FORM 10-K

52

MDU RESOURCES G ROUP, INC.

PART II

Reflected in the Other category is the negative effect from an income tax adjustment of $9.4 million associated with the anticipated

repatriation of profits from Brazilian operations as discussed in Item 8 -- Note 15, partially offset by the gain of $6.1 million (after tax)

related to the sale of Hartwell.

2006 compared to 2005 Consolidated earnings for 2006 increased $40.7 million from the comparable period largely due to:

· Higher earnings from construction, aggregate and asphalt operations, and earnings from companies acquired since the comparable prior

period at the construction materials and contracting business

· Higher construction workloads and margins, as well as earnings from acquisitions made since the comparable prior period at the

construction services business

· Higher transportation and gathering volumes, higher storage services revenue and higher gathering rates at the pipeline and energy

services segment

· Increased oil and natural gas production of 20 percent and 5 percent, respectively, and higher average realized oil prices of 19 percent,

partially offset by higher depreciation, depletion and amortization expense and higher lease operating expense at the natural gas and oil

production business

Partially offsetting the increase were decreased earnings from equity method investments, which largely reflect the absence in 2006 of the

2005 $15.6 million benefit from the sale of the Termoceara Generating Facility reflected in the Other category.

FINANCIAL AND OPERATING DATA

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

Electric

Years ended December 31,

2007

2006

2005

(Dollars in millions, where applicable)

Operating revenues

$193.4

$187.3

$181.2

Operating expenses:

Fuel and purchased power

69.6

67.4

63.6

Operation and maintenance

61.7

62.8

59.5

Depreciation, depletion and amortization

22.5

21.4

20.8

Taxes, other than income

7.9

8.0

8.3

161.7

159.6

152.2

Operating income

31.7

27.7

29.0

Earnings

$ 17.7

$ 14.4

$ 13.9

Retail sales (million kWh)

2,601.7

2,483.2

2,413.7

Sales for resale (million kWh)

165.6

484.0

615.2

Average cost of fuel and purchased power per kWh

$ .025

$ .022

$ .020

2007 compared to 2006 Electric earnings increased $3.3 million (23 percent) compared to the prior year due to:

· Higher retail sales margins, primarily due to lower demand charges related to a PPA that expired in the fourth quarter of 2006 and

increased retail sales volumes of 5 percent

· Decreased operation and maintenance expense of $700,000 (after tax), primarily lower scheduled maintenance outage costs at electric

generating stations

Partially offsetting the increase in earnings was lower sales for resale margins due to decreased volumes of 66 percent, largely due

to a PPA that expired in the fourth quarter of 2006 and plant availability.

2006 compared to 2005 Electric earnings increased $500,000 (3 percent) compared to the prior year due to:

· Higher retail sales margins, primarily due to increased volumes of 3 percent and lower demand charges related to a PPA that expired in

the fourth quarter of 2006

· Lower income taxes of $700,000

· Lower interest expense of $600,000 (after tax), resulting from lower average interest rates due to the purchase and redemption of certain

higher cost long-term debt