Note 10 - Wexpro and Wexpro II Agreements

Wexpro's operations are subject to the terms of the Wexpro and Wexpro II agreements. The original Wexpro Agreement was effective August 1, 1981, and sets forth the rights of Questar Gas to receive certain benefits from Wexpro's operations. The agreement was approved by the PSCU and PSCW (the Commissions) in 1981 and affirmed by the Supreme Court of Utah in 1983. The Wexpro II Agreement was modeled after the original Wexpro Agreement and allows for the addition of properties under the cost-of-service methodology for the benefit of Questar Gas customers. The Wexpro II Agreement was approved by the Commissions in 2013. The Utah Division of Public Utilities and the staff of the PSCW are entitled to review the performance of Questar Gas and Wexpro under the Wexpro agreements and have retained an independent certified public accountant and an independent petroleum engineer to monitor the performance of the agreements. Major provisions of the agreements are as follows:

a. Wexpro conducts gas-development drilling on productive gas properties, including properties acquired and approved for inclusion in the Wexpro II Agreement, and bears any costs of dry holes. Natural gas produced from successful drilling on these properties is delivered to Questar Gas. Wexpro is reimbursed for the costs of producing the natural gas plus a return on its investment in successful wells. The after-tax return allowed Wexpro is adjusted annually and is currently 20.0%.

b. Wexpro operates certain natural gas properties for Questar Gas. Wexpro is reimbursed for its costs of operating these properties, including a rate of return on any investment it makes. This after-tax rate of return is adjusted annually and is currently 12.0%.

c. Wexpro conducts developmental-oil drilling on productive oil properties and bears any costs of dry holes. Oil and NGL produced from these properties is sold at market prices, with the revenues used to recover operating expenses and to give Wexpro a return on its investment in successful wells. The after-tax rate of return is adjusted annually and is currently 17.0%. Any operating income remaining after recovery of expenses and Wexpro's return on investment is divided between Wexpro and Questar Gas, with Wexpro retaining 46% and Questar Gas retaining 54%.

d. Crude oil and NGL production from certain oil-producing properties is sold at market prices, with the revenues used to recover operating expenses and to provide Wexpro a return on its investment. The after-tax rate of return on investments in these properties is adjusted annually and is currently 12.0%. Any operating income remaining after recovery of expenses and Wexpro's return on investment is divided between Wexpro and Questar Gas, with Wexpro retaining 46%.

e. Amounts received by Questar Gas from the sharing of Wexpro's oil and NGL income are used to reduce natural gas costs to utility customers.

f. Acquired natural gas production from properties approved by the Commissions for inclusion in the Wexpro II Agreement is delivered to Questar Gas. Wexpro is reimbursed for the costs of producing the natural gas plus a return on its acquisition investment. The after-tax return allowed Wexpro is adjusted periodically and is currently 7.6%.

g. Wexpro's return on investment base is determined based on authorized returns from a group of rate-regulated companies plus an 8% risk premium for natural gas development drilling costs and a 5% risk premium for oil development drilling costs. The authorized returns for this group of companies have declined in recent years, resulting in lower returns on investment base for Wexpro. Wexpro's return on investment base for Wexpro II property acquisition costs is based on Questar Gas's approved cost of capital.

Wexpro's net investment base, yearly average rate of return, and oil and NGL income shared with Questar Gas are shown in the table below:



	Year Ended December 31,
	2014			2013			2012
Wexpro net investment base at December 31, (in millions)	$	649.0		$	589.7		$	531.1
Average annual rate of return (after tax)	17.9		%	19.7		%	19.9		%
Oil and NGL income sharing (in millions)	$	—		$	0.6		$	2.5

The lower return in 2014 was due primarily to the inclusion of the Trail acquisition (see Note 17) in the Wexpro II Agreement. The Wexpro II portion of the investment base earns the lower return described in item f., above.

Trail Acquisition Stipulation

In the first quarter of 2014, the Commissions approved a stipulation for inclusion of the Trail acquisition in the Wexpro II Agreement. As part of this stipulation, Wexpro agreed to manage the combined production from the original Wexpro properties and the Trail acquisition to 65% of Questar Gas's annual forecasted demand. Beginning in June 2015 through May 2016 and for each subsequent 12-month period, if the combined annual production exceeds 65% of the forecasted demand and the cost-of-service price is greater than the Questar Gas purchased-gas price, an amount equal to the excess production times the excess price will be credited back to Questar Gas customers. Wexpro may also sell production to manage the 65% level and credit back to Questar Gas customers the higher of market price or the cost-of-service price times the sales volumes.