MDU RESOURCES GROUP INC (Form: 10-Q, Received: 08/07/2008 14:33:53)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
	THE SECURITIES EXCHANGE ACT OF 1934

For The Quarterly Period Ended June 30, 2008

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from _____________ to ______________

Commission file number 1-3480

MDU Resources Group, Inc.

(Exact name of registrant as specified in its charter)

Delaware		41-0423660
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1200 West Century Avenue

Bismarck, North Dakota 58506-5650

(Address of principal executive offices)

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o .

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer x	Accelerated filer o
Non-accelerated filer o	Smaller reporting company o

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x .

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of July 31, 2008: 183,216,763 shares.

DEFINITIONS

The following abbreviations and acronyms used in this Form 10-Q are defined below:

Abbreviation or Acronym

2007 Annual Report	Company's Annual Report on Form 10-K for the year ended December 31, 2007
ALJ	Administrative Law Judge
Anadarko	Anadarko Petroleum Corporation
APB	Accounting Principles Board
APB Opinion No. 28	Interim Financial Reporting
Badger Hills Project	Tongue River-Badger Hills Project
Bbl	Barrel of oil or other liquid hydrocarbons
Bcf	Billion cubic feet
BER	Montana Board of Environmental Review
Big Stone Station	450-MW coal-fired electric generating facility located near Big Stone City, South Dakota (22.7 percent ownership)
Big Stone Station II	Proposed coal-fired electric generating facility located near Big Stone City, South Dakota (the Company anticipates ownership of at least 116 MW)
BLM	Bureau of Land Management
Brazilian Transmission Lines	Centennial Resources’ equity method investment in companies owning ECTE, ENTE and ERTE
Btu	British thermal unit
Cascade	Cascade Natural Gas Corporation, an indirect wholly owned subsidiary of MDU Energy Capital
CBNG	Coalbed natural gas
CEM	Colorado Energy Management, LLC, a former direct wholly owned subsidiary of Centennial Resources (sold in the third quarter of 2007)
Centennial	Centennial Energy Holdings, Inc., a direct wholly owned subsidiary of the Company
Centennial Capital	Centennial Holdings Capital LLC, a direct wholly owned subsidiary of Centennial
Centennial International	Centennial Energy Resources International, Inc., a direct wholly owned subsidiary of Centennial Resources
Centennial Power	Centennial Power, Inc., a former direct wholly owned subsidiary of Centennial Resources (sold in the third quarter of 2007)
Centennial Resources	Centennial Energy Resources LLC, a direct wholly owned subsidiary of Centennial
Clean Air Act	Federal Clean Air Act
Clean Water Act	Federal Clean Water Act
Colorado Federal District Court	U.S. District Court for the District of Colorado
Company	MDU Resources Group, Inc.
D.C. Appeals Court	U.S. Court of Appeals for the District of Columbia Circuit
dk	Decatherm
DRC	Dakota Resource Council

EBSR	Elk Basin Storage Reservoir, one of Williston Basin's natural gas storage reservoirs, which is located in Montana and Wyoming
ECTE	Empresa Catarinense de Transmissão de Energia S.A.
EIS	Environmental Impact Statement
ENTE	Empresa Norte de Transmissão de Energia S.A.
EPA	U.S. Environmental Protection Agency
ERTE	Empresa Regional de Transmissão de Energia S.A.
Exchange Act	Securities Exchange Act of 1934, as amended
FASB	Financial Accounting Standards Board
FERC	Federal Energy Regulatory Commission
Fidelity	Fidelity Exploration & Production Company, a direct wholly owned subsidiary of WBI Holdings
FSP	FASB Staff Position
FSP FAS 157-2	Effective Date of FASB Statement No. 157
Great Plains	Great Plains Natural Gas Co., a public utility division of the Company
Hart-Scott-Rodino Act	Hart-Scott-Rodino Antitrust Improvements Act
Hartwell	Hartwell Energy Limited Partnership, a former equity method investment of the Company (sold in the third quarter of 2007)
Howell	Howell Petroleum Corporation, a wholly owned subsidiary of Anadarko
Indenture	Indenture dated as of December 15, 2003, as supplemented, from the Company to The Bank of New York as Trustee
Innovatum	Innovatum Inc., a former indirect wholly owned subsidiary of WBI Holdings (the stock and Innovatum’s assets have been sold)
Intermountain	Intermountain Gas Company, a regulated natural gas distribution company
Knife River	Knife River Corporation, a direct wholly owned subsidiary of Centennial
kWh	Kilowatt-hour
LWG	Lower Willamette Group
MBbls	Thousands of barrels of oil or other liquid hydrocarbons
MBI	Morse Bros., Inc., an indirect wholly owned subsidiary of Knife River
Mcf	Thousand cubic feet
MDU Brasil	MDU Brasil Ltda., an indirect wholly owned subsidiary of Centennial International
MDU Construction Services	MDU Construction Services Group, Inc., a direct wholly owned subsidiary of Centennial
MDU Energy Capital	MDU Energy Capital, LLC, a direct wholly owned subsidiary of the Company
MEPA	Montana Environmental Policy Act
MMBtu	Million Btu
MMcf	Million cubic feet
MMdk	Million decatherms
MNPUC	Minnesota Public Utilities Commission
Montana-Dakota	Montana-Dakota Utilities Co., a public utility division of the Company

