, 1993. (This agreement has been transferred from Questar Pipeline to Questar Gas Management Company.) (Exhibit No. 10.11. To Form 10-K
Annual Report for 1994.)
|------- | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.3.*  |   | Amendment to Gas Gathering Agreement between the Company and Questar Gas Management Company effective September 1, 1997.                                                                                                                                      
|12.     |   | Ratio of earnings to fixed charges.                                                                                                                                                                                                                           
|24.     |   | Power of Attorney.                                                                                                                                                                                                                                            
|99.     |   | Certification of D. N. Rose and S. E. Parks.                                                                                                                                                                                                                  

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(b)  During
the fourth quarter of 2002, the Company filed a Current Report on Form 8-K dated December 30, 2002, disclosing details of its general
rate case order.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, on the 27th day of March, 2003.

| |  | QUESTAR GAS COMPANY
(Registrant)
| |  | --------------------------------
| |  | By                              

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on
the date indicated.

|/s/D. N. ROSED. N. Rose                                                                                                           |  | President and Chief Executive Officer; Director (Principal Executive Officer)       
|--------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------
|/s/S. E. PARKSS. E. Parks                                                                                                         |  | Vice President, Treasurer and Chief Financial Officer (Principal Financial Officer) 
|/s/D. M. CURTISD. M. Curtis                                                                                                       |  | Vice President and Controller (Principal Accounting Officer)                        
|*R. D. Cash
*W. Whitley Hawkins
*Robert E. Kadlec
*Dixie L. Leavitt
*Gary G. Michael
*K. O. Rattie
*D. N. Rose
*Harris H. Simmons |  | Chairman of the Board
Director
Director
Director
Director
Director
Director
Director

|March 27, 2003Date |  |  |  | *By |  | /s/D. N. ROSED. N. Rose, Attorney in Fact
|------------------ |  |  |  | --- |  | -----------------------------------------

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CERTIFICATION

I,
D. N. Rose, certify that:





|March 27, 2003Date |  | By: |  | /s/D. N. ROSED. N. Rose
President and Chief Executive Officer
|------------------ |  | --- |  | -------------------------------------------------------------

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CERTIFICATION

I,
S. E. Parks, certify that:





|March 27, 2003Date |  | By: |  | /s/S. E. PARKSS. E. Parks
Vice President, Treasurer, and Chief Financial Officer
|------------------ |  | --- |  | --------------------------------------------------------------------------------

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