10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
	THE SECURITIES EXCHANGE ACT OF 1934
	For The Quarterly Period Ended September 30, 2008
	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 number 1-3480

MDU Resources Group, Inc.

(Exact name of registrant as specified in its charter)

Delaware	41-0423660
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1200 West Century Avenue

P.O. Box 5650

Bismarck, North Dakota 58506-5650

(Address of principal executive offices)

(Zip Code)

(701) 530-1000

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer x	Accelerated filer o
Non-accelerated filer o	Smaller reporting company o

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x.

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of October 29, 2008: 183,661,012 shares.

DEFINITIONS

The following abbreviations and acronyms used in this Form 10-Q are defined below:

Abbreviation or Acronym

2007 Annual Report	Company's Annual Report on Form 10-K for the year ended December 31, 2007
ALJ	Administrative Law Judge
Anadarko	Anadarko Petroleum Corporation
APB	Accounting Principles Board
APB Opinion No. 28	Interim Financial Reporting
Badger Hills Project	Tongue River-Badger Hills Project
Bbl	Barrel of oil or other liquid hydrocarbons
Bcf	Billion cubic feet
BER	Montana Board of Environmental Review
Big Stone Station	450-MW coal-fired electric generating facility located near Big Stone City, South Dakota (22.7 percent ownership)
Big Stone Station II	Proposed coal-fired electric generating facility located near Big Stone City, South Dakota (the Company anticipates ownership of at least 116 MW)
BLM	Bureau of Land Management
Brazilian Transmission Lines	Centennial Resources’ equity method investment in companies owning ECTE, ENTE and ERTE
Btu	British thermal unit
Cascade	Cascade Natural Gas Corporation, an indirect wholly owned subsidiary of MDU Energy Capital
CBNG	Coalbed natural gas
CEM	Colorado Energy Management, LLC, a former direct wholly owned subsidiary of Centennial Resources (sold in the third quarter of 2007)
Centennial	Centennial Energy Holdings, Inc., a direct wholly owned subsidiary of the Company
Centennial Capital	Centennial Holdings Capital LLC, a direct wholly owned subsidiary of Centennial
Centennial International	Centennial Energy Resources International, Inc., a direct wholly owned subsidiary of Centennial Resources
Centennial Power	Centennial Power, Inc., a former direct wholly owned subsidiary of Centennial Resources (sold in the third quarter of 2007)
Centennial Resources	Centennial Energy Resources LLC, a direct wholly owned subsidiary of Centennial
Clean Air Act	Federal Clean Air Act
Clean Water Act	Federal Clean Water Act
Colorado Federal District Court	U.S. District Court for the District of Colorado
Company	MDU Resources Group, Inc.
D.C. Appeals Court	U.S. Court of Appeals for the District of Columbia Circuit
dk	Decatherm
DRC	Dakota Resource Council

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EBSR	Elk Basin Storage Reservoir, one of Williston Basin's natural gas storage reservoirs, which is located in Montana and Wyoming
ECTE	Empresa Catarinense de Transmissão de Energia S.A.
EIS	Environmental Impact Statement
ENTE	Empresa Norte de Transmissão de Energia S.A.
EPA	U.S. Environmental Protection Agency
ERTE	Empresa Regional de Transmissão de Energia S.A.
Exchange Act	Securities Exchange Act of 1934, as amended
FASB	Financial Accounting Standards Board
FERC	Federal Energy Regulatory Commission
Fidelity	Fidelity Exploration & Production Company, a direct wholly owned subsidiary of WBI Holdings
FSP	FASB Staff Position
FSP FAS 157-2	Effective Date of FASB Statement No. 157
Great Plains	Great Plains Natural Gas Co., a public utility division of the Company
Hartwell	Hartwell Energy Limited Partnership, a former equity method investment of the Company (sold in the third quarter of 2007)
Howell	Howell Petroleum Corporation, a wholly owned subsidiary of Anadarko
Indenture	Indenture dated as of December 15, 2003, as supplemented, from the Company to The Bank of New York as Trustee
Innovatum	Innovatum Inc., a former indirect wholly owned subsidiary of WBI Holdings (the stock and Innovatum’s assets have been sold)
Intermountain	Intermountain Gas Company, an indirect wholly owned subsidiary of MDU Energy Capital (effective October 1, 2008)
Knife River	Knife River Corporation, a direct wholly owned subsidiary of Centennial
kWh	Kilowatt-hour
LWG	Lower Willamette Group
MBbls	Thousands of barrels of oil or other liquid hydrocarbons
MBI	Morse Bros., Inc., an indirect wholly owned subsidiary of Knife River
Mcf	Thousand cubic feet
MDU Brasil	MDU Brasil Ltda., an indirect wholly owned subsidiary of Centennial International
MDU Construction Services	MDU Construction Services Group, Inc., a direct wholly owned subsidiary of Centennial
MDU Energy Capital	MDU Energy Capital, LLC, a direct wholly owned subsidiary of the Company
MEPA	Montana Environmental Policy Act
MMBtu	Million Btu
MMcf	Million cubic feet
MMdk	Million decatherms
MNPUC	Minnesota Public Utilities Commission

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Montana-Dakota	Montana-Dakota Utilities Co., a public utility division of the Company
Montana BOGC	Montana Board of Oil & Gas Conservation
Montana DEQ	Montana State Department of Environmental Quality
Montana Federal District Court	U.S. District Court for the District of Montana
Montana State District Court	Montana Twenty-Second Judicial District Court, Big Horn County
Mortgage	Indenture of Mortgage dated May 1, 1939, as supplemented, amended and restated, from the Company to The Bank of New York and Douglas J. MacInnes, successor trustees
MPX	MPX Termoceara Ltda. (49 percent ownership, sold in June 2005)
MW	Megawatt
ND Health Department	North Dakota Department of Health
NDPSC	North Dakota Public Service Commission
NEPA	National Environmental Policy Act
Ninth Circuit	U.S. Ninth Circuit Court of Appeals
North Dakota District Court	North Dakota South Central Judicial District Court for Burleigh County
NPRC	Northern Plains Resource Council
NSPS	New Source Performance Standards
OPUC	Oregon Public Utilities Commission
Order on Rehearing	Order on Rehearing and Compliance and Remanding Certain Issues for Hearing
Oregon DEQ	Oregon State Department of Environmental Quality
Prairielands	Prairielands Energy Marketing, Inc., an indirect wholly owned subsidiary of WBI Holdings
PSD	Prevention of Significant Deterioration
ROD	Record of Decision
SEC	U.S. Securities and Exchange Commission
Securities Act	Securities Act of 1933, as amended
SEIS	Supplemental Environmental Impact Statement
SFAS	Statement of Financial Accounting Standards
SFAS No. 71	Accounting for the Effects of Certain Types of Regulation
SFAS No. 109	Accounting for Income Taxes
SFAS No. 115	Accounting for Certain Investments in Debt and Equity Securities
SFAS No. 141 (revised)	Business Combinations (revised 2007)
SFAS No. 157	Fair Value Measurements
SFAS No. 159	The Fair Value Option for Financial Assets and Financial Liabilities
SFAS No. 160	Noncontrolling Interests in Consolidated Financial Statements - an amendment of ARB No. 51 (Consolidated Financial Statements)
SFAS No. 161	Disclosures about Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133
South Dakota Federal District Court	U.S. District Court for the District of South Dakota

4

South Dakota SIP	South Dakota State Implementation Plan
TRWUA	Tongue River Water Users’ Association
WBI Holdings	WBI Holdings, Inc., a direct wholly owned subsidiary of Centennial
Williston Basin	Williston Basin Interstate Pipeline Company, an indirect wholly owned subsidiary of WBI Holdings
WUTC	Washington Utilities and Transportation Commission
WYPSC	Wyoming Public Service Commission

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INTRODUCTION

The Company is a diversified natural resource company, which was incorporated under the laws of the state of Delaware in 1924. Its principal executive offices are at 1200 West Century Avenue, P.O. Box 5650, Bismarck, North Dakota 58506-5650, telephone (701) 530-1000.

Montana-Dakota, through the electric and natural gas distribution segments, generates, transmits and distributes electricity and distributes natural gas in Montana, North Dakota, South Dakota and Wyoming. Great Plains distributes natural gas in western Minnesota and southeastern North Dakota. Cascade distributes natural gas in Washington and Oregon. These operations also supply related value-added products and services.

On October 1, 2008, the Company acquired Intermountain. For further information, see Note 21.

The Company, through its wholly owned subsidiary, Centennial, owns WBI Holdings (comprised of the pipeline and energy services and the natural gas and oil production segments), Knife River (construction materials and contracting segment), MDU Construction Services (construction services segment), Centennial Resources and Centennial Capital (both reflected in the Other category). For more information on the Company’s business segments, see Note 16.

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INDEX

Part I -- Financial Information	Page
Consolidated Statements of Income --
Three and Nine Months Ended September 30, 2008 and 2007	8
Consolidated Balance Sheets --
September 30, 2008 and 2007, and December 31, 2007	10
Consolidated Statements of Cash Flows --
Nine Months Ended September 30, 2008 and 2007	11
Notes to Consolidated Financial Statements	12
Management's Discussion and Analysis of Financial Condition and Results of Operations	37
Quantitative and Qualitative Disclosures About Market Risk	59
Controls and Procedures	60
Part II -- Other Information
Legal Proceedings	61
Risk Factors	61
Exhibits	64
Signatures	65
Exhibit Index	66
Exhibits

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PART I -- FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

MDU RESOURCES GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2008		2007		2008		2007
	(In thousands, except per share amounts)
Operating revenues:
Electric, natural gas distribution and pipeline and energy services	$	268,882	$	235,562	$	1,162,468	$	699,063
Construction services, natural gas and oil production, construction materials and contracting, and other		1,064,952		1,009,748		2,545,045		2,316,103
		1,333,834		1,245,310		3,707,513		3,015,166
Operating expenses:
Fuel and purchased power		19,568		20,331		54,063		52,938
Purchased natural gas sold		65,626		60,887		487,310		200,016
Operation and maintenance:
Electric, natural gas distribution and pipeline and energy services		59,818		59,650		181,209		150,967
Construction services, natural gas and oil production, construction materials and contracting, and other		845,673		807,139		2,030,770		1,882,769
Depreciation, depletion and amortization		93,226		78,400		270,135		218,246
Taxes, other than income		46,626		39,747		154,666		109,320
		1,130,537		1,066,154		3,178,153		2,614,256
Operating income		203,297		179,156		529,360		400,910
Earnings from equity method investments		1,867		11,782		5,731		17,867
Other income		395		3,456		1,922		5,670
Interest expense		19,921		19,074		57,762		53,928
Income before income taxes		185,638		175,320		479,251		370,519
Income taxes		67,256		70,823		174,311		142,580
Income from continuing operations		118,382		104,497		304,940		227,939
Income from discontinued operations, net of tax (Note 3)		---		96,765		---		109,459
Net income		118,382		201,262		304,940		337,398
Dividends on preferred stocks		171		172		514		513
Earnings on common stock	$	118,211	$	201,090	$	304,426	$	336,885

(continued on next page)

The accompanying notes are an integral part of these consolidated financial statements.

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MDU RESOURCES GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME (continued)

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2008		2007		2008		2007
	(In thousands, except per share amounts)
Earnings per common share -- basic
Earnings before discontinued operations	$	.65	$	.57	$	1.66	$	1.25
Discontinued operations, net of tax		---		.53		---		.60
Earnings per common share -- basic	$	.65	$	1.10	$	1.66	$	1.85
Earnings per common share -- diluted
Earnings before discontinued operations	$	.64	$	.57	$	1.66	$	1.24
Discontinued operations, net of tax		---		.53		---		.60
Earnings per common share -- diluted	$	.64	$	1.10	$	1.66	$	1.84
Dividends per common share	$	.1550	$	.1450	$	.4450	$	.4150
Weighted average common shares outstanding -- basic		183,219		182,192		182,931		181,796
Weighted average common shares outstanding -- diluted		184,081		183,171		183,774		182,780

The accompanying notes are an integral part of these consolidated financial statements.

9

MDU RESOURCES GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	September 30, 2008			September 30, 2007			December 31, 2007
(In thousands, except shares and per share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	57,126		$	94,528		$	105,820
Receivables, net		784,351			748,858			715,484
Inventories		276,138			254,710			229,255
Deferred income taxes		---			---			7,046
Short-term investments		13,271			24,700			91,550
Prepayments and other current assets		189,224			104,721			64,998
Current assets held for sale		---			594			179
		1,320,110			1,228,111			1,214,332
Investments		118,865			112,283			118,602
Property, plant and equipment		6,665,008			5,740,966			5,930,246
Less accumulated depreciation, depletion and amortization		2,483,697			2,203,218			2,270,691
		4,181,311			3,537,748			3,659,555
Deferred charges and other assets:
Goodwill		442,702			430,644			425,698
Other intangible assets, net		30,730			29,115			27,792
Other		161,770			152,607			146,455
Noncurrent assets held for sale		---			140			---
		635,202			612,506			599,945
	$	6,255,488		$	5,490,648		$	5,592,434
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings	$	89,030		$	---		$	1,700
Long-term debt due within one year		87,394			131,971			161,682
Accounts payable		391,188			310,509			369,235
Taxes payable		62,657			114,427			60,407
Deferred income taxes		8,225			3,069			---
Dividends payable		28,572			26,616			26,619
Accrued compensation		62,380			67,225			66,255
Other accrued liabilities		165,072			198,924			163,990
		894,518			852,741			849,888
Long-term debt		1,418,330			1,146,708			1,146,781
Deferred credits and other liabilities:
Deferred income taxes		722,413			629,582			668,016
Other liabilities		430,613			398,353			396,430
		1,153,026			1,027,935			1,064,446
Commitments and contingencies
Stockholders’ equity:
Preferred stocks		15,000			15,000			15,000
Common stockholders’ equity:
Common stock
Shares issued -- $1.00 par value, 183,770,147 at September 30, 2008, 182,914,769 at September 30, 2007 and 182,946,528 at December 31, 2007		183,770			182,915			182,947
Other paid-in capital		928,415			909,805			912,806
Retained earnings		1,656,767			1,365,497			1,433,585
Accumulated other comprehensive income (loss)		9,288			(6,327	)		(9,393	)
Treasury stock at cost – 538,921 shares		(3,626	)		(3,626	)		(3,626	)
Total common stockholders’ equity		2,774,614			2,448,264			2,516,319
Total stockholders’ equity		2,789,614			2,463,264			2,531,319
	$	6,255,488		$	5,490,648		$	5,592,434

The accompanying notes are an integral part of these consolidated financial statements.

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MDU RESOURCES GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended September 30,
	2008			2007
	(In thousands)
Operating activities:
Net income	$	304,940		$	337,398
Income from discontinued operations, net of tax		---			109,459
Income from continuing operations		304,940			227,939
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization		270,135			218,246
Earnings, net of distributions, from equity method investments		(1,717	)		(12,448	)
Deferred income taxes		65,698			41,387
Changes in current assets and liabilities, net of acquisitions:
Receivables		(56,931	)		(67,602	)
Inventories		(45,420	)		(35,181	)
Other current assets		(64,568	)		(39,563	)
Accounts payable		651			(19,962	)
Other current liabilities		(23,610	)		40,182
Other noncurrent changes		(341	)		7,230
Net cash provided by continuing operations		448,837			360,228
Net cash used in discontinued operations		---			(46,750	)
Net cash provided by operating activities		448,837			313,478
Investing activities:
Capital expenditures		(558,225	)		(380,087	)
Acquisitions, net of cash acquired		(276,335	)		(341,790	)
Net proceeds from sale or disposition of property		39,531			16,264
Investments		82,507			3,275
Proceeds from sale of equity method investments		---			56,150
Net cash used in continuing operations		(712,522	)		(646,188	)
Net cash provided by discontinued operations		---			548,216
Net cash used in investing activities		(712,522	)		(97,972	)
Financing activities:
Issuance of short-term borrowings		87,330			310,000
Repayment of short-term borrowings		---			(310,000	)
Issuance of long-term debt		351,984			85,000
Repayment of long-term debt		(154,428	)		(226,791	)
Proceeds from issuance of common stock		5,851			16,580
Dividends paid		(80,019	)		(74,025	)
Tax benefit on stock-based compensation		4,349			4,883
Net cash provided by (used in) continuing operations		215,067			(194,353	)
Net cash provided by discontinued operations		---			---
Net cash provided by (used in) financing activities		215,067			(194,353	)
Effect of exchange rate changes on cash and cash equivalents		(76	)		297
Increase (decrease) in cash and cash equivalents		(48,694	)		21,450
Cash and cash equivalents -- beginning of year		105,820			73,078
Cash and cash equivalents -- end of period	$	57,126		$	94,528

The accompanying notes are an integral part of these consolidated financial statements.

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MDU RESOURCES GROUP, INC.

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

September 30, 2008 and 2007

(Unaudited)

 1.           Basis of presentation

The accompanying consolidated interim financial statements were prepared in conformity with the basis of presentation reflected in the consolidated financial statements included in the Company's 2007 Annual Report, and the standards of accounting measurement set forth in APB Opinion No. 28 and any amendments thereto adopted by the FASB. Interim financial statements do not include all disclosures provided in annual financial statements and, accordingly, these financial statements should be read in conjunction with those appearing in the 2007 Annual Report. The information is unaudited but includes all adjustments that are, in the opinion of management, necessary for a fair presentation of the accompanying consolidated interim financial statements and are of a normal recurring nature. Depreciation, depletion and amortization expense is reported separately on the Consolidated Statements of Income and therefore is excluded from the other line items within operating expenses.

 2.           Seasonality of operations

Some of the Company's operations are highly seasonal and revenues from, and certain expenses for, such operations may fluctuate significantly among quarterly periods. Accordingly, the interim results for particular businesses, and for the Company as a whole, may not be indicative of results for the full fiscal year.

3.           Discontinued operations

As described in Note 3 in the Company's Notes to Consolidated Financial Statements in the 2007 Annual Report, the Company's consolidated financial statements and accompanying notes for prior periods present the results of operations of Innovatum and the domestic independent power production assets as discontinued operations. In addition, the assets and liabilities of these operations were treated as held for sale from the time each of the assets was classified as held for sale.

During the fourth quarter of 2006, the stock and a portion of the assets of Innovatum were sold and the Company sold the remaining assets of Innovatum on January 23, 2008. The loss on disposal of Innovatum was not material.

In July 2007, Centennial Resources sold its domestic independent power production business consisting of Centennial Power and CEM. The gain on the sale of the assets, excluding the gain on the sale of Hartwell as discussed in Note 11, was approximately $85.4 million (after tax).

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  Operating results related to Innovatum were as follows:

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2007		2007
	(In thousands)
Operating revenues	$	593	$	1,283
Income from discontinued operations before income tax expense		218		246
Income tax expense		29		--
Income from discontinued operations, net of tax	$	189	$	246

  Operating results related to the domestic independent power production assets were as follows:

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2007		2007
	(In thousands)
Operating revenues	$	26,980	$	125,867
Income from discontinued operations (including gain on disposal of $142.4 million) before income tax expense		160,612		177,535
Income tax expense		64,036		68,322
Income from discontinued operations, net of tax	$	96,576	$	109,213

  The carrying amounts of the assets and liabilities related to Innovatum at September 30, 2007, and December 31, 2007, were not material.

 4.           Allowance for doubtful accounts

The Company's allowance for doubtful accounts as of September 30, 2008 and 2007, and December 31, 2007, was $13.0 million, $12.2 million and $14.6 million, respectively.

 5.           Natural gas in storage

Natural gas in storage for the Company's regulated operations is generally carried at cost using the last-in, first-out method. The portion of the cost of natural gas in storage expected to be used within one year was included in inventories and was $41.1 million, $49.1 million and $28.8 million at September 30, 2008 and 2007, and December 31, 2007, respectively. The remainder of natural gas in storage, which largely represents the cost of gas required to maintain pressure levels for normal operating purposes, was included in other assets and was $43.0 million, $44.2 million, and $43.0 million at September 30, 2008 and 2007, and December 31, 2007, respectively.

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6.           Inventories

Inventories, other than natural gas in storage for the Company’s regulated operations, consisted primarily of aggregates held for resale of $101.1 million, $102.4 million and $102.2 million; materials and supplies of $91.4 million, $68.2 million and $56.0 million; and other inventories of $42.5 million, $35.0 million and $42.3 million, as of September 30, 2008 and 2007, and December 31, 2007, respectively. These inventories were stated at the lower of average cost or market value.

7.           Earnings per common share

Basic earnings per common share were computed by dividing earnings on common stock by the weighted average number of shares of common stock outstanding during the applicable period. Diluted earnings per common share were computed by dividing earnings on common stock by the total of the weighted average number of shares of common stock outstanding during the applicable period, plus the effect of outstanding stock options, restricted stock grants and performance share awards. Common stock outstanding includes issued shares less shares held in treasury.

8.           Cash flow information

Cash expenditures for interest and income taxes were as follows:

	Nine Months Ended September 30,
	2008		2007
	(In thousands)
Interest, net of amount capitalized	$	59,638	$	55,139
Income taxes	$	117,506	$	153,030

Income taxes paid for the nine months ended September 30, 2008, decreased from the amount paid for the nine months ended September 30, 2007, primarily due to estimated quarterly income tax payments paid in 2007 on the estimated gain on the sale of the domestic independent power production assets as discussed in Note 3.

9.           New accounting standards

SFAS No. 157 In September 2006, the FASB issued SFAS No. 157. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The standard applies under other accounting pronouncements that require or permit fair value measurements with certain exceptions. SFAS No. 157 was effective for the Company on January 1, 2008. FSP FAS 157-2 delays the effective date of SFAS No. 157 for certain nonfinancial assets and nonfinancial liabilities to January 1, 2009. The types of assets and liabilities that are recognized at fair value for which the Company has not applied the provisions of SFAS No. 157, due to the delayed effective date, include nonfinancial assets and nonfinancial liabilities initially measured at fair value in a business combination or new basis event, certain fair value measurements associated with goodwill impairment testing, indefinite-lived intangible assets and nonfinancial long-lived assets measured at fair value for impairment assessment, and asset retirement obligations initially measured at fair value. The adoption of SFAS No. 157, excluding the application to certain nonfinancial assets and nonfinancial liabilities with a delayed effective date of January 1, 2009, did not have a material effect on the Company's financial position or results of

14

operations. The Company is evaluating the effects of the adoption of the delayed provisions of SFAS No. 157.

SFAS No. 159 In February 2007, the FASB issued SFAS No. 159. SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The standard also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 was effective for the Company on January 1, 2008, and at adoption, the Company elected to measure its investments in certain fixed-income and equity securities at fair value in accordance with SFAS No. 159. These investments prior to January 1, 2008, were accounted for as available-for-sale investments and recorded at fair value with any unrealized gains or losses, net of income taxes, recorded in accumulated other comprehensive income (loss) on the Consolidated Balance Sheets until realized. Upon the adoption of SFAS No. 159, the unrealized gain on the available-for-sale investments of $405,000 (after tax) was recorded as an increase to the January 1, 2008, balance of retained earnings. The adoption of SFAS No. 159 did not have a material effect on the Company's financial position or results of operations.

SFAS No. 141 (revised)In December 2007, the FASB issued SFAS No. 141 (revised). SFAS No. 141 (revised) requires an acquirer to recognize and measure the assets acquired, liabilities assumed and any noncontrolling interests in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exception. In addition, SFAS No. 141 (revised) requires that acquisition-related costs will be generally expensed as incurred. SFAS No. 141 (revised) also expands the disclosure requirements for business combinations. SFAS No. 141 (revised) will be effective for the Company on January 1, 2009. The Company is evaluating the effects of the adoption of SFAS No. 141 (revised).

SFAS No. 160In December 2007, the FASB issued SFAS No. 160. SFAS No. 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 will be effective for the Company on January 1, 2009. The Company does not expect the adoption of SFAS No. 160 to have a material effect on the Company’s financial position or results of operations.

SFAS No. 161In March 2008, the FASB issued SFAS No. 161. SFAS No. 161 requires enhanced disclosures about an entity’s derivative and hedging activities including how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for, and how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. This Statement will be effective for the Company on January 1, 2009.

10.           Comprehensive income

Comprehensive income is the sum of net income as reported and other comprehensive income (loss). The Company's other comprehensive income resulted from gains (losses) on derivative instruments qualifying as hedges and foreign currency translation adjustments. For more information on derivative instruments, see Note 13.

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  Comprehensive income, and the components of other comprehensive income (loss) and related tax effects, were as follows:

	Three Months Ended
	September 30,
	2008			2007
	(In thousands)
Net income	$	118,382		$	201,262
Other comprehensive income:
Net unrealized gain (loss) on derivative instruments qualifying as hedges:
Net unrealized gain on derivative instruments arising during the period, net of tax of $56,940 and $3,075 in 2008 and 2007, respectively		92,903			4,958
Less: Reclassification adjustment for gain (loss) on derivative instruments included in net income, net of tax of $(12,955) and $3,247 in 2008 and 2007, respectively		(21,137	)		5,187
Net unrealized gain (loss) on derivative instruments qualifying as hedges		114,040			(229	)
Foreign currency translation adjustment, net of tax of $(4,805) in 2008		(7,461	)		2,795
		106,579			2,566
Comprehensive income	$	224,961		$	203,828
	Nine Months Ended
	September 30,
	2008			2007
	(In thousands)
Net income	$	304,940		$	337,398
Other comprehensive income:
Net unrealized gain (loss) on derivative instruments qualifying as hedges:
Net unrealized gain on derivative instruments arising during the period, net of tax of $16,811 and $4,066 in 2008 and 2007, respectively		27,462			6,541
Less: Reclassification adjustment for gain on derivative instruments included in net income, net of tax of $3,310 and $9,305 in 2008 and 2007, respectively		5,377			14,864
Net unrealized gain (loss) on derivative instruments qualifying as hedges		22,085			(8,323	)
Foreign currency translation adjustment, net of tax of $(1,928) in 2008		(3,000	)		8,478
		19,085			155
Comprehensive income	$	324,025		$	337,553

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11.           Equity method investments

Investments in companies in which the Company has the ability to exercise significant influence over operating and financial policies are accounted for using the equity method. The Company's equity method investments at September 30, 2008, include the Brazilian Transmission Lines.

In August 2006, MDU Brasil acquired ownership interests in companies owning the Brazilian Transmission Lines. The interests involve the ENTE (13.3-percent ownership interest), ERTE (13.3-percent ownership interest) and ECTE (25-percent ownership interest) electric transmission lines, which are primarily in northeastern and southern Brazil.

In September 2004, Centennial Resources, through indirect wholly owned subsidiaries, acquired a 50-percent ownership interest in Hartwell, which owns a 310-MW natural gas-fired electric generating facility near Hartwell, Georgia. In July 2007, the Company sold its ownership interest in Hartwell, and realized a gain of $10.1 million ($6.1 million after tax) from the sale, which is recorded in earnings from equity method investments on the Consolidated Statements of Income.

At September 30, 2008 and 2007, and December 31, 2007, the Company's equity method investments had total assets of $358.6 million, $380.5 million and $398.4 million, respectively, and long-term debt of $179.0 million, $210.3 million and $211.2 million, respectively. The Company's investment in its equity method investments was approximately $53.7 million, $55.2 million and $59.0 million, including undistributed earnings of $8.6 million, $5.2 million and $6.9 million, at September 30, 2008 and 2007, and December 31, 2007, respectively.

12.           Goodwill and other intangible assets

The changes in the carrying amount of goodwill were as follows:

	Balance		Goodwill			Balance
	as of		Acquired			as of
Nine Months Ended	January 1,		During			September 30,
September 30, 2008	2008		the Year*			2008
	(In thousands)
Electric	$	---	$	---		$	---
Natural gas distribution		171,129		(11	)		171,118
Construction services		91,385		3,937			95,322
Pipeline and energy services		1,159		---			1,159
Natural gas and oil production		---		---			---
Construction materials and contracting		162,025		13,078			175,103
Other		---		---			---
Total	$	425,698	$	17,004		$	442,702
*Includes purchase price adjustments that were not material related to acquisitions in a prior period.

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	Balance		Goodwill		Balance
	as of		Acquired		as of
Nine Months Ended	January 1,		During		September 30,
September 30, 2007	2007		the Year*		2007
	(In thousands)
Electric	$	---	$	---	$	---
Natural gas distribution		---		177,167		177,167
Construction services		86,942		4,443		91,385
Pipeline and energy services		1,159		---		1,159
Natural gas and oil production		---		---		---
Construction materials and contracting		136,197		24,736		160,933
Other		---		---		---
Total	$	224,298	$	206,346	$	430,644
*Includes purchase price adjustments that were not material related to acquisitions in a prior period.
	Balance		Goodwill		Balance
	as of		Acquired		as of
Year Ended	January 1,		During the		December 31,
December 31, 2007	2007		Year*		2007
	(In thousands)
Electric	$	---	$	---	$	---
Natural gas distribution		---		171,129		171,129
Construction services		86,942		4,443		91,385
Pipeline and energy services		1,159		---		1,159
Natural gas and oil production		---		---		---
Construction materials and contracting		136,197		25,828		162,025
Other		---		---		---
Total	$	224,298	$	201,400	$	425,698
*Includes purchase price adjustments that were not material related to acquisitions in a prior period.

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Other intangible assets were as follows:

	September 30, 2008			September 30, 2007			December 31, 2007
	(In thousands)
Customer relationships	$	22,719		$	21,518		$	21,834
Accumulated amortization		(6,362	)		(3,609	)		(4,444	)
		16,357			17,909			17,390
Noncompete agreements		9,737			10,596			10,655
Accumulated amortization		(4,714	)		(3,170	)		(3,654	)
		5,023			7,426			7,001
Other		11,220			5,940			5,943
Accumulated amortization		(1,870	)		(2,160	)		(2,542	)
		9,350			3,780			3,401
Total	$	30,730		$	29,115		$	27,792

Amortization expense for amortizable intangible assets for the three and nine months ended September 30, 2008, was $1.0 million and $3.6 million, respectively. Amortization expense for the three and nine months ended September 30, 2007, and for the year ended December 31, 2007, was $1.0 million, $2.9 million and $4.4 million, respectively. Estimated amortization expense for amortizable intangible assets is $4.8 million in 2008, $4.6 million in 2009, $3.7 million in 2010, $3.2 million in 2011, $3.0 million in 2012 and $15.0 million thereafter.

13.           Derivative instruments

From time to time, the Company utilizes derivative instruments as part of an overall energy price, foreign currency and interest rate risk management program to efficiently manage and minimize commodity price, foreign currency and interest rate risk. As of September 30, 2008, the Company had no outstanding foreign currency or interest rate hedges. The following information should be read in conjunction with Notes 1 and 7 in the Company's Notes to Consolidated Financial Statements in the 2007 Annual Report.

Cascade

At September 30, 2008, Cascade held natural gas swap agreements which were not designated as hedges. Cascade utilizes natural gas swap agreements to manage a portion of the market risk associated with fluctuations in the price of natural gas on its forecasted purchases of natural gas for core customers in accordance with authority granted by the WUTC and OPUC. Core customers consist of residential, commercial and smaller industrial customers. The fair value of the derivative instrument must be estimated as of the end of each reporting period and is recorded on the Consolidated Balance Sheets as an asset or a liability. Cascade applies SFAS No. 71 and records periodic changes in the fair market value of the derivative instruments on the Consolidated Balance Sheets as a regulatory asset or a regulatory liability, and settlements of these arrangements are expected to be recovered through the purchased gas cost adjustment mechanism. Under the terms of these arrangements, Cascade will either pay or receive settlement payments based on the difference between the fixed strike price and the monthly index price applicable to each contract.

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Fidelity

At September 30, 2008, Fidelity held natural gas and oil swaps, a basis swap and collar agreements designated as cash flow hedging instruments. Fidelity utilizes these derivative instruments to manage a portion of the market risk associated with fluctuations in the price of natural gas and oil on its forecasted sales of natural gas and oil production. These derivative instruments were designated as cash flow hedges of the forecasted sales of the related production.

The fair value of the hedging instruments must be estimated as of the end of each reporting period and is recorded on the Consolidated Balance Sheets as an asset or a liability. Changes in the fair value attributable to the effective portion of hedging instruments, net of tax, are recorded in stockholders' equity as a component of accumulated other comprehensive income (loss). At the date the natural gas or oil quantities are settled, the amounts accumulated in other comprehensive income (loss) are reported in the Consolidated Statements of Income. To the extent that the hedges are not effective, the ineffective portion of the changes in fair market value is recorded directly in earnings. The proceeds received for natural gas and oil production are generally based on market prices.

For the three and nine months ended September 30, 2008 and 2007, the amount of hedge ineffectiveness was immaterial. For the three and nine months ended September 30, 2008 and 2007, there were no components of the derivative instruments’ gain or loss excluded from the assessment of hedge effectiveness. Gains and losses must be reclassified into earnings as a result of the discontinuance of cash flow hedges if it is probable that the original forecasted transactions will not occur. There were no such reclassifications into earnings as a result of the discontinuance of hedges.

Gains and losses on derivative instruments that are reclassified from accumulated other comprehensive income (loss) to current-period earnings are included in the line item in which the hedged item is recorded. As of September 30, 2008, the maximum term of the swap and collar agreements, in which the exposure to the variability in future cash flows for forecasted transactions is being hedged, is 39 months. The Company estimates that over the next 12 months net gains of approximately $24.0 million (after tax) will be reclassified from accumulated other comprehensive income into earnings, subject to changes in natural gas and oil market prices, as the hedged transactions affect earnings.

14. Fair value measurements

On January 1, 2008, the Company adopted SFAS No. 157 and SFAS No. 159, as discussed in Note 9.

Upon the adoption of SFAS No. 159, the Company elected to measure its investments in certain fixed-income and equity securities at fair value. These investments had previously been accounted for as available-for-sale investments in accordance with SFAS No. 115. The Company anticipates using these investments to satisfy its obligations under its unfunded, nonqualified benefit plans for executive officers and certain key management employees, and invests in these fixed-income and equity securities for the purpose of earning investment returns and capital appreciation. These investments, which totaled $30.7 million as of September 30, 2008, are classified as Investments on the Consolidated Balance Sheets. The decrease in the fair value of these investments for the three and nine months ended September 30, 2008, was $3.2 million (before tax) and $5.5 million (before tax),

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respectively, which is considered part of the cost of the plan, and is classified in operation and maintenance expense on the Consolidated Statements of Income. The Company did not elect the fair value option for its remaining available-for-sale securities, which are auction rate securities, as they are not intended for long-term investment. The Company’s auction rate securities, which totaled $11.4 million at September 30, 2008, are accounted for as available-for-sale in accordance with SFAS No. 115 and are recorded at fair value. The fair value of the auction rate securities approximate cost and, as a result, there are no accumulated unrealized gains or losses recorded in accumulated other comprehensive income on the Consolidated Balance Sheets related to these investments.

The Company’s assets and liabilities measured at fair value on a recurring basis are as follows:

			Fair Value Measurements at September 30, 2008, Using
	Balance at September 30,		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	2008		(Level 1)		(Level 2)		(Level 3)
	(In thousands)
Assets:
Available-for-sale securities	$	42,142	$	30,742	$	11,400	$	---
Commodity derivative agreements		48,596		---		48,596		---
Total assets measured at fair value	$	90,738	$	30,742	$	59,996	$	---
Liabilities:
Commodity derivative agreements	$	56,745	$	---	$	56,745	$	---
Total liabilities measured at fair value	$	56,745	$	---	$	56,745	$	---

The estimated fair value of the Company’s Level 1 available-for-sale securities is based on quoted market prices in active markets for identical equity and fixed-income securities. The estimated fair value of the Company’s Level 2 available-for-sale securities is based on comparable market transactions. The estimated fair value of the Company’s commodity derivative instruments reflects the estimated amounts the Company would receive or pay to terminate the contracts at the reporting date based upon quoted market prices of comparable contracts.

15. Income taxes

Prior to the sale of the domestic independent power production assets in July 2007, as discussed in Note 3, the Company considered earnings (including the gain from the sale of its foreign equity method investment in a natural gas-fired electric generating facility in Brazil in 2005) to be reinvested indefinitely outside of the United States and, accordingly,

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no U.S. deferred income taxes were recorded with respect to such earnings. Following the sale of these assets, the Company reconsidered its long-term plans for future development and expansion of its foreign investment, and determined that it had no immediate plans to explore or invest in additional foreign investments. Therefore, in accordance with SFAS No. 109, deferred income taxes were accrued at that time with respect to the temporary differences which had not been previously recorded. The cumulative undistributed earnings at September 30, 2007, were approximately $36 million. The amount of deferred tax liability, net of allowable foreign tax credits, associated with the undistributed earnings and recognized in the third quarter of 2007 was approximately $10 million. Since the third quarter of 2007 these earnings have been and will continue to be subject to additional U.S. taxes, net of allowable foreign tax credits.

16.           Business segment data

The Company’s reportable segments are those that are based on the Company’s method of internal reporting, which generally segregates the strategic business units due to differences in products, services and regulation. The vast majority of the Company’s operations are located within the United States. The Company also has investments in foreign countries, which largely consist of Centennial Resources’ equity method investment in the Brazilian Transmission Lines.

The electric segment generates, transmits and distributes electricity in Montana, North Dakota, South Dakota and Wyoming. The natural gas distribution segment distributes natural gas in those states as well as in Minnesota, Oregon and Washington. These operations also supply related value-added products and services.

The construction services segment specializes in constructing and maintaining electric, gas pipeline and communication lines, fire protection systems, and external lighting and traffic signalization equipment. This segment also provides utility excavation services, inside electrical wiring, cabling and mechanical services, and manufactures and distributes specialty equipment.

The pipeline and energy services segment provides natural gas transportation, underground storage and gathering services through regulated and nonregulated pipeline systems primarily in the Rocky Mountain and northern Great Plains regions of the United States. This segment also provides energy-related management services.

The natural gas and oil production segment is engaged in natural gas and oil acquisition, exploration, development and production activities in the Rocky Mountain and Mid-Continent regions of the United States and in and around the Gulf of Mexico.

The construction materials and contracting segment mines aggregates and markets crushed stone, sand, gravel and related construction materials, including ready-mixed concrete, cement, asphalt, liquid asphalt and other value-added products. It also performs integrated construction services. The construction materials and contracting segment operates in the central, southern and western United States and Alaska and Hawaii.

The Other category includes the activities of Centennial Capital, which insures various types of risks as a captive insurer for certain of the Company’s subsidiaries. The function of the

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captive insurer is to fund the deductible layers of the insured companies’ general liability and automobile liability coverages. Centennial Capital also owns certain real and personal property. The Other category also includes Centennial Resources' equity method investment in the Brazilian Transmission Lines.

The information below follows the same accounting policies as described in Note 1 of the Company’s Notes to Consolidated Financial Statements in the 2007 Annual Report. Information on the Company’s businesses was as follows:

			Inter-
	External		segment			Earnings
Three Months	Operating		Operating			on Common
Ended September 30, 2008	Revenues		Revenues			Stock
	(In thousands)
Electric	$	56,011	$	---		$	6,867
Natural gas distribution		94,001		---			(3,362	)
Pipeline and energy services		118,870		15,705			5,669
		268,882		15,705			9,174
Construction services		328,312		198			16,269
Natural gas and oil production		116,650		76,505			57,490
Construction materials and contracting		619,990		---			33,567
Other		---		2,557			1,711
		1,064,952		79,260			109,037
Intersegment eliminations		---		(94,965	)		---
Total	$	1,333,834	$	---		$	118,211
			Inter-
	External		segment			Earnings
Three Months	Operating		Operating			on Common
Ended September 30, 2007	Revenues		Revenues			Stock
	(In thousands)
Electric	$	53,986	$	---		$	5,668
Natural gas distribution		90,706		---			(4,544	)
Pipeline and energy services		90,870		11,627			9,408
		235,562		11,627			10,532
Construction services		293,286		46			13,678
Natural gas and oil production		76,839		46,242			33,182
Construction materials and contracting		639,623		---			50,389
Other		---		2,446			93,309
		1,009,748		48,734			190,558
Intersegment eliminations		---		(60,361	)		---
Total	$	1,245,310	$	---		$	201,090

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			Inter-
	External		segment			Earnings
Nine Months	Operating		Operating			on Common
Ended September 30, 2008	Revenues		Revenues			Stock
	(In thousands)
Electric	$	154,140	$	---		$	15,134
Natural gas distribution		653,100		---			18,467
Pipeline and energy services		355,228		68,257			19,665
		1,162,468		68,257			53,266
Construction services		960,331		280			41,172
Natural gas and oil production		336,001		241,935			179,823
Construction materials and contracting		1,248,713		---			25,205
Other		---		7,853			4,960
		2,545,045		250,068			251,160
Intersegment eliminations		---		(318,325	)		---
Total	$	3,707,513	$	---		$	304,426
			Inter-
	External		segment			Earnings
Nine Months	Operating		Operating			on Common
Ended September 30, 2007	Revenues		Revenues			Stock
	(In thousands)
Electric	$	145,681	$	---		$	13,020
Natural gas distribution		280,172		---			1,041
Pipeline and energy services		273,210		54,579			21,346
		699,063		54,579			35,407
Construction services		793,406		520			33,938
Natural gas and oil production		200,032		169,023			98,969
Construction materials and contracting		1,322,665		---			66,135
Other		---		7,326			102,436
		2,316,103		176,869			301,478
Intersegment eliminations		---		(231,448	)		---
Total	$	3,015,166	$	---		$	336,885

The pipeline and energy services segment recognized income from discontinued operations, net of tax, of $189,000 and $246,000 for the three and nine months ended September 30, 2007. The Other category reflects income from discontinued operations, net of tax, of $96.6 million and $109.2 million for the three and nine months ended September 30, 2007.

Excluding the income from discontinued operations at pipeline and energy services, earnings from electric, natural gas distribution and pipeline and energy services are substantially all from regulated operations. Earnings from construction services, natural gas and oil production, construction materials and contracting, and other are all from nonregulated operations.

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17.           Acquisitions

During the first nine months of 2008, the Company acquired natural gas properties in Texas and construction materials and contracting businesses in Alaska, California, Idaho and Texas, none of which were material. The total purchase consideration for these properties and purchase price adjustments with respect to certain other acquisitions made prior to 2008, consisting of the Company’s common stock and cash, was $281.4 million. For information regarding the Intermountain acquisition which closed on October 1, 2008, and is not included in the total purchase consideration previously mentioned, see Note 21.

The above acquisitions were accounted for under the purchase method of accounting and, accordingly, the acquired assets and liabilities assumed have been preliminarily recorded at their respective fair values as of the date of acquisition. On certain of the above acquisitions, final fair market values are pending the completion of the review of the relevant assets, liabilities and issues identified as of the acquisition date. The results of operations of the acquired businesses and properties are included in the financial statements since the date of each acquisition. Pro forma financial amounts reflecting the effects of the above acquisitions are not presented, as such acquisitions were not material to the Company’s financial position or results of operations.