Montana BOGC	Montana Board of Oil & Gas Conservation
Montana DEQ	Montana State Department of Environmental Quality
Montana Federal District Court	U.S. District Court for the District of Montana
Montana State District Court	Montana Twenty-Second Judicial District Court, Big Horn County
Mortgage	Indenture of Mortgage dated May 1, 1939, as supplemented, amended and restated, from the Company to The Bank of New York and Douglas J. MacInnes, successor trustees
MPX	MPX Termoceara Ltda. (49 percent ownership, sold in June 2005)
MW	Megawatt
ND Health Department	North Dakota Department of Health
NDPSC	North Dakota Public Service Commission
NEPA	National Environmental Policy Act
Ninth Circuit	U.S. Ninth Circuit Court of Appeals
NPRC	Northern Plains Resource Council
NSPS	New Source Performance Standards
OPUC	Oregon Public Utilities Commission
Order on Rehearing	Order on Rehearing and Compliance and Remanding Certain Issues for Hearing
Oregon DEQ	Oregon State Department of Environmental Quality
Prairielands	Prairielands Energy Marketing, Inc., an indirect wholly owned subsidiary of WBI Holdings
PSD	Prevention of Significant Deterioration
ROD	Record of Decision
SEC	U.S. Securities and Exchange Commission
Securities Act	Securities Act of 1933, as amended
SEIS	Supplemental Environmental Impact Statement
SFAS	Statement of Financial Accounting Standards
SFAS No. 71	Accounting for the Effects of Certain Types of Regulation
SFAS No. 115	Accounting for Certain Investments in Debt and Equity Securities
SFAS No. 141 (revised)	Business Combinations (revised 2007)
SFAS No. 157	Fair Value Measurements
SFAS No. 159	The Fair Value Option for Financial Assets and Financial Liabilities
SFAS No. 160	Noncontrolling Interests in Consolidated Financial Statements - an amendment of ARB No. 51 (Consolidated Financial Statements)
SFAS No. 161	Disclosures about Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133
South Dakota Federal District Court	U.S. District Court for the District of South Dakota
South Dakota SIP	South Dakota State Implementation Plan
TRWUA	Tongue River Water Users’ Association
WBI Holdings	WBI Holdings, Inc., a direct wholly owned subsidiary of Centennial
Williston Basin	Williston Basin Interstate Pipeline Company, an indirect wholly owned subsidiary of WBI Holdings
WUTC	Washington Utilities and Transportation Commission

INTRODUCTION

The Company is a diversified natural resource company, which was incorporated under the laws of the state of Delaware in 1924. Its principal executive offices are at 1200 West Century Avenue, P.O. Box 5650, Bismarck, North Dakota 58506-5650, telephone (701) 530-1000.

Montana-Dakota, through the electric and natural gas distribution segments, generates, transmits and distributes electricity and distributes natural gas in Montana, North Dakota, South Dakota and Wyoming. Great Plains distributes natural gas in western Minnesota and southeastern North Dakota. Cascade distributes natural gas in Washington and Oregon. These operations also supply related value-added products and services.

The Company, through its wholly owned subsidiary, Centennial, owns WBI Holdings (comprised of the pipeline and energy services and the natural gas and oil production segments), Knife River (construction materials and contracting segment), MDU Construction Services (construction services segment), Centennial Resources and Centennial Capital (both reflected in the Other category). For more information on the Company’s business segments, see Note 15.

