FORM 10-K

32

MDU RESOURCES G ROUP, INC.

PART I

MDU Construction Services has 81 labor contracts representing the majority of its employees. The majority of the labor contracts contain

provisions that prohibit work stoppages or strikes and provide for binding arbitration dispute resolution in the event of an extended

disagreement.

The Company's principal properties, which are of varying ages and are of different construction types, are generally in good condition, are

well maintained and are generally suitable and adequate for the purposes for which they are used.

The financial results and data applicable to each of the Company's business segments, as well as their financing requirements, are set forth

in Item 7 -- MD&A and Item 8 -- Note 16 and Supplementary Financial Information.

The operations of the Company and certain of its subsidiaries are subject to federal, state and local laws and regulations providing for air,

water and solid waste pollution control; state facility-siting regulations; zoning and planning regulations of certain state and local authorities;

federal health and safety regulations and state hazard communication standards. The Company believes that it is in substantial compliance

with these regulations, except as to what may be ultimately determined with regard to items discussed in Environmental matters in

Item 8 -- Note 20. There are no pending CERCLA actions for any of the Company's properties, other than the Portland, Oregon, Harbor

Superfund Site.

Governmental regulations establishing environmental protection standards are continuously evolving and, therefore, the character, scope,

cost and availability of the measures that will permit compliance with these laws or regulations cannot be accurately predicted. Disclosure

regarding specific environmental matters applicable to each of the Company's businesses is set forth under each business description below.

This annual report on Form 10-K, the Company's quarterly reports on Form 10-Q, the Company's current reports on Form 8-K and any

amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge through

the Company's Web site as soon as reasonably practicable after the Company has electronically filed such reports with, or furnished such

reports to, the SEC. The Company's Web site address is www.mdu.com. The information available on the Company's Web site is not part of

this annual report on Form 10-K.

ELECTRIC

General Montana-Dakota provides electric service at retail, serving over 120,000 residential, commercial, industrial and municipal customers

located in 177 communities and adjacent rural areas as of December 31, 2007. The principal properties owned by Montana-Dakota for use

in its electric operations include interests in eight electric generating facilities, as further described under System Supply, System Demand

and Competition, and approximately 3,000 and 4,500 miles of transmission and distribution lines, respectively. Montana-Dakota has

obtained and holds, or is in the process of renewing, valid and existing franchises authorizing it to conduct its electric operations in all of

the municipalities it serves where such franchises are required. Montana-Dakota intends to protect its service area and seek renewal of all

expiring franchises. As of December 31, 2007, Montana-Dakota's net electric plant investment approximated $390 million.

Substantially all of Montana-Dakota's electric properties are subject to the lien of the Mortgage and to the junior lien of the Indenture.

The percentage of Montana-Dakota's 2007 retail electric utility operating revenues by jurisdiction is as follows: North Dakota -- 62 percent;

Montana -- 21 percent; South Dakota -- 7 percent; and Wyoming -- 10 percent. Retail electric rates, service, accounting and certain security

issuances are subject to regulation by the NDPSC, MTPSC, SDPUC and WYPSC. The interstate transmission and wholesale electric power

operations of Montana-Dakota also are subject to regulation by the FERC under provisions of the Federal Power Act, as are interconnections

with other utilities and power generators, the issuance of securities, accounting and other matters. Montana-Dakota participates in the

Midwest ISO wholesale energy market.

The Midwest ISO is a regional transmission organization responsible for operational control of the transmission systems of its members.

The Midwest ISO provides security center operations, tariff administration and operates a day-ahead and real-time energy market. As

a member of Midwest ISO, Montana-Dakota's generation is sold into the Midwest ISO energy market and its energy needs are purchased

from that market.

System Supply, System Demand and Competition Through an interconnected electric system, Montana-Dakota serves markets in

portions of western North Dakota, including Bismarck, Dickinson and Williston; eastern Montana, including Glendive and Miles City; and

northern South Dakota, including Mobridge. The interconnected system consists of eight electric generating facilities, which have an

aggregate nameplate rating attributable to Montana-Dakota's interest of 455,555 kW and a total summer net capability of 483,360 kW.

Montana-Dakota's four principal generating stations are steam-turbine generating units using coal for fuel. The nameplate rating for

Montana-Dakota's ownership interest in these four stations (including interests in the Big Stone Station and the Coyote Station,

aggregating 22.7 percent and 25.0 percent, respectively) is 327,758 kW. During 2007, Montana-Dakota began construction on 19,500 kW

of wind-powered electric generation near Baker, Montana. Approximately 1,500 kW of this project came online in December 2007, and

the remainder came online in early 2008, and is reflected in the following table. Three combustion turbine peaking stations and the

wind-powered electric generating facility supply the balance of Montana-Dakota's interconnected system electric generating capability.