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18.           Employee benefit plans

The Company has noncontributory defined benefit pension plans and other postretirement benefit plans for certain eligible employees. Components of net periodic benefit cost for the Company's pension and other postretirement benefit plans were as follows:

							Other
							Postretirement
Three Months	Pension Benefits						Benefits
Ended September 30,	2008			2007			2008			2007
	(In thousands)
Components of net periodic benefit cost:
Service cost	$	1,752		$	2,568		$	28		$	446
Interest cost		4,230			5,389			71			1,071
Expected return on assets		(5,272	)		(6,497	)		(81	)		(1,235	)
Amortization of prior service cost (credit)		132			183			(40	)		(662	)
Amortization net actuarial loss		209			582			9			121
Amortization of net transition obligation		---			---			30			496
Net periodic benefit cost, including amount capitalized		1,051			2,225			17			237
Less amount capitalized		132			220			75			104
Net periodic benefit cost	$	919		$	2,005		$	(58	)	$	133
							Other
							Postretirement
Nine Months	Pension Benefits						Benefits
Ended September 30,	2008			2007			2008			2007
	(In thousands)
Components of net periodic benefit cost:
Service cost	$	6,572		$	6,829		$	1,178		$	1,426
Interest cost		15,859			13,752			3,053			3,189
Expected return on assets		(19,766	)		(16,661	)		(3,469	)		(3,607	)
Amortization of prior service cost (credit)		496			599			(1,717	)		(637	)
Amortization net actuarial (gain) loss		783			1,082			370			(28	)
Amortization of net transition obligation		---			---			1,324			1,662
Net periodic benefit cost, including amount capitalized		3,944			5,601			739			2,005
Less amount capitalized		528			588			264			245
Net periodic benefit cost	$	3,416		$	5,013		$	475		$	1,760

In addition to the qualified plan defined pension benefits reflected in the table, the Company has an unfunded, nonqualified benefit plan for executive officers and certain key management employees that generally provides for defined benefit payments at age 65 following the employee’s retirement or to their beneficiaries upon death for a 15-year period. The Company's net periodic benefit cost for this plan for the three and nine months ended September 30, 2008, was $2.0 million and $6.4 million, respectively. The Company’s net periodic benefit cost for this plan for the three and nine months ended September 30, 2007, was $2.1 million and $6.0 million, respectively.

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19.           Regulatory matters and revenues subject to refund

On August 20, 2008, Montana-Dakota filed an application with the WYPSC for an electric rate increase. Montana-Dakota requested a total increase of $757,000 annually or approximately 4 percent above current rates. An order is anticipated in the second quarter of 2009.

In November 2006, Montana-Dakota filed an application with the NDPSC requesting an advance determination of prudence of Montana-Dakota's ownership interest in Big Stone Station II. Hearings on the application were held in June 2007. In September 2007, Montana-Dakota informed the NDPSC that certain of the other participants in the project had withdrawn and it was considering the impact of these withdrawals on the project and its options. Supplemental hearings before the NDPSC were held in late April 2008 regarding possible plant configuration changes as a result of the participant withdrawals and updated supporting modeling. On August 27, 2008, the NDPSC approved Montana-Dakota’s request for advance determination of prudence for ownership in the proposed Big Stone Station II for a minimum of 121.8 MW up to a maximum of 133 MW and a proportionate ownership share of the associated transmission electric resources. On September 26, 2008, the intervenors in the proceeding appealed the NDPSC order to the North Dakota District Court.

In December 1999, Williston Basin filed a general natural gas rate change application with the FERC. Williston Basin began collecting such rates effective June 1, 2000, subject to refund. Currently, the only remaining issue outstanding related to this rate change application is in regard to certain service restrictions. In May 2004, the FERC remanded this issue to an ALJ for resolution. In November 2005, the FERC issued an Order on Initial Decision affirming the ALJ's Initial Decision regarding certain service and annual demand quantity restrictions. In April 2006, the FERC issued an Order on Rehearing denying Williston Basin's Request for Rehearing of the FERC's Order on Initial Decision. In April 2006, Williston Basin appealed to the D.C. Appeals Court certain issues addressed by the FERC's Order on Initial Decision and its Order on Rehearing. On March 18, 2008, the D.C. Appeals Court issued its opinion in this matter concerning the service restrictions. The D.C. Appeals Court found that the FERC was correct to decide the case under the “just and reasonable” standard of section 5(a) of the Natural Gas Act; however, it remanded the case back to the FERC as flaws in the FERC’s reasoning render its orders arbitrary and capricious. The matter concerning the service restrictions is pending resolution by the FERC.

20.           Contingencies

Litigation

Coalbed Natural Gas Operations Fidelity is a party to and/or certain of its operations are or have been the subject of approximately a dozen lawsuits in Montana and Wyoming in connection with Fidelity’s CBNG development in the Powder River Basin. The lawsuits generally involve either challenges to regulatory agency decisions under the NEPA or the MEPA or to Fidelity’s management of water produced in association with its operations.

Challenges to State/Federal Regulatory Agency Decision Making Under NEPA/MEPA

In 1999 and 2000, the BLM, the Montana BOGC, and the Montana DEQ announced their respective decisions to prepare an EIS analyzing CBNG development in Montana. In 2003,

27

the agencies each signed RODs approving a final EIS and allowing CBNG development throughout the State of Montana. The approval actions by the agencies resulted in numerous lawsuits initiated by environmental groups and the Northern Cheyenne Tribe related to the validity of the final EIS and associated environmental assessments. Fidelity has intervened in several of these lawsuits to protect its interests.

In lawsuits filed in Montana Federal District Court in May 2003, the NPRC and the Northern Cheyenne Tribe asserted that the BLM violated NEPA and other federal laws when approving the 2003 EIS. Producers, including Fidelity, are operating under an order that allows limited CBNG development of up to 500 CBNG wells to be drilled annually on private, state, and federal lands in the Montana Powder River Basin pending the BLM's preparation of a SEIS.

In December 2006, the BLM issued a draft SEIS that endorses a phased-development approach to CBNG production in the Montana Powder River Basin, whereby future projects would be reviewed against four screens or filters (relating to water quality, wildlife, Native American concerns and air quality). Fidelity filed written comments on the draft SEIS asking the BLM to reconsider its proposed phased-development approach and to make numerous other changes to the draft SEIS. The final SEIS was released on October 31, 2008, and a ROD is expected in early 2009.

In a related action filed in Montana Federal District Court in December 2003, the NPRC asserted, among other things, that the actions of the BLM in approving Fidelity's applications for permits and the plan of development for the Badger Hills Project in Montana did not comply with applicable federal laws, including the NEPA. As a result of the litigation, Fidelity is operating under an Order, based on a stipulation between the parties, that allows production from existing wells in Fidelity’s Badger Hills Project to continue pending preparation of a revised environmental analysis.

Cases Involving Fidelity’s Management of Water Produced in Association with Its Operations

About half the CBNG cases Fidelity is involved in relate to administrative agency regulation of water produced in association with CBNG development in Montana and Wyoming. These cases involve legal challenges to the issuance of discharge permits, as well as challenges to the State of Wyoming’s CBNG water permitting procedures.

In April 2006, the Northern Cheyenne Tribe filed a complaint in Montana State District Court against the Montana DEQ seeking to set aside Fidelity’s renewed direct discharge and treatment permits. The Northern Cheyenne Tribe claimed the Montana DEQ violated the Clean Water Act and the Montana Water Quality Act by failing to include in the permits conditions requiring application of the best practicable control technology currently available and by failing to impose a nondegradation policy like the one the BER adopted soon after the permit was issued. In addition, the Northern Cheyenne Tribe claimed that the actions of the Montana DEQ violated the Montana State Constitution’s guarantee of a clean and healthful environment, that the Montana DEQ’s related environmental assessment was invalid, that the Montana DEQ was required, but failed, to prepare an EIS and that the Montana DEQ failed to consider other alternatives to the issuance of the permits. Fidelity, the NPRC and the TRWUA have been granted leave to intervene in this proceeding.

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Fidelity’s discharge of water pursuant to its two permits is its primary means for managing CBNG produced water. Fidelity believes that its discharge permits should, assuming normal operating conditions, allow Fidelity to continue its existing CBNG operations through the expiration of the permits in March 2011. If its permits are set aside, Fidelity’s CBNG operations in Montana could be significantly and adversely affected.

The Powder River Basin Resource Council is funding litigation, filed in Wyoming State District Court in June 2007, on behalf of two surface owners against the Wyoming State Engineer and the Wyoming Board of Control. The plaintiffs seek a declaratory judgment that current ground water permitting practices are unlawful; that the state is required to adopt rules and procedures to ensure that coalbed groundwater is managed in accordance with the Wyoming Constitution and other laws; and that would prohibit the Wyoming State Engineer from issuing permits to produce coalbed groundwater and permits to store coalbed groundwater in reservoirs until the Wyoming State Engineer adopts such rules. The Petroleum Association of Wyoming has conditionally been granted intervention in this lawsuit and Fidelity is partly funding the intervention. On May 29, 2008, the Wyoming State District Court dismissed the case. The plaintiffs appealed to the Wyoming Supreme Court on June 27, 2008. Fidelity’s CBNG operations in Wyoming could be materially adversely affected if the plaintiffs are successful in this lawsuit.

Fidelity will continue to vigorously defend its interests in all CBNG-related litigation in which it is involved, including the proceedings challenging its water permits. In those cases where damage claims have been asserted, Fidelity is unable to quantify the damages sought and will be unable to do so until after the completion of discovery. If the plaintiffs are successful in these lawsuits, the ultimate outcome of the actions could adversely impact Fidelity’s existing CBNG operations and/or the future development of this resource in the affected regions.

Electric Operations Montana-Dakota joined with two electric generators in appealing a September 2003 finding by the ND Health Department that it may unilaterally revise operating permits previously issued to electric generating plants. Although it is doubtful that any revision of Montana-Dakota's operating permits by the ND Health Department would reduce the amount of electricity its plants could generate, the finding, if allowed to stand, could increase costs for sulfur dioxide removal and/or limit Montana-Dakota's ability to modify or expand operations at its North Dakota generation sites. Montana-Dakota and the other electric generators filed their appeal of the order in October 2003 in the North Dakota District Court. Proceedings were stayed pending conclusion of the periodic review of sulfur dioxide emissions in the state.

In September 2005, the ND Health Department issued its final periodic review decision based on its August 2005 final air quality modeling report. The ND Health Department concluded there were no violations of the sulfur dioxide increment in North Dakota. In March 2006, the DRC filed a complaint in Colorado Federal District Court seeking to force the EPA to declare that the increment had been violated based on earlier modeling conducted by the EPA. The EPA defended against the DRC claim and filed a motion to dismiss the case. The Colorado Federal District Court has dismissed the case.

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In June 2007, the EPA noticed for public comment a proposed rule that would, among other things, adopt PSD increment modeling refinements that, if adopted, would operate to formally ratify the modeling techniques and conclusions contained in the September 2005 ND Health Department decision and the August 2005 final report. The public comment period on the proposed rule closed in September 2007. The dismissal of the case in North Dakota District Court referenced above is dependant upon the outcome of the proposed rule.

On June 10, 2008, the Sierra Club filed a complaint in the South Dakota Federal District Court against Montana-Dakota and the two other co-owners of the Big Stone Station. The complaint alleges certain violations of the PSD and NSPS provisions of the Clean Air Act and certain violation of the South Dakota SIP. The action further alleges that the Big Stone Station was modified and operated without obtaining the appropriate permits, without meeting certain emissions limits and NSPS requirements and without installing appropriate emission control technology, all allegedly in violation of the Clean Air Act and the South Dakota SIP. The Sierra Club alleges that these actions have contributed to air pollution and visibility impairment and have increased the risk of adverse health effects and environmental damage. The Sierra Club seeks both declaratory and injunctive relief to bring the co-owners of the Big Stone Station into compliance with the Clean Air Act and the South Dakota SIP and to require them to remedy the alleged violations. The Sierra Club also seeks unspecified civil penalties, including a beneficial mitigation project. The Company believes that these claims are without merit and that Big Stone Station has been and is being operated in compliance with the Clean Air Act and the South Dakota SIP. The ultimate outcome of these matters cannot be determined at this time.

Natural Gas Storage Based on reservoir and well pressure data and other information, Williston Basin believes that reservoir pressure (and therefore the amount of gas) in the EBSR, one of its natural gas storage reservoirs, has decreased as a result of Howell and Anadarko’s drilling and production activities in areas within and near the boundaries of the EBSR. As of September 30, 2008, Williston Basin estimated that between 10.75 and 11.25 Bcf of storage gas had been diverted from the EBSR as a result of Howell and Anadarko’s drilling and production.

Williston Basin filed suit in Montana Federal District Court in January 2006, seeking to recover unspecified damages from Howell and Anadarko, and to enjoin Howell and Anadarko’s present and future production from specified wells in and near the EBSR. The Montana Federal District Court entered an Order in July 2006, dismissing the case for lack of subject matter jurisdiction. Williston Basin appealed and on May 9, 2008, the Ninth Circuit affirmed the Montana Federal District Court’s decision.

In related litigation, Howell filed suit in Wyoming State District Court against Williston Basin in February 2006 asserting that it is entitled to produce any gas that might escape from the EBSR. In August 2006, Williston Basin moved for a preliminary injunction to halt Howell and Anadarko’s production in and near the EBSR. The Wyoming State District Court denied Williston Basin’s motion in July 2007. In December 2007, motions were argued to a court appointed special master concerning the application of certain legal principles to the production of Williston Basin’s storage gas, including gas residing outside the certificated boundaries of the EBSR, by Howell and Anadarko. On March 17, 2008, the special master issued recommendations to the Wyoming State District Court. The special

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master recommended that the Wyoming State District Court adopt a ruling that gas injected into an underground reservoir belongs to the injector and the injector does not lose title to that gas unless the gas escapes or migrates from the reservoir because it was not well defined or well maintained or if the injector is unable to identify such injected gas because it has been commingled with native gas. The special master also recommended that the Wyoming State District Court adopt a ruling that generally would allow Howell and Anadarko to produce native gas residing inside or outside the certificated boundaries of the EBSR from its wells completed outside the certificated boundaries. The special master recognized that there are other issues yet to be developed that may be determinative of whether Howell and Anadarko may produce native or injected gas, or both. On July 1, 2008, the Wyoming State District Court adopted the special master’s report. On July 16, 2008, Williston Basin filed a petition requesting the Wyoming Supreme Court to review a ruling by the Wyoming State District Court that the Natural Gas Act does not preempt the state law that permits an oil and gas producer to take gas that has been dedicated for use in a federally certificated gas storage reservoir. On August 5, 2008, the Wyoming Supreme Court denied the petition. The Wyoming State District Court has scheduled the case for trial beginning March 16, 2009.

In a related proceeding, the FERC issued an order on July 18, 2008, in response to a petition filed by Williston Basin on April 24, 2008, declaring that the certification of a storage facility under the Natural Gas Act conveys to the certificate holder the right to acquire native gas within the certificated boundaries of the storage facility. The FERC also concurred that state law precluding the certificate holder from acquiring the right to native gas would be preempted by federal law.

As previously noted, Williston Basin estimates that as of September 30, 2008, Howell and Anadarko had diverted between 10.75 and 11.25 Bcf from the EBSR. Williston Basin believes Howell and Anadarko continue to divert gas from the EBSR and Williston Basin continues to monitor and analyze the situation. At trial, Williston Basin will seek recovery based on the amount of gas that has been and continues to be diverted as well as on the amount of gas that must be recovered as a result of the equalization of the pressures of various interconnected geological formations.

Expert reports were filed with the Wyoming State District Court in January 2008. Supplemental and rebuttal expert reports were filed September 15, 2008. Williston Basin’s experts are of the opinion that all of the gas produced by Howell and Anadarko is Williston Basin's gas and will have to be replaced. Williston Basin’s experts estimate that the replacement cost of the gas produced by Howell and Anadarko through July 2008 is approximately $103 million if injection is completed by the end of the 2010 injection season. Williston Basin's experts also estimate that Williston Basin will expend $6.3 million to mitigate the damages that Williston Basin suffered during the period of Howell and Anadarko’s production if the replacement gas is injected by the end of the 2010 injection season. Williston Basin believes that its experts’ opinions are based on sound law, economics, reservoir engineering, geology and geochemistry. The expert reports filed by Howell and Anadarko claim that storage gas owned by Williston Basin has migrated outside the EBSR into areas in which Howell and Anadarko have oil and gas rights. They theorize that Williston Basin is accountable to Howell and Anadarko for the migration of such gas. Although Howell and Anadarko have not specified the amount of damages they seek to

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recover, Williston Basin believes Howell and Anadarko’s proposed methodology for valuing their alleged injury, if any, is flawed, inconsistent and lacking in factual and legal support. Williston Basin continues to evaluate the Howell and Anadarko reports.

Williston Basin intends to vigorously defend its rights and interests in these proceedings, to assess further avenues for recovery through the regulatory process at the FERC, and to pursue the recovery of any and all economic losses it may have suffered. Williston Basin cannot predict the ultimate outcome of these proceedings.

In light of the actions of Howell and Anadarko, Williston Basin installed temporary compression at the site in 2006 in order to maintain deliverability into the transmission system. Williston Basin leased working gas for the 2007 - 2008 heating season to supplement its cushion gas and received authorization from the FERC on October 29, 2008, to lease working gas for the 2008 - 2009 heating season. While installation of the additional compression and leasing working gas provide temporary relief, Williston Basin believes that the adverse physical and operational effects occasioned by the continued loss of storage gas, if left unchecked, could threaten the operation and viability of the EBSR, impair Williston Basin’s ability to comply with the EBSR certificated operating requirements mandated by the FERC and adversely affect Williston Basin’s ability to meet its contractual storage and transportation service commitments to customers. In another effort to protect the viability of the EBSR, Williston Basin, on April 18, 2008, filed an application with the FERC to expand the boundaries of the EBSR. The proposed expansion includes the areas from which Howell and Anadarko are producing.

The Company also is involved in other legal actions in the ordinary course of its business. Although the outcomes of any such legal actions cannot be predicted, management believes that the outcomes with respect to these other legal proceedings will not have a material adverse effect upon the Company’s financial position or results of operations.

Environmental matters

Portland Harbor Site In December 2000, MBI was named by the EPA as a Potentially Responsible Party in connection with the cleanup of a riverbed site adjacent to a commercial property site acquired by MBI from Georgia Pacific-West, Inc. in 1999. The riverbed site is part of the Portland, Oregon, Harbor Superfund Site. Sixty-eight other parties were also named in this administrative action. The EPA wants responsible parties to share in the cleanup of sediment contamination in the Willamette River. To date, costs of the overall remedial investigation and feasibility study of the harbor site are being recorded, and initially paid, through an administrative consent order by the LWG, a group of several entities, which does not include MBI or Georgia-Pacific West, Inc. Although the LWG originally estimated the overall remedial investigation and feasibility study would cost approximately $10 million, it is now anticipated, on the basis of costs incurred to date and delays attributable to an additional round of sampling and potential further investigative work, that such cost could increase to a total in excess of $60 million. It is not possible to estimate the cost of a corrective action plan until the remedial investigation and feasibility study have been completed, the EPA has decided on a strategy and a record of decision has been published. It is also not possible to estimate the costs of natural resource damages until investigation and allocations are undertaken. While the remedial investigation and feasibility study for the harbor site has commenced, it is expected to take several more years to

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complete. The development of a proposed plan and ROD on the harbor site is not anticipated to occur until 2010, after which a cleanup plan will be undertaken. MBI also received notice in January 2008 that the Portland Harbor Natural Resource Trustee Council intends to perform an injury assessment to natural resources resulting from the release of hazardous substances at the Harbor Superfund Site. The Trustee Council indicates the injury determination is appropriate to facilitate early settlement of damages and restoration for natural resource injuries.

Based upon a review of the Portland Harbor sediment contamination evaluation by the Oregon DEQ and other information available, MBI does not believe it is a Responsible Party. In addition, MBI has notified Georgia-Pacific West, Inc., that it intends to seek indemnity for any and all liabilities incurred in relation to the above matters, pursuant to the terms of their sale agreement. MBI has entered into an agreement tolling the statute of limitation in connection with the LWG’s potential claim for contribution to the costs of the remedial investigation and feasibility study.

The Company believes it is not probable that it will incur any material environmental remediation costs or damages in relation to the above referenced administrative action.

Manufactured Gas Plant Sites There are three claims against Cascade for cleanup of environmental contamination at manufactured gas plant sites operated by Cascade’s predecessors.

The first claim is for soil and groundwater contamination at a site in Oregon and was received in 1995. There are potentially responsible parties in addition to Cascade that may be liable for cleanup of the contamination. Some of these other parties have shared in the investigation costs. It is expected that these and other potentially responsible parties will share in the cleanup costs. Several alternatives for cleanup have been identified, with preliminary cost estimates ranging from approximately $500,000 to $11.0 million. It is not known at this time what share of the cleanup costs will actually be borne by Cascade. In November 2007, the Oregon DEQ provided notice that additional ecological risk assessment of the site was necessary. Completion of the assessment is anticipated by the end of 2008. The results of the assessment may affect the selection and implementation of a cleanup alternative.

The second claim is for contamination at a site in Washington and was received in 1997. A preliminary investigation has found soil and groundwater at the site contain contaminants that will require further investigation and cleanup. A supplemental investigation is currently being conducted to better characterize the extent of the contamination. The data from the preliminary investigation indicates other current and former owners of properties and businesses in the vicinity of the site may also be responsible for the contamination. There is currently not enough information to estimate the potential liability associated with this claim.

The third claim is also for contamination at a site in Washington. Cascade received notice from a party in May 2008 that Cascade may be a potentially responsible party, along with other parties, for contamination from a manufactured gas plant owned by Cascade’s predecessor from about 1946 to 1962. The notice indicates that current estimates to

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complete investigation and cleanup of the site exceed $8.0 million. There is currently not enough information available to estimate the potential liability to Cascade associated with this claim.

To the extent these claims are not covered by insurance, Cascade will seek recovery through the OPUC and WUTC of remediation costs in its natural gas rates charged to customers.

Guarantees

In connection with the sale of MPX in June 2005 to Petrobras, an indirect wholly owned subsidiary of the Company has agreed to indemnify Petrobras for 49 percent of any losses that Petrobras may incur from certain contingent liabilities specified in the purchase agreement. Centennial has agreed to unconditionally guarantee payment of the indemnity obligations to Petrobras for periods ranging up to five and a half years from the date of sale. The guarantee was required by Petrobras as a condition to closing the sale of MPX.

Centennial continues to guarantee CEM's obligations under a construction contract for a 550-MW combined-cycle electric generating facility near Hobbs, New Mexico. As described in Note 3, Centennial Resources sold CEM in July 2007 to Bicent Power LLC, which has provided a $10 million bank letter of credit to Centennial in support of that guarantee obligation. The guarantee, which has no fixed maximum, expires when CEM has completed its obligations under the construction contract. Substantial completion of construction is expected to occur during the fourth quarter of 2008, and the warranty period associated with this project will expire one year after the date of substantial completion of construction.

In addition, WBI Holdings has guaranteed certain of Fidelity’s natural gas and oil price swap and collar agreement obligations. There is no fixed maximum amount guaranteed in relation to the natural gas and oil price swap and collar agreements as the amount of the obligation is dependent upon natural gas and oil commodity prices. The amount of hedging activity entered into by the subsidiary is limited by corporate policy. The guarantees of the natural gas and oil price swap and collar agreements at September 30, 2008, expire in the years ranging from 2008 to 2011; however, Fidelity continues to enter into additional hedging activities and, as a result, WBI Holdings from time to time may issue additional guarantees on these hedging obligations. The amount outstanding by Fidelity was $900,000 and was reflected on the Consolidated Balance Sheets at September 30, 2008. In the event Fidelity defaults under its obligations, WBI Holdings would be required to make payments under its guarantees.

Certain subsidiaries of the Company have outstanding guarantees to third parties that guarantee the performance of other subsidiaries of the Company. These guarantees are related to construction contracts, natural gas transportation and sales agreements, gathering contracts, a conditional purchase agreement and certain other guarantees. At September 30, 2008, the fixed maximum amounts guaranteed under these agreements aggregated $291.5 million. The amounts of scheduled expiration of the maximum amounts guaranteed under these agreements aggregate $4.1 million in 2008; $252.5 million in 2009; $600,000 in 2010; $25.0 million in 2011; $2.3 million in 2012; $800,000 in 2013; $1.2 million in 2018; $1.0 million, which is subject to expiration 30 days after the receipt of written notice; and $4.0 million, which has no scheduled maturity date. The amount outstanding by subsidiaries

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of the Company under the above guarantees was $900,000 and was reflected on the Consolidated Balance Sheet at September 30, 2008. In the event of default under these guarantee obligations, the subsidiary issuing the guarantee for that particular obligation would be required to make payments under its guarantee.

Certain subsidiaries have outstanding letters of credit to third parties related to insurance policies, materials obligations, natural gas transportation agreements and other agreements that guarantee the performance of other subsidiaries of the Company. At September 30, 2008, the fixed maximum amounts guaranteed under these letters of credit, aggregated $42.5 million. In 2008 and 2009, $29.6 million and $12.9 million, respectively, of letters of credit are scheduled to expire. There were no amounts outstanding under the above letters of credit at September 30, 2008.

Fidelity and WBI Holdings have outstanding guarantees to Williston Basin. These guarantees are related to natural gas transportation and storage agreements that guarantee the performance of Prairielands. At September 30, 2008, the fixed maximum amounts guaranteed under these agreements aggregated $24.0 million. Scheduled expiration of the maximum amounts guaranteed under these agreements aggregate $20.0 million in 2009 and $4.0 million in 2011. In the event of Prairielands’ default in its payment obligations, the subsidiary issuing the guarantee for that particular obligation would be required to make payments under its guarantee. The amount outstanding by Prairielands under the above guarantees was $1.7 million, which was not reflected on the Consolidated Balance Sheet at September 30, 2008, because these intercompany transactions are eliminated in consolidation.

In addition, Centennial and Knife River have issued guarantees to third parties related to the Company’s routine purchase of maintenance items, materials and lease obligations for which no fixed maximum amounts have been specified. These guarantees have no scheduled maturity date. In the event a subsidiary of the Company defaults under its obligation in relation to the purchase of certain maintenance items, materials or lease obligations, Centennial or Knife River would be required to make payments under these guarantees. Any amounts outstanding by subsidiaries of the Company for these maintenance items and materials were reflected on the Consolidated Balance Sheet at September 30, 2008.

In the normal course of business, Centennial has purchased surety bonds related to construction contracts and reclamation obligations of its subsidiaries. In the event a subsidiary of Centennial does not fulfill a bonded obligation, Centennial would be responsible to the surety bond company for completion of the bonded contract or obligation. A large portion of the surety bonds is expected to expire within the next 12 months; however, Centennial will likely continue to enter into surety bonds for its subsidiaries in the future. As of September 30, 2008, approximately $564 million of surety bonds were outstanding, which were not reflected on the Consolidated Balance Sheet.

21.           Subsequent event

On October 1, 2008, the acquisition of Intermountain was finalized and Intermountain became an indirect wholly owned subsidiary of the Company. Intermountain is headquartered in Boise, Idaho, and serves more than 300,000 customers in 74 communities in Idaho. The acquisition was a cash-for-stock transaction. The enterprise value of the

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transaction, including outstanding indebtedness, is approximately $328 million. Future results of Intermountain will be part of the natural gas distribution segment.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The Company’s strategy is to apply its expertise in energy and transportation infrastructure industries to increase market share, increase profitability and enhance shareholder value through:

·   Organic growth as well as a continued disciplined approach to the acquisition of well-managed companies and properties

·   The elimination of system-wide cost redundancies through increased focus on integration of operations and standardization and consolidation of various support services and functions across companies within the organization

·   The development of projects that are accretive to earnings per share and return on invested capital

The Company has capabilities to fund its growth and operations through various sources, including internally generated funds, commercial paper facilities and the issuance from time to time of debt securities and the Company’s equity securities. Although volatility in the capital markets has recently increased significantly, the Company continues to issue commercial paper, although at higher interest rates, to meet its current needs. At this time, accessing the long-term debt market may be more challenging and result in significantly higher interest rates. For more information on the Company’s net capital expenditures, see Liquidity and Capital Commitments.

The key strategies for each of the Company’s business segments, and certain related business challenges, are summarized below. For a summary of the Company's business segments, see Note 16.

Key Strategies and Challenges

Electric and Natural Gas Distribution

Strategy Provide competitively priced energy to customers while working with them to ensure efficient usage. Both the electric and natural gas distribution segments continually seek opportunities for growth and expansion of their customer base through extensions of existing operations and through selected acquisitions of companies and properties at prices that will provide stable cash flows and an opportunity for the Company to earn a competitive return on investment. The natural gas distribution segment also continues to pursue growth by expanding its level of energy-related services.

Challenges Both segments are subject to extensive regulation in the state jurisdictions where they conduct operations with respect to costs and permitted returns on investment as well as subject to certain operational regulations at the federal level. The ability of these segments to grow through acquisitions is subject to significant competition from other energy providers. In addition, the ability of both segments to grow service territory and customer base is affected by the economic environment of the markets served and significant competition from other energy providers, including rural electric cooperatives. The construction of electric generating facilities and transmission lines are subject to increasing cost and lead time, as well as extensive permitting procedures.

Construction Services

Strategy Provide a competitive return on investment while operating in a competitive industry by: building new and strengthening existing customer relationships; effectively controlling costs; retaining, developing and recruiting talented employees; focusing business development efforts on

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project areas that will permit higher margins; and properly managing risk. This segment continuously seeks opportunities to expand through strategic acquisitions.

Challenges This segment operates in highly competitive markets with many jobs subject to competitive bidding. Maintenance of effective operational and cost controls, retention of key personnel and managing through down turns in the economy are ongoing challenges.

Pipeline and Energy Services

Strategy Leverage the segment’s existing expertise in energy infrastructure and related services to increase market share and profitability through optimization of existing operations, internal growth, and acquisitions of energy-related assets and companies. Incremental and new growth opportunities include: access to new sources of natural gas for storage, gathering and transportation services; expansion of existing gathering and transmission facilities; and incremental expansion of pipeline capacity to allow customers access to more liquid and higher-priced markets.

Challenges Energy price volatility; natural gas basis differentials; regulatory requirements; ongoing litigation; recruitment and retention of a skilled workforce; and increased competition from other natural gas pipeline and gathering companies.

Natural Gas and Oil Production

Strategy Apply technology and leverage existing exploration and production expertise, with a focus on operated properties, to increase production and reserves from existing leaseholds, and to seek additional reserves and production opportunities in new areas to further diversify the segment’s asset base. By optimizing existing operations and taking advantage of new and incremental growth opportunities, this segment’s goal is to increase both production and reserves over the long term so as to generate competitive returns on investment.

Challenges Fluctuations in natural gas and oil prices; ongoing environmental litigation and administrative proceedings; timely receipt of necessary permits and approvals; recruitment and retention of a skilled workforce; availability of drilling rigs, materials and auxiliary equipment, and industry-related field services; inflationary pressure on development and operating costs; and increased competition from other natural gas and oil companies.

Construction Materials and Contracting

Strategy Focus on high-growth strategic markets located near major transportation corridors and desirable mid-sized metropolitan areas; strengthen long-term, strategic aggregate reserve position through purchase and/or lease opportunities; enhance profitability through cost containment, margin discipline and vertical integration of the segment’s operations; and continue growth through organic and acquisition opportunities. Ongoing efforts to increase margin are being pursued through the implementation of a variety of continuous improvement programs, including corporate purchasing of equipment, parts and commodities (liquid asphalt, diesel fuel, cement and other materials), and negotiation of contract price escalation provisions. Vertical integration allows the segment to manage operations from aggregate mining to final lay-down of concrete and asphalt, with control of and access to adequate quantities of permitted aggregate reserves being significant. A key element of the Company’s long-term strategy for this business is to further expand its presence, through acquisition, in the higher-margin materials business (rock, sand, gravel, liquid asphalt, ready-mixed concrete and related products), complementing and expanding on the Company’s expertise.

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Challenges The economic slow-down has adversely impacted operations, particularly in the private market. This business unit expects to continue cost containment efforts and a greater emphasis on industrial, energy and public works projects. The Company is experiencing significant increases in the cost of raw materials such as diesel, gasoline, liquid asphalt and steel. Increased competition in certain construction markets has also lowered margins.

For further information on the risks and challenges the Company faces as it pursues its growth strategies and other factors that should be considered for a better understanding of the Company’s financial condition, see Part II, Item 1A – Risk Factors, as well as Part I, Item 1A – Risk Factors in the 2007 Annual Report. For further information on each segment’s key growth strategies, projections and certain assumptions, see Prospective Information. For information pertinent to various commitments and contingencies, see Notes to Consolidated Financial Statements.

Earnings Overview

The following table summarizes the contribution to consolidated earnings by each of the Company's businesses.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2008			2007			2008			2007
	(Dollars in millions, where applicable)
Electric	$	6.8		$	5.7		$	15.1		$	13.0
Natural gas distribution		(3.4	)		(4.5	)		18.5			1.1
Construction services		16.3			13.7			41.2			33.9
Pipeline and energy services		5.7			9.2			19.7			21.1
Natural gas and oil production		57.5			33.2			179.8			99.0
Construction materials and contracting		33.6			50.4			25.2			66.1
Other		1.7			(3.4	)		4.9			(6.8	)
Earnings before discontinued operations		118.2			104.3			304.4			227.4
Income from discontinued operations, net of tax		---			96.8			---			109.5
Earnings on common stock	$	118.2		$	201.1		$	304.4		$	336.9
Earnings per common share – basic:
Earnings before discontinued operations	$	.65		$	.57		$	1.66		$	1.25
Discontinued operations, net of tax		---			.53			---			.60
Earnings per common share – basic	$	.65		$	1.10		$	1.66		$	1.85
Earnings per common share – diluted:
Earnings before discontinued operations	$	.64		$	.57		$	1.66		$	1.24
Discontinued operations, net of tax		---			.53			---			.60
Earnings per common share – diluted	$	.64		$	1.10		$	1.66		$	1.84
Return on average common equity for the 12 months ended								15.5	%		18.7	%

Three Months Ended September 30, 2008 and 2007 Consolidated earnings for the quarter ended September 30, 2008, decreased $82.9 million from the comparable prior period largely due to:

·   The absence in 2008 of income from discontinued operations net of tax, largely related to the gain on the sale of the Company's domestic independent power production assets, which were sold in the third quarter of 2007, as discussed in Note 3

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·   Construction workloads and margins as well as product volumes that were significantly lower at the construction materials and contracting business as a result of the economic downturn primarily as it relates to the residential market

·   The absence in 2008 of the gain of $6.1 million (after tax) related to the sale of Hartwell in 2007, reflected in the Other category

Partially offsetting these decreases were:

·   Higher average natural gas and oil prices of 37 percent and 53 percent, respectively, and increased oil and natural gas production of 29 percent and 2 percent, respectively, partially offset by higher depreciation, depletion and amortization expense at the natural gas and oil production business

·   The absence in 2008 of an income tax adjustment of $10.0 million in 2007 associated with the anticipated repatriation of profits from Brazilian operations as discussed in Note 15, reflected in the Other category

Nine Months Ended September 30, 2008 and 2007 Consolidated earnings for the nine months ended September 30, 2008, decreased $32.5 million largely due to:

·   The absence in 2008 of income from discontinued operations net of tax, as previously discussed

·   Construction workloads and margins as well as product volumes that were significantly lower at the construction materials and contracting business, as previously discussed

·   The absence in 2008 of the gain of $6.1 million (after tax) related to the sale of Hartwell in 2007, reflected in the Other category

Partially offsetting these decreases were:

·   Higher average natural gas and oil prices of 29 percent and 78 percent, respectively, and increased oil and natural gas production of 21 percent and 6 percent, respectively, partially offset by higher depreciation, depletion and amortization expense at the natural gas and oil production business

·   Increased earnings at the natural gas distributions business, largely earnings at Cascade, which was acquired on July 2, 2007

·   Higher construction workloads at the construction services business

·   The absence in 2008 of an income tax adjustment of $10.0 million in 2007 associated with the anticipated repatriation of profits from Brazilian operations as discussed in Note 15, reflected in the Other category

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FINANCIAL AND OPERATING DATA

Below are key financial and operating data for each of the Company's businesses.

Electric

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2008		2007		2008		2007
	(Dollars in millions, where applicable)
Operating revenues	$	56.0	$	54.0	$	154.1	$	145.7
Operating expenses:
Fuel and purchased power		19.6		20.3		54.0		52.9
Operation and maintenance		15.9		16.0		47.4		45.6
Depreciation, depletion and amortization		6.0		5.7		18.1		16.9
Taxes, other than income		2.2		2.1		6.6		6.4
		43.7		44.1		126.1		121.8
Operating income		12.3		9.9		28.0		23.9
Earnings	$	6.8	$	5.7	$	15.1	$	13.0
Retail sales (million kWh)		660.7		703.5		1,946.2		1,945.5
Sales for resale (million kWh)		58.8		39.2		158.7		130.4
Average cost of fuel and purchased power per kWh	$	.026	$	.027	$	.024	$	.025

Three Months Ended September 30, 2008 and 2007 Electric earnings increased $1.1 million from the comparable prior period largely due to higher retail sales margins, primarily related to the implementation of higher rates in Montana, partially offset by lower retail sales volumes of 6 percent.

Nine Months Ended September 30, 2008 and 2007 Electric earnings increased $2.1 million largely due to:

·   Higher retail sales margins, as previously discussed

·   Higher sales for resale volumes of 22 percent, largely due to the addition of wind-powered electric generation and higher plant availability

Partially offsetting these increases were higher operation and maintenance costs of $1.0 million (after tax), including higher benefit-related costs, as well as increased depreciation, depletion and amortization expense of $800,000 (after tax), largely related to higher property, plant and equipment balances.

41

Natural Gas Distribution

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2008			2007			2008			2007
	(Dollars in millions, where applicable)
Operating revenues	$	94.0		$	90.7		$	653.1		$	280.2
Operating expenses:
Purchased natural gas sold		55.9			53.3			475.9			193.9
Operation and maintenance		26.9			26.6			82.6			57.8
Depreciation, depletion and amortization		7.4			7.1			21.7			12.0
Taxes, other than income		4.7			5.9			30.3			9.1
		94.9			92.9			610.5			272.8
Operating income (loss)		(.9	)		(2.2	)		42.6			7.4
Earnings (loss)	$	(3.4	)	$	(4.5	)	$	18.5		$	1.1
Volumes (MMdk):
Sales		6.4			7.2			53.0			28.4
Transportation		24.9			22.7			70.0			29.0
Total throughput		31.3			29.9			123.0			57.4
Degree days (% of normal)*
Montana-Dakota		70	%		71	%		103	%		93	%
Cascade		111	%		102	%		111	%		102	%
Average cost of natural gas, including transportation, per dk**
Montana-Dakota	$	9.71		$	5.15		$	8.33		$	6.45
Cascade	$	7.80		$	7.60		$	8.03		$	7.60
*    Degree days are a measure of the daily temperature-related demand for energy for heating.
**  Regulated natural gas sales only.
Note: Cascade was acquired on July 2, 2007.

Three Months Ended September 30, 2008 and 2007 The natural gas distribution business experienced a seasonal loss of $3.4 million in the third quarter of 2008 compared to a loss of $4.5 million in the third quarter of 2007. The decrease in the seasonal loss is largely due to increased transportation volumes and margins as well as higher non-regulated energy-related services.

Nine Months Ended September 30, 2008 and 2007 Earnings at the natural gas distribution business increased $17.4 million due to:

·   Earnings of $15.2 million, including a $4.4 million (after tax) gain on the sale of its natural gas management service, at Cascade since the comparable prior period

·   Increased retail sales volumes from existing operations resulting from colder weather than last year

·   Higher non-regulated energy-related services of $700,000 (after tax)

·   Increased transportation volumes and margins

Partially offsetting these increases was increased operation and maintenance expense from existing operations of $1.1 million (after tax), including higher payroll-related and materials costs.

42

Construction Services

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2008		2007		2008		2007
	(In millions)
Operating revenues	$	328.5	$	293.3	$	960.6	$	793.9
Operating expenses:
Operation and maintenance		288.0		258.1		848.5		700.4
Depreciation, depletion and amortization		3.3		3.5		9.8		10.5
Taxes, other than income		9.5		8.5		31.9		24.8
		300.8		270.1		890.2		735.7
Operating income		27.7		23.2		70.4		58.2
Earnings	$	16.3	$	13.7	$	41.2	$	33.9

Three Months Ended September 30, 2008 and 2007 Construction services earnings increased $2.6 million due to higher construction workloads, largely in the Southwest region.

Nine Months Ended September 30, 2008 and 2007 Construction services earnings increased $7.3 million over the comparable prior period. Higher construction workloads were partially offset by lower construction margins and higher general and administrative expense, largely payroll-related.

Pipeline and Energy Services

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2008		2007		2008		2007
	(Dollars in millions)
Operating revenues	$	134.6	$	102.5	$	423.5	$	327.8
Operating expenses:
Purchased natural gas sold		97.6		60.9		308.3		216.3
Operation and maintenance		17.2		17.1		51.4		47.7
Depreciation, depletion and amortization		5.9		5.4		17.4		16.1
Taxes, other than income		2.9		2.7		8.5		8.1
		123.6		86.1		385.6		288.2
Operating income		11.0		16.4		37.9		39.6
Income from continuing operations		5.7		9.2		19.7		21.1
Income from discontinued operations, net of tax		---		.2		---		.3
Earnings	$	5.7	$	9.4	$	19.7	$	21.4
Transportation volumes (MMdk):
Montana-Dakota		8.2		6.6		23.7		21.7
Other		29.1		33.5		77.3		83.7
		37.3		40.1		101.0		105.4
Gathering volumes (MMdk)		26.8		23.5		76.2		68.2

43

Three Months Ended September 30, 2008 and 2007 Pipeline and energy services experienced a decrease in earnings of $3.7 million compared to the third quarter of 2007 due to:

·   Lower storage services revenue of $1.4 million (after tax), largely due to lower storage balances

·   Decreased volumes transported to storage of 28 percent

·   Increased operation and maintenance cost, including higher legal costs, outside services and payroll-related costs

·   Higher depreciation, depletion and amortization expense of $300,000 (after tax), largely due to higher property, plant and equipment balances

Partially offsetting these decreases were increased off-system transportation and demand fees related to an expansion of the Grasslands system, higher gathering volumes of 14 percent and higher gathering rates.

Results in 2008 reflect the absence of operating revenues as well as operation and maintenance expense related to a non-regulated energy-related service project completed in 2007.