Part I -- Financial Information	Page

Consolidated Statements of Income --
Three and Six Months Ended June 30, 2008 and 2007		7

Consolidated Balance Sheets --
June 30, 2008 and 2007, and December 31, 2007		9

Consolidated Statements of Cash Flows --
Six Months Ended June 30, 2008 and 2007		10

Notes to Consolidated Financial Statements		11

Management's Discussion and Analysis of Financial Condition and Results of Operations		36

Quantitative and Qualitative Disclosures About Market Risk		57

Controls and Procedures		58

Part II -- Other Information

Legal Proceedings		58

Risk Factors		59

Unregistered Sales of Equity Securities and Use of Proceeds		62

Exhibits		62

Signatures		63

Exhibit Index		64

Exhibits

PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MDU RESOURCES GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended June 30,					Six Months Ended June 30,
	2008			2007		2008		2007
	(In thousands, except per share amounts)
Operating revenues:
Electric, natural gas distribution and pipeline and energy services	$	376,324		$	195,488	$	893,586	$	463,500
Construction services, natural gas and oil production, construction materials and contracting, and other		875,448			786,877		1,480,093		1,306,356
		1,251,772			982,365		2,373,679		1,769,856
Operating expenses:
Fuel and purchased power		15,718			15,489		34,495		32,607
Purchased natural gas sold		145,060			40,294		421,684		139,129
Operation and maintenance:
Electric, natural gas distribution and pipeline and energy services		61,828			46,659		121,390		91,315
Construction services, natural gas and oil production, construction materials and contracting, and other		687,479			629,782		1,185,097		1,075,631
Depreciation, depletion and amortization		89,678			70,044		176,909		139,846
Taxes, other than income		53,518			37,312		108,041		69,574
		1,053,281			839,580		2,047,616		1,548,102

Operating income		198,491			142,785		326,063		221,754

Earnings from equity method investments		2,039			4,030		3,864		6,084

Other income (expense)		(37	)		883		1,528		2,215

Interest expense		19,186			17,478		37,842		34,854

Income before income taxes		181,307			130,220		293,613		195,199

Income taxes		65,800			48,184		107,055		71,756

Income from continuing operations		115,507			82,036		186,558		123,443

Income from discontinued operations, net of tax (Note 3)		---			7,439		---		12,694

Net income		115,507			89,475		186,558		136,137

Dividends on preferred stocks		171			171		343		343

Earnings on common stock	$	115,336		$	89,304	$	186,215	$	135,794

(continued on next page)

The accompanying notes are an integral part of these consolidated financial statements.

MDU RESOURCES GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME (continued)

(Unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
	2008		2007		2008		2007
	(In thousands, except per share amounts)
Earnings per common share -- basic
Earnings before discontinued operations	$	.63	$	.45	$	1.02	$	.68
Discontinued operations, net of tax		---		.04		---		.07
Earnings per common share -- basic	$	.63	$	.49	$	1.02	$	.75
Earnings per common share -- diluted
Earnings before discontinued operations	$	.63	$	.45	$	1.01	$	.67
Discontinued operations, net of tax		---		.04		---		.07
Earnings per common share -- diluted	$	.63	$	. 49	$	1.01	$	. 74
Dividends per common share	$	.1450	$	.1350	$	.2900	$	.2700
Weighted average common shares outstanding -- basic		182,972		181 ,847		182,785		181,595
Weighted average common shares outstanding -- diluted		183,727		182,746		183,513		182 ,469

The accompanying notes are an integral part of these consolidated financial statements.

