Fair Value Measurements

3 Months Ended

Mar. 31, 2017

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

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

The following table presents Questar Gas' quantitative information about Level 3 fair value measurements at March 31, 2017. The range and weighted average are presented in dollars for market price inputs.



	Fair Value (millions)		Valuation Techniques	Unobservable Input		Range	Weighted Average⁽¹⁾
Liabilities
Physical and financial forwards and futures:
Natural gas⁽²⁾	$	1.3	Discounted cash flow	Market price (per Dth)	⁽³⁾	2.2 - 3.6	2.8
Total liabilities	$	1.3


(1)	Averages weighted by volume.


(2)	Includes basis.


(3)	Represents market prices beyond defined terms for Levels 1 and 2.

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



Significant Unobservable Inputs	Position	Change to Input	Impact on Fair Value Measurement
Market price	Buy	Increase (decrease)	Gain (loss)
Market price	Sell	Increase (decrease)	Loss (gain)

Recurring Fair Value Measurements

The following table presents Questar Gas’ liabilities that are measured at fair value on a recurring basis for each hierarchy level, including both current and noncurrent portions. Derivative assets at March 31, 2017 were immaterial.



	Level 1		Level 2		Level 3		Total
(millions)
At March 31, 2017
Liabilities:
Derivatives:
Commodity	$	—	$	—	$	1.3	$	1.3
Total liabilities	$	—	$	—	$	1.3	$	1.3
At December 31, 2016
Assets:
Derivatives:
Commodity	$	—	$	0.1	$	—	$	0.1
Total assets	$	—	$	0.1	$	—	$	0.1
Liabilities:
Derivatives:
Commodity	$	—	$	0.1	$	—	$	0.1
Total liabilities	$	—	$	0.1	$	—	$	0.1

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



	Three Months Ended March 31,
	2017			2016
(millions)
Beginning balance	$	—		$	—
Total realized and unrealized gains (losses):
Included in earnings⁽¹⁾	(0.1		)	—
Included in regulatory assets/liabilities	(1.3		)	—
Settlements	0.1			—
Ending balance	$	(1.3	)	$	—


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

There were no unrealized gains or losses included in earnings in the Level 3 fair value category relating to assets/liabilities still held at the reporting date for the three months ended March 31, 2017.

Fair Value of Financial Instruments

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



	March 31, 2017				December 31, 2016
	Carrying Amount		Estimated Fair Value⁽¹⁾		Carrying Amount		Estimated Fair Value⁽¹⁾
(millions)
Long-term debt, including securities due within one year⁽²⁾	$	630.9	$	675.0	$	630.8	$	672.6


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


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

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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