Nine Months Ended September 30, 2008 and 2007 Pipeline and energy services earnings decreased $1.7 million largely due to:

·   Increased operation and maintenance expense of $2.4 million (after tax), including higher material, outside services, payroll-related and legal costs

·   Decreased volumes transported to storage of 35 percent

·   Lower storage services revenue of $900,000 (after tax), largely due to lower storage balances

·   Higher depreciation, depletion and amortization expense of $800,000 (after tax), largely due to higher property, plant and equipment balances

Partially offsetting these decreases were:

·   Higher gathering volumes of 12 percent and higher average gathering rates of $1.0 million (after tax)

·   Increased off-system transportation and demand fees, as previously discussed

44

Natural Gas and Oil Production

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2008		2007		2008		2007
	(Dollars in millions, where applicable)
Operating revenues:
Natural gas	$	121.1	$	86.4	$	379.1	$	276.4
Oil		72.0		36.5		198.7		92.3
Other		.1		.2		.1		.4
		193.2		123.1		577.9		369.1
Operating expenses:
Purchased natural gas sold		---		---		.1		.3
Operation and maintenance:
Lease operating costs		21.0		17.6		58.5		48.7
Gathering and transportation		6.6		5.3		18.5		14.9
Other		10.5		8.9		33.1		26.3
Depreciation, depletion and amortization		44.5		33.2		125.5		92.7
Taxes, other than income:
Production and property taxes		15.5		8.5		45.4		26.7
Other		.2		.1		.7		.6
		98.3		73.6		281.8		210.2
Operating income		94.9		49.5		296.1		158.9
Earnings	$	57.5	$	33.2	$	179.8	$	99.0
Production:
Natural gas (MMcf)		16,188		15,865		49,280		46,536
Oil (MBbls)		729		565		2,067		1,710
Total Production (MMcf equivalent)		20,566		19,256		61,684		56,799
Average realized prices (including hedges):
Natural gas (per Mcf)	$	7.48	$	5.45	$	7.69	$	5.94
Oil (per Bbl)	$	98.61	$	64.54	$	96.09	$	53.94
Average realized prices (excluding hedges):
Natural gas (per Mcf)	$	7.84	$	4.51	$	8.02	$	5.35
Oil (per Bbl)	$	99.60	$	64.64	$	97.01	$	53.98
Average depreciation, depletion and amortization rate, per equivalent Mcf	$	2.10	$	1.65	$	1.97	$	1.56
Production costs, including taxes, per net equivalent Mcf:
Lease operating costs	$	1.02	$	.91	$	.95	$	.86
Gathering and transportation		.32		.28		.30		.26
Production and property taxes		.75		.44		.73		.47
	$	2.09	$	1.63	$	1.98	$	1.59

45

Three Months Ended September 30, 2008 and 2007 Natural gas and oil production earnings increased $24.3 million due to:

·   Higher average realized natural gas prices of 37 percent and higher average realized oil prices of 53 percent

·   Increased oil and natural gas production of 29 percent and 2 percent, respectively, largely related to the East Texas property acquired in January 2008 and additional drilling activity including wells in the Bakken play, South Texas and Paradox Basin

Partially offsetting these increases were:

·   Higher depreciation, depletion and amortization expense of $7.1 million (after tax) due to higher depletion rates and increased production

·   Higher production taxes of $4.3 million (after tax) associated with increased revenue

·   Absence in 2008 of an income tax benefit of $3.1 million received in 2007, due to lower effective state income tax rates

·   Increased lease operating expenses of $2.1 million (after tax)

Nine Months Ended September 30, 2008 and 2007 The natural gas and oil production business experienced an increase in earnings of $80.8 million due to:

·   Higher average realized natural gas prices of 29 percent and higher average realized oil prices of 78 percent

·   Increased oil and natural gas production of 21 percent and 6 percent, respectively, as previously discussed

Partially offsetting these increases were:

·   Higher depreciation, depletion and amortization expense of $20.3 million (after tax) due to higher depletion rates and increased production

·   Higher production taxes of $11.6 million (after tax) associated with increased revenue

·   Increased lease operating expenses of $6.0 million (after tax)

·   Higher general and administrative expense of $4.3 million, including increased outside services and payroll-related costs

·   Absence in 2008 of an income tax benefit of $3.1 million received in 2007, as previously discussed

46

Construction Materials and Contracting

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2008		2007		2008		2007
	(Dollars in millions)
Operating revenues	$	620.0	$	639.6	$	1,248.7	$	1,322.7
Operating expenses:
Operation and maintenance		524.0		519.7		1,085.3		1,101.4
Depreciation, depletion and amortization		25.8		23.2		76.7		69.1
Taxes, other than income		11.6		11.8		31.1		33.4
		561.4		554.7		1,193.1		1,203.9
Operating income		58.6		84.9		55.6		118.8
Earnings	$	33.6	$	50.4	$	25.2	$	66.1
Sales (000's):
Aggregates (tons)		11,100		11,769		24,060		27,665
Asphalt (tons)		2,890		3,330		4,538		5,435
Ready-mixed concrete (cubic yards)		1,244		1,328		2,907		3,046

Three Months Ended September 30, 2008 and 2007 Earnings at the construction materials and contracting business decreased $16.8 million due to:

·   Decreased construction workloads, margins and product volumes that were significantly lower as a result of the economic downturn, primarily as it relates to the residential market, as well as higher diesel fuel costs at existing operations had a combined negative effect on earnings of $15.8 million (after tax)

·   Higher depreciation, depletion and amortization expense, largely the result of higher property, plant and equipment balances

Nine Months Ended September 30, 2008 and 2007 The construction materials and contracting business experienced a decrease in earnings of $40.9 million due to:

·   Decreased construction workloads, margins and product volumes that were significantly lower, as previously discussed, as well as higher diesel fuel costs at existing operations had a combined negative effect on earnings of $39.0 million (after tax)

·   Higher depreciation, depletion and amortization expense, as previously discussed

Partially offsetting these decreases were earnings from companies acquired since the comparable prior period which contributed 10 percent to earnings for the current period.

47

Other and Intersegment Transactions

Amounts presented in the preceding tables will not agree with the Consolidated Statements of Income due to the Company’s other operations and the elimination of intersegment transactions. The amounts relating to these items are as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2008		2007		2008		2007
	(In millions)
Other:
Operating revenues	$	2.5	$	2.4	$	7.9	$	7.3
Operation and maintenance		2.5		4.5		8.0		12.0
Depreciation, depletion and amortization		.3		.3		.9		1.0
Taxes, other than income		---		.1		.2		.2
Intersegment transactions:
Operating revenues	$	95.0	$	60.3	$	318.3	$	231.5
Purchased natural gas sold		87.9		53.3		297.0		210.5
Operation and maintenance		7.1		7.0		21.3		21.0

For further information on intersegment eliminations, see Note 16.

PROSPECTIVE INFORMATION

The following information highlights the key growth strategies, projections and certain assumptions for the Company and its subsidiaries and other matters for each of the Company’s businesses. Many of these highlighted points are “forward-looking statements.” There is no assurance that the Company’s projections, including estimates for growth and changes in earnings, will in fact be achieved. Please refer to assumptions contained in this section, as well as the various important factors listed in Part II, Item 1A – Risk Factors, as well as Part I, Item 1A – Risk Factors in the 2007 Annual Report. Changes in such assumptions and factors could cause actual future results to differ materially from growth and earnings projections.

MDU Resources Group, Inc.

·   Earnings per common share for 2008 are projected in the range of $1.95 to $2.10.

·   Long-term compound annual growth goals on earnings per share from operations are in the range of 7 percent to 10 percent.

Electric

·   The Company is analyzing potential projects for accommodating load growth and replacing an expired purchased power contract with company-owned generation, which will add to base-load capacity and rate base. The Company is a participant in the Big Stone Station II project. On June 5, 2008, the MNPUC voted to delay its decision on the Big Stone Station II application for a transmission certificate of need and a route permit. The decision to delay was made so that the MNPUC could receive information from an independent expert on construction costs, natural gas prices and potential costs related to carbon dioxide. A report was issued on October 22, 2008, and project participants are in the process of reviewing the report and preparing a response. A final decision is expected in early 2009. If the decision is to proceed with construction of the plant, it is projected to be completed in 2015. The Company anticipates it would own at least 116 MW of this plant or own other generation sources.

48

·   On August 20, 2008, Montana-Dakota filed an application with the WYPSC for an electric rate increase, as discussed in Note 19.

·   This business continues to pursue expansion of energy-related services.

Natural gas distribution

·   This business continues to pursue expansion of energy-related services and expects continued strong customer growth in Washington, Oregon and Idaho.

·   For more information on the acquisition of Intermountain, see Note 21.

Construction services

·   The Company anticipates margins in 2008 to be comparable to 2007.

·   The Company continues to focus on costs and efficiencies to enhance margins.

·   Work backlog as of September 30, 2008, was approximately $608 million, compared to $826 million at September 30, 2007.

·   This business continually seeks opportunities to expand through strategic acquisitions and organic growth opportunities.

Pipeline and energy services

·   Based on the results from a recent open season, an incremental expansion to the Grasslands Pipeline of 75,000 Mcf per day is now anticipated for 2009. The expected in-service date is August 2009, pending regulatory approvals. Through additional compression, the firm capacity of the Grasslands Pipeline will reach full capacity of 213,000 Mcf per day, an increase from the current firm capacity of 138,000 Mcf per day.

·   The Company is pursuing the development of the Bakken Pipeline, a new natural gas pipeline designed to transport natural gas from the fast-growing Bakken play in northwestern North Dakota and northeastern Montana to a new pipeline interconnect with Alliance Pipeline. The Bakken Pipeline is anticipated to have an initial capacity of approximately 100,000 Mcf per day, with the flexibility to expand capacity to 200,000 Mcf per day. The pipeline project remains subject to shipper commitment and regulatory approvals.

·   In 2008, total gathering and transportation throughput is expected to be slightly higher than 2007 record levels.

Natural gas and oil production

·   The Company expects a combined natural gas and oil production increase in 2008 in the range of 7 percent to 9 percent over 2007 levels. The decrease from previous guidance relates primarily to the effects of the September hurricanes in the Gulf. A lesser contributing factor is the lower growth expectations for a portion of the Company's exploratory activities.

49

·   The Company is involved in exploratory drilling in the Bakken area in North Dakota and in the Paradox Basin in Utah. Net acreage in the Bakken includes approximately 65,000 acres with plans to participate in 50 to 60 wells in 2008, roughly half of which will be operated. The Company is exploring the Three Forks/Sanish formation located below the Bakken formation. If the Three Forks/Sanish formation proves to be a separate reservoir from the Bakken, it would provide additional opportunities to grow reserves and production within its existing leasehold position. In the Paradox Basin, the Company has net acreage of approximately 90,000 acres with plans to spud its sixth well in the fourth quarter.

·   The Company’s combined proved natural gas and oil reserves as of December 31, 2007, were 707 Bcf equivalent. In January, 97 Bcf equivalent of proved reserves were added with the East Texas property acquisition. The Company is pursuing continued reserve growth through further exploitation of its existing properties, exploratory drilling and property acquisitions.

·   Earnings guidance reflects estimated natural gas prices for November and December as follows:

Index*	Price Per Mcf
Ventura	$5.50 to $6.00
NYMEX	$6.00 to $6.50
CIG	$3.25 to $3.75
* Ventura is an index pricing point related to Northern Natural Gas Co.’s system; CIG is an index pricing point related to Colorado Interstate Gas Co.’s system.

During 2007, more than three-fourths of natural gas production was priced at non-NYMEX prices, the majority of which was at Ventura pricing.

·   Earnings guidance reflects estimated NYMEX crude oil prices for November and December in the range of $60 to $65 per barrel.

·   For the last three months of 2008, the Company has hedged approximately 50 percent to 55 percent of its estimated natural gas production and less than 5 percent of its estimated oil production. Of its estimated 2009 natural gas production, the Company has hedged approximately 35 percent to 40 percent and less than 5 percent for 2010 and 2011. The hedges that are in place as of October 30, 2008, are summarized in the following chart:  

50

Commodity	Type	Index*	Period Outstanding	Forward Notional Volume (MMBtu/Bbl)	Price (Per MMBtu/Bbl)
Natural Gas	Collar	Ventura	10/08	155,000	$7.00-$8.05
Natural Gas	Collar	Ventura	10/08	155,000	$7.00-$8.06
Natural Gas	Swap	Ventura	10/08	155,000	$7.45
Natural Gas	Collar	Ventura	10/08	155,000	$7.50-$8.70
Natural Gas	Swap	Ventura	10/08	155,000	$8.005
Natural Gas	Collar	Ventura	10/08	108,500	$7.25-$8.02
Natural Gas	Collar	CIG	10/08	108,500	$5.75-$7.40
Natural Gas	Collar	Ventura	10/08 - 12/08	460,000	$7.00-$8.45
Natural Gas	Collar	Ventura	10/08 - 12/08	460,000	$7.50-$8.34
Natural Gas	Swap	Ventura	10/08 - 12/08	828,000	$8.55
Natural Gas	Collar	NYMEX	10/08 - 12/08	460,000	$7.50-$10.15
Natural Gas	Swap	HSC	10/08 - 12/08	625,600	$7.91
Natural Gas	Collar	CIG	10/08 - 12/08	460,000	$6.75-$7.04
Natural Gas	Swap	CIG	10/08 - 12/08	460,000	$6.35
Natural Gas	Swap	CIG	10/08 - 12/08	460,000	$6.41
Natural Gas	Swap	Ventura	10/08 - 12/08	1,288,000	$9.10
Natural Gas	Collar	NYMEX	10/08 - 12/08	460,000	$9.00-$10.50
Natural Gas	Swap	Ventura	11/08 - 12/08	427,000	$9.25
Natural Gas	Swap	Ventura	11/08 - 12/08	610,000	$8.85
Natural Gas	Swap	Ventura	11/08 - 12/08	915,000	$12.465
Natural Gas	Swap	CIG	1/09 - 3/09	225,000	$8.45
Natural Gas	Swap	HSC	1/09 - 12/09	2,482,000	$8.16
Natural Gas	Collar	Ventura	1/09 - 12/09	1,460,000	$7.90-$8.54
Natural Gas	Collar	Ventura	1/09 - 12/09	4,380,000	$8.25-$8.92
Natural Gas	Swap	Ventura	1/09 - 12/09	3,650,000	$9.02
Natural Gas	Collar	CIG	1/09 - 12/09	3,650,000	$6.50-$7.20
Natural Gas	Swap	CIG	1/09 - 12/09	912,500	$7.27
Natural Gas	Collar	NYMEX	1/09 - 12/09	1,825,000	$8.75-$10.15
Natural Gas	Swap	Ventura	1/09 - 12/09	3,650,000	$9.20
Natural Gas	Collar	NYMEX	1/09 - 12/09	3,650,000	$11.00-$12.78
Natural Gas	Basis	NYMEX to Ventura	1/09 - 12/09	3,650,000	$0.61
Natural Gas	Swap	HSC	1/10 - 12/10	1,606,000	$8.08
Natural Gas	Swap	HSC	1/11 - 12/11	1,350,500	$8.00
Crude Oil	Collar	NYMEX	10/08 - 12/08	18,400	$67.50-$78.70

* Ventura is an index pricing point related to Northern Natural Gas Co.’s system; CIG is an index pricing point related to Colorado Interstate Gas Co.’s system; HSC is the Houston Ship Channel hub in southeast Texas which connects to several pipelines.

Construction materials and contracting

·   The economic slowdown has adversely impacted operations. It is expected that 2008 earnings will be significantly lower than 2007.

51

·   The Company continues its strong emphasis on industrial, energy and public works projects and cost containment. It also is pursuing opportunities for expansion of its liquid asphalt materials business to cost effectively meet the liquid asphalt and diesel requirements of the Company, as well as third-party customers.

·   Work backlog as of September 30, 2008, was approximately $557 million, compared to $520 million at September 30, 2007. Margins on the backlog have declined as a result of a shift to more public sector work and increased competition.

·   A key long-term strategy for the Company is growing its 1.2 billion tons of strategically located aggregate reserves.

NEW ACCOUNTING STANDARDS

For information regarding new accounting standards, see Note 9, which is incorporated by reference.

CRITICAL ACCOUNTING POLICIES INVOLVING SIGNIFICANT ESTIMATES

The Company’s critical accounting policies involving significant estimates include impairment testing of long-lived assets and intangibles, impairment testing of natural gas and oil production properties, revenue recognition, purchase accounting, asset retirement obligations, pension and other postretirement benefits, and income taxes. There were no material changes in the Company’s critical accounting policies involving significant estimates from those reported in the 2007 Annual Report. For more information on critical accounting policies involving significant estimates, see Part II, Item 7 in the 2007 Annual Report.

LIQUIDITY AND CAPITAL COMMITMENTS

Cash flows

Operating activitiesNet income before depreciation, depletion and amortization is a significant contributor to cash flows from operating activities. The changes in cash flows from operating activities generally follow the results of operations as discussed in Financial and Operating Data and also are affected by changes in working capital.

Cash flows provided by operating activities in the first nine months of 2008 increased $135.4 million from the comparable 2007 period, the result of:

·   Higher income from continuing operations of $77.0 million, largely reflecting increases at the natural gas and oil production and natural gas distribution businesses, partially offset by lower income at the construction materials and contracting business

·   The absence in 2008 of cash used in 2007 by discontinued operations of $46.8 million, primarily the result of quarterly income tax payments due to the estimated gain on the sale of the domestic independent power production assets

·   Higher depreciation, depletion and amortization expense of $51.9 million, largely at the natural gas and oil production business

·   Higher deferred income taxes of $24.3 million, largely due to increased capital expenditures at the natural gas and oil production and natural gas distribution businesses

Partially offsetting the increase in cash flows from operating activities was increased cash used for working capital requirements.

52

Investing activities Cash flows used in investing activities in the first nine months of 2008 increased $614.6 million from the comparable period in 2007, the result of:

·   The absence in 2008 of cash provided in 2007 by discontinued operations of $548.2 million, primarily the result of the sale of the domestic independent power production assets in the third quarter of 2007

·   Increased cash used for capital expenditures of $178.1 million, largely at the natural gas and oil production and natural gas distribution businesses

·   The absence in 2008 of cash provided in 2007 from the proceeds from the sale of equity method investments of $56.2 million

Partially offsetting the increase in cash flows used in investing activities were:

·   An increase in cash flows provided by investments of $79.2 million, primarily due to the sale of auction rate securities

·   A decrease in cash flows used for acquisitions, net of cash acquired, of $65.5 million, largely the absence in 2008 of the Cascade acquisition in the third quarter of 2007, partially offset by acquisitions at the natural gas and oil production business in 2008

·   An increase in the sale or disposition of property of $23.3 million, primarily at the construction materials and contracting and natural gas and oil production businesses

Financing activities Cash flows provided by financing activities in the first nine months of 2008 increased $409.4 million from the comparable period in 2007, the result of an increase in the issuance of long-term debt of $267.0 million and a decrease in the repayment of long-term debt of $72.4 million. Also reflected in the cash flows from financing activities is the issuance of $87.3 million in short-term borrowings and the absence in 2008 of the 2007 issuance and subsequent repayment of short-term borrowings of $310.0 million from the term loan agreement entered into in connection with the funding of the Cascade acquisition.

Defined benefit pension plans

There were no material changes to the Company’s qualified noncontributory defined benefit pension plans from those reported in the 2007 Annual Report. For further information, see Note 18 and Part II, Item 7 in the 2007 Annual Report.

Capital expenditures

Net capital expenditures for the first nine months of 2008 were $811.3 million and are estimated to be approximately $1.3 billion for 2008. Estimated capital expenditures include:

·   Completed acquisitions

·   System upgrades

·   Routine replacements

·   Service extensions

·   Routine equipment maintenance and replacements

·   Buildings, land and building improvements

·   Pipeline and gathering projects

·   Further enhancement of natural gas and oil production and reserve growth

·   Power generation opportunities, including certain costs for additional electric generating capacity

·   Other growth opportunities

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Approximately 45 percent of estimated 2008 net capital expenditures referred to previously are associated with completed acquisitions, including the acquisition of Intermountain. The Company continues to evaluate potential future acquisitions and other growth opportunities; however, they are dependent upon the availability of economic opportunities and, as a result, capital expenditures may vary significantly from the estimated 2008 capital expenditures referred to previously. It is anticipated that all of the funds required for capital expenditures will be met from various sources, including internally generated funds; the Company's credit facilities, as described below; and through the issuance of long-term debt and the Company’s equity securities.

Capital resources

Certain debt instruments of the Company and its subsidiaries, including those discussed below, contain restrictive covenants, all of which the Company and its subsidiaries were in compliance with at September 30, 2008.

MDU Resources Group, Inc.The Company has a revolving credit agreement with various banks totaling $125 million (with provision for an increase, at the option of the Company on stated conditions, up to a maximum of $150 million). There were no amounts outstanding under the credit agreement at September 30, 2008. The credit agreement supports the Company’s $125 million commercial paper program. Although volatility in the capital markets has recently increased significantly, the Company continues to issue commercial paper, although at higher interest rates, to meet its current needs. Under the Company’s commercial paper program, $33.5 million was outstanding at September 30, 2008. The commercial paper borrowings are classified as long-term debt as they are intended to be refinanced on a long-term basis through continued commercial paper borrowings (supported by the credit agreement, which expires on June 21, 2011).

The Company’s objective is to maintain acceptable credit ratings in order to access the capital markets through the issuance of commercial paper. Minor fluctuations in the Company’s credit ratings have not limited, nor would they be expected to limit, the Company’s ability to access the capital markets. In the event of a minor downgrade, the Company may experience a nominal basis point increase in overall interest rates with respect to its cost of borrowings. If the Company were to experience a significant downgrade of its credit ratings, it may need to borrow under its credit agreement.

Prior to the maturity of the credit agreement, the Company expects that it will negotiate the extension or replacement of this agreement. If the Company is unable to successfully negotiate an extension of, or replacement for, the credit agreement, or if the fees on this facility became too expensive, which the Company does not currently anticipate, the Company would seek alternative funding.

In order to borrow under the Company’s credit agreement, the Company must be in compliance with the applicable covenants and certain other conditions. For information on the covenants and certain other conditions of the Company’s credit agreement, see Part II, Item 8 – Note 10, in the 2007 Annual Report. The Company was in compliance with these covenants and met the required conditions at September 30, 2008. In the event the Company does not comply with the applicable covenants and other conditions, alternative sources of funding may need to be pursued.

In connection with the funding of the Intermountain acquisition, on September 26, 2008, the Company entered into a term loan agreement providing for a commitment amount of $175 million. The Company borrowed $170 million under this agreement on October 1, 2008. For more information, see Note 21. The agreement contains customary covenants and default provisions, including covenants of the Company not to permit, as of the end of any fiscal quarter, (i) the ratio of funded debt to total capitalization (on a consolidated basis) to be greater than 65 percent or (ii) the ratio of funded debt to capitalization (determined with respect to the Company only, excluding subsidiaries) to be greater than

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65 percent. The agreement also includes a covenant that does not permit the ratio of the Company’s earnings before interest, taxes, depreciation and amortization to interest expense (determined with respect to the Company only, excluding subsidiaries), for the twelve month period ended each fiscal quarter, to be less than 2.5 to 1.

There are no credit facilities that contain cross-default provisions between the Company and any of its subsidiaries.

The Company's issuance of first mortgage debt is subject to certain restrictions imposed under the terms and conditions of its Mortgage. Generally, those restrictions require the Company to fund $1.43 of unfunded property or use $1.00 of refunded bonds for each dollar of indebtedness incurred under the Mortgage and, in some cases, to certify to the trustee that annual earnings (pretax and before interest charges), as defined in the Mortgage, equal at least two times its annualized first mortgage bond interest costs. Under the more restrictive of the tests, as of September 30, 2008, the Company could have issued approximately $592 million of additional first mortgage bonds.

The Company's coverage of fixed charges including preferred dividends was 7.4 times and 6.4 times for the 12 months ended September 30, 2008 and December 31, 2007, respectively. Common stockholders' equity as a percent of total capitalization was 63 percent and 66 percent at September 30, 2008 and December 31, 2007, respectively.

The Company has repurchased, and may from time to time seek to repurchase, outstanding first mortgage bonds through open market purchases or privately negotiated transactions. The Company will evaluate any such transactions in light of then existing market conditions, taking into account its liquidity and prospects for future access to capital. As of September 30, 2008, the Company had $50.5 million of first mortgage bonds outstanding, $30.0 million of which were held by the Indenture trustee for the benefit of the senior note holders. The aggregate principal amount of the Company’s outstanding first mortgage bonds, other than those held by the Indenture trustee, is $20.5 million and satisfies the lien release requirements under the Indenture. As a result, the Company may at any time, subject to satisfying certain specified conditions, require that any debt issued under its Indenture become unsecured and rank equally with all of the Company’s other unsecured and unsubordinated debt (as of September 30, 2008, the only such debt outstanding under the Indenture was $30.0 million in aggregate principal amount of the Company’s 5.98% Senior Notes due in 2033).

On September 5, 2008, the Company entered into a Sales Agency Financing Agreement with Wells Fargo Securities, LLC with respect to the issuance and sale of up to 5,000,000 shares of the Company’s common stock, par value $1.00 per share, together with preference share purchase rights appurtenant thereto. The agreement replaces a similar agreement with Wells Fargo Securities, LLC for the sale of up to 3,000,000 shares of common stock, which was scheduled to expire on December 1, 2008. The common stock may be offered for sale, from time to time, in accordance with the terms and conditions of the agreement, which terminates on May 28, 2011. Proceeds from the sale of shares of common stock under the agreement are expected to be used for corporate development purposes and other general corporate purposes. The Company has not issued any stock under the Sales Agency Financing Agreement through September30, 2008.

On May 28, 2008, the Company filed a registration statement with the SEC, pursuant to Rule 415 under the Securities Act, relating to the possible issuance from time to time of common stock or debt securities of the Company. The amount of securities issuable by the Company is established from time to time by its board of directors. At September 30, 2008, the Company's board of directors had authorized the issuance of up to an aggregate offering price of $1.0 billion of registered securities. The

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Company may sell all or a portion of such securities if warranted by market conditions and the Company's capital requirements. Any offer and sale of such securities will be made only by means of a prospectus meeting the requirements of the Securities Act and the rules and regulations thereunder.

MDU Energy Capital, LLC On October 1, 2008, MDU Energy Capital entered into an amendment to its master shelf agreement which increased the facility amount from $125 million to $175 million. Under the terms of the master shelf agreement, $85.0 million was outstanding at September30, 2008. MDU Energy Capital may incur additional indebtedness under the master shelf agreement until the earlier of August 14, 2010, or such time as the agreement is terminated by either of the parties thereto.

On October 1, 2008, MDU Energy Capital borrowed $80.0 million under the agreement. The indebtedness consists of $30 million of senior notes due October 1, 2013, and $50 million of senior notes due October 1, 2015. MDU Energy Capital used the proceeds from the borrowing to pay a dividend to the Company which, in turn, used this dividend to partially fund the acquisition of Intermountain, as previously discussed.

In order to borrow under its master shelf agreement, MDU Energy Capital must be in compliance with the applicable covenants and certain other conditions. For information on the covenants and certain other conditions of the MDU Energy Capital master shelf agreement, see Part II, Item 8 – Note 10, in the 2007 Annual Report. In addition, the amendment to the master shelf agreement includes a covenant of MDU Energy Capital not to permit the ratio of Intermountain's total debt (determined on a consolidated basis) to total capitalization to be greater than 65 percent. MDU Energy Capital was in compliance with the applicable covenants and met the required conditions at September30, 2008.

Cascade Natural Gas CorporationCascade has a revolving credit agreement with various banks totaling $50 million with certain provisions allowing for increased borrowings, up to a maximum of $75 million. The credit agreement expires on December 28, 2012, with provisions allowing for an extension of up to two years upon consent of the banks. Under the terms of the credit agreement, $9.1 million was outstanding at September 30, 2008. As of September 30, 2008, there were outstanding letters of credit, as discussed in Note 20, of which $1.9 million reduced amounts available under the credit agreement.

In order to borrow under Cascade's credit agreement, Cascade must be in compliance with the applicable covenants and certain other conditions. For information on the covenants and certain other conditions of Cascade's credit agreement, see Part II, Item 8 – Note 9, in the 2007 Annual Report. Cascade was in compliance with these covenants and met the required conditions at September 30, 2008.

Cascade's credit agreement contains cross-default provisions. These provisions state that if Cascade fails to make any payment with respect to any indebtedness or contingent obligation, in excess of a specified amount, under any agreement that causes such indebtedness to be due prior to its stated maturity or the contingent obligation to become payable, the agreement will be in default. Certain of Cascade's financing agreements and Cascade's practices limit the amount of subsidiary indebtedness.

Centennial Energy Holdings, Inc. Centennial has a revolving credit agreement and an uncommitted line of credit with various banks and institutions totaling $425 million with certain provisions allowing for increased borrowings. These credit agreements support Centennial’s $400 million commercial paper program. Although volatility in the capital markets has recently increased

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significantly, the Company continues to issue commercial paper, although at higher interest rates, to meet its current needs. There were no outstanding borrowings under the Centennial credit agreements at September 30, 2008. Under the Centennial commercial paper program, $151.5 million was outstanding at September 30, 2008. The Centennial commercial paper borrowings are classified as long-term debt as Centennial intends to refinance these borrowings on a long-term basis through continued Centennial commercial paper borrowings (supported by Centennial credit agreements). The revolving credit agreement is for $400 million, which includes a provision for an increase, at the option of Centennial on stated conditions, up to a maximum of $450 million and expires on December 13, 2012. The uncommitted line of credit for $25 million may be terminated by the bank at any time. As of September 30, 2008, Centennial had letters of credit outstanding, as discussed in Note 20, of which $24.3 million reduced amounts available under these agreements.

Centennial has an uncommitted long-term master shelf agreement that allows for borrowings of up to $550 million. Under the terms of the master shelf agreement, $510.0 million was outstanding at September 30, 2008. The ability to request additional borrowings under this master shelf agreement expires on May 8, 2009. To meet potential future financing needs, Centennial may pursue other financing arrangements, including private and/or public financing.

Centennial’s objective is to maintain acceptable credit ratings in order to access the capital markets through the issuance of commercial paper. In the event of a downgrade, Centennial may experience an increase in overall interest rates with respect to its cost of borrowings and may need to borrow under its committed bank lines.

Prior to the maturity of the Centennial credit agreements, Centennial expects that it will negotiate the extension or replacement of these agreements, which provide credit support to access the capital markets. In the event Centennial was unable to successfully negotiate these agreements, or in the event the fees on such facilities became too expensive, which Centennial does not currently anticipate, it would seek alternative funding.

In order to borrow under Centennial’s credit agreements and the Centennial uncommitted long-term master shelf agreement, Centennial and certain of its subsidiaries must be in compliance with the applicable covenants and certain other conditions. For more information on the covenants and certain other conditions for the $400 million credit agreement and the master shelf agreement, see Part II, Item 8 – Note 10, in the 2007 Annual Report. Centennial and such subsidiaries were in compliance with these covenants and met the required conditions at September 30, 2008. In the event Centennial or such subsidiaries do not comply with the applicable covenants and other conditions, alternative sources of funding may need to be pursued.

On June 27, 2008, Centennial entered into an $80 million term loan agreement which matures on December 26, 2008. At September 30, 2008, $80.0 million was outstanding under the term loan agreement. The term loan agreement contains customary covenants and default provisions, including a covenant not to permit, as of the end of any fiscal quarter, Centennial’s ratio of total debt to total capitalization to exceed 65 percent. The covenants also include certain limitations on subsidiary indebtedness and restrictions on the sale of certain assets and on the making of certain loans and investments. Centennial was in compliance with these covenants and met the required conditions at September 30, 2008.

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Certain of Centennial’s financing agreements contain cross-default provisions. These provisions state that if Centennial or any subsidiary of Centennial fails to make any payment with respect to any indebtedness or contingent obligation, in excess of a specified amount, under any agreement that causes such indebtedness to be due prior to its stated maturity or the contingent obligation to become payable, the applicable agreements will be in default. Certain of Centennial’s financing agreements and Centennial’s practices limit the amount of subsidiary indebtedness.

Williston Basin Interstate Pipeline CompanyWilliston Basin has an uncommitted long-term master shelf agreement that allows for borrowings of up to $100 million. Under the terms of the master shelf agreement, $80.0 million was outstanding at September 30, 2008. The ability to request additional borrowings under this master shelf agreement expires on December 20, 2008.

In order to borrow under its uncommitted long-term master shelf agreement, Williston Basin must be in compliance with the applicable covenants and certain other conditions. For more information on the covenants and certain other conditions for the uncommitted long-term master shelf agreement, see Part II, Item 8 – Note 10, in the 2007 Annual Report. Williston Basin was in compliance with these covenants and met the required conditions at September 30, 2008. In the event Williston Basin does not comply with the applicable covenants and other conditions, alternative sources of funding may need to be pursued.

Off balance sheet arrangements

In connection with the sale of MPX in June 2005 to Petrobras, an indirect wholly owned subsidiary of the Company has agreed to indemnify Petrobras for 49 percent of any losses that Petrobras may incur from certain contingent liabilities specified in the purchase agreement. For further information, see Note 20.

Centennial continues to guarantee CEM's obligations under a construction contract for a 550-MW combined-cycle electric generating facility near Hobbs, New Mexico. For further information, see Note 20.

Contractual obligations and commercial commitments

There are no material changes in the Company’s contractual obligations relating to estimated interest payments, operating leases and uncertain tax positions from those reported in the 2007 Annual Report.

At September 30, 2008, there were no material changes to the Company’s contractual obligations relating to purchase commitments, except for the acquisition of Intermountain, which was completed on October 1, 2008. For more information, see Note 21.

The Company’s contractual obligations relating to long-term debt at September 30, 2008, increased $197.3 million or 15 percent from December 31, 2007. At September 30, 2008, the Company’s contractual obligations related to long-term debt aggregated $1,505.7 million. The scheduled amounts of redemption (for the twelve months ended September 30, of each year listed) aggregate $87.4 million in 2009; $22.5 million in 2010; $100.8 million in 2011; $75.4 million in 2012; $436.4 million in 2013; and $783.2 million thereafter.

For more information on contractual obligations and commercial commitments, see Part II, Item 7 in the 2007 Annual Report.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to the impact of market fluctuations associated with commodity prices, interest rates and foreign currency. The Company has policies and procedures to assist in controlling these market risks and utilizes derivatives to manage a portion of its risk.

Commodity price risk

Fidelity utilizes derivative instruments to manage a portion of the market risk associated with fluctuations in the price of natural gas and oil on its forecasted sales of natural gas and oil production. Cascade utilizes derivative instruments to manage a portion of the market risk associated with fluctuations in the price of natural gas on its forecasted purchases of natural gas. For more information on derivative instruments and commodity price risk, see Part II, Item 7A in the 2007 Annual Report, and Notes 10 and 13.

The following table summarizes hedge agreements entered into by Fidelity and Cascade as of September 30, 2008. These agreements call for Fidelity to receive fixed prices and pay variable prices, and for Cascade to receive variable prices and pay fixed prices.

(Forward notional volume and fair value in thousands)
	Weighted		Forward
	Average		Notional
	Fixed Price		Volume
	(Per MMBtu)		(MMBtu)		Fair Value
Fidelity
Natural gas swap agreements maturing in 2008	$	8.91		5,924	$	13,401
Natural gas swap agreements maturing in 2009	$	8.73		10,920	$	11,951
Natural gas swap agreements maturing in 2010	$	8.08		1,606	$	(226	)
Natural gas swap agreements maturing in 2011	$	8.00		1,351	$	(307	)
Natural gas basis swap agreement maturing in 2009	$	.61		3,650	$	(1,030	)
Cascade
Natural gas swap agreements maturing in 2008	$	8.48		7,347	$	(17,056	)
Natural gas swap agreements maturing in 2009	$	8.26		19,350	$	(27,359	)
Natural gas swap agreements maturing in 2010	$	8.03		8,922	$	(7,375	)
Natural gas swap agreements maturing in 2011	$	8.10		2,270	$	(1,996	)
	Weighted
	Average		Forward
	Floor/Ceiling		Notional
	Price (Per		Volume
	MMBtu/Bbl)		(MMBtu/Bbl)		Fair Value
Fidelity
Natural gas collar agreements maturing in 2008	$	7.41/$8.71		2,982	$	3,016
Natural gas collar agreements maturing in 2009	$	8.52/$9.56		14,965	$	19,241
Oil collar agreement maturing in 2008	$	67.50/$78.70		18	$	(409	)

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Interest rate risk

There were no material changes to interest rate risk faced by the Company from those reported in the 2007 Annual Report. For more information on interest rate risk, see Part II, Item 7A in the 2007 Annual Report.

At September 30, 2008 and 2007, and December 31, 2007, the Company had no outstanding interest rate hedges.

Foreign currency risk

MDU Brasil’s equity method investments in the Brazilian Transmission Lines are exposed to market risks from changes in foreign currency exchange rates between the U.S. dollar and the Brazilian Real. For further information on foreign currency risk, see Part II, Item 8 – Note 4 in the 2007 Annual Report.

At September 30, 2008 and 2007, and December 31, 2007, the Company had no outstanding foreign currency hedges.

ITEM 4. CONTROLS AND PROCEDURES

The following information includes the evaluation of disclosure controls and procedures by the Company’s chief executive officer and the chief financial officer, along with any significant changes in internal controls of the Company.

Evaluation of disclosure controls and procedures

The term "disclosure controls and procedures" is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. These rules refer to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within required time periods. The Company’s chief executive officer and chief financial officer have evaluated the effectiveness of the Company’s disclosure controls and procedures and they have concluded that, as of the end of the period covered by this report, such controls and procedures were effective.

Changes in internal controls

The Company maintains a system of internal accounting controls that is designed to provide reasonable assurance that the Company’s transactions are properly authorized, the Company’s assets are safeguarded against unauthorized or improper use, and the Company’s transactions are properly recorded and reported to permit preparation of the Company’s financial statements in conformity with generally accepted accounting principles in the United States of America. There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended September 30, 2008, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II -- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For information regarding legal proceedings, see Note 20, which is incorporated by reference.

ITEM 1A. RISK FACTORS

This Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Exchange Act. Forward-looking statements are all statements other than statements of historical fact, including without limitation those statements that are identified by the words "anticipates," "estimates," "expects," "intends," "plans," "predicts" and similar expressions.

The Company is including the following factors and cautionary statements in this Form 10-Q to make applicable and to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for any forward-looking statements made by, or on behalf of, the Company. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions (many of which are based, in turn, upon further assumptions) and other statements that are other than statements of historical facts. From time to time, the Company may publish or otherwise make available forward-looking statements of this nature, including statements contained within Prospective Information. All these subsequent forward-looking statements, whether written or oral and whether made by or on behalf of the Company, also are expressly qualified by these factors and cautionary statements.

Forward-looking statements involve risks and uncertainties, which could cause actual results or outcomes to differ materially from those expressed. The Company's expectations, beliefs and projections are expressed in good faith and are believed by the Company to have a reasonable basis, including without limitation, management's examination of historical operating trends, data contained in the Company's records and other data available from third parties. Nonetheless, the Company's expectations, beliefs or projections may not be achieved or accomplished.

Any forward-looking statement contained in this document speaks only as of the date on which the statement is made, and the Company undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances that occur after the date on which the statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for management to predict all of the factors, nor can it assess the effect of each factor on the Company's business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement.

There are no material changes in the Company’s risk factors from those reported in Part I, Item 1A – Risk Factors in the 2007 Annual Report other than the risk associated with the regulatory approval, permitting, construction, startup and operation of power generation facilities; the risk related to economic volatility; the risk related to access to financing sources and capital markets; the risk related to environmental laws and regulations; the risk related to government regulations; and the risk related to litigation with a nonaffiliated natural gas producer; as discussed below. These factors and the other matters discussed herein are important factors that could cause actual results or outcomes for the Company to differ materially from those discussed in the forward-looking statements included elsewhere in this document.

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Economic Risks

The regulatory approval, permitting, construction, startup and operation of power generation facilities may involve unanticipated changes or delays that could negatively impact the Company's business and its results of operations and cash flows.

The construction, startup and operation of power generation facilities involves many risks, including: delays; breakdown or failure of equipment; competition; inability to obtain required governmental permits and approvals; inability to negotiate acceptable acquisition, construction, fuel supply, off-take, transmission or other material agreements; changes in market price for power; cost increases; as well as the risk of performance below expected levels of output or efficiency. Such unanticipated events could negatively impact the Company's business, its results of operations and cash flows.

The Company is analyzing potential projects for accommodating load growth and replacing an expired purchased power contract with company-owned generation, which will add base-load capacity and rate base. A potential project is the planned participation in Big Stone Station II. Should regulatory approvals and permits not be received on a timely basis, the project could be at risk and the Company would need to pursue other generation sources.

Economic volatility affects the Company's operations, as well as the demand for its products and services and, as a result, may have a negative impact on the Company's future revenues and cash flows.

The global demand for natural resources, interest rates, governmental budget constraints and the ongoing threat of terrorism can create volatility in the financial markets. The current economic downturn has negatively affected the level of public and private expenditures on projects and the timing of these projects which, in turn, has negatively affected the demand for certain of the Company's products and services.

The construction materials and contracting segment is experiencing a reduction in construction activity and product sales volumes in some markets due to lower demand, which is negatively affecting the Company's results of operations and cash flows.

The Company relies on financing sources and capital markets. Access to these markets may be adversely affected by factors beyond the Company's control. If the Company is unable to obtain economic financing in the future, the Company's ability to execute its business plans, make capital expenditures or pursue acquisitions that the Company may otherwise rely on for future growth could be impaired. As a result, the market value of the Company's common stock may be adversely affected.

The Company relies on access to both short-term borrowings, including the issuance of commercial paper, and long-term capital markets as sources of liquidity for capital requirements not satisfied by its cash flow from operations. If the Company is not able to access capital at competitive rates, the ability to implement its business plans may be adversely affected. Market disruptions, such as those currently being experienced in the United States and abroad, or a downgrade of the Company's credit ratings may increase the cost of borrowing or adversely affect its ability to access one or more financial markets. Such disruptions could include:

·   A severe prolonged economic downturn

·   The bankruptcy of unrelated industry leaders in the same line of business

·   Further deterioration in capital market conditions

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·   Turmoil in the financial services industry

·   Volatility in commodity prices

·   Terrorist attacks

Economic turmoil, market disruptions and volatility in the securities trading markets, as well as other factors including changes in the Company's financial condition, results of operations and prospects, and sales of substantial amounts of the Company's common stock, or the perception that such sales could occur, may adversely affect the market price of the Company's common stock.

Environmental and Regulatory Risks

Some of the Company's operations are subject to extensive environmental laws and regulations that may increase costs of operations, impact or limit business plans, or expose the Company to environmental liabilities.

The Company is subject to extensive environmental laws and regulations affecting many aspects of its present and future operations including air quality, water quality, waste management and other environmental considerations. These laws and regulations can result in increased capital, operating and other costs, and delays as a result of ongoing litigation and administrative proceedings and compliance, remediation, containment and monitoring obligations, particularly with regard to laws relating to power plant emissions and CBNG development. These laws and regulations generally require the Company to obtain and comply with a wide variety of environmental licenses, permits, inspections and other approvals. Public officials and entities, as well as private individuals and organizations, may seek injunctive relief or other remedies to enforce applicable environmental laws and regulations. The Company cannot predict the outcome (financial or operational) of any related litigation or administrative proceedings that may arise.

Existing environmental regulations may be revised and new regulations seeking to protect the environment may be adopted or become applicable to the Company. Various proposals related to the emission of greenhouse gases, such as carbon dioxide, are being considered at both the federal and state level. Revised or additional regulations, which result in increased compliance costs or additional operating restrictions, particularly if those costs are not fully recoverable from customers, could have a material adverse effect on the Company's results of operations and cash flows.

The Company is subject to extensive government regulations that may delay and/or have a negative impact on its business and its results of operations and cash flows. Statutory and regulatory requirements also may limit another party’s ability to acquire the Company.

The Company is subject to regulation by federal, state and local regulatory agencies with respect to, among other things, allowed rates of return, financing, industry rate structures, and recovery of purchased power and purchased gas costs. These governmental regulations significantly influence the Company’s operating environment and may affect its ability to recover costs from its customers. The Company is unable to predict the impact on operating results from the future regulatory activities of any of these agencies. Changes in regulations or the imposition of additional regulations could have an adverse impact on the Company’s results of operations and cash flows. Approval from a number of federal and state regulatory agencies would need to be obtained by any potential acquirer of the Company. The approval process could be lengthy and the outcome uncertain.

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Other Risks

One of the Company's subsidiaries is engaged in litigation with a nonaffiliated natural gas producer that has been conducting drilling and production operations that the subsidiary believes is causing diversion and loss of quantities of storage gas from one of its storage reservoirs. If the subsidiary is not able to obtain relief through the courts or the regulatory process, its storage operations could be materially and adversely affected.

Based on relevant information, including reservoir and well pressure data, Williston Basin believes that EBSR pressures have decreased and that the storage reservoir has lost gas and continues to lose gas as a result of the drilling and production activities of Anadarko and its wholly owned subsidiary, Howell. Williston Basin filed suit in Montana Federal District Court seeking to recover unspecified damages from Anadarko and Howell, and to enjoin Anadarko and Howell's present and future production operations in and near the EBSR. This suit was dismissed by the Montana Federal District Court. The dismissal was affirmed by the Ninth Circuit. In related litigation, Howell filed suit in Wyoming State District Court against Williston Basin asserting that it is entitled to produce any gas that might escape from Williston Basin's storage reservoir. Williston Basin has answered Howell's complaint and has asserted counterclaims. If Williston Basin is unable to obtain timely relief through the courts or regulatory process, its present and future gas storage operations, including its ability to meet its contractual storage and transportation obligations to customers, could be materially and adversely affected.