MDU RESOURCES GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	June 30, 2008			June 30, 2007			December 31, 2007
(In thousands, except shares and per share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	82,039		$	68,134		$	105,820
Receivables, net		769,379			642,559			715,484
Inventories		267,125			221,179			229,255
Deferred income taxes		47,442			---			7,046
Short-term investments		13,768			16,700			91,550
Prepayments and other current assets		175,293			78,535			64,998
Current assets held for sale and related to discontinued operations		---			69,662			179
		1,355,046			1,096,769			1,214,332
Investments		121,279			136,585			118,602
Property, plant and equipment		6,507,164			4,953,171			5,930,246
Less accumulated depreciation, depletion and amortization		2,408,093			1,851,825			2,270,691
		4,099,071			3,101,346			3,659,555
Deferred charges and other assets:
Goodwill		437,832			227,029			425,698
Other intangible assets, net		32,485			17,150			27,792
Other		166,019			113,193			146,455
Noncurrent assets held for sale and related to discontinued operations		---			410,662			---
		636,336			768,034			599,945
	$	6,211,732		$	5,102,734		$	5,592,434
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings	$	79,960		$	---		$	1,700
Long-term debt due within one year		87,366			131,661			161,682
Accounts payable		396,715			284,208			369,235
Taxes payable		46,200			38,769			60,407
Deferred income taxes		---			1,396			---
Dividends payable		26,723			24,725			26,619
Accrued compensation		55,631			47,440			66,255
Other accrued liabilities		295,153			108,450			163,990
Current liabilities held for sale and related to discontinued operations		---			14,156			---
		987,748			650,805			849,888
Long-term debt		1,474,908			1,224,286			1,146,781
Deferred credits and other liabilities:
Deferred income taxes		685,480			570,590			668,016
Other liabilities		472,989			349,895			396,430
Noncurrent liabilities held for sale and related to discontinued operations		---			35,488			---
		1,158,469			955,973			1,064,446
Commitments and contingencies
Stockholders’ equity :
Preferred stocks		15,000			15,000			15,000
Common stockholders’ equity:
Common stock
Shares issued -- $1.00 par value, 183,706,236 at June 30, 2008, 182,416,029 at June 30, 2007 and 182,946,528 at December 31, 2007		183,706			182,416			182,947
Other paid-in capital		925,784			895,838			912,806
Retained earnings		1,567,035			1,190,935			1,433,585
Accumulated other comprehensive loss		(97,292	)		(8,893	)		(9,393	)
Treasury stock at cost – 538,921 shares		(3,626	)		(3,626	)		(3,626	)
Total common stockholders’ equity		2,575,607			2,256,670			2,516,319
Total stockholders’ equity		2,590,607			2,271,670			2,531,319
	$	6,211,732		$	5,102,734		$	5,592,434

The accompanying notes are an integral part of these consolidated financial statements.

MDU RESOURCES GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended June 30,
	2008			2007
	(In thousands)
Operating activities:
Net income	$	186,558		$	136,137
Income from discontinued operations, net of tax		---			12,694
Income from continuing operations		186,558			123,443
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization		176,909			139,846
Earnings, net of distributions, from equity method investments		(1,844	)		(722	)
Deferred income taxes		34,870			24,756
Changes in current assets and liabilities, net of acquisitions:
Receivables		(46,550	)		(14,083	)
Inventories		(36,482	)		(16,690	)
Other current assets		(111,199	)		(25,259	)
Accounts payable		18,953			(11,644	)
Other current liabilities		11,209			(38,040	)
Other noncurrent changes		6,381			(1,107	)
Net cash provided by continuing operations		238,805			180,500
Net cash used in discontinued operations		---			(41,884	)
Net cash provided by operating activities		238,805			138,616

Investing activities:
Capital expenditures		(386,014	)		(242,729	)
Acquisitions, net of cash acquired		(271,191	)		(329	)
Net proceeds from sale or disposition of property		26,379			10,848
Investments		80,389			17,309
Net cash used in continuing operations		(550,437	)		(214,901	)
Net cash used in discontinued operations		---			(1,379	)
Net cash used in investing activities		(550,437	)		(216,280	)

Financing activities:
Issuance of short-term borrowings		79,960			---
Repayment of short-term borrowings		(1,700	)		---
Issuance of long-term debt		379,644			186,578
Repayment of long-term debt		(125,637	)		(85,028	)
Proceeds from issuance of common stock		4,945			15,775
Dividends paid		(53,296	)		(49,300	)
Tax benefit on stock-based compensation		3,737			4,505
Net cash provided by continuing operations		287,653			72,530
Net cash provided by discontinued operations		---			---
Net cash provided by financing activities		287,653			72,530
Effect of exchange rate changes on cash and cash equivalents		198			190
Decrease in cash and cash equivalents		(23,781	)		(4,944	)
Cash and cash equivalents -- beginning of year		105,820			73,078
Cash and cash equivalents -- end of period	$	82,039		$	68,134

The accompanying notes are an integral part of these consolidated financial statements.

MDU RESOURCES GROUP, INC.

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

June 30, 2008 and 2007

1. Basis of presentation

The accompanying consolidated interim financial statements were prepared in conformity with the basis of presentation reflected in the consolidated financial statements included in the Company's 2007 Annual Report, and the standards of accounting measurement set forth in APB Opinion No. 28 and any amendments thereto adopted by the FASB. Interim financial statements do not include all disclosures provided in annual financial statements and, accordingly, these financial statements should be read in conjunction with those appearing in the 2007 Annual Report. The information is unaudited but includes all adjustments that are, in the opinion of management, necessary for a fair presentation of the accompanying consolidated interim financial statements and are of a normal recurring nature.

