FORM 10-K
36
MDU RESOURCES G ROUP, INC.
PART I
Cascade has received approval for decoupling its margins from weather and conservation in Oregon, and has also received approval of
a decoupling mechanism in Washington which allows it to recover margin differences resulting from customer conservation. Cascade also
has an earnings sharing mechanism with respect to its Oregon jurisdictional operations as required by the OPUC.
Environmental Matters The natural gas distribution operations are subject to federal, state and local environmental, facility-siting,
zoning and planning laws and regulations. Montana-Dakota, Great Plains and Cascade believe they are in substantial compliance with
those regulations.
Natural gas distribution operations are conditionally exempt small-quantity hazardous waste generators and subject only to minimum
regulation under the RCRA. Montana-Dakota, Great Plains and Cascade routinely handle PCBs from their natural gas operations in
accordance with federal requirements. PCB storage areas are registered with the EPA as required.
Montana-Dakota, Great Plains, and Cascade did not incur any material environmental expenditures in 2007 and, except as to what
may be ultimately determined with regard to the issues described below, do not expect to incur any material capital expenditures related
to environmental compliance with current laws and regulations in relation to the natural gas distribution operations through 2010.
Montana-Dakota completed remediation of a manufactured gas plant located in Bismarck, North Dakota, in 2007. Expenses related
to this work were approximately $1.0 million and are expected to be recovered in rates through the regulatory process. In addition,
Montana-Dakota has had an economic interest in five other historic manufactured gas plants within its service territory, none of which
are currently being actively investigated, and for which any remediation expenses are not expected to be material. Cascade has had an
economic interest in nine former manufactured gas plants within its service territory. Cascade has been involved with other potentially
responsible parties in the investigation of a manufactured gas plant site in Oregon, with remediation of this site pending additional
investigation. See Item 8 -- Note 20 for a further discussion of this site and an additional site for which Cascade has received claim notice.
Cascade believes the cost of claims for investigation and remediation of contamination at these sites is covered by insurance. To the
extent not covered by insurance, Cascade will seek recovery of costs through its rates.
CONSTRUCTION SERVICES
General MDU Construction Services consists of diversified infrastructure construction companies specializing in the construction and
maintenance of electric and natural gas distribution and transmission lines, and communication lines as well as inside electrical wiring,
cabling and mechanical work, fire protection, utility excavation and the manufacture and distribution of specialty equipment. These
services are provided to utilities and large manufacturing, commercial, industrial, institutional and government customers.
In 2007, the Company acquired a construction service business in Nevada. This acquisition was not material to the Company.
Construction and maintenance crews are active year round. However, activity in certain locations may be seasonal in nature due to the
effects of weather.
MDU Construction Services operates a fleet of owned and leased trucks and trailers, support vehicles and specialty construction
equipment, such as backhoes, excavators, trenchers, generators, boring machines and cranes. In addition, as of December 31, 2007,
MDU Construction Services owned or leased facilities in 16 states. This space is used for offices, equipment yards, warehousing, storage
and vehicle shops. At December 31, 2007, MDU Construction Services' net plant investment was approximately $48.2 million.
MDU Construction Services' backlog is comprised of the uncompleted portion of services to be performed under job-specific contracts.
The backlog at December 31, 2007, was approximately $827 million compared to $527 million at December 31, 2006. MDU Construction
Services expects to complete a significant amount of this backlog during the year ending December 31, 2008. Due to the nature of its
contractual arrangements, in many instances MDU Construction Services' customers are not committed to the specific volumes of services
to be purchased under a contract, but rather MDU Construction Services is committed to perform these services if and to the extent
requested by the customer. Therefore, there can be no assurance as to the customer's requirements during a particular period or that such
estimates at any point in time are predictive of future revenues.
This industry is experiencing a shortage of skilled laborers in certain areas. MDU Construction Services works with the National Electrical
Contractors Association, the IBEW and other trade associations on hiring and recruiting a qualified workforce.
Competition MDU Construction Services operates in a highly competitive business environment. Most of MDU Construction Services'
work is obtained on the basis of competitive bids or by negotiation of either cost-plus or fixed-price contracts. The workforce and
equipment are highly mobile, providing greater flexibility in the size and location of MDU Construction Services' market area. Competition
is based primarily on price and reputation for quality, safety and reliability. The size and location of the services provided, as well as the
state of the economy, will be factors in the number of competitors that MDU Construction Services will encounter on any particular project.
MDU Construction Services believes that the diversification of the services it provides, the markets it serves throughout the United States
and the management of its workforce will enable it to effectively operate in this competitive environment.