ITEM 6. EXHIBITS

See the index to exhibits immediately preceding the exhibits filed with this report.

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SIGNATURES

Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	MDU RESOURCES GROUP, INC.
DATE:  November 5, 2008	BY:	/s/ Vernon A. Raile
		Vernon A. Raile
		Executive Vice President, Treasurer
		and Chief Financial Officer
	BY:	/s/ Doran N. Schwartz
		Doran N. Schwartz
		Vice President and Chief Accounting Officer

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EXHIBIT INDEX

Exhibit No.

4(a)	Term Loan Agreement, dated September 26, 2008, among MDU Resources Group, Inc., Wells Fargo Bank, National Association, as Administrative Agent, and The Other Financial Institutions party thereto
4(b)	Amendment No. 1 to Master Shelf Agreement, dated October 1, 2008, among MDU Energy Capital, LLC, Prudential Investment Management, Inc., The Prudential Insurance Company of America, and the holders of the notes thereunder
12	Computation of Ratio of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Stock Dividends
31(a)	Certification of Chief Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31(b)	Certification of Chief Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	Certification of Chief Executive Officer and Chief Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

MDU Resources Group, Inc. agrees to furnish to the SEC upon request any instrument with respect to long-term debt that MDU Resources Group, Inc. has not filed as an exhibit pursuant to the exemption provided by Item 601(b)(4)(iii)(A) of Regulation S-K.

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EX-4.A

TERM LOAN AGREEMENT

among

MDU RESOURCES GROUP, INC.

as Borrower;

WELLS FARGO BANK, NATIONAL ASSOCIATION,

as Administrative Agent;

and

THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO

Closing Date: September 26, 2008

$175,000,000 Term Loan

TABLE OF CONTENTS

ARTICLE I Definitions		1
Section 1.1	Definitions.	1
Section 1.2	Rules of Construction	9
ARTICLE II Amount and Terms of the Term Loan		9
Section 2.1	The Term Loan.	9
Section 2.2	Procedure.	10
Section 2.3	Interest on Notes.	10
Section 2.4	Principal and Interest Payment Dates.	11
Section 2.5	Level Status, Margins and Fee Rates.	11
Section 2.6	Audit Fees.	12
Section 2.7	Prepayments.	13
Section 2.8	Payments.	13
Section 2.9	Increased Costs; Funding Exceptions.	14
Section 2.10	Funding Losses.	16
Section 2.11	Discretion of Lenders as to Manner of Funding.	16
Section 2.12	Conclusiveness of Statements; Survival of Provisions.	16
Section 2.13	Computation of Interest and Fees.	17
Section 2.14	Purpose of Term Loan.	17
ARTICLE III Conditions Precedent		17
Section 3.1	Required Deliveries; Conditions to Effectiveness.	17
Section 3.2	Additional Conditions Precedent.	18
ARTICLE IV Representations and Warranties		18
Section 4.1	Existence and Power.	18
Section 4.2	Authorization of Borrowing; No Conflict as to Law or Agreements.	18
Section 4.3	Legal Agreements.	18
Section 4.4	Subsidiaries.	19
Section 4.5	Financial Condition.	19
Section 4.6	Adverse Change.	19
Section 4.7	Litigation.	19
Section 4.8	Environmental Matters.	19
Section 4.9	Regulation U.	19
Section 4.10	Taxes.	19
Section 4.11	Titles and Liens.	20
Section 4.12	Intellectual Property.	20
Section 4.13	ERISA.	20
ARTICLE V Affirmative Covenants		21
Section 5.1	Reporting.	21
Section 5.2	Books and Records; Inspection and Examination.	23
Section 5.3	Compliance with Laws.	23
Section 5.4	Payment of Taxes and Other Claims.	23
Section 5.5	Maintenance of Properties.	23
Section 5.6	Insurance.	23
Section 5.7	Preservation of Corporate Existence.	24
Section 5.8	Replacement Financing.	24

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ARTICLE VI Negative Covenants		24
Section 6.1	Liens.	24
Section 6.2	Investments.	25
Section 6.3	Distributions.	26
Section 6.4	Sale of Assets.	26
Section 6.5	Transactions with Affiliates.	26
Section 6.6	Consolidation and Merger.	26
Section 6.7	Environmental Laws.	27
Section 6.8	Restrictions on Nature of Business.	27
Section 6.9	Consolidated Total Leverage Ratio.	27
Section 6.10	Borrower Leverage Ratio.	27
Section 6.11	Interest Coverage Ratio.	27
ARTICLE VII Events of Default, Rights and Remedies		27
Section 7.1	Events of Default.	27
Section 7.2	Rights and Remedies.	29
ARTICLE VIII The Agent		29
Section 8.1	Authorization.	29
Section 8.2	Distribution of Payments and Proceeds.	30
Section 8.3	Expenses.	30
Section 8.4	Payments Received Directly by Lenders.	30
Section 8.5	Indemnification.	31
Section 8.6	Exculpation.	31
Section 8.7	Agent and Affiliates.	31
Section 8.8	Credit Investigation.	31
Section 8.9	Resignation and Assignment of Agent.	32
Section 8.10	Defaults.	32
Section 8.11	Obligations Several.	32
ARTICLE IX Miscellaneous		32
Section 9.1	No Waiver; Cumulative Remedies.	32
Section 9.2	Amendments, Etc.	33
Section 9.3	Notice.	33
Section 9.4	Costs and Expenses.	34
Section 9.5	Indemnification by Borrower.	34
Section 9.6	Execution in Counterparts.	34
Section 9.7	Binding Effect; Assignment and Participations.	34
Section 9.8	Disclosure of Information.	36
Section 9.9	Governing Law.	37
Section 9.10	Consent to Jurisdiction.	37
Section 9.11	Waiver of Jury Trial.	37
Section 9.12	Severability of Provisions.	37
Section 9.13	Prior Agreements.	37
Section 9.14	Other Financing.	37
Section 9.15	Headings.	38
Section 9.16	Customer Identification – USA Patriot Act Notice.	38

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TERM LOAN AGREEMENT

Dated as of September 26, 2008

MDU Resources Group, Inc., a Delaware corporation, Wells Fargo Bank, National Association, a national banking association, as administrative agent hereunder, and the Lenders, as defined below, agree as follows:

ARTICLE I

Definitions

Section 1.1                                Definitions.

As used in this Agreement:

“2005 Credit Agreement” means the Credit Agreement dated June 21, 2005 among the Borrower, Wells Fargo, as administrative agent thereunder, and certain other financial institutions, together with all amendments, modifications and restatements thereof.

“Additional Lender” means a financial institution that becomes a Lender pursuant to the procedures set forth in Section 9.7(c).

“Affiliate” of any Person means any other Person directly or indirectly controlling, controlled by or under the common control with such Person.  A Person shall be deemed to control another Person if the controlling Person owns 10% or more of any class of voting securities (or other ownership interests) of the controlled Person or possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the controlled Person, whether through ownership of stock or other equity interests, by contract or otherwise.

“Agent” means Wells Fargo acting in its capacity as administrative agent for itself and the other Lenders hereunder.

“Aggregate Commitment Amount” means $175,000,000.

“Agreement” means this Term Loan Agreement.

“Applicable Rating” means (i) with respect to S&P, the rating designated by S&P as its corporate credit rating of the Borrower, (ii) with respect to Moody’s, the rating designated by Moody’s as its issuer rating of the Borrower, and (iii) with respect to Fitch, the rating designated by Fitch as its rating of the Borrower’s senior unsecured debt.

“Assignment Certificate” has the meaning set forth in Section 9.7(e).

“Authorizing Order” means any order of any public utilities commission or any other regulatory body having jurisdiction over the Borrower, authorizing and/or restricting the indebtedness that may be created from time to time hereunder (whether on account of the Term Loan or otherwise).

 “Base LIBO Rate” means the rate per annum for United States dollar deposits quoted by the Agent as the Interbank Market Offered Rate, with the understanding that such rate is quoted by the Agent for the purpose of calculating effective rates of interest for loans making reference thereto, on the first day of an Interest Period for delivery of funds on said date for a period of time approximately equal to the number of days in such Interest Period and in an amount

approximately equal to the principal amount to which such Interest Period applies. The Borrower understands and agrees that the Agent may base its quotation of the Interbank Market Offered Rate upon such offers or other market indicators of the Interbank Market as the Agent in its discretion deems appropriate including, but not limited to, the rate offered for U.S. dollar deposits on the London Interbank Market.

“Borrower” means MDU Resources Group, Inc., a Delaware corporation.

“Borrower Leverage Ratio” means the ratio of Funded Debt to Capitalization, determined with respect to the Borrower alone (excluding its Subsidiaries, but including any divisions of the Borrower not constituting separate Persons) as at the end of each fiscal quarter of the Borrower.

“Business Day” means a day other than a Saturday, Sunday, United States national holiday or other day on which banks in Minnesota are permitted or required by law to close. Whenever the context relates to a LIBO Rate Funding or the fixing of a LIBO Rate, “Business Day” means a day (i) that meets the foregoing definition, and (ii) on which dealings in U.S. dollar deposits are carried on in the London interbank eurodollar market.

“Capital Stock” means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated) of such Person’s capital stock or equity, whether now outstanding or issued after the date hereof, including all common stock, preferred stock, partnership interests and limited liability company member interests.

“Capitalization” means, with respect to any Person as of any Covenant Compliance Date, (i) Funded Debt of that Person, plus (ii) shareholders’ equity of that Person (excluding any non-cash gain or loss resulting from the requirements of Financial Accounting Standards Board Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities”), all determined in accordance with GAAP. In determining Capitalization for purposes of calculating the Borrower Leverage Ratio, Funded Debt and equity attributable to any Subsidiary shall be excluded.

“Capitalized Lease” means any lease that in accordance with GAAP should be capitalized on the balance sheet of the lessee thereunder or for which the amount of the asset and liability thereunder as if so capitalized should be disclosed in a note to such balance sheet. All obligations under any lease that is treated as an operating lease under GAAP but pursuant to which the lessee thereunder retains tax ownership of the leased property for federal income tax purposes shall be treated as a Capitalized Lease for purposes of this Agreement.

“Change of Control” means, with respect to any corporation, either (i) the acquisition by any “person” or “group” (as those terms are used in Sections 13(d) and 14(d) of the Exchange Act) of beneficial ownership (as defined in Rules 13d-3 and 13d-5 of the Securities and Exchange Commission, except that a Person shall be deemed to have beneficial ownership of all securities that such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of 25% or more of the then-outstanding voting capital stock of such corporation; or (ii) a change in the composition of the board of directors of such corporation or any corporate parent of such corporation such that continuing directors cease to constitute more than 50% of such board of directors. As used in this definition, “continuing directors” means, as of any date, (i) those members of the board of directors of the applicable corporation who assumed office prior to such date, and (ii) those members of the board of directors of the applicable corporation who assumed office after such date and whose appointment or nomination for election by that corporation’s shareholders was approved by a vote of at least 50% of the directors of such corporation in office immediately prior to such appointment or nomination.

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“Code” means the Internal Revenue Code of 1986, and the regulations promulgated thereunder, as amended, reformed or otherwise modified from time to time.

“Commitment” means, with respect to each Lender, that Lender’s commitment to fund its Percentage of the Term Loan pursuant to Article II.

“Commitment Amount” means, (i) with respect to each original Lender hereunder, the amount set forth opposite that Lender’s name in Exhibit A, or (ii) with respect to each Additional Lender, the amount so designated on the applicable Assignment Certificate, in each case as such amount may be adjusted pursuant to any Assignment Certificate.

“Compliance Certificate” means a certificate in substantially the form of Exhibit C, or such other form as the Borrower and the Required Lenders may from time to time agree upon in writing, executed by the chief financial officer of the Borrower, stating (i) that any financial statements delivered therewith have been prepared in accordance with GAAP (or, in the case of statements prepared pursuant to Section 5.1(a)(iii), in accordance with FERC Accounting Principles), subject to year-end adjustments, (ii) whether or not such officer has knowledge of the occurrence of any Default or Event of Default hereunder not theretofore reported and remedied and, if so, stating in reasonable detail the facts with respect thereto and (iii) all relevant facts in reasonable detail to evidence, and the computations as to, whether or not the Borrower is in compliance with the Financial Covenants.

“Consolidated Net Worth” means, at any time, the excess of total assets of the Borrower over total liabilities of the Borrower as of the last day of the fiscal quarter most recently then ended, determined on a consolidated basis in accordance with GAAP.

“Consolidated Total Leverage Ratio” means, as of any Covenant Compliance Date, the ratio of Funded Debt to Capitalization, determined on a consolidated basis with respect to the Borrower and all of its Subsidiaries.

“Covenant Compliance Date” means the last day of each fiscal quarter of the Borrower.

“Credit Exposure” means, with respect to any Lender, (i) at any time prior to making the Term Loan, such Lender’s Commitment Amount, or (ii) thereafter, the outstanding principal amount of such Lender’s Note.

“Default” means an event that, with the giving of notice, the passage of time or both, would constitute an Event of Default.

“Distribution” means any payment made by the Borrower on account of any equity interest in the Borrower, including but not limited to any dividend and any payment in purchase, redemption or other retirement of any stock or membership interest.

“EBITDA” means, with respect to any period:

(i) (A) the after-tax net income of the Borrower for such period, determined on an unconsolidated basis in accordance with GAAP, excluding (B) non-operating gains and losses (including extraordinary or unusual gains and losses, gains and losses from discontinuance of operations, gains and losses arising from the sale of assets other than inventory, and other non-recurring gains and losses),

plus

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(ii) the sum of the following to the extent deducted in arriving at the after-tax net income determined in clause (i)(A) of this definition (but without duplication for any item):

(A) Interest Expense,

(B) federal, state and local income taxes paid by the Borrower, and

(C) depreciation and amortization.

“Eligible Lender” means (a) a financial institution organized under the laws of the United States, or any state thereof, and having a combined capital and surplus of at least $100,000,000; (b) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development, or a political subdivision of any such country, and having a combined capital and surplus of at least $100,000,000, provided that such bank is acting through a branch or agency located in the United States; and (c) a Person that is primarily engaged in the business of commercial banking and that is (i) a Subsidiary of a Lender, (ii) a Subsidiary of a Person of which a Lender is a Subsidiary, or (iii) a Person of which a Lender is a Subsidiary.

“Environmental Claim” means a material claim, however asserted, by any governmental authority or other Person alleging potential liability or responsibility for violation of any Environmental Law, or for release or injury to the environment.

“Environmental Law” means the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601 et seq., the Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et seq., the Hazardous Materials Transportation Act, 49 U.S.C. § 1802 et seq., the Toxic  Substances Control Act, 15 U.S.C. § 2601 et seq., the Federal Water Pollution Control Act, 33 U.S.C. § 1252 et seq., the Clean Water Act, 33 U.S.C. § 1321 et seq., the Clean Air Act, 42 U.S.C. § 7401 et seq., and any other federal, state, county, municipal, local or other statute, law, ordinance or regulation which in each case relates to human health or the environment, all as may be from time to time amended.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

“ERISA Affiliate” means any trade or business (whether or not incorporated) that is, along with the Borrower, a member of a controlled group of corporations or a controlled group of trades or businesses, as described in sections 414(b) and 414(c), respectively, of the Code.

“ERISA Event” means (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by the Borrower or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations which is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the Borrower or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the commencement of proceedings by the PBGC to terminate a Pension Plan; (e) a failure by the Borrower or any ERISA Affiliate to make required contributions to a Pension Plan, Multiemployer Plan or other Plan subject to Section 412 of the Code; (f) an event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; (g) the imposition of any liability under Title IV of ERISA, other than PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Borrower or any ERISA Affiliate; or (h) an

4

application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code with respect to any Plan.

“ERISA Termination Event” means the filing of a notice of intent to terminate a Pension Plan, or the treatment of a plan amendment as the termination of a Pension Plan, under Section 4041 or 4041A of ERISA.

“Event of Default” has the meaning specified in Section 7.1.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Federal Funds Rate” means at any time an interest rate per annum equal to the weighted average of the rates for overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day for such transactions received by the Agent from three federal funds brokers of recognized standing selected by it, it being understood that the Federal Funds Rate for any day which is not a Business Day shall be the Federal Funds Rate for the next preceding Business Day.

“FERC Accounting Principles” means the accounting requirements of the Federal Energy Regulatory Commission as set forth in its applicable Uniform System of Accounts and published accounting releases.

“Financial Covenant” means any of the Borrower’s obligations set forth in Sections 6.9, 6.10 and 6.11 of this Agreement

“Fitch” means Fitch, Inc.

“Floating Rate” means, at any time, an annual rate equal to the sum of the Floating Rate Margin and the greater of:

(a) the Prime Rate,

or

(b) the Federal Funds Rate, plus 50 basis points (0.50%).

The Floating Rate shall change when and as the Prime Rate or Federal Funds Rate, as the case may be, or Floating Rate Margin changes.

“Floating Rate Funding” means any portion of the principal balance of the Notes bearing interest at the Floating Rate.

“Floating Rate Margin” means a percentage, determined as set forth in Section 2.5.

 “Funded Debt” of any Person means (without duplication) (i) all indebtedness of such Person for borrowed money (which shall, in the case of the Borrower, include but not be limited to all indebtedness under this Agreement, all indebtedness arising under the Mortgage Indentures, and all Subordinated Debt); (ii)  indebtedness of such Person evidenced by bonds, notes or similar written instruments, whether or not representing obligations for borrowed money; (iii) all liabilities required to appear on such Person’s balance sheet with respect to Capitalized Lease obligations of such Person; (iv) all indebtedness secured by a Lien on any property owned by such Person, whether or not such indebtedness has been assumed by such Person or is

5

nonrecourse to such Person; (v) the face amount of all letters of credit and bankers’ acceptances issued for the account of such Person, and without duplication, all drafts drawn thereunder;

(vi) all obligations of such Person with respect to leases constituting part of a sale and leaseback arrangement; (vii) all net obligations of such Person under interest rate agreements or currency agreements; and (viii) guaranty obligations of such Person with respect to indebtedness for borrowed money of another Person (including affiliates).

“Funding” means a Floating Rate Funding or a LIBO Rate Funding.

“GAAP” means generally accepted accounting principles as in effect from time to time applied on a basis consistent with the accounting practices applied in the financial statements of the Borrower and its Subsidiaries referred to in Section 4.5.

“Insolvency Proceeding” means, with respect to a Person, (a) any case, action or proceeding with respect to such Person before any court or other governmental authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors, or (b) any general assignment for the benefit to creditors, composition, marshalling of assets for creditors, or other similar arrangement in respect of its creditors generally or any substantial portion of its creditors, undertaken under U.S. federal, state or foreign law, including the Federal Bankruptcy Reform Act of 1978 (11 U.S.C. §101, et seq.).

“Interest Coverage Ratio” means, as of any Covenant Compliance Date, the ratio of (i) EBITDA during the period of 12 months ending on that Covenant Compliance Date, to (ii) Interest Expense during such period.

“Interest Expense” means, with respect to any period, the aggregate interest expense (including capitalized interest) of the Borrower alone (i.e., on an unconsolidated basis) for such period, including but not limited to the interest portion of any Capitalized Lease; provided, however, that the foregoing shall be adjusted to reflect only the net effect of any interest rate swap, interest hedging transaction or other similar arrangement entered into by the Borrower to reduce or eliminate variations in its interest expenses.

“Interest Period” means, with respect to any LIBO Rate Funding, a period of one, two, three or six months beginning on a Business Day, or such other period as the Agent may in its sole discretion permit, in each case as elected by the Borrower.

“Intermountain” means Intermountain Gas Company, an Idaho corporation.

“Intermountain Acquisition” means the purchase of all of the outstanding stock of Intermountain in accordance with the Stock Purchase Agreement dated as of July 1, 2008 between the Borrower and Intermountain Industries, Inc.

“Lenders” means Wells Fargo, acting on its own behalf and not as Agent, each of the undersigned lenders, and any financial institution that becomes a Lender pursuant to Section 9.7(c), collectively.

“Level Status” means Level I, Level II, Level III, Level IV or Level V, each as determined pursuant to Section 2.5.

“LIBO Rate” means the rate per annum (rounded upward, if necessary, to the nearest whole 1/8 of 1%) and determined pursuant to the following formula:

LIBO Rate =	Base LIBO Rate	+	LIBO Rate Margin
	100% - LIBOR Reserve Percentage

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“LIBO Rate Funding” means any portion of the principal balance of the Notes bearing interest at a LIBO Rate.

“LIBO Rate Margin” means a percentage, determined as set forth in Section 2.5.

 “LIBOR Reserve Percentage” means the reserve percentage prescribed by the Board of Governors of the Federal Reserve System (or any successor) for “Eurocurrency Liabilities” (as defined in Regulation D of the Federal Reserve Board, as amended), adjusted by the Agent for expected changes in such reserve percentage during the applicable Interest Period.

 “Lien” means any mortgage, deed of trust, lien, pledge, security interest or other charge or encumbrance, of any kind whatsoever, including but not limited to the interest of the lessor or titleholder under any Capitalized Lease, title retention contract or similar agreement.

“Loan Documents” means this Agreement and the Notes.

“Margin” means the Floating Rate Margin or the LIBO Rate Margin, as the case may be.

“Material Adverse Effect” means a material adverse effect on (i) the condition (financial or otherwise), properties, or operations of the Borrower, (ii) the ability of the Borrower to perform its obligations under the Loan Documents, or (iii) the validity or enforceability of any of the Loan Documents or the rights or remedies of the Agent or any Lender thereunder.

“Maturity Date” means March 24, 2009.

“Moody’s” means Moody’s Investors Service, Inc.

“Mortgage Indentures” means (i) the Indenture of Mortgage dated as of May 1, 1939 executed by the Borrower and delivered to The New York Trust Company and A.C. Downing, as trustees thereunder, as heretofore amended and supplemented and as hereafter amended and/or supplemented from time to time, and (ii) the Indenture, dated as of December 15, 2003, executed by the Borrower and delivered to the Bank of New York, as trustee thereunder, as heretofore amended and supplemented and as hereafter amended and/or supplemented from time to time.

“Multiemployer Plan” means a “multiemployer plan” (within the meaning of Section 4001(a)(3) of ERISA) to which the Borrower or any ERISA Affiliate makes, is making, or is obligated to make contributions or, during the preceding three calendar years, has made, or been obligated to make, contributions.

“Note” means a promissory note of the Borrower in the form of Exhibit B.

“Obligations” means each and every debt, liability and obligation of every type and description arising under or in connection with any of the Loan Documents which the Borrower may now or at any time hereafter owe to any Lender or the Agent, whether such debt, liability or obligation now exists or is hereafter created or incurred, whether it is direct or indirect, due or to become due, absolute or contingent, primary or secondary, liquidated or unliquidated, or sole, joint, several or joint and several, and including but not limited to principal of and interest on the Notes, all fees due under this Agreement or any related agreement, and any obligation of the Borrower to the Agent or any Lender under any hedging arrangement entered into with the Agent or any Lender with respect to the Borrower’s obligations arising under this Agreement.

“PBGC” means the Pension Benefit Guaranty Corporation.

“Pension Plan” means a pension plan (as defined in Section 3(2) of ERISA) subject to Title IV of ERISA which the Borrower or any ERISA Affiliate sponsors, maintains, or to which it

7

makes, is making, or is obligated to make contributions, or in the case of a multiple employer plan (as described in Section 4064(a) of ERISA) has made contributions at any time during the immediately preceding five (5) plan years but excluding any Multiemployer Plan.

“Percentage” means, with respect to each Lender, the ratio of (i) that Lender’s Credit Exposure, to (ii) the aggregate Credit Exposure of all of the Lenders.

“Person” means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.

“Plan” means an employee benefit plan (as defined in Section 3(3) of ERISA) which the Borrower or any ERISA Affiliate sponsors or maintains or to which the Borrower or any ERISA Affiliate makes, is making, or is obligated to make contributions and includes any Pension Plan but excluding any Multiemployer Plan.

“Prime Rate” means, at any time, the rate of interest most recently announced within the Agent at its principal office as its “prime rate” or, if the Agent ceases to announce a rate so designated, any similar successor rate designated by the Agent. Such rate is one of the Agent’s base rates and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto, and is evidenced by the recording thereof in such internal publication or publications as the Agent may designate.

“Rating Agencies” means Fitch, Moody’s and S&P, collectively.

“Reportable Event” means any of the events set forth in Section 4043(c) of ERISA or the regulations thereunder, other than any such event for which the 30-day notice requirement under ERISA has been waived in regulations issued by the PBGC.

“Required Lenders” means one or more Lenders (including, where relevant, Additional Lenders) having an aggregate Percentage in excess of 50%.

“S&P” means Standard & Poor’s Ratings Group, a division of McGraw-Hill  Companies.

“Solvent” means as to any Person at any time (a) the fair value of the property of such Person is greater than the amount of such Person’s liabilities (including the probable liability of such Person on disputed, contingent and unliquidated liabilities) as such value is established and liabilities evaluated for purposes of Section 101(32) of the Bankruptcy Code; (b) the present fair saleable value of the property of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured; (c) such Person is able to realize upon its property and pay its debts and other liabilities (including the probable liability of such Person on disputed, contingent and unliquidated liabilities) as they mature in the normal course of business; (d) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay as such debts and liabilities mature; and (e) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person’s property would constitute unreasonably small capital.

“Subordinated Debt” means all indebtedness and other obligations of the Borrower which are subordinated in right of payment to all indebtedness of the Borrower to any Lender, on terms that have been approved in writing by the Required Lenders and that have been noted by appropriate legend on all instruments evidencing the Subordinated Debt.

8

“Subsidiary” of a Person means any corporation, association, partnership, limited liability company, joint venture or other business entity of which more than 50% of the voting stock, membership interests or other equity interests (in the case of Persons other than corporations), is owned or controlled directly or indirectly by the Person, by one of more of the Subsidiaries of the Person, or by a combination thereof.  Unless the context otherwise clearly requires, references herein to a “Subsidiary” refer to a Subsidiary of the Borrower.

“Term Loan” means the advances to be made by the Lenders pursuant to Section 2.1, collectively.

“Term Loan Funding Deadline” means October 15, 2008.

“Tier 1 Subsidiary” means MDU Energy Capital, LLC, a Delaware limited liability company.

“Tier 2 Subsidiary” means Prairie Intermountain Energy Holdings, LLC, a Delaware limited liability company.

“Unfunded Pension Liability” means the excess of a Pension Plan’s benefit liabilities under Section 302(d)(7) of ERISA over the current value of that Plan’s assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section 412 of the Code for the applicable plan year.

“Wells Fargo” means Wells Fargo Bank, National Association, a national banking association and a party to this Agreement.

Section 1.2                                Rules of Construction

For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires:

(a)           The terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular.

(b)           All accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP.

(c)           All references to times of day in this Agreement shall be references to Minneapolis, Minnesota time unless otherwise specifically provided.

ARTICLE II

Amount and Terms of the Term Loan

Section 2.1                                The Term Loan.

Each Lender agrees, severally but not jointly, on the terms and subject to the conditions hereinafter set forth, to make a single advance to the Borrower on or before the Term Loan Funding Deadline in an aggregate amount not to exceed the lesser of that Lender’s Commitment Amount or that Lender’s Percentage of the amount requested by the Borrower in accordance with Section 2.2. The facility established hereby shall not be a revolving facility; the Borrower may not reborrow any amount that has been prepaid. The advance made by each Lender shall be evidenced by a Note, payable to the order of that Lender in the face principal amount of that Lender’s Commitment Amount.

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Section 2.2                                Procedure.

The Lenders will make the Term Loan on prior written request from the Borrower to the Agent, which request shall specify the date of the Term Loan and the amount thereof. Except as set forth in Section 2.3(b), such request shall be made not less than one Business Day before the date of the Term Loan.  Promptly upon receipt of such request, the Agent shall advise each Lender of such request, including the amount requested and such Lender’s Percentage of such amount. At or before 2:00 p.m. on the date of the Term Loan, each Lender shall provide the Agent at the principal office of the Agent in Minneapolis, Minnesota with immediately available funds covering such Lender’s Percentage of the Term Loan.  The Agent shall disburse the amount of the Term Loan by crediting the same to the Borrower’s demand deposit account maintained with the Agent or in such other manner as the Agent and the Borrower may agree; provided, however, that the Agent shall have no obligation to disburse the Term Loan if any condition set forth in Article III has not been satisfied on the day of the Term Loan or if any Lender has failed to fund its Percentage of the Term Loan. The Borrower shall be obligated to repay the Term Loan notwithstanding the fact that the person requesting same was not in fact authorized to do so.  The Borrower’s request for the Term Loan shall be deemed to be a representation that the statements set forth in Section 3.2 are correct.

Section 2.3                                Interest on Notes.

(a)           Floating Rate Fundings. Unless the Borrower elects a LIBO Rate pursuant to this Section, the principal balance of the Notes shall bear interest at the Floating Rate.

(b)           LIBO Rate Fundings. So long as no Default or Event of Default exists, the Borrower may request that a portion of the Term Loan constitute a LIBO Rate Funding, or may convert all or any part of any outstanding Floating Rate Funding into a LIBO Rate Funding, or may request that a LIBO Rate Funding be converted at the end of the applicable Interest Period to another LIBO Rate Funding, by giving notice to the Agent of such request or conversion not later than 10:30 a.m. on a Business Day which is at least three Business Days prior to the date of the Term Loan or conversion. Each such notice shall be effective upon receipt by the Agent, shall be in writing or by telephone or telecopy transmission, shall specify the date and amount of such LIBO Rate Funding and the Interest Period therefor. The Interest Period applicable to each LIBO Rate Funding shall begin on a Business Day, and the amount of each LIBO Rate Funding shall be an integral multiple of $1,000,000 and not less than $10,000,000. Subject to the terms and conditions hereof, the principal amount specified by the Borrower in the applicable request for a LIBO Rate Funding shall bear interest from and including the first day of the Interest Period specified therein to but not including the last day of such Interest Period, at the LIBO Rate applicable thereto, determined as set forth herein, (subject to fluctuations in the applicable Margin). Unless the Borrower requests a new LIBO Rate Funding in accordance with the procedures set forth above, or prepays the principal of an outstanding LIBO Rate Funding at the expiration of an Interest Period, the Lenders shall automatically and without request of the Borrower convert each LIBO Rate Funding to a Floating Rate Funding on the last day of the relevant Interest Period.

(c)           Setting of LIBO Rates. The applicable LIBO Rate for each Interest Period shall be determined by the Agent between the opening of business and 12:00 noon on the second Business Day prior to the beginning of such Interest Period, whereupon notice thereof (which may be by telephone) shall be given by the Agent to the Borrower and each Lender. Each such determination of the applicable LIBO Rate shall be conclusive and binding upon the parties hereto, in the absence of demonstrable error. The Agent, upon written request of the Borrower, shall deliver to the Borrower a statement showing the computations used by the Agent in determining the applicable LIBO Rate hereunder.

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(d)           Limitations on LIBO Rate Fundings. In no event shall more than 7 LIBO Rate Fundings be outstanding at any one time. In no event may the Borrower request a LIBO Rate Funding if, after giving effect to such LIBO Rate Funding, the Borrower would be required to prepay a LIBO Rate Funding in order to make any regularly scheduled principal payment.

Section 2.4                                Principal and Interest Payment Dates.

(a)           Interest. Interest accruing on Floating Rate Fundings shall be due and payable on the last day of each calendar quarter. Interest on any LIBO Rate Funding shall be due and payable on the last day of the applicable Interest Period or, if such Interest Period is in excess of three months, on the last day of each three-month period during such Interest Period and on the last day of such Interest Period.

(b)           Principal. The Borrower shall pay the principal balance of the Notes in full on the Maturity Date.

Section 2.5                                Level Status, Margins and Fee Rates.

(a)           The Borrower’s Level Status shall be determined on the basis of the Applicable Ratings established by the Rating Agencies, in accordance with the following table:

	Level I	Level II	Level III	Level IV	Level V
S&P	A or better	A- or better, but less than A	BBB+ or better, but less than A-	BBB or better, but less than BBB+	Less than BBB
Moody’s	A2 or better	A3 or better, but less than A2	Baa1 or better, but less than A3	Baa2 or better, but less than Baa1	Less than Baa2
Fitch	A or better	A- or better, but less than A	BBB+ or better, but less than A-	BBB or better, but less than BBB+	Less than BBB

If the Applicable Ratings established by the Rating Agencies differ such that they do not fall within a single column in the table set forth above, the Borrower’s Level Status shall be determined as follows:

(i) If the Applicable Ratings applied by any two of the Rating Agencies are in the same column, the Borrower’s Level Status shall be determined by that column.

(ii) If the Applicable Ratings are each in separate columns, the highest and lowest columns shall be excluded, and the Borrower’s Level Status shall be determined by the remaining Applicable Rating.

(b) In making the determinations under paragraph (a):

(i) If any of the Rating Agencies changes the meaning or designation for its Applicable Ratings referenced in paragraph (a), the criteria for Level Status in

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the table in paragraph (a) shall be adjusted in such manner as the Required Lenders may reasonably determine to correspond with the applicable rating designations used by the applicable Rating Agency in effect on the date hereof.

(ii) If one of the Rating Agencies ceases to rate the Borrower’s long-term unsecured debt such that only two of the Rating Agencies are providing such Applicable Ratings, the Borrower’s Level Status shall be determined as follows:

(A) If the Applicable Ratings provided by both of the remaining Rating Agencies are in the same column, the Borrower’s Level Status shall be determined by that column.

(B) If the Applicable Ratings provided by the remaining Rating Agencies are in adjacent columns, the Borrower’s Level Status shall be based on the leftmost of the columns.

(C) If the Applicable Ratings provided by the remaining Rating Agencies are separated by one or more columns, the Borrower’s Level Status shall be based on the column to the immediate right of the leftmost applicable column.

Notwithstanding the foregoing, if the Applicable Rating established by either of the remaining Rating Agencies is in the rightmost column above, the Borrower shall be deemed to be at Level Status V.

(iii) If any two of the Rating Agencies ceases to establish its Applicable Rating, the Borrower shall be deemed to be at Level Status V.

(c)           The Floating Rate Margin and LIBO Rate Margin at any time shall be determined from time to time on the basis of the Borrower’s Level Status, in accordance with the following table:

	Level I	Level II	Level III	Level IV	Level V
Floating Rate Margin	0%	0%	0%	0%	0%
LIBO Rate Margin	0.500%	0.550%	0.675%	0.800%	1.000%

(d)           Upon the occurrence of any Default or Event of Default, and so long as such Default or Event of Default continues without written waiver thereof by the Lenders, a default increment equal to 200 basis points (2.00%) shall be added to the Floating Rate Margin and LIBO Rate Margin. Inclusion of such default increment shall not be deemed a waiver or excuse of any such Default or Event of Default.

Section 2.6                                Audit Fees.

Upon the occurrence of an Event of Default or at any time thereafter until such Event of Default is cured, the Borrower shall pay to the Agent, on written demand, reasonable fees charged by the Agent in connection with any audits or inspections by the Agent of any collateral or the operations or businesses of the Borrower, together with actual out-of-pocket costs and expenses incurred in conducting any such

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audit or inspection. All such audits and inspections shall be for the sole benefit of the Agent and the Lenders.

Section 2.7                                Prepayments.

(a)           Voluntary Prepayments. The Borrower from time to time may voluntarily prepay the Notes in whole or in part; provided that (i) prepayment of any Lender’s Note must be accompanied by pro rata prepayment of each other Lender’s Note, (ii) any prepayment of the full amount of any Note shall include accrued interest thereon, (iii) partial prepayment of any Floating Rate Funding shall be in an aggregate amount not less than $1,000,000, (iv) partial prepayment of any LIBO Rate Funding shall be in an aggregate amount not less than $5,000,000, and (v) any prepayment of any LIBO Rate Funding shall be made only upon three Business Days’ notice to the Agent.

(b)           Mandatory Prepayment. Promptly following the receipt thereof, the Borrower shall prepay the Obligations in an amount equal to 100% of the net proceeds realized by the Borrower, the Tier 1 Subsidiary or the Tier 2 Subsidiary from (A) debt obligations incurred by the Borrower, the Tier 1 Subsidiary or the Tier 2 Subsidiary after the date hereof (other than hereunder), or (B) the issuance by the Borrower, the Tier 1 Subsidiary or the Tier 2 Subsidiary of Capital Stock; provided, however, that (i) the aggregate amount required to be paid under this paragraph (b) shall not exceed the then-outstanding Obligations, and (ii) no prepayment shall be required under this paragraph (b) on account of the incurrence of approximately $80,000,000 in debt obligations by the Tier 1 Subsidiary on or about the date hereof for the purpose of financing the Intermountain Acquisition.

(c)           Application of Prepayments. So long as no Default or Event of Default has occurred and is continuing hereunder, all prepayments hereunder shall be applied in such order of application as the Borrower may direct in writing. In all other cases, all prepayments hereunder shall be applied in the following order:

(i) First, to the principal balance of the Notes.

(ii) Second, to accrued but unpaid interest on the Notes.

(iii) Third, to any remaining Obligations, in such order as the Agent may in its sole discretion designate.

Notwithstanding the foregoing, interest on any LIBO Rate Funding prepaid hereunder and any compensation due under Section 2.10 on account of prepayment of a LIBO Rate Funding shall be paid with the same priority as the related principal prepayment.

Section 2.8                                Payments.

(a)           Making of Payments. All payments of principal of and interest due under the Notes shall be made to the Agent at its principal office in Minneapolis, Minnesota, not later than 12:00 noon on the date due, in immediately available funds, and funds received after that hour shall be deemed to have been received by the Agent on the next following Business Day. The Borrower hereby authorizes the Agent to charge the Borrower’s demand deposit account maintained with the Agent for the amount of any such payment on its due date, all without receipt of any request for such charge, but the Lender’s failure to so charge such account shall in no way affect the obligation of the Borrower to make any such payment.

(b)           Assumed Payments. Unless the Agent has been notified by a Lender or the Borrower prior to the date on which such Lender or the Borrower is scheduled to make payment

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to the Agent of (in the case of a Lender) its Percentage of the Term Loan or (in the case of the Borrower) a payment to the Agent for the account of one or more of the Lenders hereunder (such payment by a Lender or the Borrower (as the case may be) being herein called a “Required Payment”), which notice shall be effective upon receipt, that it does not intend to make the Required Payment to the Agent, the Agent may assume that the Required Payment has been made and may (but shall not be required to), in reliance upon such assumption, make the amount thereof available to the intended recipient on such date and, if such Lender or the Borrower (as the case may be) has not in fact made the Required Payment to the Agent, the recipient of such payment shall, on demand, repay to the Agent the amount so made available together with interest thereon for each day during the period commencing on the date such amount was so made available by the Agent until the date the Agent recovers such amount at a rate (i) equal to the Federal Funds Rate for such day, in the case of a Required Payment owing by a Lender, or (ii) equal to the applicable rate of interest as provided in this Agreement, in the case of a Required Payment owing by the Borrower.

(c)           Setoff. The Borrower agrees that each Lender shall have all rights of setoff and bankers’ lien provided by applicable law, and in addition thereto, the Borrower agrees that if at any time any amount is due and owing by the Borrower under this Agreement to any Lender at a time when an Event of Default has occurred and is continuing hereunder, any Lender may apply any and all balances, credits, and deposits, accounts or moneys of the Borrower then or thereafter in the possession of that Lender (excluding, however, any trust or escrow accounts held by the Borrower for the benefit of any third party) to the payment thereof.

(d)           Due Date Extension. If any payment of principal of or interest on any Floating Rate Funding or any fees payable hereunder falls due on a day which is not a Business Day, then such due date shall be extended to the next following Business Day, and (in the case of principal) additional interest shall accrue and be payable for the period of such extension.

(e)           Application of Payments. Except as otherwise provided herein, so long as no Default or Event of Default has occurred and is continuing hereunder, each payment received from the Borrower shall be applied to such obligation as the Borrower shall specify by notice received by the Agent on or before the date of such payment, or in the absence of such notice, as the Required Lenders shall determine in their discretion. Except as otherwise provided herein, after the occurrence of a Default or Event of Default, the Lenders shall have the right to apply all payments received by the Lender from the Borrower as the Required Lenders may determine in their discretion. The Borrower agrees that the amount shown on the books and records of the Agent and the Lenders as being the principal balance of and interest on the Notes shall be conclusive absent demonstrable error.

Section 2.9                                Increased Costs; Funding Exceptions.

(a)           Increased Costs on LIBO Rate Fundings. If Regulation D of the Board of Governors of the Federal Reserve System or after the date of this Agreement the adoption of any applicable law, rule or regulation, or any change in any existing law, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency, shall:

(i) subject that Lender to or cause the withdrawal or termination of any exemption previously granted to that Lender with respect to, any tax, duty or other charge with respect to its LIBO Rate Fundings or its obligation to make LIBO Rate

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Fundings, or shall change the basis of taxation of payments to that Lender of the principal of or interest under this Agreement in respect of its LIBO Rate Fundings or its obligation to make LIBO Rate Fundings (except for changes in the rate of tax on the overall net income of that Lender imposed by the jurisdictions in which that Lender’s principal executive office is located); or

(ii) impose, modify or deem applicable any reserve (including, without limitation, any reserve imposed by the Board of Governors of the Federal Reserve System, but excluding any reserve included in the determination of interest rates pursuant to Section 2.3), special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, that Lender; or

(iii) impose on that Lender any other condition affecting its making, maintaining or funding of its LIBO Rate Fundings or its obligation to make LIBO Rate Fundings;

and the result of any of the foregoing is to increase the cost to that Lender of making or maintaining any LIBO Rate Funding, or to reduce the amount of any sum received or receivable by that Lender under this Agreement or under its Notes with respect to a LIBO Rate Funding, then that Lender will notify the Borrower of such increased cost and within fifteen (15) days after demand by that Lender (which demand shall be accompanied by a statement setting forth the basis of such demand and representing that that Lender has made similar demand on one or more other commercial borrowers with revolving or term loans in excess of $1,000,000) the Borrower shall pay to that Lender such additional amount or amounts as will compensate that Lender for such increased cost or such reduction; provided, however, that no such increased cost or such reduction shall be payable by the Borrower for any period longer than ninety (90) days prior to the date on which notice thereof is delivered to the Borrower. Each Lender will promptly notify the Borrower of any event of which it has knowledge, occurring after the date hereof, which will entitle that Lender to compensation pursuant to this Section 2.9. If the Borrower receives notice from any Lender of any event which will entitle that Lender to compensation pursuant to this Section 2.9, the Borrower may prepay any then outstanding LIBO Rate Fundings or notify that Lender that any pending request for a LIBO Rate Funding shall be deemed to be a request for a Floating Rate Funding, in each case subject to the provisions of Section 2.10.

(b)           Basis for Determining Interest Rate Inadequate or Unfair. If with respect to any Interest Period:

(i) any Lender determines that deposits in U.S. dollars (in the applicable amounts) are not being offered in the London interbank eurodollar market for such Interest Period; or

(ii) any Lender otherwise determines that by reason of circumstances affecting the London interbank eurodollar market adequate and reasonable means do not exist for ascertaining the applicable LIBO Rate; or

(iii) any Lender determines that the LIBO Rate as determined by the Agent will not adequately and fairly reflect the cost to that Lender of maintaining or funding a LIBO Rate Funding for such Interest Period, or that the making or funding of LIBO Rate Fundings has become impracticable as a result of an event occurring after the date of this Agreement which in the opinion of that Lender materially affects such LIBO Rate Fundings;

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then that Lender shall promptly notify the Borrower and (A) upon the occurrence of any event described in the foregoing clause (i) the Borrower shall enter into good faith negotiations with that Lender in order to determine an alternate method to determine the LIBO Rate for that Lender, and during the pendency of such negotiations with that Lender, the Lenders shall be under no obligation to make any new LIBO Rate Fundings, and (B) upon the occurrence of any event described in the foregoing clauses (ii) or (iii), for so long as such circumstances shall continue, the Lenders shall be under no obligation to make any new LIBO Rate Fundings.