2. Seasonality of operations

Some of the Company's operations are highly seasonal and revenues from, and certain expenses for, such operations may fluctuate significantly among quarterly periods. Accordingly, the interim results for particular businesses, and for the Company as a whole, may not be indicative of results for the full fiscal year.

3. Discontinued operations

As described in Note 3 in the Company's Notes to Consolidated Financial Statements in the 2007 Annual Report, the Company's consolidated financial statements and accompanying notes for prior periods present the results of operations of Innovatum and the domestic independent power production assets as discontinued operations. In addition, the assets and liabilities of these operations were treated as held for sale from the time each of the assets was classified as held for sale.

During the fourth quarter of 2006, the stock and a portion of the assets of Innovatum were sold and the Company sold the remaining assets of Innovatum on January 23, 2008. The loss on disposal of Innovatum was not material.

In July 2007, Centennial Resources sold its domestic independent power production business consisting of Centennial Power and CEM. The gain on the sale of the assets, excluding the gain on the sale of Hartwell as discussed in Note 11, was approximately $85.4 million (after tax).

Operating results related to Innovatum were as follows:

	Three Months Ended		Six Months Ended
	June 30, 2007		June 30, 2007
	(In thousands)
Operating revenues	$	439	$	689
Income from discontinued operations before income tax expense (benefit)		104		28
Income tax expense (benefit)		15		(29	)
Income from discontinued operations, net of tax	$	89	$	57

Operating results related to the domestic independent power production assets were as follows:

	Three Months Ended		Six Months Ended
	June 30, 2007		June 30, 2007
	(In thousands)
Operating revenues	$	64,291	$	98,887
Income from discontinued operations before income tax expense		9,532		16,923
Income tax expense		2,182		4,286
Income from discontinued operations, net of tax	$	7,350	$	12,637

The carrying amounts of the major assets and liabilities related to the domestic independent power production assets held for sale, as well as the major assets and liabilities related to Innovatum, were as follows:

	June 30,		December 31,
	2007		2007
	(In thousands)
Cash and cash equivalents	$	1,575	$	---
Receivables, net		7,878		---
Inventories		555		179
Prepayments and other current assets		59,654		---
Total current assets held for sale and related to discontinued operations	$	69,662	$	179
Net property, plant and equipment	$	391,708	$	---
Goodwill		11,167		---
Other intangible assets, net		7,241		---
Other		546		---
Total noncurrent assets held for sale and related to discontinued operations	$	410,662	$	---
Accounts payable	$	7,264	$	---
Other accrued liabilities		6,892		---
Total current liabilities held for sale and related to discontinued operations	$	14,156	$	---
Deferred income taxes	$	32,888	$	---
Other liabilities		2,600		---
Total noncurrent liabilities held for sale and related to discontinued operations	$	35,488	$	---

4. Allowance for doubtful accounts

The Company's allowance for doubtful accounts as of June 30, 2008 and 2007, and December 31, 2007, was $14.3 million, $7.7 million and $14.6 million, respectively.

5. Natural gas in storage

Natural gas in storage for the Company's regulated operations is generally carried at cost using the last-in, first-out method. The portion of the cost of natural gas in storage expected to be used within one year was included in inventories and was $11.4 million, $9.7 million and $28.8 million at June 30, 2008 and 2007, and December 31, 2007, respectively. The remainder of natural gas in storage, which largely represents the cost of gas required to maintain pressure levels for normal operating purposes, was included in other assets and was $43.0 million, $44.2 million, and $43.0 million at June 30, 2008 and 2007, and December 31, 2007, respectively.

Inventories, other than natural gas in storage for the Company’s regulated operations, consisted primarily of aggregates held for resale of $110.2 million, $100.6 million and $102.2 million; materials and supplies of $101.7 million, $75.0 million and $56.0 million; and other inventories of $43.8 million, $35.9 million and $42.3 million, as of June 30, 2008 and 2007, and December 31, 2007, respectively. These inventories were stated at the lower of average cost or market value.

7. Earnings per common share

Basic earnings per common share were computed by dividing earnings on common stock by the weighted average number of shares of common stock outstanding during the applicable period. Diluted earnings per common share were computed by dividing earnings on common stock by the total of the weighted average number of shares of common stock outstanding during the applicable period, plus the effect of outstanding stock options, restricted stock grants and performance share awards. Common stock outstanding includes issued shares less shares held in treasury.

