FORM 10-K

45

MDU RESOURCES G ROUP, INC.

The BER in March 2006 issued a decision in a rulemaking proceeding, initiated by the NPRC, that amends the non-degradation policy

applicable to water discharged in connection with CBNG operations. The amended policy includes additional limitations on factors deemed

harmful, thereby restricting water discharges even further than under previous standards. Due in part to this amended policy, in May 2006,

the Northern Cheyenne Tribe commenced litigation in Montana state court challenging two five-year water discharge permits that the

Montana DEQ granted to Fidelity in February 2006 and which are critical to Fidelity's ability to manage water produced under present and

future CBNG operations. If these permits are set aside, Fidelity's CBNG operations in Montana could be significantly and adversely affected.

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.

The Company is subject to regulation by federal, state and local regulatory agencies with respect to, among other things, allowed rates of

return, financings, 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.

Risks Relating to Foreign Operations

The value of the Company's investments in foreign operations may diminish due to political, regulatory and economic conditions and

changes in currency exchange rates in countries where the Company does business.

The Company is subject to political, regulatory and economic conditions and changes in currency exchange rates in foreign countries where

the Company does business. Significant changes in the political, regulatory or economic environment in these countries could negatively

affect the value of the Company's investments located in these countries. Also, since the Company is unable to predict the fluctuations in

the foreign currency exchange rates, these fluctuations may have an adverse impact on the Company's results of operations and cash flows.

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.

Williston Basin has filed suit in Montana Federal District Court seeking to recover unspecified damages from Anadarko and its wholly owned

subsidiary, Howell, and to enjoin Anadarko and Howell's present and future production operations in and near the EBSR. 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 Anadarko and Howell's drilling and production activities. 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.

Weather conditions can adversely affect the Company's operations and revenues and cash flows.

The Company's results of operations can be affected by changes in the weather. Weather conditions directly influence the demand for

electricity and natural gas, affect the price of energy commodities, affect the ability to perform services at the construction services and

construction materials and contracting businesses and affect ongoing operation and maintenance and construction and drilling activities

for the pipeline and energy services and natural gas and oil production businesses. In addition, severe weather can be destructive, causing

outages, reduced natural gas and oil production, and/or property damage, which could require additional costs to be incurred. As a result,

adverse weather conditions could negatively affect the Company's results of operations, financial condition and cash flows.

Competition is increasing in all of the Company's businesses.

All of the Company's businesses are subject to increased competition. Construction services' competition is based primarily on price and

reputation for quality, safety and reliability. The construction materials products are marketed under highly competitive conditions and are

subject to such competitive forces as price, service, delivery time and proximity to the customer. The electric utility and natural gas

industries also are experiencing increased competitive pressures as a result of consumer demands, technological advances, increased

natural gas prices and other factors. Pipeline and energy services competes with several pipelines for access to natural gas supplies and

gathering, transportation and storage business. The natural gas and oil production business is subject to competition in the acquisition and

development of natural gas and oil properties. The increase in competition could negatively affect the Company's results of operations,

financial condition and cash flows.