(c)           Illegality. If any change in (including the adoption of any new) applicable laws or regulations, or any change in the interpretation of applicable laws or regulations by any governmental authority, central bank, comparable agency or any other regulatory body charged with the interpretation, implementation or administration thereof, or compliance by any Lender with any request or directive (whether or not having the force of law) of any such authority, central bank, comparable agency or other regulatory body, should make it or, in the good faith judgment of that Lender, shall raise a substantial question as to whether it is unlawful for that Lender to make, maintain or fund LIBO Rate Fundings, then (i) that Lender shall promptly notify the Borrower and the Agent, (ii) the obligation of the Lenders to make, maintain or convert into LIBO Rate Fundings shall, upon the effectiveness of such event, be suspended for the duration of such unlawfulness, and (iii) for the duration of such unlawfulness, any notice by the Borrower requesting the Lenders to make or convert into LIBO Rate Fundings shall be construed as a request to make or to continue making Floating Rate Fundings.

Section 2.10                                Funding Losses.

Upon demand by any Lender (which demand shall be accompanied by a statement setting forth the basis for the calculations of the amount being claimed), the Borrower shall indemnify that Lender against any loss or expense which that Lender may have sustained or incurred (including, without limitation, any net loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by that Lender to fund or maintain LIBO Rate Fundings) or which that Lender may be deemed to have sustained or incurred, as reasonably determined by that Lender, (i) as a consequence of any failure by the Borrower to make any payment when due of any amount due hereunder in connection with any LIBO Rate Fundings, (ii) due to any failure of the Borrower to borrow or convert any LIBO Rate Fundings on a date specified therefor in a notice thereof or (iii) due to any payment or prepayment of any LIBO Rate Funding on a date other than the last day of the applicable Interest Period for such LIBO Rate Funding. For this purpose, all notices under Section 2.3(b) shall be deemed to be irrevocable.

Section 2.11                                Discretion of Lenders as to Manner of Funding.

Notwithstanding any provision of this Agreement to the contrary, each Lender shall be entitled to fund and maintain all or any part of its LIBO Rate Fundings in any manner it deems fit, it being understood, however, that for the purposes of this Agreement (specifically including, without limitation, Section 2.10 hereof) all determinations hereunder shall be made as if that Lender had actually funded and maintained each LIBO Rate Funding during each Interest Period for such LIBO Rate Funding through the purchase of deposits having a maturity corresponding to such Interest Period and bearing an interest rate equal to the appropriate LIBO Rate for such Interest Period.

Section 2.12                                Conclusiveness of Statements; Survival of Provisions.

Determinations and statements of any Lender pursuant to Sections 2.9 and 2.10 shall be conclusive absent demonstrable error. Without limiting the generality of the foregoing, the Borrower shall have no right to review any records of any Lender or its other customers to determine the accuracy of any statement by that Lender under Section 2.9(a) regarding that Lender’s demands upon other customers of that Lender.  Each Lender may use reasonable averaging and attribution methods in determining compensation

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pursuant to such Sections 2.9 and 2.10 and the provisions of Sections 2.9 and 2.10 shall survive termination of this Agreement.

Section 2.13                                Computation of Interest and Fees.

All interest determined at the Floating Rate will be calculated based on the actual days elapsed in a year of 365 or 366 days, as the case may be. All interest determined at the LIBO Rate and all fees hereunder shall be computed on the basis of actual number of days elapsed in a year of 360 days.

Section 2.14                                Purpose of Term Loan.

The proceeds of the Term Loan shall be used to finance the Intermountain Acquisition and pay related transactional costs.

ARTICLE III

Conditions Precedent

Section 3.1                                Required Deliveries; Conditions to Effectiveness.

The obligation of the Lenders to make the Term Loan is subject to the condition precedent that each Lender shall have received on or before the day of the Term Loan all of the following, each dated (unless otherwise indicated) as of the date hereof, in form and substance satisfactory to each Lender:

(a)           The Notes, properly executed on behalf of the Borrower.

(b)           A certificate of the secretary, assistant secretary or other appropriate officer of the Borrower (i) certifying that the execution, delivery and performance of the Loan Documents and other documents contemplated hereunder to which such corporation is a party have been duly approved by all necessary action of the Board of Directors of the Borrower, and attaching true and correct copies of the applicable resolutions granting such approval, (ii) certifying that attached to such certificate are true and correct copies of the articles of incorporation and bylaws of the Borrower and all Authorizing Orders, together with such copies, and (iii) certifying the names of the officers of the Borrower that are authorized to sign the Loan Documents and other documents contemplated hereunder, together with the true signatures of such officers. The Lenders may conclusively rely on such certificate until they shall receive a further certificate of the Secretary or Assistant Secretary of the Borrower canceling or amending the prior certificate and submitting the signatures of the officers named in such further certificate.

(c)           Certificates of good standing of the Borrower, dated not more than 45 days before such date.

(d)           A signed copies of an opinion of Paul K. Sandness, general counsel for the Borrower, substantially in the form of Exhibit E-1, and the opinion of Thelen LLP, special counsel to the Borrower, substantially in the form of Exhibit E-2, each addressed to the Lenders.

(e)           A certificate, duly executed by the chief financial officer of the Borrower, in the form of Exhibit F.

(f)           All fees required to be paid as of the date hereof pursuant to this Agreement or any related document.

Notwithstanding the foregoing, this Agreement (but not the obligation to make the Term Loan) shall become effective upon delivery to each Lender, on or before the date hereof, of each of the items identified in clauses (a) through (d) and (f) above, each dated (unless otherwise indicated) as of the date hereof and in form and substance satisfactory to each Lender.

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Section 3.2                                Additional Conditions Precedent.

The obligation of the Lenders to make the Term Loan shall be subject to the further conditions precedent that on the date of the Term Loan:

(a)           The representations and warranties contained in Article IV (other than Section 4.6) are correct on and as of the date of the Term Loan as though made on and as of such date, except to the extent that such representations and warranties relate solely to an earlier date.

 (b)           No event has occurred and is continuing, or would result from the Term Loan, which constitutes a Default or an Event of Default.

ARTICLE IV

Representations and Warranties

The Borrower represents and warrants to the Lenders as follows:

Section 4.1                                Existence and Power.

The Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of Delaware, and is duly licensed or qualified to transact business in all jurisdictions where the character of the property owned or leased or the nature of the business transacted by it makes such licensing or qualification necessary, except where the failure to be so licensed or qualified (i) will not permanently preclude the Borrower from maintaining any material action in any such jurisdiction even though such action arose in whole or in part during the period of such failure, and (ii) will not result in any other Material Adverse Effect. The Borrower has all requisite power and authority, corporate or otherwise, to conduct its business, to own its properties and to execute and deliver, and to perform all of its obligations under, the Loan Documents.

Section 4.2                                Authorization of Borrowing; No Conflict as to Law or Agreements.

The execution, delivery and performance by the Borrower of the Loan Documents and the borrowing hereunder have been duly authorized by all necessary corporate action and by all necessary public utilities commissions and any other regulatory bodies having jurisdiction over the Borrower, and do not and will not (i) require any consent or approval of the stockholders of the Borrower, or any authorization, consent or approval by any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, other than Authorizing Orders set forth in Schedule 4.2 that have been obtained and copies of which have been delivered to the Agent pursuant to Section 3.1, (ii) violate any provision of any law, rule or regulation (including, without limitation, Regulation X of the Board of Governors of the Federal Reserve System) or of any order, writ, injunction or decree presently in effect having applicability to the Borrower or of the articles of incorporation or bylaws of the Borrower, (iii) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which the Borrower is a party or by which it or its properties may be bound or affected, or (iv) result in, or require, the creation or imposition of any Lien or other charge or encumbrance of any nature (other than those in favor of the Agent to secure one or more of the Obligations) upon or with respect to any of the properties now owned or hereafter acquired by the Borrower.

Section 4.3                                Legal Agreements.

This Agreement and the other Loan Documents constitute the legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms, except to the extent that such enforcement may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors’ rights generally or by general equitable principles.

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Section 4.4                                Subsidiaries.

Schedule 4.4 hereto is a complete and correct list of all present Subsidiaries and of the percentage of the ownership of the Borrower or any other Subsidiary in each case as of the date of this Agreement. Except as otherwise indicated in that Schedule, all shares of each Subsidiary owned by the Borrower or by any such other Subsidiary are validly issued and fully paid and nonassessable.

Section 4.5                                Financial Condition.

The Borrower has heretofore furnished to the Lenders its audited consolidated financial statement as of December 31, 2007, and its unaudited interim financial statement as of June 30, 2008. Those financial statements fairly present the financial condition of the Borrower and its Subsidiaries on the dates thereof and the results of their operations and cash flows for the periods then ended, and were prepared in accordance with GAAP, except as expressly noted therein.

Section 4.6                                Adverse Change.

There has been no material adverse change in the business, properties or condition (financial or otherwise) of the Borrower since the date of the latest financial statement referred to in Section 4.5.

Section 4.7                                Litigation.

Except as set forth in the Borrower’s Annual Report on Form 10-K for the year ended December 31, 2007, or in any document subsequently filed pursuant to Section 13, 14 or 15(d) of the Exchange Act, there are no actions, suits or proceedings pending or, to the knowledge of the Borrower, threatened against or affecting the Borrower or the properties of the Borrower, before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, which, if determined adversely to the Borrower, would have a Material Adverse Effect.

Section 4.8                                Environmental Matters.

The Borrower conducts in the ordinary course of business a review of the effect of existing Environmental Laws and existing Environmental Claims on its business, operations and properties and, as a result thereof, the Borrower has reasonably concluded that such Environmental Laws and Environmental Claims could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, exclusive of Environmental Claims as set forth in the Borrower’s Annual Report on Form 10-K for the year ended December 31, 2007, or in any document subsequently filed pursuant to Section 13, 14 or 15(d) of the Exchange Act.

Section 4.9                                Regulation U.

The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System), and no part of the proceeds of the Term Loan will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock.

Section 4.10                                Taxes.

The Borrower has filed all federal and other tax returns and reports required to be filed, and has paid all federal and other taxes, assessments, fees and other governmental charges levied or imposed upon it or its properties, income or assets otherwise due and payable, except those which are being contested in good faith by appropriate proceedings and for which adequate reserves have been provided in accordance with GAAP and except those the failure to file or pay which would not have a Material Adverse Effect. There is no proposed tax assessment against the Borrower that would, if made, have a Material Adverse Effect.

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Section 4.11                                Titles and Liens.

To the Borrower’s knowledge, without having undertaken any search of real property records for this purpose, the Borrower has good and sufficient title to, or valid leasehold interests in, all real property necessary or used in the ordinary conduct of its business, and good title to all other property and assets reflected in the Borrower’s most recent consolidated financial statements provided to the Lenders as owned by the Borrower, except for such defects in title as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect and other than any sold, as permitted by Section 6.4. As of the date of this Agreement, the property of the Borrower is subject to no Liens other than a permitted pursuant to Section 6.1.

Section 4.12                                Intellectual Property.

The Borrower owns or is licensed or otherwise has the right to use all of the patents, trademarks, service marks, trade names, copyrights, contractual franchises, authorizations and other rights that are reasonably necessary for the operation of its business, without conflict with the rights of any other Person, except to the extent that noncompliance would not have a Material Adverse Effect. To the knowledge of the Borrower, no slogan or other advertising device, product, process, method, substance, part or other material now employed, or now contemplated to be employed, by the Borrower infringes upon any rights held by any other Person, except to the extent that noncompliance would not have a Material Adverse Effect. No claim or litigation regarding any of the foregoing is pending or threatened, and no patent, invention, device, application, principle or any statute, law, rule, regulation, standard or code is pending or, to the knowledge of the Borrower, proposed, which, in either case, could reasonably be expected to have a Material Adverse Effect.

Section 4.13                                ERISA.

(a)           Each Plan is in compliance in all material respects with ERISA, the Code and other applicable federal or state law. Each Plan which is intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the Internal Revenue Service and, to the best knowledge of the Borrower, nothing has occurred which would or could reasonably be expected to cause the loss ofsuch qualification ofany such Plan or related trust.

(b)           There are no pending or, to the best knowledge ofthe Borrower, threatened claims (other than routine claims for benefits in the ordinary course), actions or lawsuits, or action by any governmental authority, with respect to any Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect. To the best knowledge of the Borrower, there has been no prohibited transaction within the meaning of Section 4975 of the Code or Section 406 ERISA or other material violation of the fiduciary responsibility rules with respect to any Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect.

(c)           No Reportable Event has occurred or is reasonably expected to occur with respect to any Pension Plan.

(d)           The aggregate Unfunded Pension Liability for all Pension Plans (calculated based on the most recent actuarial report for each Pension Plan) does not exceed $25,000,000.

(e)           Neither the Borrower nor any ERISA Affiliate has incurred nor does it reasonably expect to incur, any liability under Title IV of ERISA with respect to any Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA).

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(f)           Neither the Borrower nor any ERISA Affiliate has transferred any Unfunded Pension Liability to any Person or otherwise engaged in a transaction that could be subject to Section 4069 ofERISA.

(g)           Neither the Borrower nor any ERISA Affiliate has incurred nor reasonably expects to incur any liability, other than Acquisition Liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability), under Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan. As used in this paragraph, “Acquisition Liability” means liability immaterial to the Borrower, its business and operations when taken as a whole that is incurred in connection with an acquisition by the Borrower or any ERISA Affiliate.

ARTICLE V

Affirmative Covenants

So long as the Commitments remain outstanding or any Note shall remain unpaid, the Borrower will comply with the following requirements, unless the Required Lenders shall otherwise consent in writing:

Section 5.1                                Reporting.

The Borrower will deliver to each Lender:

(a)           As soon as available, and in any event within 120 days after the end of each fiscal year of the Borrower:

(i) A copy of the annual audit report of the Borrower and its Subsidiaries prepared on a consolidated basis with an unqualified opinion of independent certified public accountants selected by the Borrower and acceptable to the Required Lenders, which annual report shall include the consolidated balance sheets of the Borrower and its Subsidiaries as of the end of such fiscal year and the related consolidated statements of income, common stockholders’ equity and cash flows of the Borrower and its Subsidiaries for the fiscal year then ended, all in reasonable detail and all prepared in accordance with GAAP.

(ii) A copy of the unaudited nonconsolidated balance sheets of the Borrower at the end of such fiscal year and the related unaudited nonconsolidated statements of income, retained earnings and cash flows of the Borrower for such fiscal year, in reasonable detail, all prepared in accordance with GAAP.

(iii) A copy of the annual audit report-regulatory basis of the Borrower with an unqualified opinion of independent certified public accountants selected by the Borrower and acceptable to the Required Lenders, which annual report shall include a copy of the balance sheet-regulatory basis of the Borrower as the end of such fiscal year and the related statements of income-regulatory basis, retained earnings-regulatory basis and cash flows-regulatory basis of the Borrower for the fiscal year then ended, all prepared in accordance with FERC Accounting Principles.

(b)           As soon as available and in any event within 60 days after the end of each fiscal quarter of the Borrower:

(i) A copy of (A) the unaudited consolidated balance sheets of the Borrower and its Subsidiaries as of the end of such quarter, (B) the related unaudited consolidated statements of income for such quarter, and (C) the related unaudited consolidated

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statements of income and cash flows of the Borrower and its Subsidiaries for the year to date, all in reasonable detail and prepared in accordance with GAAP, subject to year-end audit adjustments.

(ii) A copy of (A) the unaudited nonconsolidated balance sheets of the Borrower at the end of such quarter, (B) the related unaudited nonconsolidated statements of income for such quarter, and (C) the related unaudited nonconsolidated statements of income, retained earnings and cash flows of the Borrower for the year to date, all in reasonable detail and prepared in accordance with GAAP, subject to year-end adjustments.

(iii) A narrative report setting forth the Borrower’s progress in effecting transactions that would require a mandatory prepayment of the Obligations pursuant to Section 2.7(b).

(c)           Concurrently with the delivery of any financial statements under paragraph (a) or (b), a Compliance Certificate, duly executed by the chief financial officer of the Borrower.

(d)           Promptly following the issuance thereof, a copy of any Authorizing Order not previously delivered to the Agent.

 (e)           Promptly upon their distribution, copies of all financial statements, reports and proxy statements which the Borrower shall have sent to its stockholders.

(f)           Promptly after the sending or filing thereof, copies of all regular and periodic financial reports which the Borrower shall file with the Securities and Exchange Commission or any national securities exchange.

(g)           Promptly upon becoming available, copies of any reports or applications filed by the Borrower with any governmental body if such reports indicate any material change in the business, operations, affairs or condition of the Borrower, or if copies thereof are requested by any Lender.

(h)           Immediately after the commencement thereof, notice in writing of all litigation and of all proceedings before any governmental or regulatory agency affecting the Borrower of the type described in Section 4.7 or which seek a monetary recovery against the Borrower in excess of $1,000,000.

(i)           As promptly as practicable (but in any event not later than five business days) after an officer of the Borrower obtains knowledge of the occurrence of any Default or Event of Default, notice of such occurrence, together with a detailed statement by a responsible officer of the Borrower of the steps being taken by the Borrower to cure the effect of such event.

(j)           Promptly upon becoming aware of an ERISA Event (other than an event described in clause (c) of the definition of “ERISA Event” which has not resulted and would not reasonably be expected to result in a Material Adverse Effect), a written notice specifying the nature thereof, what action the Borrower has taken, is taking or proposes to take with respect thereto, and, when known, any action taken or threatened by the Internal Revenue Service, the PBGC or the Department of Labor with respect thereto.

(k)           Promptly upon (i) the adoption of any Plan subject to Section 412 of the Code, or (ii) the adoption of any amendment to a Pension Plan or other Plan subject to Section 412 of the Code, if such amendment results in a material increase in contributions or Unfunded Pension Liability, written notice specifying the nature thereof.

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(l)           Upon request of any Lender, copies of the most recent annual report (Form 5500 Series), including any supporting schedules, filed by the Borrower or any ERISA Affiliate with the Internal Revenue Service with respect to any Plan.

(m)           Such information (in addition to that specified elsewhere in this Section) respecting the financial condition and results of operations of the Borrower as any Lender may from time to time reasonably request.

Section 5.2                                Books and Records; Inspection and Examination.

The Borrower will keep accurate books of record and account for itself in which true and complete entries will be made in accordance with GAAP and, upon request of any Lender, will give any representative of that Lender access to, and permit such representative to examine, copy or make extracts from, any and all books, records and documents in its possession, to inspect any of its properties and to discuss its affairs, finances and accounts with any of its principal officers, all at such times during normal business hours and as often as any Lender may reasonably request.

Section 5.3                                Compliance with Laws.

The Borrower will comply with the requirements of applicable laws and regulations, except any law and regulation (i) the compliance with which is contested in good faith or the subject of a bona fide dispute, and (ii) the noncompliance with which would not have a Material Adverse Effect. In addition, and without limiting the foregoing sentence, the Borrower shall (i) ensure that no Person who owns a controlling interest in or otherwise controls the Borrower is or shall be listed on the Specially Designated Nationals and Blocked Person List or other similar lists maintained by the Office of Foreign Assets Control (“OFAC”), the Department of the Treasury or included in any Executive Orders, (ii) not use or permit the use of the proceeds of the Term Loan to violate any of the foreign asset control regulations of OFAC or any enabling statute or Executive Order relating thereto, and (iii) comply with all applicable Bank Secrecy Act (“BSA”) laws and regulations, as amended.

Section 5.4                                Payment of Taxes and Other Claims.

The Borrower will pay or discharge, when due, (a) all taxes, assessments and governmental charges levied or imposed upon it or upon its income or profits, or upon any properties belonging to it, prior to the date on which penalties attach thereto, (b) all federal, state and local taxes required to be withheld by it, and (c) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a Lien or charge upon any properties of the Borrower; provided, that the Borrower shall not be required to pay any such tax, assessment, charge or claim so long as (x) the amount, applicability or validity of such tax, assessment, charge or claim is being contested in good faith by appropriate proceedings or is the subject of a bona fide dispute, and (y) the Borrower has provided adequate reserves therefor in accordance with GAAP, except (with respect to any of the foregoing) to the extent that the failure to do so could not reasonably be expected to have a Material Adverse Effect.

Section 5.5                                Maintenance of Properties.

Subject to transactions permitted by Sections 6.4, the Borrower shall maintain and preserve all its property which is used or useful in its business in good working order and condition, ordinary wear and tear excepted, except to the extent that noncompliance would not have a Material Adverse Effect.

Section 5.6                                Insurance.

The Borrower shall maintain with financially sound and reputable independent insurers, insurance with respect to its properties and business against loss or damage of the kinds customarily insured against by Persons engaged in the same or similar business, of such types and in such amounts (including

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deductibles, co-insurance and self-insurance, if adequate reserves are maintained with respect thereto) as are customarily carried under similar circumstances by such other Persons, except to the extent that noncompliance would not have a Material Adverse Effect, and the Borrower will furnish any Lender upon request full information as to the insurance carried within 15 Business Days.

Section 5.7                                Preservation of Corporate Existence.

Subject to transactions permitted by Section 6.4, the Borrower shall (i) preserve and maintain in full force and effect its corporate existence and good standing under the laws of its state or jurisdiction of incorporation; (ii) preserve and maintain in full force and effect all governmental rights, privileges, qualifications, permits, licenses and franchises necessary or desirable in the normal conduct of its business; and (iii) preserve its business organization and goodwill; and (iv) preserve or renew all of its registered patents, trademarks, trade names and service marks; except, in each case, to the extent that failure to do so does not have a Material Adverse Effect.

Section 5.8                                Replacement Financing.

The Borrower will incur debt (whether from a private placement, refinancing in the bank loan market or otherwise), issue equity or otherwise effect transactions in amounts sufficient to prepay the Term Loan in its entirety pursuant to Section 2.7(b) as promptly as practicable after the date hereof.

ARTICLE VI

Negative Covenants

So long as the Commitments remain outstanding or any Note shall remain unpaid, the Borrower agrees that, without the prior written consent of the Required Lenders:

Section 6.1                                Liens.

The Borrower will not create, incur or suffer to exist any Lien in, of or on the property of the Borrower, except:

(a)           Liens for taxes, assessments of governmental charges or levies on its property if the same shall not at the time be delinquent or thereafter can be paid without penalty, or are being contested in good faith and by appropriate proceedings.

(b)           Liens imposed by law, such as carriers’, warehousemen’s and mechanics’ liens and other similar liens arising in the ordinary course of business which secure payment of obligations not yet due and payable or remaining payable without penalty or which are being contested in good faith by appropriate proceedings.

(c)           Liens arising out of pledges or deposits under worker’s compensation laws, unemployment insurance, old age pensions, or other social security or retirement benefits, or similar legislation.

(d)           Utility easements, buildings restrictions and such other encumbrances or charges against real property as are of a nature generally existing with respect to properties of a similar character and which do not in any material way affect the marketability of the same or interference with the use thereof in the business of the Borrower.

(e)           Purchase money Liens upon or in any property acquired or held by the Borrower in the ordinary course of business, provided that (i) no such Lien is created later than the 90th day following the acquisition or completion of construction of such property by the Borrower, and (ii) no such Lien extends or shall extend to or cover any property of the Borrower other than the

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property then being acquired, fixed improvements then or thereafter erected thereon and improvements and modifications thereto necessary to maintain such properties in working order.

(f)           Liens incurred or deposits made in the ordinary course of business to secure (or to obtain letters of credit that secure) the performance of tenders, statutory obligations, surety bonds, appeal bonds, bids, leases (other than Capitalized Leases), performance bonds, purchase, construction or sales contracts and other similar obligations, in each case not incurred or made in connection with the incurrence of any Obligation.

(g)           Liens resulting from judgments, unless such judgments are not discharged within 45 days; are not stayed pending appeal or otherwise being appropriately contested in good faith; or are not discharged within 45 days after expiration of any such stay.

(h)           Liens created under or in connection with the Mortgage Indentures as such Mortgage Indentures exist on the date hereof, without regard to any waiver, amendment, modification or restatement thereof.

(i)           Liens permitted under the Mortgage Indentures as such Mortgage Indentures exist on the date hereof, without regard to any waiver, amendment, modification or restatement thereof.

(j)           Liens on any property of the Borrower (other than those described in subsection (e)) securing any indebtedness for borrowed money in existence on the date hereof and listed in Schedule 6.1 hereto.

Section 6.2                                Investments.

The Borrower will not purchase or hold beneficially any stock or other securities or evidence of indebtedness of, make or permit to exist any loans or advances to, or make any investment or acquire any interest whatsoever in, any other Person, except:

(a)           Investments in cash equivalents and short-term marketable securities pursuant to and in accordance with the terms of the Borrower’s then-current investment policy duly adopted by the Board of Directors of the Borrower.

(b)           Investments in the MDU Resources Group, Inc. Benefits Protection Trust in accordance with the Borrower’s historical practices.

(c)           Any existing investment by the Borrower in the voting stock, membership interests or other equity interests of any Subsidiary.

(d)           The contribution by the Borrower of all of the stock of Intermountain to the Tier 1 Subsidiary and the contribution of such stock in turn by the Tier 1 Subsidiary to the Tier 2 Subsidiary, so long as the Tier 1 Subsidiary is a wholly-owned Subsidiary of the Borrower and the Tier 2 Subsidiary is a wholly-owned Subsidiary of the Tier 1 Subsidiary.

(e)           Any investment by the Borrower in any Subsidiary after the date hereof, so long as (i) the entire amount of such investment is obtained from (A) the issuance of equity interests by the Borrower and/or (B) dividends or similar distributions paid to the Borrower by any other Subsidiary of the Borrower, in each case concurrent with the Borrower’s investment in such Subsidiary, and (ii) no Default or Event of Default has occurred and is continuing when such investment is actually made. In the case of any investment funded as described in clause (i)(B), the applicable dividend or distribution and the corresponding investment shall be accurately and completely reflected on the books and records of the Borrower and the applicable Subsidiaries.

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(f)           Consolidations, mergers and acquisitions not prohibited by Section 6.6.

(g)           Travel, relocation and similar advances made to officers and employees of the Borrower in anticipation of expenses to be incurred by such officers and employees, in each case in the ordinary course of the Borrower’s business consistent with the Borrower’s past practices.

(h)           Advances in the form of progress payments, prepaid rent or security deposits.

(i)           Evidences of indebtedness in the nature of accounts receivable or notes receivable arising from the sale or lease of goods or services in the ordinary course of business.

(j)           Investments made for the purpose of economic development, so long as the aggregate value of the investments permitted by this clause (j) does not exceed $10,000,000.

Section 6.3                                Distributions.

The Borrower will not make any Distribution at any time following and during the continuance of any Default or Event of Default arising under paragraph (a), (b), (h) or (i) of Section 7.1.

Section 6.4                                Sale of Assets.

The Borrower will not lease, sell or otherwise dispose of all, or a substantial portion of, its property, assets or business (whether in one transaction or in a series of transactions) to any other Person except for sales of inventory in the ordinary course of business. For purposes of this Section, “substantial portion” means assets (including other Persons) (i) representing more than 20% of the consolidated assets of the Borrower as reflected in the most recent consolidating financial statement of the Borrower referred to in Section 4.5, or (ii) responsible for more than 10% of the consolidated net sales or the consolidated net income of the Borrower as reflected in the financial statement referred to in clause (i) above.

Section 6.5                                Transactions with Affiliates.

The Borrower shall not enter into any material transaction or arrangement or series of related transactions or arrangements that in the aggregate would be material with any Affiliate of the Borrower, except (i) transactions upon terms no less favorable to the Borrower than would obtain, taking into account all facts and circumstances, in a comparable arm’s-length transaction with a Person not an Affiliate of the Borrower, (ii) investments in Subsidiaries to the extent not prohibited by Section 6.2, (iii) Distributions to the extent not prohibited by Section 6.3, and (iv) payments required by regulatory rule or order; in the case of clauses (i), (ii) and (iii), to the extent that such payments are (x) made in the ordinary course of the Borrower’s business, (y) consistent with the Borrower’s past practices, and (z) fair and reasonable.

Section 6.6                                Consolidation and Merger.

The Borrower will not consolidate with or merge into any Person, or permit any other Person to merge into it, or acquire (in a transaction analogous in purpose or effect to a consolidation or merger) all or substantially all of the assets of any other Person or any existing business (whether existing as a separate entity, subsidiary, division, unit, line of business or otherwise) of any Person; provided, however, that the restrictions contained in this Section shall not apply to or prevent the consolidation or merger of any Person with, or a conveyance or transfer of its assets to, the Borrower so long as (i) no Default or Event of Default exists at the time of, or will be caused by, such consolidation, merger, conveyance or transfer, (ii) the Borrower shall be the continuing or surviving corporation, and (iii) the prior, effective written consent or approval of the board of directors or equivalent governing body of the other party to such consolidation, merger, conveyance or transfer is obtained.

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Section 6.7                                Environmental Laws.

The Borrower will not cause or permit the conduct of its operations or the maintenance of any of its property to violate any Environmental Law, except to the extent that noncompliance would not have a Material Adverse Effect.

Section 6.8                                Restrictions on Nature of Business.

The Borrower will not engage in any material line of business that is significantly different from that presently engaged in by the Borrower.

Section 6.9                                Consolidated Total Leverage Ratio.

The Borrower will not at any time permit its Consolidated Total Leverage Ratio, determined as of any Covenant Compliance Date, to be greater than 0.65 to 1.

Section 6.10                                Borrower Leverage Ratio.

The Borrower will not at any time permit the Borrower Leverage Ratio, determined as of any Covenant Compliance Date, to be greater than 0.65 to 1.

Section 6.11                                Interest Coverage Ratio.

The Borrower will not at any time permit its Interest Coverage Ratio, determined as of any Covenant Compliance Date, to be less than 2.50 to 1.

ARTICLE VII

Events of Default, Rights and Remedies

Section 7.1                                Events of Default.

“Event of Default”, wherever used herein, means any one of the following events:

(a)           Default in the payment of any principal of any Note when it becomes due and payable.

(b)           Default in the payment of any interest on any Note when the same becomes due and payable and the continuance of such default for a period of two calendar days; or default in the payment of any fees required under Section 2.6 when the same become due and payable and the continuance of such default for a period of five calendar days.

(c)           Default in the performance, or breach, of any covenant or agreement on the part of the Borrower contained in Article VI.

(d)           Default in the performance, or breach, of any covenant or agreement of the Borrower in this Agreement (other than a covenant or agreement a default in whose performance or whose breach is elsewhere in this Section specifically dealt with), and the continuance of such default or breach for a period of 30 days after the Lenders have given notice to the Borrower specifying such default or breach and requiring it to be remedied.

(e)           Any representation or warranty made by the Borrower in this Agreement or by the Borrower (or any of its officers) in any certificate, instrument, or statement contemplated by or made or delivered pursuant to or in connection with this Agreement, shall prove to have been incorrect or misleading in any material respect when made.

(f)           An Event of Default, as defined in the 2005 Credit Agreement, shall occur.

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(g)           A default under either Mortgage Indenture or with respect to any other Funded Debt (other than any default dealt with elsewhere in this Section) and the expiration of the applicable period of grace, if any, specified in the applicable evidence of indebtedness, indenture or other instrument; provided, however, that no Event of Default shall be deemed to have occurred under this paragraph if the aggregate amount owing as to all such indebtedness as to which such defaults have occurred and are continuing is less than $15,000,000; provided further that if such default shall be cured by the Borrower, or waived by the holders of such indebtedness, in each case prior to the commencement of any action under Section 7.2 and as may be permitted by such evidence of indebtedness, indenture or other instrument, then the Event of Default hereunder by reason of such default shall be deemed likewise to have been thereupon cured or waived.

(h)           The Borrower (i) ceases or fails to be Solvent, or generally fails to pay, or admits in writing its inability to pay, its debts as they become due, subject to applicable grace periods, if any, whether at stated maturity or otherwise; (ii) voluntarily ceases to conduct its business in the ordinary course; (iii) commences any Insolvency Proceeding with respect to itself; or (iv) takes any action to effectuate or authorize any of the foregoing.

(i)           (i) Any involuntary Insolvency Proceeding is commenced or filed against the Borrower, or any writ, judgment, warrant of attachment, execution or similar process is issued or levied against a substantial part of the Borrower’s properties, and any such proceeding or petition shall not be dismissed, or such writ, judgment, warrant of attachment, execution or similar process shall not be released, vacated or fully bonded within 60 days after commencement, filing or levy; or (ii) the Borrower admits the material allegations of a petition against it in any Insolvency Proceeding, or an order for relief (or similar order under non-U.S. law) is ordered in any Insolvency Proceeding; or (iii) the Borrower acquiesces in the appointment of a receiver, trustee, custodian, conservator, liquidator, mortgagee in possession (or agent therefor), or similar Person for itself or a substantial portion of its property or business.

(j)           A Change of Control shall occur with respect to the Borrower.

(k)           The Borrower shall fail within 45 days to pay, bond or otherwise discharge any judgment or order for the payment of money in excess of $10,000,000, which is not stayed on appeal or otherwise being appropriately contested in good faith.

(l)           (i) An ERISA Event or ERISA Termination Event which has resulted or would reasonably be expected to result in liability of the Borrower under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of 10% of Consolidated Net Worth; (ii) the commencement or increase of contributions to, or the adoption of or the amendment of, a Pension Plan by the Borrower or an ERISA Affiliate which has resulted or could reasonably be expected to result in an increase in Unfunded Pension Liability among all Pension Plans in an aggregate amount in excess of 10% of Consolidated Net Worth; or (iii) the Borrower’s or an ERISA Affiliate’s failure to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect.

(m)           Any governmental authority or other administrative or legal authority having regulatory jurisdiction over the Borrower takes any action which has a Material Adverse Effect on the Borrower.

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Section 7.2                                Rights and Remedies.

Upon the occurrence of an Event of Default or at any time thereafter until such Event of Default is cured to the written satisfaction of the Required Lenders, the Agent may, with the consent of the Required Lenders, and shall, at the request of the Required Lenders, exercise any or all of the following rights and remedies:

(a)           If the Term Loan has not been advanced, the Agent may, by notice to the Borrower, declare the Commitments to be terminated, whereupon the same shall forthwith terminate.

(b)           The Agent may, by notice to the Borrower, declare the entire unpaid principal amount of the Notes then outstanding, all interest accrued and unpaid thereon, and all other Obligations to be forthwith due and payable, whereupon the Notes, all such accrued interest and all such other Obligations shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower.

(c)           The Lenders may exercise any other rights and remedies available to them by law or agreement.

Notwithstanding the foregoing, upon the occurrence of an Event of Default described in Section 7.1(h) or 7.1(i) hereof, the entire unpaid principal amount of the Notes then outstanding, all interest accrued and unpaid thereon, and all other amounts payable under this Agreement shall be immediately due and payable without presentment, demand, protest or notice of any kind.

ARTICLE VIII

The Agent

Section 8.1                                Authorization.

Each Lender and the holder of each Note irrevocably appoints and authorizes the Agent to act on behalf of such Lender or holder to the extent provided herein or in any document or instrument delivered hereunder or in connection herewith, and to take such other action as may be reasonably incidental thereto. In furtherance of the foregoing, and not in limitation thereof, each Lender irrevocably (i) authorizes the Agent to execute and deliver and perform its obligations under this Agreement and each of the Loan Documents to which the Agent is a party, and to exercise all rights, powers and remedies that the Agent may have hereunder or thereunder, (ii) appoints the Agent as nominal beneficiary or nominal secured party, as the case may be, under the Loan Documents and all related UCC-1 financing statements, and (iii) authorizes the Agent to act as agent of and for such Lender for purposes of holding, perfecting and disposing of any collateral under the Loan Documents. As to any matters not expressly provided for by this Agreement or the Loan Documents, the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders or, if so required pursuant to Section 9.2, upon the instructions of all Lenders; provided, however, that except for action expressly required of the Agent hereunder, the Agent shall in all cases be fully justified in failing or refusing to act hereunder unless it shall be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action, and the Agent shall not in any event be required to take any action which is contrary to this Agreement, the Loan Documents or applicable law. The Agent shall not have a fiduciary relationship in respect of the Borrower or any Lender by reason of this Agreement.

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Section 8.2                                Distribution of Payments and Proceeds.

(a)           After deduction of any costs of collection, as provided in this Agreement and the other Loan Documents, and any fee payable to the Agent in its capacity as such under this Agreement or any other agreement, the Agent shall remit to each Lender that Lender’s Percentage of all payments of principal and interest and of all fees and other amounts payable hereunder for the benefit of the Lenders that are received by the Agent under the Loan Documents. Each Lender’s interest in the Loan Documents shall be payable solely from payments, collections and proceeds actually received by the Agent under the Loan Documents; and the Agent’s only liability to the Lenders hereunder shall be to account for each Lender’s Percentage of such payments, collections and proceeds in accordance with this Agreement. If the Agent is ever required for any reason to refund any such payments, collections or proceeds, each Lender will refund to the Agent, upon demand, its Percentage of such payments, collections or proceeds, together with its Percentage of interest or penalties, if any, payable by the Agent in connection with such refund.

(b)           Notwithstanding the foregoing, if any Lender has wrongfully refused to fund its Percentage of the Term Loan as required hereunder, or if the principal balance of any Lender’s Note is for any other reason less than its Percentage of the aggregate principal balances of the Notes then outstanding, the Agent may remit all payments received by it to the other Lenders until such payments have reduced the aggregate amounts owed by the Borrower to the extent that the aggregate amount owing to such Lender hereunder is equal to its Percentage of the aggregate amount owing to all of the Lenders hereunder. The provisions of this paragraph are intended only to set forth certain rules for the application of payments, proceeds and collections in the event that a Lender has breached its obligations hereunder and shall not be deemed to excuse any Lender from such obligations.

Section 8.3                                Expenses.

All payments, collections and proceeds received or effected by the Agent may be applied, first, to pay or reimburse the Agent for all costs, expenses, damages and liabilities at any time incurred by or imposed upon the Agent in connection with this Agreement or any other Loan Document (including but not limited to all reasonable attorney’s fees, foreclosure expenses and advances made to protect the security of any collateral). If the Agent does not receive payments, collections or proceeds sufficient to cover any such costs, expenses, damages or liabilities within 30 days after their incurrence or imposition, each Lender shall, upon demand, remit to the Agent its Percentage of the difference between (i) such costs, expenses, damages and liabilities, and (ii) such payments, collections and proceeds, together with interest on such amount for each day following the thirtieth day after demand therefor until so remitted at a rate equal to the Federal Funds Rate for each such day.

Section 8.4                                Payments Received Directly by Lenders.

If any Lender or other holder of a Note shall obtain any payment or other recovery (whether voluntary, involuntary, by application of offset or otherwise) on account of the Obligations other than through distributions made in accordance with Section 8.2, such Lender or holder shall promptly give notice of such fact to the Agent and shall purchase from the other Lenders or holders such participations in the Obligations held by them as shall be necessary to cause the purchasing Lender or holder to share the excess payment or other recovery ratably with each of them; provided, however, that if all or any portion of the excess payment or other recovery is thereafter recovered from such purchasing Lender or holder, the purchase shall be rescinded and the purchasing Lender restored to the extent of such recovery (but without interest thereon).

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Section 8.5                                Indemnification.

Each Lender severally (but not jointly) hereby agrees to indemnify and hold harmless the Agent, as well as the Agent’s agents, employees, officers and directors, ratably according to their respective Percentages from and against any and all losses, liabilities (including liabilities for penalties), actions, suits, judgment, demands, damages, costs, disbursements, or expenses (including attorneys’ fees and expenses) of any kind or nature whatsoever, which are imposed on, incurred by, or asserted against the Agent or its agents, employees, officers or directors in any way relating to or arising out of this Agreement or the Loan Documents, or as a result of any action taken or omitted to be taken by the Agent; provided, however, that no Lender shall be liable for any portion of any such losses, liabilities (including liabilities for penalties), actions, suits, judgments, demands, damages, costs disbursements, or expenses resulting from the gross negligence or willful misconduct of the Agent. Notwithstanding any other provision of the Loan Documents, the Agent shall in all cases be fully justified in failing or refusing to act hereunder unless it shall be indemnified to its satisfaction by the Lenders against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action.

Section 8.6                                Exculpation.

The Agent shall not be liable for any action taken or omitted to be taken by the Agent in connection with this Agreement or the Loan Documents, except for its own gross negligence or willful misconduct. The Agent shall be entitled to rely upon advice of counsel concerning legal matters, the advice of independent public accountants with respect to accounting matters and advice of other experts as to any other matters, and upon this Agreement, any Loan Document and any schedule, certificate, statement, report, notice or other writing which it believes to be genuine or to have been presented by a proper person. Neither the Agent nor any of its directors, officers, employees or agents shall (a) be responsible for any recitals, representations or warranties contained in, or for the execution, validity, genuineness, effectiveness or enforceability of this Agreement, any Loan Document, or any other instrument or document delivered hereunder or in connection herewith, (b) be responsible for the validity, genuineness, perfection, effectiveness, enforceability, existence, value or enforcement of any collateral security, (c) be under any duty to inquire into or pass upon any of the foregoing matters, or to make any inquiry concerning the performance by the Borrower or any other obligor of its obligations, or (d) in any event, be liable as such for any action taken or omitted by it or them, except for its or their own gross negligence or willful misconduct. The agency hereby created shall in no way impair or affect any of the rights and powers of, or impose any duties or obligations upon, the Agent in its individual capacity.

Section 8.7                                Agent and Affiliates.

The Agent shall have the same rights and powers hereunder in its individual capacity as any other Lender, and may exercise or refrain from exercising the same as though it were not the Agent, and the Agent and its affiliates may accept deposits from and generally engage in any kind of business with the Borrower as fully as if the Agent were not the Agent hereunder.

Section 8.8                                Credit Investigation.

Each Lender acknowledges that it has made such inquiries and taken such care on its own behalf as would have been the case had its obligations hereunder been incurred and its Percentage of the Term Loan made directly by such Lender to the Borrower without the intervention of the Agent or any other Lender. Each Lender agrees and acknowledges that the Agent makes no representations or warranties about the creditworthiness of the Borrower or any other party to this Agreement or with respect to the legality, validity, sufficiency or enforceability of this Agreement, any Loan Document, or any other instrument or document delivered hereunder or in connection herewith.

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Section 8.9                                Resignation and Assignment of Agent.

(a)           The Agent may resign as such at any time upon at least 30 days’ prior notice to the Borrower and the Lenders. In the event of any resignation of the Agent, the Required Lenders shall as promptly as practicable appoint a successor Agent. If no such successor Agent shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the resigning Agent’s giving of notice of resignation, then the resigning Agent may, on behalf of the Lenders, appoint a successor Agent, which shall be a commercial bank organized under the laws of the United States of America or of any State thereof. Any such successor Agent shall have capital and retained earnings of at least $100,000,000.

(b)           The Agent may, without the consent of the Borrower or the other Lenders, assign its rights and obligations as Agent hereunder and under the other Loan Documents to its parent or to any wholly owned subsidiary of its parent, and upon such assignment, the former Agent shall be deemed to have retired, and such wholly owned subsidiary shall be deemed to be a successor Agent. Any such successor Agent shall have capital and retained earnings of at least $100,000,000.