8. Cash flow information

Cash expenditures for interest and income taxes were as follows:

	Six Months Ended June 30,
	2008		2007
	(In thousands)
Interest, net of amount capitalized	$	37,504	$	35,028
Income taxes	$	91,398	$	113,919

Income taxes paid for the six months ended June 30, 2008, decreased from the amount paid for the six months ended June 30, 2007, primarily due to estimated quarterly income tax payments paid in 2007 on the estimated gain on the sale of the domestic independent power production assets as discussed in Note 3.

9. New accounting standards

SFAS No. 157 In September 2006, the FASB issued SFAS No. 157. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The standard applies under other accounting pronouncements that require or permit fair value measurements with certain exceptions. SFAS No. 157 was effective for the Company on January 1, 2008. FSP FAS 157-2 delays the effective date of SFAS No. 157 for certain nonfinancial assets and nonfinancial liabilities to January 1, 2009. The types of assets and liabilities that are recognized at fair value for which the Company has not applied the provisions of SFAS No. 157, due to the delayed effective date, include nonfinancial assets and nonfinancial liabilities initially measured at fair value in a business combination or new basis event, certain fair value measurements associated with goodwill impairment testing, indefinite-lived intangible assets and nonfinancial long-lived assets measured at fair value for impairment assessment, and asset retirement obligations initially measured at fair value. The adoption of SFAS No. 157, excluding the application to certain nonfinancial assets and nonfinancial liabilities with a delayed effective date of January 1, 2009, did not have a material effect on the Company's financial position or results of

operations. The Company is evaluating the effects of the adoption of the delayed provisions of SFAS No. 157.

SFAS No. 159 In February 2007, the FASB issued SFAS No. 159. SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The standard also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 was effective for the Company on January 1, 2008, and at adoption, the Company elected to measure its investments in certain fixed-income and equity securities at fair value in accordance with SFAS No. 159. These investments prior to January 1, 2008, were accounted for as available-for-sale investments and recorded at fair value with any unrealized gains or losses, net of income taxes, recorded in accumulated other comprehensive income (loss) on the Consolidated Balance Sheets until realized. Upon the adoption of SFAS No. 159, the unrealized gain on the available-for-sale investments of $405,000 (after tax) was recorded as an increase to the January 1, 2008, balance of retained earnings. The adoption of SFAS No. 159 did not have a material effect on the Company's financial position or results of operations.

SFAS No. 141 (revised) In December 2007, the FASB issued SFAS No. 141 (revised). SFAS No. 141 (revised) requires an acquirer to recognize and measure the assets acquired, liabilities assumed and any noncontrolling interests in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exception. In addition, SFAS No. 141 (revised) requires that acquisition-related costs will be generally expensed as incurred. SFAS No. 141 (revised) also expands the disclosure requirements for business combinations. SFAS No. 141 (revised) will be effective for the Company on January 1, 2009. The Company is evaluating the effects of the adoption of SFAS No. 141 (revised).

SFAS No. 160 In December 2007, the FASB issued SFAS No. 160. SFAS No. 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 will be effective for the Company on January 1, 2009. The Company is evaluating the effects of the adoption of SFAS No. 160.

SFAS No. 161 In March 2008, the FASB issued SFAS No. 161. SFAS No. 161 requires enhanced disclosures about an entity’s derivative and hedging activities including how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for, and how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. This Statement will be effective for the Company on January 1, 2009. The Company is evaluating the effects of the adoption of SFAS No. 161.

10. Comprehensive income

Comprehensive income is the sum of net income as reported and other comprehensive income (loss). The Company's other comprehensive income (loss) resulted from gains (losses) on derivative instruments qualifying as hedges and foreign currency translation adjustments. For more information on derivative instruments, see Note 13.

Comprehensive income, and the components of other comprehensive income (loss) and related tax effects, were as follows:

	Three Months Ended June 30,
	2008			2007
	(In thousands)
Net income	$	115,507		$	89,475
Other comprehensive income (loss):
Net unrealized gain (loss) on derivative instruments qualifying as hedges:
Net unrealized gain (loss) on derivative instruments arising during the period, net of tax of $(37,169) and $6,096 in 2008 and 2007, respectively		(60,644	)		9,739
Less: Reclassification adjustment for gain (loss) on derivative instruments included in net income, net of tax of $(5,045) and $1,509 in 2008 and 2007, respectively		(8,230	)		2,411
Net unrealized gain (loss) on derivative instruments qualifying as hedges		(52,414	)		7,328
Foreign currency translation adjustment, net of tax of $2,570 in 2008		3,977			3,576
		(48,437	)		10,904
Comprehensive income	$	67,070		$	100,379

