FORM 10-K

37

MDU RESOURCES G ROUP, INC.

Utilities and independent contractors represent the largest customer base for this segment. Accordingly, utility and subcontract work

accounts for a significant portion of the work performed by MDU Construction Services and the amount of construction contracts is

dependent to a certain extent on the level and timing of maintenance and construction programs undertaken by customers. MDU

Construction Services relies on repeat customers and strives to maintain successful long-term relationships with these customers.

Environmental Matters MDU Construction Services' operations are subject to regulation customary for the industry, including federal,

state and local environmental compliance. MDU Construction Services believes it is in substantial compliance with these regulations.

The nature of MDU Construction Services' operations is such that few, if any, environmental permits are required. Operational

convenience supports the use of petroleum storage tanks in several locations, which are permitted under state programs authorized

by the EPA. MDU Construction Services has no ongoing remediation related to releases from petroleum storage tanks. MDU Construction

Services' operations are conditionally exempt small-quantity waste generators, subject to minimal regulation under the RCRA. Federal

permits for specific construction and maintenance jobs that may require these permits are typically obtained by the hiring entity,

and not by MDU Construction Services.

MDU Construction Services did not incur any material environmental expenditures in 2007 and does not expect to incur any material capital

expenditures related to environmental compliance with current laws and regulations through 2010.

PIPELINE AND ENERGY SERVICES

General Williston Basin, the regulated business of WBI Holdings, owns and operates over 3,700 miles of transmission, gathering and

storage lines and owns or leases and operates 30 compressor stations in the states of Montana, North Dakota, South Dakota and

Wyoming. Three underground storage fields in Montana and Wyoming provide storage services to local distribution companies, producers,

natural gas marketers and others, and serve to enhance system deliverability. Williston Basin's system is strategically located near five

natural gas producing basins, making natural gas supplies available to Williston Basin's transportation and storage customers. The system

has 11 interconnecting points with other pipeline facilities allowing for the receipt and/or delivery of natural gas to and from other regions

of the country and from Canada. At December 31, 2007, Williston Basin's net plant investment was approximately $245.6 million.

Under the Natural Gas Act, as amended, Williston Basin is subject to the jurisdiction of the FERC regarding certificate, rate, service and

accounting matters.

Bitter Creek, the nonregulated pipeline business, owns and operates gathering facilities in Colorado, Kansas, Montana and Wyoming.

Bitter Creek also owns a one-sixth interest in the assets of various offshore gathering pipelines, an associated onshore pipeline and related

processing facilities. In total, these facilities include over 1,900 miles of field gathering lines and 85 owned or leased compression facilities,

some of which interconnect with Williston Basin's system. In addition, Bitter Creek provides installation sales and/or leasing of alternate

energy delivery systems, primarily propane air facilities, energy efficiency product sales and installation services to large end users.

WBI Holdings, through its energy services business, provides natural gas purchase and sales services to local distribution companies,

producers, other marketers and a limited number of large end users, primarily using natural gas produced by the Company's natural gas

and oil production segment. Certain of the services are provided based on contracts that call for a determinable quantity of natural gas.

WBI Holdings currently estimates that it can adequately meet the requirements of these contracts. WBI Holdings transacts a substantial

majority of its pipeline and energy services business in the northern Great Plains and Rocky Mountain regions of the United States.

System Demand and Competition Williston Basin competes with several pipelines for its customers' transportation, storage and

gathering business and at times may discount rates in an effort to retain market share. However, the strategic location of Williston Basin's

system near five natural gas producing basins and the availability of underground storage and gathering services provided by Williston Basin

and affiliates along with interconnections with other pipelines serve to enhance Williston Basin's competitive position.

Although certain of Williston Basin's firm customers, including its largest firm customer Montana-Dakota, serve relatively secure residential

and commercial end users, they generally all have some price-sensitive end users that could switch to alternate fuels.

Williston Basin transports substantially all of Montana-Dakota's natural gas, primarily utilizing firm transportation agreements, which for

the year ended December 31, 2007, represented 57 percent of Williston Basin's currently subscribed firm transportation contract demand.

Montana-Dakota has a firm transportation agreement with Williston Basin for a term of five years expiring in June 2012. In addition,

Montana-Dakota has a contract with Williston Basin to provide firm storage services to facilitate meeting Montana-Dakota's winter peak

requirements for a term of 20 years expiring in July 2015.

Bitter Creek competes with several pipelines for existing customers and the expansion of its systems to gather natural gas in new areas.

Bitter Creek's strong position in the fields in which it operates, its focus on customer service and the variety of services it offers, along with

its interconnection with various other pipelines, serve to enhance its competitive position.