(c)           Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon be entitled to receive from the prior Agent such documents of transfer and assignment as such successor Agent may reasonably request and the resigning or assigning Agent shall be discharged from its duties and obligations under this Agreement. After any resignation or assignment pursuant to this Section, the provisions of this Section shall inure to the benefit of the retiring Agent as to any actions taken or omitted to be taken by it while it was acting as Agent hereunder.

Section 8.10                                Defaults.

The Agent shall not be deemed to have knowledge of the occurrence of a Default or an Event of Default unless the Agent has received notice from a Lender or the Borrower specifying the occurrence of such Default or Event of Default. In the event that the Agent receives such a notice of the occurrence of a Default or an Event of Default, the Agent shall give prompt notice thereof to the Lenders. The Agent shall (subject to Section 8.5 hereof) take such actions with respect to such Default as shall be directed by the Required Lenders; provided that, unless and until the Agent shall have received such directions, the Agent may take any action, or refrain from taking any action, with respect to such Default as it shall deem advisable in the best interest of the Lenders.

Section 8.11                                Obligations Several.

The obligations of each Lender hereunder are the several obligations of such Lender, and neither any Lender nor the Agent shall be responsible for the obligations of any other Lender hereunder, nor will the failure by the Agent or any Lender to perform any of its obligations hereunder relieve the Agent or any other Lender from the performance of its respective obligations hereunder. Nothing contained in this Agreement, and no action taken by any Lender or the Agent pursuant hereto or in connection herewith or pursuant to or in connection with the Loan Documents shall be deemed to constitute the Lenders, together or with or without the Agent, as a partnership, association, joint venture, or other entity.

ARTICLE IX

Miscellaneous

Section 9.1                                No Waiver; Cumulative Remedies.

No failure or delay on the part of the Lenders in exercising any right, power or remedy under the Loan Documents shall operate as a waiver thereof; nor shall any Lender’s acceptance of payments while any

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Default or Event of Default is outstanding operate as a waiver of such Default or Event of Default, or any right, power or remedy under the Loan Documents; nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy under the Loan Documents. The remedies provided in the Loan Documents are cumulative and not exclusive of any remedies provided by law.

Section 9.2                                Amendments, Etc.

No amendment or waiver of any provision of any Loan Document or consent to any departure by the Borrower therefrom shall be effective unless the same shall be in writing and signed by the Required Lenders (or by the Agent with the consent or at the request of the Required Lenders), and any such waiver shall be effective only in the specific instance and for the specific purpose for which given. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances.

Notwithstanding the foregoing:

(a)           No such amendment or waiver shall be effective to do any of the following unless signed by each of the Lenders (or by the Agent with the consent or at the request of each of the Lenders):

(i) Increase the Commitment Amount of any Lender or extend the Term Loan Funding Deadline.

(ii) Permit the Borrower to assign its rights under this Agreement.

(iii) Amend this Section, the definition of “Required Lenders” in Section 1.1, or any provision herein providing for consent or other action by all Lenders.

(b)           No such amendment or waiver shall be effective to do any of the following unless signed by each of the Lenders affected thereby (or by the Agent with the consent or at the request of each of such Lenders):

 (i) Forgive any indebtedness of the Borrower arising under this Agreement or the Notes, or reduce the rate of interest or any fees charged under this Agreement or the Notes.

(ii) Postpone or delay any date fixed by this Agreement or any other Loan Document for any payment of principal, interest or other material amounts due to the Lenders (or any of them) hereunder or under any other Loan Document.

(c)           No amendment, waiver or consent shall affect the rights or duties of the Agent under this Agreement or any other Loan Document unless in writing and signed by the Agent.

(d)           No amendment, modification or (except as provided elsewhere herein) termination of this Agreement or waiver of any rights of the Borrower or obligations of any Lender or the Agent hereunder shall be effective unless the Borrower shall have consented thereto in writing.

Section 9.3                                Notice.

Except as otherwise expressly provided herein, all notices and other communications hereunder shall be in writing and shall be (i) personally delivered, (ii) transmitted by registered mail, postage prepaid, (iii) sent by Federal Express or similar expedited delivery service, or (iv) transmitted by telecopy, in each case addressed to the party to whom notice is being given at its address or telecopier number (as the case may

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be) as set forth in Exhibit A or in any applicable Assignment Certificate; or, as to each party, at such other address or telecopier number as may hereafter be designated in a notice by that party to the other party complying with the terms of this Section. All such notices or other communications shall be deemed to have been given on (i) the date received if delivered personally or by mail, (ii) the date of receipt, if delivered by Federal Express or similar expedited delivery service, or (iii) the date of transmission if delivered by telecopy, except that notices or requests to the Agent or any Lender pursuant to any of the provisions of Article II shall not be effective until received.

Section 9.4                                Costs and Expenses.

The Borrower agrees to pay on demand all reasonable costs and expenses incurred by the Agent in connection with the negotiation, preparation, execution, administration, amendment or enforcement of the Loan Documents and the other instruments and documents to be delivered hereunder and thereunder, including the reasonable fees and out-of-pocket expenses of counsel for any Lender with respect thereto, whether paid to outside counsel or allocated to the Agent by in-house counsel.

Section 9.5                                Indemnification by Borrower.

The Borrower hereby agrees to indemnify the Agent and the Lenders and each officer, director, employee and agent thereof (herein individually each called an “Indemnitee” and collectively called the “Indemnitees”) from and against any and all losses, claims, damages, reasonable expenses (including, without limitation, reasonable attorneys’ fees) and liabilities incurred by an Indemnitee in connection with or arising out of the execution or delivery of this Agreement or any agreement or instrument contemplated hereby, the performance by the parties hereto of their respective obligations hereunder or the use of the proceeds of the Term Loan (including but not limited to any such loss, claim, damage, expense or liability arising out of any claim in which it is alleged that any Environmental Law has been breached with respect to any activity or property of the Borrower), except to the extent that such loss, claim, damage, expense or liability was incurred as a result of the gross negligence or willful misconduct of the applicable Indemnitee. All obligations provided for in this Section shall survive any termination of this Agreement.

Section 9.6                                Execution in Counterparts.

This Agreement and the other Loan Documents may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which counterparts of this Agreement or such other Loan Document, as the case may be, taken together, shall constitute but one and the same instrument.

Section 9.7                                Binding Effect; Assignment and Participations.

(a)           Generally. The Loan Documents shall be binding upon and inure to the benefit of the Borrower and the Lenders and their respective successors and assigns, except that (i) the Borrower shall not have the right to assign its rights thereunder or any interest therein without the prior written consent of each of the Lenders, and (ii) except as set forth in this Section 9.7, no Lender may assign or grant any participation in any of its rights or obligations under any Loan Document.

(b)           Participations. Any Lender may, at any time, grant participations in a portion of its Note and Commitment to any institutional investor on any date selected by such Lender. Any Lender proposing a participation hereunder shall give notice of such participation to the Agent at least ten Business Days prior to such participation (unless the Agent consents to a shorter period of time). Such notice shall specify the identity of the proposed purchaser of the participation and the amount of the proposed participation. No such partial participation shall be permitted if the principal amount thereof would be less than $5,000,000. No holder of any such participation,

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other than an affiliate of such Lender, shall be entitled to require such Lender to take or omit to take any action hereunder, except that such Lender may agree with such participant that such Lender will not, without such participant’s consent, (i) forgive any indebtedness of the Borrower under this Agreement or the Notes, (ii) agree to reduce the rate of interest charged under this Agreement, or (iii) agree to extend the final maturity of any indebtedness evidenced by the Notes, except as expressly provided by the terms of the Loan Documents. No Lender shall, as between the Borrower and such Lender, be relieved of any of its obligations hereunder as a result of any such granting of a participation. The Borrower hereby acknowledges and agrees that any participant described in this Section will, for purposes of Section 2.9, be considered to be a Lender hereunder (provided that such participant shall not be entitled to receive any more than the Lender selling such participation would have received had such sale not taken place) and may rely on, and possess all rights under, any opinions, certificates, or other instruments or documents delivered under or in connection with any Loan Document (it being understood that each opinion delivered hereunder speaks only as of the date thereof).

(c)           Assignments. Any Lender may, at any time, assign a portion of its Note and Commitment to an Eligible Lender (an “Applicant”) on any date (the “Adjustment Date”) selected by such Lender. Any Lender proposing an assignment hereunder shall give notice of such assignment to the Agent at least ten Business Days prior to such assignment (unless the Agent consents to a shorter period of time). Such notice shall specify the identity of such Applicant and the Percentage which it proposes that such Applicant acquire (which Percentage shall be the same for the Commitment and the Note held by the assigning Lender). No such partial assignment shall be permitted if, immediately after giving effect to such assignment, either the Credit Exposure of the Applicant or the Credit Exposure of the assigning Lender would be less than $5,000,000. The notice of assignment shall contain a representation by the Applicant to the effect that none of the consideration used to make the purchase of the Note and Commitment under the applicable assignment agreement constitutes “plan assets” as defined under ERISA and that the rights and interests of the Applicant in and under the Loan Documents will not be “plan assets” under ERISA. Any Lender making an assignment under this Section shall pay the Agent a transfer fee in the amount of $3,500 simultaneously with such assignment.

(d)           Consents. Any assignment hereunder may be made, and any participation granted, only with the prior written consent of the Agent and the Borrower; provided, however, that (i) in no event shall such consent be unreasonably withheld or delayed, (ii) the consent of the Borrower shall not be required if any Default or Event of Default has occurred and is continuing at the time of such assignment or grant of participation, (iii) no such consent of the Borrower and the Agent shall be required for the assignment by any Lender of, or grant of a participation in, all or any part of its Commitment and Note to one or more other Persons that are Lenders immediately prior to such assignment, and (iv) no such consent of the Borrower and the Agent shall be required for the assignment by any Lender of, or grant of a participation in, all or any part of its Commitment and Note to one or more affiliates of such Lender, provided that, unless consented to by the Borrower and the Agent (which consent shall not be unreasonably withheld), no such assignment under this clause (iv) shall relieve the transferring Lender from its obligations hereunder.

(e)           Assignment Certificate and Notes. To confirm the status of each Additional Lender as a party to this Agreement and to evidence the assignment in accordance herewith:

 (i) the Borrower, such Lender, such Applicant, and the Agent shall, on or before the Adjustment Date, execute and deliver to the Agent an Assignment Certificate in substantially the form of Exhibit D (an “Assignment Certificate”) (provided that the assignment will be effective without the signature of the Borrower or the

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Agent to the extent that the consent of the Borrower or the Agent, as the case may be, is not required hereunder); and

(ii) the Borrower will, at its own expense, execute and deliver to the Additional Lender a new Note, payable to the order of the Additional Lender in an amount corresponding to the applicable interest in the assigning Lender’s rights and obligations acquired by such Applicant pursuant to such assignment, and, if the assigning Lender has retained interests in such rights and obligations, a new Note, payable to the order of that Lender in an amount corresponding to such retained interests. Such new Notes shall be in an aggregate principal amount equal to the aggregate principal amount of the applicable Note to be replaced by such new Notes, shall be dated the effective date of such assignment and shall otherwise be in the form of the Note to be replaced thereby. Such new Notes shall be issued in substitution for, but not in satisfaction or payment of, the Notes being replaced thereby.

Upon the execution and delivery of such Assignment Certificate and such Notes, (a) this Agreement shall be deemed to be amended to the extent, and only to the extent, necessary to reflect the addition of such Additional Lender and the resulting adjustment of Percentages arising therefrom, (b) the assigning Lender shall be relieved of all obligations hereunder to the extent of the reduction of all obligations hereunder and to the extent of the reduction of such Lender’s Percentage, and (c) the Additional Lender shall become a party hereto and shall be entitled to all rights, benefits and privileges accorded to a Lender herein and in each other document or instrument executed pursuant hereto and subject to all obligations of a Lender hereunder, including the right to approve or disapprove actions which, in accordance with the terms hereof, require the approval of the Required Lenders or all Lenders, and, if the Term Loan has not yet been made, the obligation to advance its Percentage of the Term Loan hereunder.

(f)           Federal Reserve Bank Security Interests. Notwithstanding the foregoing, each Lender may at any time grant a security interest in all or any portion of its rights under this Agreement and that Lender’s Note in favor of any Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve System.

(g)           Borrower Cooperation. In order to facilitate the addition of Additional Lenders hereto, the Borrower shall cooperate fully with each Lender and the Agent in connection therewith and shall provide all reasonable assistance requested by each Lender and the Agent relating thereto, including, without limitation, the furnishing of such written materials and financial information regarding the Borrower as any Lender or the Agent may reasonably request, the execution of such documents as any Lender or the Agent may reasonably request with respect thereto, and the participation by officers of the Borrower in a meeting or teleconference call with any Applicant upon the reasonable request of any Lender or the Agent.

Section 9.8                                Disclosure of Information.

The Agent and the Lenders shall keep confidential (and cause their respective officers, directors, employees, agents and representatives to keep confidential) all information, materials and documents furnished by the Borrower, the Agent or the Lenders (the “Disclosed Information”). Notwithstanding the foregoing, the Agent and each Lender may disclose Disclosed Information (i) to the Agent, any other Lender or any Affiliate of any Lender; (ii) to legal counsel, accountants and other professional advisors to the Agent or such Lender; (iii) to any regulatory body having jurisdiction over any Lender or the Agent; (iv) to the extent required by applicable laws and regulations or by any subpoena or similar legal process, or requested by any governmental agency or authority; (v) to the extent such Disclosed Information (A)

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becomes publicly available other than as a result of a breach of this Agreement, (B) becomes available to the Agent or such Lender on a non-confidential basis from a source other than the Borrower or a Subsidiary, or (C) was available to the Agent or such Lender on a non-confidential basis prior to its disclosure to the Agent or such Lender by the Borrower or a Subsidiary; (vi) to the extent the Borrower or such Subsidiary shall have consented to such disclosure in writing; (vii) to the extent reasonably deemed necessary by the Agent or any Lender in the enforcement of the remedies of the Agent and the Lenders provided under the Loan Documents; or (viii) in connection with any potential assignment or participation in the interest granted hereunder, provided that any such potential assignee or participant shall have executed a confidentiality agreement imposing on such potential assignee or participant substantially the same obligations as are imposed on the Agent and the Lenders under this Section 9.8.

Section 9.9                                Governing Law.

The Loan Documents shall be governed by, and construed in accordance with, the laws of the State of New York.

Section 9.10                                Consent to Jurisdiction.

Each of the Borrower, the Agent and the Lenders irrevocably (i) agrees that any suit, action or other legal proceeding arising out of or relating to this Agreement or any other Loan Document shall be brought in a court of record in Hennepin County in the State of Minnesota or in the courts of the United States located in such State, (ii) consents to the jurisdiction of each such court in any suit, action or proceeding, (iii) waives any objection which it may have to the laying of venue of any such suit, action or proceeding in any such courts and any claim that any such suit, action or proceeding has been brought in an inconvenient forum, and (iv) agrees that a final judgment in any such suit, action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law after all appeals have been exhausted.

Section 9.11                                Waiver of Jury Trial.

THE BORROWER, THE AGENT AND THE LENDERS HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT AND THE NOTES OR THE RELATIONSHIPS ESTABLISHED HEREUNDER.

Section 9.12                                Severability of Provisions.

Any provision of this Agreement which is prohibited or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof.

Section 9.13                                Prior Agreements.

This Agreement and the other Loan Documents and related documents described herein restate and supersede in their entirety any and all prior agreements and understandings, oral or written, between the Lenders and the Borrower.

Section 9.14                                Other Financing.

If at any time from and after the effective date of this Agreement, the Borrower shall enter into any trust indenture, credit agreement or other agreement for, relating to, or amending any terms or conditions applicable to any unsecured indebtedness in an amount not less than $15,000,000, the Borrower shall promptly so advise the Agent. Thereupon, if the Required Lenders shall determine that such trust indenture, credit agreement or other agreement includes covenants or defaults reasonably determined by

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the Required Lenders to be more restrictive than those provided for in Articles V and VI and shall request by notice to the Borrower, the Borrower shall enter into an amendment to this Agreement providing for substantially the same such covenants and defaults as those provided for in such trust indenture, credit agreement or other agreement, to the extent required and as may be selected by the Required Lenders, such amendment to remain in effect for the entire duration of the term to maturity of such indebtedness (to and including the date to which the same may be extended); provided, however, that if any such trust indenture, credit agreement or other agreement shall be modified, supplemented, amended or terminated so as to modify, amend or eliminate such trust indenture or other agreement or any such covenant, term, condition or default so made a part of this Agreement, then, the Borrower shall give the Agent and the Lenders prompt notice thereof and such modification, supplement or amendment shall operate to modify, amend or eliminate such covenants, term, condition or default as so made a part of this Agreement. Notwithstanding the foregoing, in no event shall this Section 9.14 be construed so as to require the Borrower at any time to grant any Lien in favor of the Agent or the Lenders hereunder.

Section 9.15                                Headings.

Article and Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose.

Section 9.16                                Customer Identification – USA Patriot Act Notice.

The Agent hereby notifies the Borrower that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56, signed into law October 26, 2001) (the “Act”), and the Agent’s policies and practices, each Lender is required to obtain, verify and record certain information and documentation that identifies the Borrower, which information includes the name and address of the Borrower and such other information that will allow each Lender to identify the Borrower in accordance with the Act.

 [The balance of this page is intentionally left blank.]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written.

MDU RESOURCES GROUP, INC.

By /s/ Doran N. Schwartz

Doran N. Schwartz

Its Vice President and Chief Accounting Officer

Signature Page to MDU Resources Group, Inc. Term Loan Agreement

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WELLS FARGO BANK, NATIONAL ASSOCIATION, as Agent and as a Lender

By  /s/ Patrick McCue

Patrick McCue

Its Vice President

Signature Page to MDU Resources Group, Inc. Term Loan Agreement

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EXHIBITS AND SCHEDULES

Exhibit A Commitment Amounts and Addresses

Exhibit B Form of Note

Exhibit C Form of Compliance Certificate

Exhibit D Assignment Certificate

Exhibit E-1 Form of General Counsel Opinion

Exhibit E-2 Form of Thelen  LLP Opinion

Exhibit F Acquisition Certificate

Schedule 4.2 Authorizing Orders

Schedule 4.4 Subsidiaries

Schedule 6.1 Permitted Liens

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Exhibit A

COMMITMENT AMOUNTS AND ADDRESSES

Name	Commitment Amount	Notice Address
MDU Resources Group, Inc.	N/A	Schuchart Building 918 E. Divide Avenue Bismarck, ND  58501 Attention:  Chief Financial Officer Telecopier: 701-222-7607
Wells Fargo Bank, National Association, as Agent	N/A	MAC N9305-031 Sixth and Marquette Minneapolis, Minnesota  55479 Attention: Patrick McCue Telecopier: 612-667-2276
Wells Fargo Bank, National Association, as a Lender	$175,000,000	MAC N9305-031 Sixth and Marquette Minneapolis, Minnesota  55479 Attention: Patrick McCue Telecopier: 612-667-2276

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Exhibit B

PROMISSORY NOTE

$_____________________________                                                                                                                                       
60;  ________________, 20__

For value received, MDU Resources Group, Inc., a Delaware corporation (the “Borrower”), promises to pay to the order of ________________________________ (the “Lender”), at such place as the Agent under the Loan Agreement defined below may from time to time designate in writing, in lawful money of the United States of America and in immediately available funds, the principal sum of _____________________________ ($_____________________________), and to pay interest on the principal balance of this Note outstanding from time to time at the rate or rates determined pursuant to the Term Loan Agreement dated September 26, 2008 among the Borrower, Wells Fargo Bank, National Association, as Agent (in such capacity, the “Agent”), and various Lenders, including the Lender (together with all amendments, modifications and restatements thereof, the “Loan Agreement”).

This Note is issued pursuant to, and is subject to, the Loan Agreement, which provides (among other things) for the amount and date of payments of principal and interest required hereunder, for the acceleration of the maturity hereof upon the occurrence of an Event of Default (as defined therein) and for the voluntary and mandatory prepayment hereof. This Note is a Note, as defined in the Loan Agreement.

The Borrower shall pay all costs of collection, including reasonable attorneys’ fees and legal expenses, if this Note is not paid when due, whether or not legal proceedings are commenced.

Presentment or other demand for payment, notice of dishonor and protest are expressly waived.

MDU RESOURCES GROUP, INC.

By _________________________________

Its _______________________________

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Exhibit C

COMPLIANCE CERTIFICATE

__________________________, ______

Wells Fargo Bank, National Association

MAC N9305-031

Minneapolis, Minnesota 55479

The Lenders, as defined in the Loan Agreement described below

Compliance Certificate

Ladies and Gentlemen:

Reference is made to the Term Loan Agreement (the “Loan Agreement”) dated September 26, 2008 entered into among MDU Resources Group, Inc. (the “Borrower”), Wells Fargo Bank, National Association, as Agent, and the Lenders, as defined therein.

All terms defined in the Loan Agreement and not otherwise defined herein shall have the meanings given them in the Loan Agreement.

This is a Compliance Certificate submitted in connection with the Borrower’s financial statements (the “Statements”) as of _____________________, _______ (the “Effective Date”).

I hereby certify to you as follows:

1. I am the chief financial officer of the Borrower, and I am familiar with the financial statements and financial affairs of the Borrower.

2. The Statements have been prepared in accordance with GAAP, except for any portion thereof provided pursuant to Section 5.1(a)(iii), which have been prepared in accordance with FERC Accounting Principles.

3. The computations attached hereto have been prepared in accordance with GAAP and set forth the Borrower’s compliance or non-compliance with the requirements set forth in the Financial Covenants as of the Effective Date. Such computations below have been prepared from, and on a basis consistent with, the Statements. Further attached hereto are all relevant facts in reasonable detail to evidence, and the computations of, the financial covenants referred to above.

4. I have no knowledge of the occurrence of any Default or Event of Default under the Loan Agreement, except as set forth in the attachments, if any, hereto.

Very truly yours,

______________________________________

44

Attachment to Compliance Certificate

MDU Resources Group, Inc.

Effective Date: _______________

Section 6.11 Consolidated Total Leverage Ratio	Actual		Required
Funded Debt of Borrower and all Subsidiaries (consolidated):
(i)indebtedness for borrowed money	$_______
(ii)other indebtedness evidenced by notes, etc.	$_______
(iii)capitalized lease obligations	$_______
(iv)non-recourse secured obligations	$_______
(v)letters of credit, etc.	$_______
(vi)sale-and-leaseback arrangements	$_______
(vii)interest rate/currency agreements	$_______
(viii)guaranty obligations	$_______
Total	$_______
Capitalization of Borrower and Subsidiaries (consolidated)	$_______
Total Funded Debt : Capitalization		____: 1	≤ 0.65 : 1
Section 6.12 Borrower Leverage Ratio
Funded Debt of Borrower alone (including divisions but excluding Subsidiaries)
(i)indebtedness for borrowed money	$_______
(ii)other indebtedness evidenced by notes, etc.	$_______
(iii)capitalized lease obligations	$_______
(iv)non-recourse secured obligations	$_______
(v)letters of credit, etc.	$_______
(vi)sale-and-leaseback arrangements	$_______
(vii)interest rate/currency agreements	$_______
(viii)guaranty obligations	$_______
Total	$_______
Capitalization of Borrower alone (including divisions but excluding Subsidiaries)	$_______
Borrower Funded Debt : Capitalization		____: 1	≤ 0.65 : 1
Section 6.13 Interest Coverage Ratio of Borrower alone (including divisions but excluding Subsidiaries)
EBITDA
(i)(A)after-tax net income	$_______
(B)non-operating gains and losses	$_______
(ii)(A)Interest Expense	$_______
(B)income taxes	$_______
(C)    depreciation and amortization	$_______
Total ([(i)(A) ± (i)(B)] + [(ii)(A) + (ii)(B) + (ii)(C)])	$_______
Interest Expense of Borrower alone (including divisions but excluding Subsidiaries)	$_______
EBITDA : Interest Expense		____: 1	≥ 2.50 : 1

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Exhibit D

ASSIGNMENT CERTIFICATE

Assigning Lender: _______________________________

Applicant: ____________________________________

This Certificate (the “Certificate”) is delivered pursuant to Section 9.7(c) of the Term Loan Agreement dated as of September 26, 2008 entered into among MDU Resources Group, Inc. (the “Borrower”), Wells Fargo Bank, National Association, as Agent, and the Lenders, as defined therein.

The Assigning Lender named above wishes to assign a portion of its interest arising under the Loan Agreement to the Applicant named above pursuant to Section 9.7(c) of the Loan Agreement, and the Applicant wishes to become an Additional Lender pursuant thereto. This Certificate is an Assignment Certificate, as defined in the Loan Agreement, and is executed for purposes of informing the Agent and the Borrower of the transactions contemplate hereby and obtaining the consent of the Agent and the Borrower to the extent required under the Loan Agreement.

Accordingly, the undersigned hereby agree as follows:

1.           Definitions. Unless otherwise defined herein, terms used herein have the meanings provided in the Loan Agreement.

2.           Allocation of Payments. Any interest, fees and other payments accrued to the Effective Date with respect to the Assigning Lender’s interest under the Loan Documents shall be for the account of the Assigning Lender. Any interest, fees and other payments accruing on and after the Effective Date with respect to the interests assigned hereunder shall be for the account of the Applicant.  Each of the Assigning Lender and the Applicant agrees that it will hold in trust for the other party any interest, fees and other amounts which it may receive to which the other party is entitled pursuant to the preceding sentence and pay to the other party any such amounts which it may receive promptly upon receipt.

3.           Effective Date; Conditions. The date on which the Applicant shall become an Additional Lender (the “Effective Date”) is ________________, 20__; provided, however, that the assignment and assumption described in this Certificate shall not be effective unless, on or before the Effective Date, (i) the Agent has received counterparts of this Certificate duly executed and delivered by the Borrower (unless the Borrower’s consent to the assignment hereunder is not required under Section 9.7(c) of the Loan Agreement), the Assigning Lender, the Agent (unless the Agent’s consent to the assignment hereunder is not required under Section 9.7(c) of the Loan Agreement) and the Applicant, (ii) the Agent has received the transfer fee for the account of the Agent in the amount of $3,500, and (iii) all other terms and conditions of this Certificate and the Loan Agreement relating to the assignment hereunder have been satisfied.

4.           Applicant’s Interest. Effective as of the Effective Date, [the Applicant’s Commitment Amount shall be the amount designated as the “Assigned Commitment Amount” opposite the Applicant’s signature below (and the Applicant shall be deemed to have assumed the Assigning Lender’s Commitment in the amount of such Assigned Commitment Amount)/the principal amount of the Term Loan owing to the Applicant shall be the amount designated as the “Assigned Principal” opposite the Applicant’s signature below].

5.           Retained Interest. Effective as of the Effective Date, [the Assigning Lender’s Commitment Amount shall be the amount designated as the “Retained Commitment Amount” opposite

46

the Assigning Lender’s signature below (and the Assigning Lender shall be relieved of all of its obligations under the Loan Agreement to the extent of the reduction in its Commitment Amount in accordance herewith)/the principal amount of the Term Loan owing to the Assigning Lender shall be the amount designated as the “Retained Principal” opposite the Assigning Lender’s signature below].

6.           New Notes. Concurrently with the execution and delivery hereof, the Borrower shall issue and deliver to the Agent in exchange for the Assigning Lender’s Note (i) a Note payable to the order of the Applicant in a face principal amount equal to the Applicant’s [Assigned Commitment Amount/Assigned Principal], in substantially the form of Exhibit B to the Loan Agreement, and (ii) if the Assigning Lender has retained any interest, a Note payable to the order of the Assigning Lender in the amount of the [Retained Commitment Amount/Retained Principal], in substantially the form of Exhibit B to the Loan Agreement.  The Agent shall deliver the foregoing Notes to the Applicant and the Assigning Lender promptly after the Effective Date, or (if later) the receipt by the Agent thereof.

7.           Notice Address. The address shown below the Applicant’s signature hereto shall be its notice address for purposes of Section 9.3 of the Loan Agreement, unless and until it shall designate, in accordance with such Section 9.3, another address for such purposes.

8.           Assumption. Upon the Effective Date, the Applicant shall become a party to the Loan Agreement and a Lender thereunder and (i) shall be entitled to all rights, benefits and privileges accorded to a Lender in the Loan Agreement, (ii) shall be subject to all obligations of a Lender thereunder, and (iii) shall be deemed to have specifically ratified and confirmed (and by executing this Certificate the Applicant hereby specifically ratifies and confirms) all of the provisions of the Loan Agreement and the Loan Documents.

9.           Independent Credit Decision. The Applicant (a) acknowledges that it has received a copy of the Loan Agreement and the Schedules and Exhibits thereto, together with copies of the most recent financial statements referred to in Section 4.5 or 5.1 of the Loan Agreement, and such other documents and information as it has deemed appropriate to make its own credit and legal analysis and decision to enter into this Assignment and Acceptance; (b) acknowledges and agrees that in becoming an Additional Lender, such actions have been and will be made without recourse to, or representation or warranty by, the Assigning Lender or the Agent; and (c) agrees that it will, independently and without reliance upon the Assigning Lender, the Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit and legal decisions in taking or not taking action under the Loan Agreement.

10.           Withholding Tax. The Applicant (a) represents and warrants to the Agent and the Borrower that under applicable law and treaties no tax will be required to be withheld by the Agent with respect to any payments to be made to the Applicant hereunder, (b) agrees to furnish (if it is organized under the laws of any jurisdiction other than the United States or any State thereof) to the Agent and the Borrower prior to the time that the Agent or Borrower is required to make any payment of principal, interest or fees hereunder, duplicate executed originals of U.S. Internal Revenue Service Form W-8ECI or W-8BEN (or appropriate replacement forms) and agrees to provide new Forms W-8ECI or W-8BEN (or appropriate replacement forms) upon the expiration of any previously delivered form or comparable statements in accordance with applicable U.S. law and regulations and amendments thereto, duly executed and completed by the Applicant, and (c) agrees to comply with all applicable U.S. laws and regulations with regard to such withholding tax exemption.

11.           Further Assurances. The Borrower, the Assigning Lender and the Applicant shall, at any time and from time to time upon the written request of the Agent, execute and deliver such further documents and do such further acts and things as the Agent may reasonably request in order to effect the purpose of this Certificate.

47

12.           Miscellaneous. This Certificate may be executed in any number of counterparts by the parties hereto, each of which counterparts shall be deemed to be an original and all of which shall together constitute one and the same certificate.  Matters relating to this Certificate shall be governed by, and construed in accordance with, the internal laws of the State of New York.

IN WITNESS WHEREOF, the undersigned have executed this Certificate as of the Effective Date set forth above.

[Retained Principal: $_________________________/ Retained Commitment Amount: $_________________________]	_________________________________ [Assigning Lender] By _______________________________ Its _____________________________
[Assigned Principal: $_________________________/ Assigned Commitment Amount: $_________________________]	_________________________________ [Applicant] By _______________________________ Its _____________________________ Notice Address: _________________________________ _________________________________ _________________________________ Telecopier: _______________________

Consent of Agent

The Agent hereby consents to the foregoing Assignment.

WELLS FARGO BANK, NATIONAL ASSOCIATION

By _________________________________

Its _______________________________

Consent of Borrower

The Borrower hereby consents to the foregoing Assignment.

MDU RESOURCES GROUP, INC.

By _________________________________

Its _______________________________

48

Exhibit E-1

September 26, 2008

Wells Fargo Bank, National Association, as Agent and as the sole initial Lender

Ladies and Gentlemen:

I am the General Counsel of MDU Resources Group, Inc., a Delaware corporation (the “Company”), and in such capacity, I am familiar with (a) the negotiation, preparation, execution and delivery of that certain Term Loan Agreement, dated as of September 26, 2008 (the “Agreement”), by and among the Company, the several financial institutions from time to time party thereto, and Wells Fargo Bank, National Association, as Agent, and (b) the negotiation, preparation, execution and delivery of the other Loan Documents listed on Schedule A hereto (together with the Agreement, the “Loan Documents”). This opinion is furnished to you pursuant to Section 3.1(d) of the Agreement and at the instruction of the Company. All capitalized terms used but not otherwise defined herein have the meanings ascribed thereto in the Agreement.

For the purpose of rendering the opinions contained herein, I have examined and reviewed the Agreement and the other Loan Documents. I have also examined the originals, or copies certified to my satisfaction, of the Restated Certificate of Incorporation and By-Laws of the Company, resolutions adopted by the Board of Directors of the Company authorizing the execution, delivery and performance by the Company of the Agreement and the other Loan Documents, and such other corporate records of the Company and agreements, instruments and other documents as I have deemed necessary as a basis for the opinions expressed below. In my examination, I have assumed the genuineness of all signatures, other than the signatures of the Company on the Loan Documents to which it is a party, the legal capacity of natural persons, the authenticity of all documents submitted to me as originals and the conformity with original documents of all documents submitted to me as certified or photostatic copies. I have also assumed, with your consent, the due execution and delivery, pursuant to due authorization, of the Agreement by all parties thereto other than the Company and the validity and binding effect of the Agreement upon such parties.

As to any facts that I did not independently establish or verify, I have relied without independent investigation upon statements, representations and certificates of officers of the Company and as to the matters addressed therein, upon certificates or communications from public officials. As used herein, the phrase “to my knowledge” with respect to the existence or absence of facts is intended to signify that, while I have made no specific inquiry or other independent examination to determine the existence or absence of such facts, no factual information has come to my attention which causes me to believe that such facts are not accurate.

Based on and subject to the foregoing and upon such investigation as I have deemed necessary, and subject to the qualifications set forth below, it is my opinion that:

1.           The Company is a corporation duly incorporated, validly existing and in good standing under the laws of Delaware.

2.           The Company is duly qualified as a foreign corporation to transact business and is in good standing in Iowa, Minnesota, Montana, Nebraska, North Dakota, South Dakota and Wyoming, and is not required, whether by reason of ownership or leasing of property or the conduct of its business,

49

to be qualified in any other jurisdiction, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect.

3.           The Company has the corporate power and authority to execute, deliver and perform its obligations under the Agreement and the other Loan Documents applicable to it, and has all requisite corporate power and authority, licenses and permits to own its assets and to carry on its business as currently conducted and as contemplated to be conducted by the Agreement.

4.           The execution, delivery and performance by the Company of the Agreement and each of the other Loan Documents to which it is a party have been duly authorized by all necessary corporate action and by all necessary public utility commissions and other regulatory bodies having jurisdiction over the Company, and each of the Agreement and the other Loan Documents has been duly executed and delivered by the Company.

5.           The execution, delivery and performance by the Company of the Agreement and of the other Loan Documents to which it is a party, and the borrowing thereunder, do not and will not (a) require any consent or approval of the stockholders of the Company or any authorization, consent or approval by any governmental department, commission, board, bureau, agency or instrumentality, other than Authorizing Orders set forth in Schedule 4.2 to the Agreement, each of which Authorizing Orders has been obtained and is in full force and effect, (b) violate any provision of any law, rule or regulation or any order, writ, injunction or decree presently in effect having applicability to the Company or the Restated Certificate of Incorporation or By-Laws of the Company, (c) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which the Company is a party or by which its properties may be bound or affected, or (d) except as provided therein, result in, or require, the creation or imposition of any Lien or other charge or encumbrance of any nature  upon or with respect to any of its properties.

6.           Except as set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, or in any document subsequently filed by the Company pursuant to Section 13, 14 or 15(d) of the Exchange Act, there are no actions, suits or proceedings pending or, to my knowledge, threatened against or affecting the Company or the properties of the Company before any court or governmental department, commission, board, bureau, agency or instrumentality, which, if determined adversely to the Company, would have a Material Adverse Effect.

7.           The Term Loan has been duly authorized by the Borrower’s Board of Directors pursuant to resolutions adopted thereby on July 10, 2008, which authority remains in full force and effect on the date hereof.

8.           Without limiting the generality of the foregoing, the Term Loan complies with all applicable requirements of each applicable resolution of the Borrower’s Board of Directors and each applicable Authorizing Order, including but not limited to any applicable limitation on the aggregate amount of short-term or long-term debt that the Borrower may have outstanding at any one time.

The opinions expressed herein are limited to the laws of the State of North Dakota and the General Corporation Law of the State of Delaware. I am a member of the Minnesota and North Dakota Bars and do not hold myself out as an expert on the laws of the States of Iowa, Montana, Nebraska, South Dakota or Wyoming, but have made a study through counsel located in such jurisdictions or otherwise of the laws of such jurisdictions insofar as such laws are involved in the conclusions expressed in this opinion. Insofar as the opinions expressed herein relate to the General Corporation Law of the State of Delaware, or the federal laws of the United States of America, I have relied with your consent on the opinion, of even date herewith, of Thelen LLP.

50

This opinion is intended solely for your use and is rendered solely in connection with the Agreement and the other Loan Documents, and without my written consent may not be (a) relied upon by you for any other purpose, or (b) relied upon by any other person or entity for any purpose, except that Thelen LLP, special counsel to the Company, may rely on the opinions expressed herein in rendering to you their opinion of even date herewith. The opinions expressed above are limited to the law and facts in effect on the date hereof. I disclaim any obligation to advise you of facts, circumstances, events or developments which hereafter may be brought to my attention and which might alter, affect or modify the opinions expressed herein.

I hereby consent to reliance by the Agent and the Lenders now or hereafter parties to the Agreement on the opinions expressed herein.

        Very truly yours,

51

SCHEDULE A

Promissory Note of MDU Resources Group, Inc., dated September 26, 2008, payable to the order of Wells Fargo Bank, National Association in the face principal amount of $175,000,000.

52

Exhibit E-2

September 26, 2008

Wells Fargo Bank, National Association, as Agent and as the sole initial Lender

Ladies and Gentlemen:

We have acted as special counsel for MDU Resources Group, Inc., a Delaware corporation (the “Company”), in connection with (a) the negotiation, preparation, execution and delivery of that certain Term Loan Agreement, dated as of September 26, 2008 (the “Agreement”), by and among the Company, the several financial institutions from time to time party thereto, and Wells Fargo Bank, National Association, as Agent, and (b) the negotiation, preparation, execution and delivery of the other Loan Documents listed on Schedule A hereto (together with the Agreement, the “Loan Documents”). This opinion is furnished to you pursuant to Section 3.1(d) of the Agreement and at the instruction of the Company. All capitalized terms used but not otherwise defined herein have the meanings ascribed thereto in the Agreement.

For the purpose of rendering the opinions contained herein, we have examined and reviewed the Agreement and the other Loan Documents. We have also examined the originals, or copies certified to our satisfaction, of the Restated Certificate of Incorporation and By-Laws of the Company, resolutions adopted by the Board of Directors of the Company authorizing the execution, delivery and performance by the Company of the Agreement and the other Loan Documents, and such other corporate records of the Company and agreements, instruments and other documents as we have deemed necessary as a basis for the opinions expressed below. In our examination, we have assumed the genuineness of all signatures, the legal capacity of natural persons, the authenticity of all documents submitted to us as originals and the conformity with original documents of all documents submitted to us as certified or photostatic copies. We have also assumed, with your consent, the due execution and delivery, pursuant to due authorization, of the Agreement by all parties thereto other than the Company and the validity and binding effect of the Agreement upon such parties. As to any facts that we did not independently establish or verify, we have relied without independent investigation upon statements, representations and certificates of officers of the Company and as to the matters addressed therein, upon certificates or communications from public officials.

Based on and subject to the foregoing and upon such investigation as we have deemed necessary, and subject to the qualifications set forth below, it is our opinion that:

1.           The Company is a corporation duly incorporated, validly existing and in good standing under the laws of Delaware.

2.           The Company has the corporate power and authority to execute, deliver and perform its obligations under the Agreement and the other Loan Documents applicable to it.

3.           The execution, delivery and performance by the Company of the Agreement and each of the other Loan Documents to which it is a party have been duly authorized by all necessary corporate action, and each of the Agreement and the other Loan Documents has been duly executed and delivered by the Company.

4.           The execution, delivery and performance by the Company of the Agreement and of the other Loan Documents to which it is a party do not and will not (a) require any consent or approval

53

of the stockholders of the Company or any authorization, consent or approval by any governmental department, commission, board, bureau, agency or instrumentality, other than Authorizing Orders set forth in Schedule 4.2 to the Agreement, each of which Authorizing Orders has been obtained and is in full force and effect, or (b) violate any provision of any law, rule or regulation or any order, writ, injunction or decree presently in effect having applicability to the Company or the Restated Certificate of Incorporation or By-Laws of the Company.

5.           Each of the Agreement and each of the Loan Documents to which the Company is a party constitutes a legal, valid and binding obligation of the Company enforceable in accordance with its respective terms, subject to the effect of any applicable bankruptcy, insolvency, moratorium or other similar laws affecting creditors’ rights generally and of general principles of equity (regardless of whether applied in a proceeding in equity or at law), except that we express no opinion as to (a) Section 2.8(c) and Section 7.2(c) of the Agreement, (b) the enforceability of rights to indemnity under federal or state securities laws, or (c) the enforceability of waivers of the parties of their respective rights and remedies under law.

This opinion is limited to the laws of the State of New York, the General Corporation Law of the State of Delaware, and the federal laws of the United States of America. We express no opinion as to the laws of any other jurisdiction.

In rendering this opinion, we have relied as to all matters of Iowa, Minnesota, Montana, Nebraska, North Dakota, South Dakota and Wyoming law, as to matters addressed therein, with your consent, upon the opinion of Paul K. Sandness, Bismarck, North Dakota, the General Counsel of the Company.

This opinion is intended solely for your use and is rendered solely in connection with the Agreement and the other Loan Documents, and without our written consent may not be (a) relied upon by you for any other purpose, or (b) relied upon by any other person or entity for any purpose, except that Paul K. Sandness may rely on the opinions expressed herein in rendering to you his opinion of even date herewith.

The opinions expressed above are limited to the law and facts in effect on the date hereof. We disclaim any obligation to advise you of facts, circumstances, events or developments which hereafter may be brought to our attention and which might alter, affect or modify the opinions expressed herein.

We hereby consent to reliance by the Agent and the Lenders now or hereafter parties to the Agreement on the opinions expressed herein.

                 Very truly yours,

54

SCHEDULE A

Promissory Note of MDU Resources Group, Inc., dated September 26, 2008, payable to the order of Wells Fargo Bank, National Association in the face principal amount of $175,000,000.

55

Exhibit F

ACQUISITION CERTIFICATE

                 __________________________, ______

Wells Fargo Bank, National Association

MAC N9305-031

Minneapolis, Minnesota 55479

The Lenders, as defined in the Loan Agreement described below

Acquisition Certificate

Ladies and Gentlemen:

Reference is made to the Term Loan Agreement (the “Loan Agreement”) dated September 26, 2008 entered into among MDU Resources Group, Inc. (the “Borrower”), Wells Fargo Bank, National Association, as Agent, and the Lenders, as defined therein.

All terms defined in the Loan Agreement and not otherwise defined herein shall have the meanings given them in the Loan Agreement.

This is the certificate required under Section 3.1(e) of the Loan Agreement as a condition to making the Term Loan.

I hereby certify to you as follows:

1. I am the chief financial officer of the Borrower, and I am familiar with the terms of the Intermountain Acquisition.

2. All conditions precedent to the Intermountain Acquisition have been satisfied in full or, concurrent with the making of the Term Loan, will be satisfied in full pursuant to provisions for their satisfaction that have been made.

          _____________________________________

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Schedule 4.2

Authorizing Orders

MDU Resources Group, Inc.  MDU Resources Group, Inc. (“MDU”) received authorization to issue up to $330,000,000 of short-term promissory notes representing bank borrowings from the following regulatory commissions:

a.By an order dated September 10, 2008, MDU received authorization from the Federal Energy Regulatory Commission (FERC) in Docket No. ES08-54-000.  This FERC authorization is effective with respect to borrowings from September 10, 2008 through September 9, 2010.

b.By an order dated August 26, 2008, MDU received authorization from the Montana Public Service Commission in Docket No. D2008.8.93, Default Order No. 6934. This Montana authorization is effective with respect to borrowings from August 26, 2008 through August 25, 2009.