	Six Months Ended June 30,
	2008			2007
	(In thousands)
Net income	$	186,558		$	136,137
Other comprehensive loss:
Net unrealized loss on derivative instruments qualifying as hedges:
Net unrealized gain (loss) on derivative instruments arising during the period, net of tax of $(53,537) and $1,204 in 2008 and 2007, respectively		(87,433	)		1,923
Less: Reclassification adjustment for gain on derivative instruments included in net income, net of tax of $2,786 and $6,272 in 2008 and 2007, respectively		4,522			10,018
Net unrealized loss on derivative instruments qualifying as hedges		(91,955	)		(8,095	)
Foreign currency translation adjustment, net of tax of $2,876 in 2008		4,461			5,684
		(87,494	)		(2,411	)
Comprehensive income	$	99,064		$	133,726

11. Equity method investments

Investments in companies in which the Company has the ability to exercise significant influence over operating and financial policies are accounted for using the equity method. The Company's equity method investments at June 30, 2008, include the Brazilian Transmission Lines.

In August 2006, MDU Brasil acquired ownership interests in companies owning the Brazilian Transmission Lines. The interests involve the ENTE (13.3-percent ownership interest), ERTE (13.3-percent ownership interest) and ECTE (25-percent ownership interest) electric transmission lines, which are primarily in northeastern and southern Brazil.

In September 2004, Centennial Resources, through indirect wholly owned subsidiaries, acquired a 50-percent ownership interest in Hartwell, which owns a 310-MW natural gas-fired electric generating facility near Hartwell, Georgia. In July 2007, the Company sold its ownership interest in Hartwell, and realized a gain of $10.1 million ($6.1 million after tax) from the sale.

At June 30, 2008 and 2007, and December 31, 2007, the Company's equity method investments had total assets of $431.1 million, $469.2 million and $398.4 million, respectively, and long-term debt of $218.8 million, $277.2 million and $211.2 million, respectively. The Company's investment in its equity method investments was approximately $63.0 million, $80.6 million and $59.0 million, including undistributed earnings of $8.7 million, $7.6 million and $6.9 million, at June 30, 2008 and 2007, and December 31, 2007, respectively.

12. Goodwill and other intangible assets

The changes in the carrying amount of goodwill were as follows:

	Balance		Goodwill			Balance
	as of		Acquired			as of
Six Months Ended	January 1,		During			June 30,
June 30, 2008	2008		the Year*			2008
	(In thousands)
Electric	$	---	$	---		$	---
Natural gas distribution		171,129		(11	)		171,118
Construction services		91,385		3,937			95,322
Pipeline and energy services		1,159		---			1,159
Natural gas and oil production		---		---			---
Construction materials and contracting		162,025		8,208			170,233
Other		---		---			---
Total	$	425,698	$	12,134		$	437,832
*Includes purchase price adjustments that were not material related to acquisitions in a prior period.

	Balance		Goodwill			Balance
	as of		Acquired			as of
Six Months Ended	January 1,		During			June 30,
June 30, 2007	2007		the Year*			2007
	(In thousands)
Electric	$	---	$	---		$	---
Natural gas distribution		---		---			---
Construction services		86,942		3,596			90,538
Pipeline and energy services		1,159		---			1,159
Natural gas and oil production		---		---			---
Construction materials and contracting		136,197		(865	)		135,332
Other		---		---			---
Total	$	224,298	$	2,731		$	227,029
*Includes purchase price adjustments that were not material related to acquisitions in a prior period.

	Balance		Goodwill			Balance
	as of		Acquired			as of
Year Ended	January 1,		During the			December 31,
December 31, 2007	2007		Year*			2007
	(In thousands)
Electric	$	---	$	---		$	---
Natural gas distribution		---		171,129			171,129
Construction services		86,942		4,443			91,385
Pipeline and energy services		1,159		---			1,159
Natural gas and oil production		---		---			---
Construction materials and contracting		136,197		25,828			162,025
Other		---		---			---
Total	$	224,298	$	201,400		$	425,698
* Includes purchase price adjustments that were not material related to acquisitions in a prior period.