No further consent, approval, waiver, order or authorization of, or registration, qualification, declaration, or filings with, or notice to, any governmental department, commission, board, bureau, agency or instrumentality is required.

57

Schedule 4.4

	SUBSIDIARIES
1.	Alaska Basic Industries, Inc., an Alaska corporation, 100%
2.	Ames Sand & Gravel, Inc., a North Dakota corporation, 100%
3.	Anchorage Sand and Gravel Company, Inc., an Alaska corporation , 100%
4.	Baldwin Contracting Company, Inc., a California corporation, 100%
5.	BEH Electric Holdings, LLC, a Nevada limited liability company, 100%
6.	Bell Electrical Contractors, Inc., a Missouri corporation, 100%
7.	Bitter Creek Pipelines, LLC, a Colorado limited liability company, 100%
8.	BMH Mechanical Holdings, LLC, a Nevada limited liability company, 100%
9.	Bombard Electric, LLC, a Nevada limited liability company, 100%
10.	Bombard Mechanical, LLC, a Nevada limited liability company, 100%
11.	Capital Electric Construction Company, Inc., a Kansas corporation, 100%
12.	Capital Electric Line Builders, Inc., a Kansas corporation, 100%
13.	Cascade Land Leasing Co., a Washington corporation, 100%
14.	Cascade Natural Gas Corporation, a Washington corporation, 100%
15.	Centennial Energy Holdings, Inc., a Delaware corporation, 100%
16.	Centennial Energy Resources International, Inc., a Delaware corporation, 100%
17.	Centennial Energy Resources LLC, a Delaware limited liability company, 100%
18.	Centennial Holdings Capital LLC, a Delaware limited liability company, 100%
19.	Central Oregon Redi-Mix, L.L.C., an Oregon limited liability company, 78%
20.	CGC Energy, Inc., a Washington corporation, 100%
21.	CGC Properties, Inc., a Washington corporation, 100%
22.	CGC Resources, Inc., a Washington corporation, 100%
23.	ClearFlame, LLC, a Colorado limited liability company, 100%
24.	Concrete, Inc., a California corporation, 100%
25.	Connolly-Pacific Co., a California corporation, 100%
26.	Continental Line Builders, Inc., a Delaware corporation, 100%
27.	Coordinating and Planning Services, Inc., a Delaware corporation, 100%
28.	Desert Fire Holdings, Inc., a Nevada corporation, 100%
29.	Desert Fire Protection, a Nevada Limited Partnership, 100%
30.	Desert Fire Protection, Inc., a Nevada corporation, 100%
31.	Desert Fire Protection, LLC, a Nevada limited liability company, 100%
32.	DSS Company, a California corporation,  100%
33.	E.S.I., Inc., an Ohio corporation, 100%
34.	Fairbanks Materials, Inc., an Alaska corporation, 100%
35.	Fidelity Exploration & Production Company, a Delaware corporation,  100%
36.	Fidelity Exploration & Production Company of Texas LLC, a Delaware limited liability company, 99.44%
37.	Fidelity Oil Co., a Delaware corporation, 100%
38.	Frebco, Inc., an Ohio corporation, 100%
39.	FutureSource Capital Corp., a Delaware corporation,  100%
40.	Granite City Ready Mix, Inc., a Minnesota corporation, 100%
41.	Hamlin Electric Company, a Colorado corporation, 100%
42.	Hap Taylor & Sons, Inc., an Oregon corporation, 100%
43.	Harp Engineering, Inc., a Montana corporation, 100%
44.	Hawaiian Cement, a Hawaii partnership, 100%
45.	ILB Hawaii, Inc., a Hawaii corporation, 100%
46.	Independent Fire Fabricators, LLC, a Nevada limited liability company, 100%

58

47.	International Line Builders, Inc., a Delaware corporation, 100%
48.	InterSource Insurance Company, a Vermont corporation, 100%
49.	Jebro Incorporated, an Iowa corporation, 100%
50.	JTL Group, Inc., a Montana corporation, 100%
51.	JTL Group, Inc., a Wyoming corporation, 100%
52.	Kent’s Oil Service, a California corporation, 100%
53.	Knife River Corporation, a Delaware corporation, 100%
54.	Knife River Corporation – North Central, a Minnesota corporation, 100%
55.	Knife River Corporation – South, a Texas corporation, 100%
56.	Knife River Dakota, Inc., a Delaware corporation, 100%
57.	Knife River Hawaii, Inc., a Delaware corporation, 100%
58.	Knife River Marine, Inc., a Delaware corporation, 100%
59.	Knife River Midwest, LLC, a Delaware limited liability company, 100%
60.	KRC Aggregate, Inc., a Delaware corporation, 100%
61.	KRC Holdings, Inc., a Delaware corporation, 100%
62.	LME&U Holdings, LLC, a Nevada limited liability company, 100%
63.	Lone Mountain Excavation & Utilities, LLC, a Nevada limited liability company, 100%
64.	Loy Clark Pipeline Co., an Oregon corporation, 100%
65.	LTM, Incorporated, an Oregon corporation, 100%
66.	MDU Brasil Ltda., a Brazil limited liability company, 100%
67.	MDU Chile Inversiones Ltda., a Chile limited liability partnership, 100%
68.	MDU Construction Services Group, Inc., a Delaware corporation, 100%
69.	MDU Energy Capital, LLC, a Delaware limited liability company, 100%
70.	MDU Industrial Services, Inc., a Delaware corporation, 100%
71.	MDU Norte Transmissão de Energia Ltda., a Brazil limited liability company, 100%
72.	MDU Resources International LLC, a Delaware limited liability company, 100%
73.	MDU Resources Luxembourg I LLC S.a.r.l., a Luxembourg limited liability company, 100%
74.	MDU Resources Luxembourg II LLC S.a.r.l., a Luxembourg limited liability company, 100%
75.	MDU Sul Transmissão de Energia Ltda., a Brazil limited liability company, 100%
76.	Midland Technical Crafts, Inc., a Delaware corporation, 100%
77.	Morse Bros., Inc., an Oregon corporation, 100%
78.	Netricity LLC, an Alaska limited liability company, 75%
79.	Northstar Materials, Inc., a Minnesota corporation, 100%
80.	Oregon Electric Construction, Inc., an Oregon corporation, 100%
81.	Pouk & Steinle, Inc., a California corporation, 100%
82.	Prairie Cascade Energy Holdings, LLC, a Delaware limited liability company, 100%
83.	Prairie Intermountain Energy Holdings, LLC, a Delaware limited liability company, 100%
84.	Prairielands Energy Marketing, Inc., a Delaware corporation, 100%
85.	Prairielands Magnetics Limited, a Scotland private limited company, 100%
86.	Rocky Mountain Contractors, Inc., a Montana corporation, 100%
87.	Rogue Aggregates, Inc., an Oregon corporation, 100%
88.	Seven Brothers Ranches, Inc., a Wyoming corporation, 100%
89.	USI Industrial Services, Inc., a Delaware corporation, 100%
90.	The Wagner Group, Inc., a Delaware corporation, 100%
91.	Wagner Industrial Electric, Inc., a Delaware corporation, 100%
92.	The Wagner-Smith Company, an Ohio corporation, 100%
93.	Wagner-Smith Equipment Co., a Delaware corporation, 100%
94.	Wagner-Smith Pumps & Systems, Inc., an Ohio corporation, 100%
95.	WBI Canadian Pipeline, Ltd., a Canadian corporation, 100%
96.	WBI Energy Services, Inc., a Delaware corporation, 100%
97.	WBI Holdings, Inc., a Delaware corporation, 100%

59

98.	WBI Pipeline & Storage Group, Inc., a Delaware corporation, 100%
99.	WHC, Ltd., a Hawaii corporation, 100%
100.	Williston Basin Interstate Pipeline Company, a Delaware corporation, 100%

60

Schedule 6.1

LIENS

None.

61

EX-4.B

EXECUTION VERSION

AMENDMENT NO. 1

TO MASTER SHELF AGREEMENT

As of October 1, 2008

Prudential Investment Management, Inc.

The Prudential Insurance Company of America

Each of the other Purchasers named on the attached Information Schedule

c/o Prudential Capital Group

Gateway Center Four

100 Mulberry Street

Newark, NJ 07102-4069

Ladies and Gentlemen:

We refer to the Master Shelf Agreement, dated as of August 9, 2007 (as amended hereby, and as the same may be further amended, restated, supplemented or otherwise modified from time to time, the “Agreement”), among MDU Energy Capital, LLC, a Delaware limited liability company (the “Company”), Prudential Investment Management, Inc. (“PIM”), The Prudential Insurance Company of America (“Prudential”),and the holders of the Notes issued thereunder (together with Prudential, the “Note Holders”), pursuant to which the Company has issued its 5.74% Senior Notes, Series A, due October 22, 2012, its 6.17% Senior Notes, Series B, due May 15, 2013, and its 6.12% Senior Notes, Series C, due August 31, 2017, and will issue its 5.69% Senior Notes, Series D, due October 1, 2013 (the “Series D Notes”), and its 5.97% Senior Notes, Series E, due October 1, 2015 (the “Series E Notes”).  Unless otherwise defined in this Amendment No. 1 to Master Shelf Agreement (this “Amendment”), the terms defined in the Agreement shall be used herein as therein defined.

The Company has requested that the Agreement be amended as hereinafter set forth, and subject to the terms and conditions specified herein, PIM and the Note Holders parties to this Amendment are willing to agree to the requested amendments.

1.           Amendment to the Agreement.  The Agreement is hereby amended as follows:

(a)           The cover page of the Agreement is hereby amended by deleting the figure “$125,000,000” and replacing it with the figure “$175,000,000”.

(b)           Section 1 of the Agreement is hereby amended by deleting such Section in its entirety and replacing it with the following:

1           AUTHORIZATION OF NOTES.

1.1           Authorization of Issue of Initial Notes, Series C Notes, Series D Notes and Series E Notes.

(a)           The Company has authorized the issue of (a) $25,000,000 principal amount of its 5.74% Senior Notes, Series A, dated August 14, 2007, and due October 22, 2012, substantially in the form of Exhibit 1-A attached hereto (the “Series A Notes”), (b) $25,000,000 principal amount of its 6.17% Senior Notes, Series B, dated August 14, 2007, and due May 15, 2013, substantially in the form of Exhibit 1-B attached hereto (the “Series B Notes” and, together with the Series A Notes, individually and collectively, the “Initial Notes”), and (c) $35,000,000 principal amount of its 6.12% Senior Notes, Series C, dated August 28, 2007, and due August 31, 2017, substantially in the form of Exhibit 1-C attached hereto (the “Series C Notes”).  Certain capitalized terms used in this Agreement are defined in Schedule B; references to a “Schedule” or an “Exhibit” are, unless otherwise specified, to a Schedule or an Exhibit attached to this Agreement.

(b)           The Company has authorized the issue of (a) $30,000,000 principal amount of  its 5.69% Senior Notes, Series D, due October 1, 2013, substantially in the form of Exhibit 1-D attached hereto (the “Series D Notes”), and (b) $50,000,000 principal amount of its 5.97% Senior Notes, Series E, due October 1, 2015, substantially in the form of Exhibit 1-E attached hereto (the “Series E Notes”).

1.2           Authorization of Issue of Shelf Notes.

           The Company also has authorized the issue of additional senior promissory notes (together with any other Notes hereafter purchased and sold pursuant to this Agreement as contemplated by the third sentence of Section 2.1(c), the “Shelf Notes”), each Shelf Note to be dated the date of issue thereof; to mature, in the case of each Note so issued, no more than 15 years after the date of original issuance thereof; to have an average life, in the case of each note so issued, of no more than 13 years after the date of original issuance thereof (provided that up to $50,000,000 aggregate principal amount of the Notes may have an average life of 15 years after the date of original issuance thereof); to bear interest on the unpaid balance thereof from the date thereof at the rate per annum, and to have such other particular terms, as shall be set forth, in the case of each Shelf Note so issued, in the Confirmation of Acceptance with respect to such Shelf Note delivered pursuant to Section 2.6; and to be substantially in the form of Exhibit 1-F attached hereto.  The term “Notes” as used herein shall include each Series A Note, Series B Note, Series C Note, Series D Note, Series E Note and Shelf Note delivered pursuant to any provision of this Agreement and each Note delivered in substitution or exchange for any such Series A Note, Series B Note, Series C Note, Series D Note, Series E Note and Shelf Note pursuant to any such provision.  Notes which have (i) the same final maturity, (ii) the same installment payment dates, (iii) the same installment payment amounts (as a percentage of the

  2

original principal amount of each Note), (iv) the same interest rate, (v) the same interest payment periods, and (vi) the same original date of issuance are herein called a “Series” of Notes.  

(c)           Section 2.1 of the Agreement is hereby amended by deleting such Section in its entirety and replacing it with the following:

2.1           Sale and Purchase; Facility.

(a)           Sale and Purchase of Initial Notes and Series C Notes.  Subject to the terms and conditions of this Agreement, the Company has issued and sold (i) the Initial Notes to each Initial Purchaser, and each Initial Purchaser has purchased from the Company the Initial Notes in the principal amount specified opposite such Initial Purchaser’s name on the Information Schedule at the purchase price of 100% of the principal amount thereof at the Initial Closing provided for in Section 3.1(a), and (ii) the Series C Notes to each Purchaser thereof, and each such Purchaser has purchased from the Company the Series C Notes in the principal amount specified opposite such Purchaser’s name on the Information Schedule at the purchase price of 100% of the principal amount thereof at the Closing with respect thereto provided for in Section 3.1(b) (as such Section was in effect at the time of such Closing).

(b)           Sale and Purchase of Series D Notes and Series E Notes.  Subject to the terms and conditions of this Agreement, the Company will issue and sell the Series D Notes and Series E Notes to each Purchaser thereof specified opposite such Purchaser’s name on the Information Schedule, and each such Purchaser will purchase from the Company such Series D Notes and Series E Notes, at the purchase price of 100% of the principal amount thereof at the Series D/E Closing provided for in Section 3.1(b).The obligations of such Purchasers and the other Purchasers under this Agreement are several and not joint obligations and no Purchaser shall have any liability to any Person for the performance or non-performance of any obligation by any other Purchaser under this Agreement.

(c)           Facility.  Prudential is willing to consider, in its sole discretion and within limits which may be authorized for purchase by Prudential Affiliates from time to time, the purchase of the total amount of authorized Notes pursuant to this Agreement.  The willingness of Prudential to consider such purchase of Notes is herein called the “Facility.”  At any time, the “Available Facility Amount” shall be (i) $175,000,000 minus (ii) the aggregate principal amount of Notes purchased and sold pursuant to this Agreement prior to such time, minus (iii) the aggregate principal amount of Accepted Notes which have not yet been purchased and sold hereunder prior to such time, plus (iv) (to the extent that the Company authorizes additional Shelf Notes) the aggregate

3 

principal amount of Notes purchased and sold pursuant to this Agreement and thereafter retired prior to such time; provided, that at no time may the aggregate principal amount of Notes outstanding under this Agreement exceed $175,000,000.  NOTWITHSTANDING THE WILLINGNESS OF PRUDENTIAL TO CONSIDER PURCHASES OF SHELF NOTES, THIS AGREEMENT IS ENTERED INTO ON THE EXPRESS UNDERSTANDING THAT NEITHER PRUDENTIAL NOR ANY PRUDENTIAL AFFILIATE SHALL BE OBLIGATED TO MAKE OR ACCEPT OFFERS TO PURCHASE SHELF NOTES, OR TO QUOTE RATES, SPREADS OR OTHER TERMS WITH RESPECT TO SPECIFIC PURCHASES OF SHELF NOTES, AND THE FACILITY SHALL IN NO WAY BE CONSTRUED AS A COMMITMENT BY PRUDENTIAL OR ANY PRUDENTIAL AFFILIATE.

(d)           Section 3.1(a) of the Agreement is hereby amended by deleting the last sentence of such Section in its entirety and replacing it with the following:

The Initial Closing, the Series C Closing, the Series D/E Closing and each Shelf Closing are referred to as a “Closing”.

(e)           Section 3.1(b) of the Agreement is hereby amended by deleting such Section in its entirety and replacing it with the following:

(b)           Series D/E Closing.  The sale and purchase of the Series D Notes and the Series E Notes to be purchased by the applicable Purchaser shall occur at the offices of Baker Botts L.L.P., 2001 Ross Avenue, Suite 600, Dallas, TX 75201, no later than 11:30 a.m. (New York City local time), at a closing (the “Series D/E Closing”) on October 1, 2008 (the day of such Closing being the “Series D/E Closing Day”).  At the Series D/E Closing, the Company will deliver to each Purchaser of Series D Notes or Series E Notes, as the case may be, the Series D Notes or Series E Notes to be purchased by such Purchaser in the form of a single Series D Note or Series E Note, as the case may be (or such greater number of Series D Notes or Series E Notes in denominations of at least $100,000 as such Purchaser may request), dated October 1, 2008, and registered in such Purchaser’s name (or in the name of its nominee), against delivery to the Company by such Purchaser of immediately available funds in the amount of the purchase price for the Series D Notes or Series E Notes to be purchased by such Purchaser by wire transfer of immediately available funds for the account of the Company to account number 163070647736 at US Bank, N.A., ABA# 091300023 for credit of MDU Energy Capital, LLC.  If at the Series D/E Closing the Company shall fail to tender such Series D Notes or Series E Notes, as the case may be, to any Purchaser as provided above in this Section 3.1(b), or any of the conditions specified in Section 4 shall not have been fulfilled to such Purchaser’s satisfaction, such Purchaser shall, at its election, be relieved of all further obligations

4 

under this Agreement, without thereby waiving any rights such Purchaser may have by reason of such failure or such nonfulfillment.

(f)           Section 3.1 of the Agreement is amended by adding the following Section (c) to the Agreement:

(c)           Subsequent Closings.  Not later than 11:30 A.M. (New York City local time) on the Closing Day for any Accepted Notes, the Company will deliver to each Purchaser listed in the Confirmation of Acceptance relating thereto at a closing (each, a “Shelf Closing”), at the offices of Baker Botts L.L.P., 2001 Ross Avenue, Suite 600, Dallas, TX 75201, the Accepted Notes to be purchased by such Purchaser in the form of one or more Notes in authorized denominations as such Purchaser may request for each Series of Accepted Notes to be purchased on the Closing Day, dated the Closing Day and registered in such Purchaser’s name (or in the name of its nominee), against payment of the purchase price thereof by transfer of immediately available funds for credit to the Company’s account specified in the Request for Purchase of such Accepted Notes.

(g)           Section 3.2 of the Agreement is hereby amended by deleting “Section 3.1(b)” in the first sentence of such Section and replacing it with “Section 3.1(c)”.

(h)           Section 4 of the Agreement is hereby amended by deleting the first four lines of such Section in their entirety and replacing them with the following:

The obligation of any Purchaser to purchase and pay for any Initial Notes, Series C Notes, Series D Notes, Series E Notes or any Accepted Notes is subject to the fulfillment to such Purchaser’s satisfaction, prior to or at the Applicable Closing Day with respect to such Notes, of the following conditions:

(i)           Section 4.1 of the Agreement is hereby amended by deleting the Section in its entirety and replacing it with the following:

4.1           Representations and Warranties.

The representations and warranties of the Company in this Agreement shall be correct when made and at the Applicable Closing Day.

(j)           Section 4.2 of the Agreement is hereby amended by deleting the Section in its entirety and replacing it with the following:

4.2           Performance; No Default.

The Company shall have performed and complied with all agreements and conditions contained in this Agreement required to be performed or complied with by it prior to or at the Applicable Closing

5 

Day, and after giving effect to the issue and sale of the Notes to be issued on such Applicable Closing Day (and, (i) with respect to any Accepted Notes, the application of the proceeds thereof as contemplated by this Agreement and the Request for Purchase for such Accepted Notes, and (ii) with respect to the Series D Notes and the Series E Notes, the application of the proceeds thereof as contemplated by the first sentence of Section 5.14), no Default or Event of Default shall have occurred and be continuing.  From December 31, 2006 to the date of this Agreement, neither the Company nor any Subsidiary shall have entered into any transaction that remains in effect on the date of this Agreement and that would have been prohibited by Sections 10.1 through 10.16 hereof had such Sections applied since December 31, 2006.

(k)           Section 4.3 of the Agreement is hereby amended by deleting the Section in its entirety and replacing it with the following:

4.3           Compliance Certificates.

(a)           Officer’s Certificate.  The Company shall have delivered to such Purchaser an Officer’s Certificate, dated the date of the Applicable Closing Day, certifying that the conditions specified in Sections 4.1, 4.2 and 4.8 and, in the case of the Series D/E Closing Day, the conditions specified in Section 4.13 (together with supporting calculations in reasonable detail), have been fulfilled.

(b)           Secretary’s Certificate.  The Company shall have delivered to such Purchaser a certificate, dated as of the Applicable Closing Day, certifying as to the resolutions attached thereto and other corporate proceedings relating to the authorization, execution and delivery of such Notes and this Agreement.

(l)           Section 4.4 of the Agreement is hereby amended by deleting “Thelen Reid Brown Raysman & Steiner LLP” and replacing it with “Thelen LLP”.

(m)           Section 4 of the Agreement is hereby amended by adding the following Section 4.13 thereto:

4.13           Acquisition of Intermountain Gas Company.  Solely with respect to the Series D/E Closing, Prairie Intermountain shall have acquired all of the issued and outstanding Capital Stock of Intermountain Gas Company, an Idaho corporation (“Intermountain”), and Intermountain at such time shall have not more than $105,000,000 ofIndebtedness.

(n)           Section 5.14 of the Agreement is hereby amended by adding the following at the end of the first sentence thereof:

6 

and, in the case of the Series D Notes and the Series E Notes, to consummate the Intermountain Acquisition

(o)           Section 7.1(b) of the Agreement is hereby amended by inserting the words “and “Intermountain” after the word “Cascade” in clauses (iii) and (iv) thereof.

(p)           Section 9.1 of the Agreement is hereby amended by inserting the words “and the Intermountain Acquisition” immediately following the words “Cascade Acquisition”.

(q)           Section 9.7 of the Agreement is hereby amended by inserting “and Intermountain or any of its Subsidiaries” immediately following the words “Cascade or any of its Subsidiaries”.

(r)           Section 10.1 of the Agreement is hereby amended by inserting the following immediately after subsection (b) thereof:

(c)           Maximum Intermountain Capitalization Ratio.  The Company shall not permit the Intermountain Capitalization Ratio to exceed 65% at any time.

(s)           Section 10.3 of the Agreement is hereby amended by inserting “and Intermountain or any of its Subsidiaries” immediately following the words “Cascade or any of its Subsidiaries”.

(t)           Section 10.4 of the Agreement is hereby amended by deleting such Section in its entirety and replacing it with the following:

10.4           Limitation of Securing Cascade Loan Agreement or Intermountain Loan Agreement.

The Company shall not at any time permit Cascade or Intermountain to secure any Indebtedness outstanding under the Cascade Loan Agreement or the Intermountain Loan Agreement, respectively, in any manner by any Lien on any Property.

(u)           Section 10.16 of the Agreement is hereby amended by deleting the caption thereof and replacing it with “Limitation on Activities of Prairie and Prairie Intermountain” and by adding the following sentence at the end of such Section:

The Company shall not permit Prairie Intermountain to (a) conduct, transact or otherwise engage in any business or operations other than any business or operations that are incidental to the ownership by Prairie Intermountain of all the outstanding Capital Stock of Intermountain, (b) create, incur, assume or otherwise become obligated with respect to any Indebtedness, (c) create, incur, assume or suffer to exist any Lien on any of the Capital Stock of Intermountain or (d) cease to own, directly, both beneficially and of record, all the outstanding Capital Stock of Intermountain.

7 

(v)           Section 13.2 of the Agreement is hereby amended by deleting the Section in its entirety and replacing it with the following:

13.2           Transfer and Exchange of Notes.

Upon surrender of any Note at the principal executive office of the Company for registration of transfer or exchange (and in the case of a surrender for registration of transfer, duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of such Note or his attorney duly authorized in writing and accompanied by the address for notices of each transferee of such Note or part thereof), the Company shall execute and deliver, at the Company’s expense (except as provided below), one or more new Notes (as requested by the holder thereof) in exchange therefor, in an aggregate principal amount equal to the unpaid principal amount of the surrendered Note.  Each such new Note shall be payable to such Person as such holder may request and shall be substantially in the form of (i) Exhibit 1-A, in the case of a Series A Note, (ii) Exhibit 1-B, in the case of a Series B Note, (iii) Exhibit 1-C, in the case of a Series C Note, (iv) Exhibit 1-D, in the case of a Series D Note, (v) Exhibit 1-E, in the case of a Series E Note and (vi) Exhibit 1-F, in the case of a Shelf Note.  Each such new Note shall be dated and bear interest from the date to which interest shall have been paid on the surrendered Note or dated the date of the surrendered Note if no interest shall have been paid thereon.  The Company may require payment of a sum sufficient to cover any stamp tax or governmental charge imposed in respect of any such transfer of Notes.  Notes shall not be transferred in denominations of less than $2,000,000, provided that if necessary to enable the registration of transfer by a holder of its entire holding of Notes, one Note may be in a denomination of less than $2,000,000.  Any transferee, by its acceptance of a Note registered in its name (or the name of its nominee), shall be deemed to have made the representation set forth in Section 6.2.

(w)           Schedule B of the Agreement is hereby amended by adding the following new defined terms thereto, at the appropriate alphabetical positions therein:

“Applicable Closing Day” means the Initial Closing Day (in the case of the Initial Notes), the Series C Closing Day (in the case of the Series C Notes), the Series D/E Closing Day (in the case of the Series D Notes and the Series E Notes) and the Closing Day with respect to any Accepted Notes (in the case of such Accepted Notes).

“Intermountain” is defined in Section 4.13.

8 

“Intermountain Acquisition” means the completion of the transaction which results in Intermountain becoming a Subsidiary of Prairie Intermountain.

“Intermountain Capitalization” means the sum of (i) Intermountain Debt and (ii) the total stockholders’ equity of Intermountain determined in accordance with GAAP minus amounts attributable to mandatorily Redeemable Preferred Stock of Intermountain and its Subsidiaries determined in accordance with GAAP.

“Intermountain Capitalization Ratio” means the ratio of Intermountain Debt to Intermountain Capitalization.

“Intermountain Debt” means the consolidated Indebtedness of Intermountain and its Subsidiaries.

“Intermountain Loan Agreement” means, at any time, the primary bank credit agreement of Intermountain including, so long as it shall remain in effect, the Credit Agreement, dated as of October 19, 2005, among Intermountain, Bank of America, N.A. and the other lenders party thereto (as from time to time amended, modified, supplemented, restated, refinanced or replaced).

“Prairie Intermountain” means Prairie Intermountain Energy Holdings, LLC, a Delaware limited liability company.

“Series C Closing” means the closing at which the Series C Notes were sold and purchased under this Agreement.

“Series C Closing Day” means the day of the Series C Closing.

“Series C Notes”is defined in Section 1.1(a).

“Series D Notes”is defined in Section 1.1(b).

“Series D/E Closing” is defined in Section 3.1(b).

“Series D/E Closing Day” is defined in Section 3.1(b).

“Series E Notes”is defined in Section 1.1(b).

(x)           Schedule B of the Agreement is hereby amended by deleting the defined terms “Facility”, “Initial Notes”, “Principal Operating Subsidiary”, “Purchasers”,“Series A Notes”, “Series B Notes” and “Shelf Closing” in their entirety and replacing them with the following:

“Facility” is defined in Section 2.1(c).

9 

“Initial Notes” is defined in Section 1.1(a).

“Principal Operating Subsidiary” means (i) Cascade and its permitted successors, (ii) Intermountain and its permitted successors, and (iii) when used with respect to any fiscal year of the Company, each other Subsidiary of the Company having either (a) EBITDA in excess of 10% of the consolidated EBITDA of the Company and its Subsidiaries for such fiscal year or (b) Total Assets in excess of 10% of Consolidated Total Assets at the end of such fiscal year.

“Purchasers” means the Initial Purchasers, the initial purchasers of the Series C Notes, the Series D Notes and the Series E Notes and, with respect to any Accepted Notes, the Person or Persons (either PICA or a Prudential Affiliate) who are purchasing such Accepted Notes.

“Series A Notes” is defined in Section 1.1(a).

“Series B Notes” is defined in Section 1.1(a).

“Shelf Closing” is defined in Section 3.1(c).

(y)           The Information Schedule attached to the Agreement is hereby deleted and replaced in its entirety with the Information Schedule attached as Schedule A hereto.

(z)           Schedule 5.4 to the Agreement is hereby deleted and replaced in its entirety with Schedule 5.4 attached hereto.

(aa)           Exhibit 1-C attached to the Agreement is hereby deleted and replaced in its entirety, with Exhibit 1-C attached as Exhibit A hereto.

(bb)           Exhibit 1-D and Exhibit 1-E attached as Exhibit B and Exhibit C, respectively, hereto are hereby added to the Agreement after Exhibit 1-C.

(cc)           Exhibit 1-F attached as Exhibit D hereto is hereby added to the Agreement after Exhibit 1-E.

2.           Effectiveness.  This Amendment shall become effective as of the date first above written (the “Amendment Effective Date”) upon the satisfaction in full of each of the following conditions, each of which must occur prior to, or substantially simultaneously with, such effectiveness:

(a)           receipt by the Note Holders of a counterpart of this Amendment, duly executed and delivered by the Company; and

(b)           satisfaction of the conditions precedent to the issuance of the Series D Notes and the Series E Notes set forth in Section 4 of the Agreement, as amended hereby (regardless of

10 

whether such conditions apply generally to the issuance of all Notes or specifically to the issuance of the Series D Notes and the Series E Notes).

3.           Miscellaneous.

(a)           Effect on Agreement.  On and after the Amendment Effective Date, each reference in the Agreement to “this Agreement”, “hereunder”, “hereof”, or words of like import referring to the Agreement, and each reference in the Notes and all other Loan Documents to “the Agreement”, “thereunder”, “thereof”, or words of like import referring to the Agreement shall mean the Agreement as affected by this Amendment.  The Agreement, as affected by this Amendment, is and shall continue to be in full force and effect and is hereby in all respects ratified and confirmed.  The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy under the Agreement nor constitute a waiver of any provision of the Agreement, except as expressly provided herein.  Without limiting the generality of the foregoing, nothing in this Amendment shall be deemed (i) except as expressly provided herein, to constitute a consent to non-compliance by the Company or any other Person with respect to any term, provision, covenant or condition of the Agreement or any other Loan Document, or (ii) to prejudice any right or remedy that any holder of Notes may now have or may have in the future under or in connection with the Agreement or any other Loan Document.

(b)           Counterparts.  This Amendment may be executed in any number of counterparts (including those transmitted by telecopy or electronic transmission) and by any combination of the parties hereto in separate counterparts, each of which counterparts shall be an original and all of which taken together shall constitute one and the same Amendment.  Delivery of this Amendment may be made by telecopy or electronic transmission of a duly executed counterpart copy hereof; provided that any such delivery by electronic transmission shall be effective only if transmitted in .pdf format, .tif format or other format in which the text is not readily modifiable by any recipient thereof.

(c)           Expenses.  The Company confirms its agreement, pursuant to Section 15.1 of the Agreement, to pay promptly all out-of-pocket expenses of the Note Holders related to the preparation, negotiation, reproduction, execution and delivery of this Amendment and all matters contemplated hereby and thereby, including without limitation all fees and out-of-pocket expenses of the Note Holder’s special counsel.

(d)           Governing Law.  THIS AMENDMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF NEW YORK EXCLUDING, TO THE EXTENT PERMITTED BY THE LAW OF SUCH STATE, CHOICE OF LAW PRINCIPLES OF SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE.

{Remainder of this page blank; signature page follows.}

11 

If you agree to the terms and provisions hereof, please evidence your agreement by executing and returning at least one counterpart to the Company at P.O. Box 5650, Bismarck, ND 58506-5650, Attention:  Chief Financial Officer.

Very truly yours,

MDU ENERGY CAPITAL, LLC

By:/s/ Vernon A. Raile

Name: Vernon A. Raile

Title: Vice President and Treasurer

The foregoing is hereby agreed to as of the Amendment Effective Date:

PRUDENTIAL INVESTMENT MANAGEMENT, INC.

By:  /s/ Brian N. Thomas

Vice President

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

By:  /s/ Brian N. Thomas

Vice President

PRUCO LIFE INSURANCE COMPANY

By:  /s/ Brian N. Thomas

Vice President

PRUCO LIFE INSURANCE COMPANY OF

  NEW JERSEY

By: /s/ Brian N. Thomas 

Vice President

Signature Page to Amendment No. 1 to Shelf Agreement

12 

AMERICAN SKANDIA LIFE ASSURANCE

  CORPORATION

By:          Prudential Investment Management, Inc.,

as investment manager

By: /s/ Brian N. Thomas

Vice President

PRUDENTIAL ARIZONA REINSURANCE CAPTIVE COMPANY

By:          Prudential Investment Management, Inc.,

as investment manager

By: /s/ Brian N. Thomas

Vice President

GIBRALTAR LIFE INSURANCE CO., LTD.

By:          Prudential Investment Management (Japan),

Inc., as Investment Manager

By:          Prudential Investment Management, Inc.,

as Sub-Adviser

By:  /s/ Brian N. Thomas

Vice President

PRUDENTIAL RETIREMENT INSURANCE AND ANNUITY COMPANY

By:          Prudential Investment Management, Inc.,

as investment manager

By: /s/ Brian N. Thomas

Vice President

Signature Page to Amendment No. 1 to Shelf Agreement

13 

UNIVERSAL PRUDENTIAL ARIZONA REINSURANCE COMPANY

By:          Prudential Investment Management, Inc.,

as investment manager

By:/s/ Brian N. Thomas

Vice President

PRUDENTIAL RETIREMENT GUARANTEED COST BUSINESS TRUST

By:          Prudential Investment Management, Inc.,

as investment manager

By: /s/ Brian N. Thomas

Vice President

ZURICH AMERICAN INSURANCE COMPANY

By:          Prudential Private Placement Investors,

L.P. (as Investment Advisor)

By:          Prudential Private Placement Investors, Inc.

(as its General Partner)

By:  /s/ Brian N. Thomas

Vice President

Signature Page to Amendment No. 1 to Shelf Agreement

14 

SCHEDULE A

INFORMATION SCHEDULE

MDU Energy Capital, LLC

5.74% Senior Notes, Series A, due 2012

		Aggregate Principal Amount of Notes to be Purchased	Note Denomination(s)
	THE PRUDENTIAL INSURANCE COMPANY OF   AMERICA	$25,000,000	$25,000,000
(1)	All payments on account of Notes held by such purchaser shall be made by wire transfer of immediately available funds for credit to:
	JPMorgan Chase Bank, National Association New York, NY ABA No.:  021-000-021
	Account Name:  Prudential Managed Portfolio Account No.:  P86188 (please do not include spaces)
	Each such wire transfer shall set forth the name of the Company, a reference to “5.74% Senior Notes, Series A, 2012, Security No. INV 10916, PPN 55294# AA3” and the due date and application (as among principal, interest and Make-Whole Amount) of the payment being made.
(2)	Address for all notices relating to payments:
	The Prudential Insurance Company of America c/o Investment Operations Group Gateway Center Two, 10th Floor 100 Mulberry Street Newark, NJ 07102-4077
	Attention:  Manager, Billings and Collections
(3)	Address for all other communications and notices:
	The Prudential Insurance Company of America c/o Prudential Capital Group 2200 Ross Avenue, Suite 4200E Dallas, TX 75201
	Attention:  Managing Director
(4)	Recipient of telephonic prepayment notices:
	Manager, Trade Management Group
	Telephone:  (973) 367-3141
	Facsimile:   (888) 889-3832

15 

(5)	Address for Delivery of Notes:
	Send physical security by nationwide overnight delivery service to: Prudential Capital Group 2200 Ross Avenue, Suite 4200E Dallas, TX 75201 Attention:  Thomas P. Donahue Telephone:  (214) 720-6202
(6)	Tax Identification No.:  22-1211670
(7)	Authorized Officers: Randall M. Kob Ric E. Abel Brian E. Lemons Timothy M. Laczkowski Brian N. Thomas

16 

MDU Energy Capital, LLC

6.17% Senior Notes, Series B, due 2013

		Aggregate Principal Amount of Notes to be Purchased	Note Denomination(s)
	THE PRUDENTIAL INSURANCE COMPANY OF   AMERICA	$20,241,948	$20,241,948
(1)	All payments on account of Notes held by such purchaser shall be made by wire transfer of immediately available funds for credit to:
	JPMorgan Chase Bank, National Association New York, NY ABA No.:  021-000-021
	Account Name:  Prudential Managed Portfolio Account No.:  P86188 (please do not include spaces)
	Each such wire transfer shall set forth the name of the Company, a reference to “6.17% Senior Notes, Series B, 2013, Security No. INV 10916, PPN 55294# AB1” and the due date and application (as among principal, interest and Make-Whole Amount) of the payment being made.
(2)	Address for all notices relating to payments:
	The Prudential Insurance Company of America c/o Investment Operations Group Gateway Center Two, 10th Floor 100 Mulberry Street Newark, NJ 07102-4077
	Attention:  Manager, Billings and Collections
(3)	Address for all other communications and notices:
	The Prudential Insurance Company of America c/o Prudential Capital Group 2200 Ross Avenue, Suite 4200E Dallas, TX 75201
	Attention:  Managing Director
(4)	Recipient of telephonic prepayment notices:
	Manager, Trade Management Group
	Telephone:  (973) 367-3141
	Facsimile:   (888) 889-3832

17 

(5)	Address for Delivery of Notes:
	Send physical security by nationwide overnight delivery service to: Prudential Capital Group 2200 Ross Avenue, Suite 4200E Dallas, TX 75201 Attention:  Thomas P. Donahue Telephone:  (214) 720-6202
(6)	Tax Identification No.:  22-1211670
(7)	Authorized Officers: Randall M. Kob Ric E. Abel Brian E. Lemons Timothy M. Laczkowski Brian N. Thomas

18 

		Aggregate Principal Amount of Notes to be Purchased	Note Denomination(s)
	PRUCO LIFE INSURANCE COMPANY	$1,541,069	$1,541,069
(1)	All payments on account of Notes held by such purchaser shall be made by wire transfer of immediately available funds for credit to:
	JPMorgan Chase Bank, National Association New York, NY ABA No.:  021-000-021
	Account No.:  P86192 (please do not include spaces) Account Name:  Pruco Life Private Placement
	Each such wire transfer shall set forth the name of the Company, a reference to “6.17% Senior Notes, Series B, due 2013, Security No. INV 10916, PPN 55294# AB1”, and the due date and application (as among principal, interest and Make-Whole Amount) of the payment being made.
(2)	Address for all notices relating to payments:
	Pruco Life Insurance Company c/o The Prudential Insurance Company of America c/o Investment Operations Group Gateway Center Two, 10th Floor 100 Mulberry Street Newark, NJ 07102-4077
	Attention:  Manager, Billings and Collections
(3)	Address for all other communications and notices:
	Pruco Life Insurance Company c/o Prudential Capital Group 2200 Ross Avenue, Suite 4200E Dallas, TX 75201
	Attention:  Managing Director
(4)	Recipient of telephonic prepayment notices:
	Manager, Trade Management Group
	Telephone:  (973) 367-3141
	Facsimile:   (888) 889-3832

19 

(5)	Address for Delivery of Notes:
	Send physical security by nationwide overnight delivery service to: Prudential Capital Group 2200 Ross Avenue, Suite 4200E Dallas, TX 75201 Attention:  Thomas P. Donahue Telephone:  (214) 720-6202
(6)	Tax Identification No.:  22-1944557
(7)	Authorized Officers: Randall M. Kob Ric E. Abel Brian E. Lemons Timothy M. Laczkowski Brian N. Thomas

20 

		Aggregate Principal Amount of Notes to be Purchased	Note Denomination(s)
	PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY	$2,273,078	$2,273,078
(1)	All payments on account of Notes held by such purchaser shall be made by wire transfer of immediately available funds for credit to:
	JPMorgan Chase Bank, National Association New York, NY ABA No.:  021-000-021
	Account No.:  P86202 (please do not include spaces) Account Name:  Pruco Life of New Jersey Private Placement
	Each such wire transfer shall set forth the name of the Company, a reference to “6.17% Senior Notes, Series B, due 2013, Security No. INV 10916, PPN 55294# AB1”, and the due date and application (as among principal, interest and Make-Whole Amount) of the payment being made.
(2)	Address for all notices relating to payments:
	Pruco Life Insurance Company of New Jersey c/o The Prudential Insurance Company of America c/o Investment Operations Group Gateway Center Two, 10th Floor 100 Mulberry Street Newark, NJ 07102-4077
	Attention:  Manager, Billings and Collections
(3)	Address for all other communications and notices:
	Pruco Life Insurance Company of New Jersey c/o Prudential Capital Group 2200 Ross Avenue, Suite 4200E Dallas, TX 75201
	Attention:  Managing Director
(4)	Recipient of telephonic prepayment notices:
	Manager, Trade Management Group
	Telephone:  (973) 367-3141
	Facsimile:   (888) 889-3832

21

(5)	Address for Delivery of Notes:
	Send physical security by nationwide overnight delivery service to: Prudential Capital Group 2200 Ross Avenue, Suite 4200E Dallas, TX 75201 Attention:  Thomas P. Donahue Telephone:  (214) 720-6202
(6)	Tax Identification No.:  22-2426091
(7)	Authorized Officers: Randall M. Kob Ric E. Abel Brian E. Lemons Timothy M. Laczkowski Brian N. Thomas

22 

		Aggregate Principal Amount of Notes to be Purchased	Note Denomination(s)
	AMERICAN SKANDIA LIFE ASSURANCE CORPORATION	$943,905	$943,905
(1)	All payments on account of Notes held by such purchaser shall be made by wire transfer of immediately available funds for credit to:
	JPMorgan Chase Bank, National Association New York, NY ABA No.:  021-000-021 Account No.:  P86259 (please do not include spaces) Account Name:  American Skandia Life - Private Placements
	Each such wire transfer shall set forth the name of the Company, a reference to “6.17% Senior Notes, Series B, due 2013, Security No. INV 10916, PPN 55294# AB1” and the due date and application (as among principal, interest and Make-Whole Amount) of the payment being made.
(2)	Address for all notices relating to payments:
	The Prudential Insurance Company of America c/o Investment Operations Group Gateway Center Two, 10th Floor 100 Mulberry Street Newark, NJ 07102-4077
	Attention:  Manager, Billings and Collections
(3)	Address for all other communications and notices:
	The Prudential Insurance Company of America c/o Prudential Capital Group 2200 Ross Avenue, Suite 4200E Dallas, TX 75201
	Attention:  Managing Director
(4)	Recipient of telephonic prepayment notices:
	Manager, Trade Management Group
	Telephone:  (973) 367-3141
	Facsimile:   (888) 889-3832

23 

(5)	Address for Delivery of Notes:
	Send physical security by nationwide overnight delivery service to: Prudential Capital Group 2200 Ross Avenue, Suite 4200E Dallas, TX 75201 Attention:  Thomas P. Donahue Telephone:  (214) 720-6202
(6)	Tax Identification No.:  06-1241288
(7)	Authorized Officers: Randall M. Kob Ric E. Abel Brian E. Lemons Timothy M. Laczkowski Brian N. Thomas

24 

MDU Energy Capital, LLC

6.12% Senior Notes, Series C, due 2017

		Aggregate Principal Amount of Notes to be Purchased	Note Denomination(s)
	THE PRUDENTIAL INSURANCE COMPANY OF   AMERICA	$20,590,000	$  3,090,000
			$17,500,000
(1)	All payments on account of Notes held by such purchaser shall be made by wire transfer of immediately available funds for credit to:
	Account Name:  Prudential Managed Portfolio Account No.:  P86188 (please do not include spaces) (in the case of payments on account of the Note originally issued in the principal amount of $3,090,000)
	Account Name:  The Prudential - Privest Portfolio Account No.:  P86189 (please do not include spaces) (in the case of payments on account of the Note originally issued in the principal amount of $17,500,000)
	JPMorgan Chase Bank New York, NY ABA No.:  021-000-021
	Each such wire transfer shall set forth the name of the Company, a reference to “6.12% Senior Notes, Series C, due 2017, Security No. INV10916, PPN 55294# AC9” and the due date and application (as among principal, interest and Make-Whole Amount) of the payment being made.
(2)	Address for all notices relating to payments:
	The Prudential Insurance Company of America c/o Investment Operations Group Gateway Center Two, 10th Floor 100 Mulberry Street Newark, NJ 07102-4077
	Attention:  Manager, Billings and Collections
(3)	Address for all other communications and notices:
	The Prudential Insurance Company of America c/o Prudential Capital Group 2200 Ross Avenue, Suite 4200E Dallas, TX 75201
	Attention:  Managing Director

25 

(4)	Recipient of telephonic prepayment notices:
	Manager, Trade Management Group
	Telephone:  (973) 367-3141
	Facsimile:   (888) 889-3832
(5)	Address for Delivery of Notes:
	Send physical security by nationwide overnight delivery service to: Prudential Capital Group 2200 Ross Avenue, Suite 4200E Dallas, TX 75201 Attention:  Thomas P. Donahue Telephone:  (214) 720-6202
(6)	Tax Identification No.:  22-1211670
(7)	Authorized Officers: Randall M. Kob Ric E. Abel Brian E. Lemons Timothy M. Laczkowski Brian N. Thomas

26 

		Aggregate Principal Amount of Notes to be Purchased	Note Denomination(s)
	PRUDENTIAL ARIZONA REINSURANCE CAPTIVE COMPANY	$1,030,000	$1,030,000
(1)	All payments on account of Notes held by such purchaser shall be made by wire transfer of immediately available funds for credit to:
	JPMorgan Chase Bank New York, NY ABA No.:  021-000-021
	Account No.:  P86321 (please do not include spaces) Account Name:  PARCC PLAZ Trust 2 - Privates
	Each such wire transfer shall set forth the name of the Company, a reference to “6.12% Senior Notes, Series C, due 2017, Security No. INV10916, PPN 55294# AC9”, and the due date and application (as among principal, interest and Make-Whole Amount) of the payment being made.
(2)	Address for all notices relating to payments:
	Prudential Arizona Reinsurance Captive Company c/o The Prudential Insurance Company of America c/o Investment Operations Group Gateway Center Two, 10th Floor 100 Mulberry Street Newark, NJ 07102-4077
	Attention:  Manager, Billings and Collections
(3)	Address for all other communications and notices:
	Prudential Arizona Reinsurance Captive Company c/o Prudential Capital Group 2200 Ross Avenue, Suite 4200E Dallas, TX 75201
	Attention:  Managing Director
(4)	Recipient of telephonic prepayment notices:
	Manager, Trade Management Group
	Telephone:  (973) 367-3141
	Facsimile:   (888) 889-3832

27 

(5)	Address for Delivery of Notes:
	Send physical security by nationwide overnight delivery service to: Prudential Capital Group 2200 Ross Avenue, Suite 4200E Dallas, TX 75201 Attention:  Thomas P. Donahue Telephone:  (214) 720-6202
(6)	Tax Identification No.:  33-1095301
(7)	Authorized Officers: Randall M. Kob Ric E. Abel Brian E. Lemons Timothy M. Laczkowski Brian N. Thomas

28 

		Aggregate Principal Amount of Notes to be Purchased	Note Denomination(s)
	GIBRALTAR LIFE INSURANCE CO., LTD.	$10,290,000	$10,290,000
(1)	All principal, interest and Make-Whole Amount payments on account of Notes held by such purchaser shall be made by wire transfer of immediately available funds for credit to:
	JPMorgan Chase Bank New York, NY ABA No.:  021-000-021
	Account No.:  P86246 (please do not include spaces) Account Name:  Gibraltar Private
	Each such wire transfer shall set forth the name of the Company, a reference to “6.12% Senior Notes, Series C, due 2017, Security No. INV10916, PPN 55294# AC9” and the due date and application (as among principal, interest and Make-Whole Amount) of the payment being made.
(2)	All payments, other than principal, interest or Make-Whole Amount, on account of Notes held by such purchaser shall be made by wire transfer of immediately available funds for credit to:
	JPMorgan Chase Bank New York, NY ABA No. 021-000-021 Account No. 304199036 Account Name:  Prudential International Insurance Service                            Company
	Each such wire transfer shall set forth the name of the Company, a reference to “6.12% Senior Notes, Series C, due 2017, Security No. INV10916, PPN 55294# AC9” and the due date and application (e.g., type of fee) of the payment being made.
(3)	Address for all notices relating to payments:
	The Gibraltar Life Insurance Co., Ltd. 2-13-10, Nagatacho Chiyoda-ku, Tokyo 100-8953, Japan Telephone:  81-3-5501-6680 Facsimile:   81-3-5501-6432 E-mail:  yoshiki.saito@gib-life.co.jp
	Attention:  Yoshiki Saito, Vice President of Investment     Operations Team

29 

(4)	Address for all other communications and notices:
	Prudential Private Placement Investors, L.P. c/o Prudential Capital Group 2200 Ross Avenue, Suite 4200E Dallas, TX 75201 Attention:  Managing Director
(5)	Address for Delivery of Notes:
	Send physical security by nationwide overnight delivery service to: Prudential Capital Group 2200 Ross Avenue, Suite 4200E Dallas, TX 75201 Attention:  Thomas P. Donahue Telephone:  (214) 720-6202
(6)	Tax Identification No.:  98-0408643

30 

		Aggregate Principal Amount of Notes to be Purchased	Note Denomination(s)
	PRUDENTIAL RETIREMENT INSURANCE AND ANNUITY COMPANY	$3,090,000	$3,090,000
(1)	All payments on account of Notes held by such purchaser shall be made by wire transfer of immediately available funds for credit to:
	JP Morgan Chase Bank New York, NY ABA No. 021000021
	Account Name:  PRIAC Account No. P86329 (please do not include spaces)
	Each such wire transfer shall set forth the name of the Company, a reference to “6.12% Senior Notes, Series C, due 2017, Security No. INV10916, PPN 55294# AC9” and the due date and application (as among principal, interest and Make Whole Amount) of the payment being made.
(2)	Address for all notices relating to payments:
	Prudential Retirement Insurance and Annuity Company c/o Prudential Investment Management, Inc. Private Placement Trade Management PRIAC Administration Gateway Center Four, 7th Floor 100 Mulberry Street Newark, NJ 07102 Telephone:  (973) 802-8107 Facsimile:   (888) 889-3832
(3)	Address for all other communications and notices:
	Prudential Retirement Insurance and Annuity Company c/o Prudential Capital Group 2200 Ross Avenue, Suite 4200E Dallas, TX 75201
	Attention:  Managing Director

31 

(4)	Address for Delivery of Notes:
	Send physical security by nationwide overnight delivery service to: Prudential Capital Group 2200 Ross Avenue, Suite 4200E Dallas, TX 75201 Attention:  Thomas P. Donahue Telephone:  (214) 720-6202
(5)	Tax Identification No.:  06-1050034

32 

MDU Energy Capital, LLC

5.69% Senior Notes, Series D, due 2013

		Aggregate Principal Amount of Notes to be Purchased	Note Denomination(s)
	THE PRUDENTIAL INSURANCE COMPANY OF   AMERICA	$30,000,000	$30,000,000
(1)	All payments on account of Notes held by such purchaser shall be made by wire transfer of immediately available funds for credit to:
	Account Name:  Prudential Managed Portfolio Account No.:  P86188 (please do not include spaces)
	JPMorgan Chase Bank New York, NY ABA No.:  021-000-021
	Each such wire transfer shall set forth the name of the Company, a reference to "5.69% Senior Notes, Series D, due 2013, Security No. INV10916, PPN 55294# AE5" and the due date and application (as among principal, interest and Yield-Maintenance Amount) of the payment being made.
(2)	Address for all notices relating to payments:
	The Prudential Insurance Company of America c/o Investment Operations Group Gateway Center Two, 10th Floor 100 Mulberry Street Newark, NJ 07102-4077
	Attention:  Manager, Billings and Collections
(3)	Address for all other communications and notices:
	The Prudential Insurance Company of America c/o Prudential Capital Group 2200 Ross Avenue, Suite 4200E Dallas, TX 75201
	Attention:  Managing Director
(4)	Recipient of telephonic prepayment notices:
	Manager, Trade Management Group
	Telephone:  (973) 367-3141
	Facsimile:   (888) 889-3832

33 

(5)	Address for Delivery of Notes:
	Send physical security by nationwide overnight delivery service to: Prudential Capital Group 2200 Ross Avenue, Suite 4200E Dallas, TX 75201 Attention:  Thomas P. Donahue Telephone:  (214) 720-6202
(6)	Tax Identification No.:  22-1211670
(7)	Authorized Officers: Ric E. Abel Randall M. Kob Timothy M. Laczkowski Brian E. Lemons Brian N. Thomas

34 

MDU Energy Capital, LLC

5.97% Senior Notes, Series E, due 2015

		Aggregate Principal Amount of Notes to be Purchased	Note Denomination(s)
	THE PRUDENTIAL INSURANCE COMPANY OF   AMERICA	$17,440,000	$9,940,000
			$7,500,000
(1)	All payments on account of Notes held by such purchaser shall be made by wire transfer of immediately available funds for credit to:
	Account Name:  Prudential Managed Portfolio Account No.:  P86188 (please do not include spaces) (in the case of payments on account of the Note originally issued in the principal amount of $9,940,000)
	Account Name:  The Prudential - Privest Portfolio Account No.:  P86189 (please do not include spaces) (in the case of payments on account of the Note originally issued in the principal amount of $7,500,000)
	JPMorgan Chase Bank New York, NY ABA No.:  021-000-021
	Each such wire transfer shall set forth the name of the Company, a reference to "5.97% Senior Notes, Series E, due 2015, Security No. INV10916, PPN 55294# AD7" and the due date and application (as among principal, interest and Make-Whole Amount) of the payment being made.
(2)	Address for all notices relating to payments:
	The Prudential Insurance Company of America c/o Investment Operations Group Gateway Center Two, 10th Floor 100 Mulberry Street Newark, NJ 07102-4077
	Attention:  Manager, Billings and Collections
(3)	Address for all other communications and notices:
	The Prudential Insurance Company of America c/o Prudential Capital Group 2200 Ross Avenue, Suite 4200E Dallas, TX 75201
	Attention:  Managing Director

35 

(4)	Recipient of telephonic prepayment notices:
	Manager, Trade Management Group
	Telephone:  (973) 367-3141
	Facsimile:   (888) 889-3832
(5)	Address for Delivery of Notes:
	Send physical security by nationwide overnight delivery service to: Prudential Capital Group 2200 Ross Avenue, Suite 4200E Dallas, TX 75201 Attention:  Thomas P. Donahue Telephone:  (214) 720-6202
(6)	Tax Identification No.:  22-1211670
(7)	Authorized Officers: Ric E. Abel Randall M. Kob Timothy M. Laczkowski Brian E. Lemons Brian N. Thomas

36 

		Aggregate Principal Amount of Notes to be Purchased	Note Denomination(s)
	UNIVERSAL PRUDENTIAL ARIZONA REINSURANCE COMPANY	$6,000,000	$6,000,000
(1)	All payments on account of Notes held by such purchaser shall be made by wire transfer of immediately available funds for credit to:
	JPMorgan Chase Bank New York, NY ABA No.:  021-000-021
	Account No.:  P86393 (please do not include spaces) Account Name:  UPARC PLAZ Trust 2 - Privates
	Each such wire transfer shall set forth the name of the Company, a reference to "5.97% Senior Notes, Series E, due 2015, Security No. INV10916, PPN 55294# AD7", and the due date and application (as among principal, interest and Make-Whole Amount) of the payment being made.
(2)	Address for all notices relating to payments:
	Universal Prudential Arizona Reinsurance Company c/o The Prudential Insurance Company of America c/o Investment Operations Group Gateway Center Two, 10th Floor 100 Mulberry Street Newark, NJ 07102-4077
	Attention:  Manager, Billings and Collections
(3)	Address for all other communications and notices:
	Universal Prudential Arizona Reinsurance Company c/o Prudential Capital Group 2200 Ross Avenue, Suite 4200E Dallas, TX 75201
	Attention:  Managing Director
(4)	Recipient of telephonic prepayment notices:
	Manager, Trade Management Group
	Telephone:  (973) 367-3141
	Facsimile:   (888) 889-3832

37 

(5)	Address for Delivery of Notes:
	Send physical security by nationwide overnight delivery service to: Prudential Capital Group 2200 Ross Avenue, Suite 4200E Dallas, TX 75201 Attention:  Thomas P. Donahue Telephone:  (214) 720-6202
(6)	Tax Identification No.:  41-2214052
(7)	Authorized Officers: Ric E. Abel Randall M. Kob Timothy M. Laczkowski Brian E. Lemons Brian N. Thomas

38 

		Aggregate Principal Amount of Notes to be Purchased	Note Denomination(s)
	PRUDENTIAL RETIREMENT GUARANTEED COST BUSINESS TRUST	$17,000,000	$17,000,000
(1)	All payments on account of Notes held by such purchaser shall be made by wire transfer of immediately available funds for credit to:
	JPMorgan Chase Bank New York, NY ABA No. 021000021
	Beneficiary Account Name:  North American Beneficiary Account No.:  9009000168 BBI:  Account of Prudential for G09966 PRIAC GC PVT
	Each such wire transfer shall set forth the name of the Company, a reference to "5.97% Senior Notes, Series E, due 2015, Security No. INV10916, PPN 55294# AD7" and the due date and application (as among principal, interest and Make-Whole Amount) of the payment being made.
(2)	Address for all notices relating to payments:
	Pru & Co c/o Prudential Investment Management, Inc. Attn:  Private Placement Trade Management PRIAC Administration Gateway Center Four, 7th Floor 100 Mulberry Street Newark, NJ 07102 Telephone:  (973) 802-8107 Facsimile:   (800) 224-2278
(3)	Address for all other communications and notices:
	Prudential Retirement Guaranteed Cost Business Trust c/o Prudential Capital Group 2200 Ross Avenue, Suite 4200E Dallas, TX 75201
	Attention:  Managing Director

39 

(4)	Address for Delivery of Notes:
	Send physical security by nationwide overnight delivery service to: Prudential Capital Group 2200 Ross Avenue, Suite 4200E Dallas, TX 75201 Attention:  Thomas P. Donahue Telephone:  (214) 720-6202
(5)	Tax Identification No.:  06-1050034

40 

		Aggregate Principal Amount of Notes to be Purchased	Note Denomination(s)
	PRUDENTIAL RETIREMENT INSURANCE AND ANNUITY COMPANY	$5,200,000	$4,200,000 $1,000,000
(1)	All payments on account of Notes held by such purchaser shall be made by wire transfer of immediately available funds for credit to:
	JP Morgan Chase Bank New York, NY ABA No. 021000021
	Account Name:  PRIAC - SA - Firestone - Privates Account No. P86343 (please do not include spaces) in the case of payments on account of the Note originally issued in the principal amount of $4,200,000)
	Account Name:  PRIAC - SA - Principal Preservation - Privates Account No. P86345 (please do not include spaces) in the case of payments on account of the Note originally issued in the principal amount of $1,000,000)
	Each such wire transfer shall set forth the name of the Company, a reference to "5.97% Senior Notes, Series E, due 2015, Security No. INV10916, PPN 55294# AD7" and the due date and application (as among principal, interest and Make-Whole Amount) of the payment being made.
(2)	Address for all notices relating to payments:
	Prudential Retirement Insurance and Annuity Company c/o Prudential Investment Management, Inc. Private Placement Trade Management PRIAC Administration Gateway Center Four, 7th Floor 100 Mulberry Street Newark, NJ 07102 Telephone:  (973) 802-8107 Facsimile:   (888) 889-3832
(3)	Address for all other communications and notices:
	Prudential Retirement Insurance and Annuity Company c/o Prudential Capital Group 2200 Ross Avenue, Suite 4200E Dallas, TX 75201
	Attention:  Managing Director

41 

(4)	Address for Delivery of Notes:
	Send physical security by nationwide overnight delivery service to: Prudential Capital Group 2200 Ross Avenue, Suite 4200E Dallas, TX 75201 Attention:  Thomas P. Donahue Telephone:  (214) 720-6202
(5)	Tax Identification No.:  06-1050034

42 

		Aggregate Principal Amount of Notes to be Purchased	Note Denomination(s)
	ZURICH AMERICAN INSURANCE COMPANY	$4,360,000	$4,360,000
	Notes/Certificates to be registered in the name of: Hare & Co.
(1)	All payments on account of Notes held by such purchaser shall be made by wire transfer of immediately available funds for credit to:
	Hare & Co. c/o The Bank of New York ABA No.:  021-000-018 BNF:  IOC566 Attn:  William Cashman Ref:  ZAIC Private Placements #399141
	Each such wire transfer shall set forth the name of the Company, a reference to "5.97% Senior Notes, Series E, due 2015, PPN 55294# AD7" and the due date and application (as among principal, interest and Make-Whole Amount) of the payment being made.
(2)	All notices of payments and written confirmations of such wire transfers:
	Zurich North America Attn:  Treasury T1-19 1400 American Lane Schaumburg, IL 60196-1056 Contact:  Mary Fran Callahan, Vice President-Treasurer Telephone:  (847) 605-6447 Facsimile:   (847) 605-7895 E-mail:  mary.callahan@zurichna.com
(3)	Address for all other communications and notices:
	Prudential Private Placement Investors, L.P. c/o Prudential Capital Group 2200 Ross Avenue, Suite 4200E Dallas, TX 75201 Attention:  Managing Director

43 

(4)	Address for Delivery of Notes:
	(a)           Send physical security by nationwide overnight delivery service to: Bank of New York Window A One Wall Street, 3rd Floor New York, NY 10286 Please include in the cover letter accompanying the Notes a reference to the Purchaser's account number (Zurich American Insurance Co.-Private Placements; Account Number:  399141). (b)           Send copy by nationwide overnight delivery service to: Prudential Capital Group Gateway Center 4 100 Mulberry, 7th Floor Newark, NJ 07102 Attention:  Trade Management, Manager Telephone:  (973) 367-3141
(5)	Tax Identification No.:  13-6062916

44 

SCHEDULE 5.4

COMPANY’S SUBSIDIARIES, AFFILIATES, DIRECTORS AND OFFICERS, AND AGREEMENTS RESTRICTING SUBSIDIARY DIVIDENDS

I.           Company Subsidiaries

1. Prairie Cascade Energy Holdings, LLC, a Delaware limited liability company, 100%

2. Prairie Intermountain Energy Holdings, LLC, a Delaware limited liability company, 100%

3. Cascade Land Leasing Co., a Washington corporation, 100%

4. Cascade Natural Gas Corporation, a Washington corporation, 100%

5. CGC Energy, Inc., a Washington corporation, 100%

6. CGC Properties, Inc., a Washington corporation, 100%

7. CGC Resources, Inc., a Washington corporation, 100%

8. Intermountain Gas Company, an Idaho corporation, 100%

II.           Affiliates (other than Subsidiaries)

1. Alaska Basic Industries, Inc., an Alaska corporation, 100%

2. Ames Sand & Gravel, Inc., a North Dakota corporation, 100%

3. Anchorage Sand and Gravel Company, Inc., an Alaska corporation , 100%

4. Baldwin Contracting Company, Inc., a California corporation, 100%

5. BEH Electric Holdings, LLC, a Nevada limited liability company, 100%

6. Bell Electrical Contractors, Inc., a Missouri corporation, 100%

7. Bitter Creek Pipelines, LLC, a Colorado limited liability company, 100%

8. BMH Mechanical Holdings, LLC, a Nevada limited liability company, 100%

9. Bombard Electric, LLC, a Nevada limited liability company, 100%

10. Bombard Mechanical, LLC, a Nevada limited liability company, 100%

11. Capital Electric Construction Company, Inc., a Kansas corporation, 100%

12. Capital Electric Line Builders, Inc., a Kansas corporation, 100%

13. Centennial Energy Holdings, Inc., a Delaware corporation, 100%

14. Centennial Energy Resources International, Inc., a Delaware corporation, 100%

15. Centennial Energy Resources LLC, a Delaware limited liability company, 100%

16. Centennial Holdings Capital LLC, a Delaware limited liability company, 100%

17. Central Oregon Redi-Mix, L.L.C., an Oregon limited liability company, 78%

18. ClearFlame, LLC, a Colorado limited liability company, 100%

19. Concrete, Inc., a California corporation, 100%

20. Connolly-Pacific Co., a California corporation, 100%

21. Continental Line Builders, Inc., a Delaware corporation, 100%

22. Coordinating and Planning Services, Inc., a Delaware corporation, 100%

23. Desert Fire Holdings, Inc., a Nevada corporation, 100%

24. Desert Fire Protection, a Nevada Limited Partnership, 100%

25. Desert Fire Protection, Inc., a Nevada corporation, 100%

26. Desert Fire Protection, LLC, a Nevada limited liability company, 100%

27. DSS Company, a California corporation,  100%

28. E.S.I., Inc., an Ohio corporation, 100%

45 

29. Fairbanks Materials, Inc., an Alaska corporation, 100%

30. Fidelity Exploration & Production Company, a Delaware corporation,  100%

31. Fidelity Exploration & Production Company of Texas LLC, a Delaware limited liability company, 99.44%

32. Fidelity Oil Co., a Delaware corporation, 100%

33. Frebco, Inc., an Ohio corporation, 100%

34. FutureSource Capital Corp., a Delaware corporation,  100%

35. Granite City Ready Mix, Inc., a Minnesota corporation, 100%

36. Hamlin Electric Company, a Colorado corporation, 100%

37. Hap Taylor & Sons, Inc., an Oregon corporation, 100%

38. Harp Engineering, Inc., a Montana corporation, 100%

39. Hawaiian Cement, a Hawaii partnership, 100%

40. ILB Hawaii, Inc., a Hawaii corporation, 100%

41. Independent Fire Fabricators, LLC, a Nevada limited liability company, 100%

42. International Line Builders, Inc., a Delaware corporation, 100%

43. InterSource Insurance Company, a Vermont corporation, 100%

44. Jebro Incorporated, an Iowa corporation, 100%

45. JTL Group, Inc., a Montana corporation, 100%

46. JTL Group, Inc., a Wyoming corporation, 100%

47. Kent’s Oil Service, a California corporation, 100%

48. Knife River Corporation, a Delaware corporation, 100%

49. Knife River Corporation – North Central, a Minnesota corporation, 100%

50. Knife River Corporation – South, a Texas corporation, 100%

51. Knife River Dakota, Inc., a Delaware corporation, 100%

52. Knife River Hawaii, Inc., a Delaware corporation, 100%

53. Knife River Marine, Inc., a Delaware corporation, 100%

54. Knife River Midwest, LLC, a Delaware limited liability company, 100%

55. KRC Aggregate, Inc., a Delaware corporation, 100%

56. KRC Holdings, Inc., a Delaware corporation, 100%

57. LME&U Holdings, LLC, a Nevada limited liability company, 100%

58. Lone Mountain Excavation & Utilities, LLC, a Nevada limited liability company, 100%

59. Loy Clark Pipeline Co., an Oregon corporation, 100%

60. LTM, Incorporated, an Oregon corporation, 100%

61. MDU Brasil Ltda., a Brazil limited liability company, 100%

62. MDU Chile Inversiones Ltda., a Chile limited liability partnership, 100%

63. MDU Construction Services Group, Inc., a Delaware corporation, 100%

64. MDU Industrial Services, Inc., a Delaware corporation, 100%

65. MDU Norte Transmissão de Energia Ltda., a Brazil limited liability company, 99.99999%

66. MDU Resources Group, Inc., a Delaware corporation, 100%

67. MDU Resources International LLC, a Delaware limited liability company, 100%

68. MDU Resources Luxembourg I LLC S.a.r.l., a Luxembourg limited liability company, 100%

69. MDU Resources Luxembourg II LLC S.a.r.l., a Luxembourg limited liability company, 100%

70. MDU Sul Transmissão de Energia Ltda., a Brazil limited liability company, 99.99999%

71. Midland Technical Crafts, Inc., a Delaware corporation, 100%

46 

72. Morse Bros., Inc., an Oregon corporation, 100%

73. Netricity LLC, an Alaska limited liability company, 75%

74. Northstar Materials, Inc., a Minnesota corporation, 100%

75. Oregon Electric Construction, Inc., an Oregon corporation, 100%

76. Pouk & Steinle, Inc., a California corporation, 100%

77. Prairielands Energy Marketing, Inc., a Delaware corporation, 100%

78. Prairielands Magnetics Limited, a Scotland private limited company, 100%

79. Rocky Mountain Contractors, Inc., a Montana corporation, 100%

80. Rogue Aggregates, Inc., an Oregon corporation, 100%

81. Seven Brothers Ranches, Inc., a Wyoming corporation, 100%

82. USI Industrial Services, Inc., a Delaware corporation, 100%

83. The Wagner Group, Inc., a Delaware corporation, 100%

84. Wagner Industrial Electric, Inc., a Delaware corporation, 100%

85. The Wagner-Smith Company, an Ohio corporation, 100%

86. Wagner-Smith Equipment Co., a Delaware corporation, 100%

87. Wagner-Smith Pumps & Systems, Inc., an Ohio corporation, 100%

88. WBI Canadian Pipeline, Ltd., a Canada corporation, 100%

89. WBI Energy Services, Inc., a Delaware corporation, 100%

90. WBI Holdings, Inc., a Delaware corporation, 100%

91. WBI Pipeline & Storage Group, Inc., a Delaware corporation, 100%

92. WHC, Ltd., a Hawaii corporation, 100%

93. Williston Basin Interstate Pipeline Company, a Delaware corporation, 100%

III.           Company’s Directors and Officers

Directors:

Terry D. Hildestad

Vernon A. Raile

Paul K. Sandness

Officers:

Terry D. Hildestad, Chairman of the Board

David L Goodin, President and Chief Executive Officer

Vernon A. Raile, Vice President and Treasurer

Paul K. Sandness, General Counsel and Secretary

IV. Restrictions on Subsidiary issuing Dividends or Distributions

Cascade Natural Gas Corporation - Dividend restrictions are contained in commitments 27, 28 and 29 of the stipulated commitments approved by the Oregon Public Utilities Commission in Order No. 07-221 entered 06/05/07 (as amended by Order No. 07-320 entered 07/25/07) in Docket UM 1283, and by the Washington State Utilities and Transportation Commission in Order 06 dated June 27, 2007 in Docket UG-061721.

47 

Intermountain Gas Company – Dividend restrictions contained in:

· Commitment 11 of the Memorandum of Understanding dated July 9, 2008 among Intermountain Gas Company, MDU Resources Group, Inc. and the Idaho Public Utilities Commission Staff;

· Section 7.06 of the Credit Agreement, dated as of October 19, 2005, among Intermountain Gas Company, Bank of America, N.A. and the other lenders party thereto; and

· Section 9.15 of the Debenture Purchase Agreement, dated as of September 18, 1998, between Intermountain Gas Company and Teachers Insurance and Annuity Association of America.

48 

EXHIBIT A

EXHIBIT 1-C

[FORM OF SERIES C NOTE]

MDU ENERGY CAPITAL, LLC

6.12% SENIOR NOTE, SERIES  C, DUE AUGUST 31, 2017

No. R-C-__

PPN 55294# AC9

ORIGINAL PRINCIPAL AMOUNT:_____________

ORIGINAL ISSUE DATE: August 28, 2007

INTEREST RATE: 6.12%

INTEREST PAYMENT DATES: Quarterly on the last day of each of February, May, August and November of each year commencing, November 30, 2007

FINAL MATURITY DATE: August 31, 2017

PRINCIPAL INSTALLMENT DATES AND AMOUNTS:  Due on the Final Maturity Date

FOR VALUE RECEIVED, the undersigned, MDU ENERGY CAPITAL, LLC (herein called the “Company”), a limited liability company organized and existing under the laws of the State of Delaware, hereby promises to pay to [____________________], or registered assigns, the principal sum of [____________________] DOLLARS on the Final Maturity Date specified above, with interest (computed on the basis of a 360-day year--30-day month) (a) on the unpaid balance thereof from the date hereof at the Interest Rate per annum specified above, payable on each Interest Payment Date specified above and on the Final Maturity Date specified above, commencing with the Interest Payment Date next succeeding the date hereof, until the principal hereof shall have become due and payable, and (b) on any overdue payment (including any overdue prepayment) of principal, any overdue payment of interest, and any overdue payment of any Make-Whole Amount (as defined in the Master Shelf Agreement referred to below), payable on each Interest Payment Date as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to the greater of (i) 8.12% or (ii) 2% over the rate of interest publicly announced by JPMorgan Chase Bank, N.A. from time to time in New York City as its Prime Rate.

Payments of principal of, interest on and any Make-Whole Amount (as defined in the Master Shelf Agreement referred to below) payable with respect to this Note are to be made at the main office of JPMorgan Chase Bank, N.A. in New York City or at such other place as the holder hereof shall designate to the Company in writing, in lawful money of the United States of America.

49 

This Note is one of a Series of Senior Notes (herein called the “Notes”) issued pursuant to a Master Shelf Agreement, dated as of August 9, 2007 (as amended from time to time, the “Agreement”), between the Company and Prudential Investment Management, Inc., and the holders of the notes issued thereunder and is entitled to the benefits thereof.  Each holder of this Note will be deemed, by its acceptance hereof, (i) to have agreed to the confidentiality provisions set forth in Section 20 of the Agreement and (ii) to have made the representation set forth in Section 6.2 of the Agreement.  As provided in the Agreement, this Note is subject to prepayment, in whole or from time to time in part on the terms specified in the Agreement.

This Note is a registered Note and, as provided in the Agreement, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder’s attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee.  Prior to due presentment for registration of transfer, the Company may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company shall not be affected by any notice to the contrary.

This Note is subject to optional prepayment, in whole or from time to time in part, on the terms specified in the Agreement.

In case an Event of Default, as defined in the Agreement, shall occur and be continuing, the principal of this Note may be declared or otherwise become due and payable in the manner and with the effect provided in the Agreement.

This Note is intended to be performed in the State of New York and shall be construed and enforced in accordance with the law of such State.

MDU ENERGY CAPITAL, LLC

By:           ________________________

 Title:

50 

EXHIBIT B

EXHIBIT 1-D

[FORM OF SERIES D NOTE]

MDU ENERGY CAPITAL, LLC

5.69% SENIOR NOTE, SERIES  D, DUE OCTOBER 1, 2013

No. R-D-__

PPN 55294# AE5

ORIGINAL PRINCIPAL AMOUNT:_____________

ORIGINAL ISSUE DATE: October 1, 2008

INTEREST RATE: 5.69%

INTEREST PAYMENT DATES: Quarterly on the first day of each January, April, July and October of each year commencing, January 1, 2009

FINAL MATURITY DATE: October 1, 2013

PRINCIPAL INSTALLMENT DATES AND AMOUNTS:  Due on the Final Maturity Date

FOR VALUE RECEIVED, the undersigned, MDU ENERGY CAPITAL, LLC (herein called the “Company”), a limited liability company organized and existing under the laws of the State of Delaware, hereby promises to pay to [____________________], or registered assigns, the principal sum of [____________________] DOLLARS on the Final Maturity Date specified above, with interest (computed on the basis of a 360-day year--30-day month) (a) on the unpaid balance thereof from the date hereof at the Interest Rate per annum specified above, payable on each Interest Payment Date specified above and on the Final Maturity Date specified above, commencing with the Interest Payment Date next succeeding the date hereof, until the principal hereof shall have become due and payable, and (b) on any overdue payment (including any overdue prepayment) of principal, any overdue payment of interest, and any overdue payment of any Make-Whole Amount (as defined in the Master Shelf Agreement referred to below), payable on each Interest Payment Date as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to the greater of (i) 7.69% or (ii) 2% over the rate of interest publicly announced by JPMorgan Chase Bank, N.A. from time to time in New York City as its Prime Rate.

Payments of principal of, interest on and any Make-Whole Amount (as defined in the Master Shelf Agreement referred to below) payable with respect to this Note are to be made at the main office of JPMorgan Chase Bank, N.A. in New York City or at such other place as the holder hereof shall designate to the Company in writing, in lawful money of the United States of America.

51 

This Note is one of a Series of Senior Notes (herein called the “Notes”) issued pursuant to a Master Shelf Agreement, dated as of August 9, 2007 (as amended from time to time, the “Agreement”), between the Company and Prudential Investment Management, Inc., and the holders of the notes issued thereunder and is entitled to the benefits thereof.  Each holder of this Note will be deemed, by its acceptance hereof, (i) to have agreed to the confidentiality provisions set forth in Section 20 of the Agreement and (ii) to have made the representation set forth in Section 6.2 of the Agreement.  As provided in the Agreement, this Note is subject to prepayment, in whole or from time to time in part on the terms specified in the Agreement.

This Note is a registered Note and, as provided in the Agreement, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder’s attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee.  Prior to due presentment for registration of transfer, the Company may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company shall not be affected by any notice to the contrary.

This Note is subject to optional prepayment, in whole or from time to time in part, on the terms specified in the Agreement.

In case an Event of Default, as defined in the Agreement, shall occur and be continuing, the principal of this Note may be declared or otherwise become due and payable in the manner and with the effect provided in the Agreement.

This Note is intended to be performed in the State of New York and shall be construed and enforced in accordance with the law of such State.

MDU ENERGY CAPITAL, LLC

By:           ________________________

 Title:

52 

EXHIBIT C

EXHIBIT 1-E

[FORM OF SERIES E NOTE]

MDU ENERGY CAPITAL, LLC

5.97% SENIOR NOTE, SERIES  E, DUE OCTOBER 1, 2015

No. R-E-__

PPN 55294# AD7

ORIGINAL PRINCIPAL AMOUNT:_____________

ORIGINAL ISSUE DATE: October 1, 2008

INTEREST RATE: 5.97%

INTEREST PAYMENT DATES: Quarterly on the first day of each of January, April, July and October of each year commencing, January 1, 2009

FINAL MATURITY DATE: October 1, 2015

PRINCIPAL INSTALLMENT DATES AND AMOUNTS:  Due on the Final Maturity Date

FOR VALUE RECEIVED, the undersigned, MDU ENERGY CAPITAL, LLC (herein called the “Company”), a limited liability company organized and existing under the laws of the State of Delaware, hereby promises to pay to [____________________], or registered assigns, the principal sum of [____________________] DOLLARS on the Final Maturity Date specified above, with interest (computed on the basis of a 360-day year--30-day month) (a) on the unpaid balance thereof from the date hereof at the Interest Rate per annum specified above, payable on each Interest Payment Date specified above and on the Final Maturity Date specified above, commencing with the Interest Payment Date next succeeding the date hereof, until the principal hereof shall have become due and payable, and (b) on any overdue payment (including any overdue prepayment) of principal, any overdue payment of interest, and any overdue payment of any Make-Whole Amount (as defined in the Master Shelf Agreement referred to below), payable on each Interest Payment Date as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to the greater of (i) 7.97% or (ii) 2% over the rate of interest publicly announced by JPMorgan Chase Bank, N.A. from time to time in New York City as its Prime Rate.

Payments of principal of, interest on and any Make-Whole Amount (as defined in the Master Shelf Agreement referred to below) payable with respect to this Note are to be made at the main office of JPMorgan Chase Bank, N.A. in New York City or at such other place as the holder hereof shall designate to the Company in writing, in lawful money of the United States of America.

53 

This Note is one of a Series of Senior Notes (herein called the “Notes”) issued pursuant to a Master Shelf Agreement, dated as of August 9, 2007 (as amended from time to time, the “Agreement”), between the Company and Prudential Investment Management, Inc., and the holders of the notes issued thereunder and is entitled to the benefits thereof.  Each holder of this Note will be deemed, by its acceptance hereof, (i) to have agreed to the confidentiality provisions set forth in Section 20 of the Agreement and (ii) to have made the representation set forth in Section 6.2 of the Agreement.  As provided in the Agreement, this Note is subject to prepayment, in whole or from time to time in part on the terms specified in the Agreement.

This Note is a registered Note and, as provided in the Agreement, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder’s attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee.  Prior to due presentment for registration of transfer, the Company may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company shall not be affected by any notice to the contrary.

This Note is subject to optional prepayment, in whole or from time to time in part, on the terms specified in the Agreement.

In case an Event of Default, as defined in the Agreement, shall occur and be continuing, the principal of this Note may be declared or otherwise become due and payable in the manner and with the effect provided in the Agreement.

This Note is intended to be performed in the State of New York and shall be construed and enforced in accordance with the law of such State.

MDU ENERGY CAPITAL, LLC

By:           ________________________

 Title:

54 

EXHIBIT D

EXHIBIT 1-F

[FORM OF SHELF NOTE]

MDU ENERGY CAPITAL, LLC

% SENIOR NOTE, SERIES ________, DUE ___________

No. R-___

PPN ______________________

ORIGINAL PRINCIPAL AMOUNT:

ORIGINAL ISSUE DATE:

INTEREST RATE:

INTEREST PAYMENT DATES:

FINAL MATURITY DATE:

PRINCIPAL INSTALLMENT DATES AND AMOUNTS:

FOR VALUE RECEIVED, the undersigned, MDU ENERGY CAPITAL, LLC (herein called the “Company”), a limited liability company organized and existing under the laws of the State of Delaware, hereby promises to pay to [____________________], or registered assigns, the principal sum of [____________________] DOLLARS [on the Final Maturity Date specified above] [, payable in installments on the Principal Installment Dates and in the amounts specified above, and on the Final Maturity Date specified above in an amount equal to the unpaid balance of the principal hereof,] with interest (computed on the basis of a 360-day year--30-day month) (a) on the unpaid balance thereof from the date hereof at the Interest Rate per annum specified above, payable on each Interest Payment Date specified above and on the Final Maturity Date specified above, commencing with the Interest Payment Date next succeeding the date hereof, until the principal hereof shall have become due and payable, and (b) on any overdue payment (including any overdue prepayment) of principal, any overdue payment of interest, and any overdue payment of any Make-Whole Amount (as defined in the Master Shelf Agreement referred to below), payable on each Interest Payment Date as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to the greater of (i) [____]%1  or (ii) 2% over the rate of interest publicly announced by JPMorgan Chase Bank, N.A. from time to time in New York City as its Prime Rate.

Payments of principal of, interest on and any Make-Whole Amount (as defined in the Master Shelf Agreement referred to below) payable with respect to this Note are to be made at the main

  1 Interest rate plus 2%.

55

office of JPMorgan Chase Bank, N.A. in New York City or at such other place as the holder hereof shall designate to the Company in writing, in lawful money of the United States of America.

This Note is one of a Series of Senior Notes (herein called the “Notes”) issued pursuant to a Master Shelf Agreement, dated as of August 9, 2007 (as amended from time to time, the “Agreement”), between the Company and Prudential Investment Management, Inc., and the holders of the notes issued thereunder and is entitled to the benefits thereof.  Each holder of this Note will be deemed, by its acceptance hereof, (i) to have agreed to the confidentiality provisions set forth in Section 20 of the Agreement and (ii) to have made the representation set forth in Section 6.2 of the Agreement.  As provided in the Agreement, this Note is subject to prepayment, in whole or from time to time in part on the terms specified in the Agreement.

This Note is a registered Note and, as provided in the Agreement, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder’s attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee.  Prior to due presentment for registration of transfer, the Company may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company shall not be affected by any notice to the contrary.

[The Company agrees to make required prepayments of principal in the amounts set forth above on the Principal Installment Dates set forth above.]  This Note is subject to optional prepayment, in whole or from time to time in part, on the terms specified in the Agreement.

In case an Event of Default, as defined in the Agreement, shall occur and be continuing, the principal of this Note may be declared or otherwise become due and payable in the manner and with the effect provided in the Agreement.

This Note is intended to be performed in the State of New York and shall be construed and enforced in accordance with the law of such State.

MDU ENERGY CAPITAL, LLC

By:           ________________________

 Title:

56 

EX-12

MDU RESOURCES GROUP, INC.

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

AND COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS

Twelve Months Ended September 30, 2008 Year Ended December 31, 2007

	(In thousands of dollars)
Earnings Available for Fixed Charges:
Net Income (a)	$	396,346		$	308,288
Income Taxes		221,755			190,024
		618,101			498,312
Rents (b)		10,679			11,947
Interest (c)		80,791			76,248
Total Earnings Available for Fixed Charges	$	709,571		$	586,507
Preferred Dividend Requirements	$	685		$	685
Ratio of Income Before Income Taxes to Net Income		156	%		159	%
Preferred Dividend Factor on Pretax Basis		1,069			1,089
Fixed Charges (d)		94,385			90,545
Combined Fixed Charges and Preferred Stock Dividends	$	95,454		$	91,634
Ratio of Earnings to Fixed Charges		7.5	x		6.5	x
Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends		7.4	x		6.4	x

(a)   Net income excludes undistributed income for equity investees.

(b)   Represents interest portion of rents estimated at 33 1/3%.

(c)   Represents interest, amortization of debt discount and expense on all indebtedness and amortization of interest capitalized, and excludes amortization of gains or losses on reacquired debt (which, under the Federal Energy Regulatory Commission Uniform System of Accounts, is classified as a reduction of, or increase in, interest expense in the Consolidated Statements of Income) and interest capitalized.

(d)   Represents rents (as defined above), interest, amortization of debt discount and expense on all indebtedness, and excludes amortization of gains or losses on reacquired debt (which, under the Federal Energy Regulatory Commission Uniform System of Accounts, is classified as a reduction of, or increase in, interest expense in the Consolidated Statements of Income).

EX-31.A

CERTIFICATION

I, Terry D. Hildestad, certify that:

1. I have reviewed this quarterly report on Form 10-Q of MDU Resources Group, Inc.;

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

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

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

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

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

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

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

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

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  November 5, 2008

 /s/ Terry D. Hildestad                                          

Terry D. Hildestad

President and Chief Executive Officer

EX-31.B

CERTIFICATION

I, Vernon A. Raile, certify that:

1. I have reviewed this quarterly report on Form 10-Q of MDU Resources Group, Inc.;

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

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

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

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

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

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

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

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

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  November 5, 2008

/s/ Vernon A. Raile                                          

Vernon A. Raile

Executive Vice President,

  Treasurer and Chief Financial Officer

EX-32

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

Each of the undersigned, Terry D. Hildestad, the President and Chief Executive Officer, and Vernon A. Raile, the Executive Vice President, Treasurer and Chief Financial Officer, of MDU Resources Group, Inc. (the "Company"), DOES HEREBY CERTIFY that:

1.  The Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

2.  Information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

IN WITNESS WHEREOF, each of the undersigned has executed this statement this 5th day of November, 2008.

/s/ Terry D. Hildestad                                               

Terry D. Hildestad

President and Chief Executive Officer

 /s/ Vernon A. Raile                                               

Vernon A. Raile

Executive Vice President, Treasurer

and Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to MDU Resources Group, Inc. and will be retained by MDU Resources Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.