Other amortizable intangible assets were as follows:

	June 30,			June 30,			December 31,
	2008			2007			2007
	(In thousands)
Customer relationships	$	25,262		$	13,959		$	21,834
Accumulated amortization		(5,979	)		(3,234	)		(4,444	)
		19,283			10,725			17,390
Noncompete agreements		10,823			7,434			10,655
Accumulated amortization		(4,493	)		(2,926	)		(3,654	)
		6,330			4,508			7,001
Other		8,370			3,745			5,943
Accumulated amortization		(1,498	)		(1,828	)		(2,542	)
		6,872			1,917			3,401
Total	$	32,485		$	17,150		$	27,792

Amortization expense for intangible assets for the three and six months ended June 30, 2008, was $1.2 million and $2.6 million, respectively. Amortization expense for the three and six months ended June 30, 2007, and for the year ended December 31, 2007, was $900,000, $1.9 million and $4.4 million, respectively. Estimated amortization expense for amortizable intangible assets is $5.4 million in 2008, $4.8 million in 2009, $4.0 million in 2010, $3.5 million in 2011, $3.3 million in 2012, and $14.1 million thereafter.

13. Derivative instruments

From time to time, the Company utilizes derivative instruments as part of an overall energy price, foreign currency and interest rate risk management program to efficiently manage and minimize commodity price, foreign currency and interest rate risk. As of June 30, 2008, the Company had no outstanding foreign currency or interest rate hedges. The following information should be read in conjunction with Notes 1 and 7 in the Company's Notes to Consolidated Financial Statements in the 2007 Annual Report.

At June 30, 2008, Cascade held natural gas swap agreements which were not designated as hedges. Cascade utilizes natural gas swap agreements to manage a portion of the market risk associated with fluctuations in the price of natural gas on its forecasted purchases of natural gas for core customers in accordance with authority granted by the WUTC and OPUC. Core customers consist of residential, commercial and smaller industrial customers. The fair value of the derivative instrument must be estimated as of the end of each reporting period and is recorded on the Consolidated Balance Sheets as an asset or a liability. Cascade applies SFAS No. 71 and records periodic changes in the fair market value of the derivative instruments on the Consolidated Balance Sheets as a regulatory asset or a regulatory liability, and settlements of these arrangements are expected to be recovered through the purchased gas cost adjustment mechanism. Under the terms of these arrangements, Cascade will either pay or receive settlement payments based on the difference between the fixed strike price and the monthly index price applicable to each contract.

At June 30, 2008, Fidelity held natural gas and oil swap and collar agreements as well as a natural gas basis swap derivative instrument designated as cash flow hedging instruments. Fidelity utilizes these derivative instruments to manage a portion of the market risk associated with fluctuations in the price of natural gas and oil on its forecasted sales of natural gas and oil production. These derivative instruments were designated as cash flow hedges of the forecasted sales of the related production.

The fair value of the hedging instruments must be estimated as of the end of each reporting period and is recorded on the Consolidated Balance Sheets as an asset or a liability. Changes in the fair value attributable to the effective portion of hedging instruments, net of tax, are recorded in stockholders' equity as a component of accumulated other comprehensive income (loss). At the date the natural gas or oil quantities are settled, the amounts accumulated in other comprehensive income (loss) are reported in the Consolidated Statements of Income. To the extent that the hedges are not effective, the ineffective portion of the changes in fair market value is recorded directly in earnings. The proceeds received for natural gas and oil production are generally based on market prices.

For the three and six months ended June 30, 2008 and 2007, the amount of hedge ineffectiveness was immaterial. For the three and six months ended June 30, 2008 and 2007, there were no components of the derivative instruments’ gain or loss excluded from the assessment of hedge effectiveness. Gains and losses must be reclassified into earnings as a result of the discontinuance of cash flow hedges if it is probable that the original forecasted transactions will not occur. There were no such reclassifications into earnings as a result of the discontinuance of hedges.

Gains and losses on derivative instruments that are reclassified from accumulated other comprehensive income (loss) to current-period earnings are included in the line item in which the hedged item is recorded. As of June 30, 2008, the maximum term of the swap and collar agreements, in which the exposure to the variability in future cash flows for forecasted transactions is being hedged, is 42 months. The Company estimates that over the next 12 months net losses of approximately $61.2 million (after tax) will be reclassified from accumulated other comprehensive loss into earnings, subject to changes in natural gas and oil market prices, as the hedged transactions affect earnings.

14.	Fair value measurements

On January 1, 2008, the Company adopted SFAS No. 157 and SFAS No. 159, as discussed in Note 9.

Upon the adoption of SFAS No. 159, the Company elected to measure its investments in certain fixed-income and equity securities at fair value. These investments had previously been accounted for as available-for-sale investments in accordance with SFAS No. 115. The Company anticipates using these investments to satisfy its obligations under its unfunded, nonqualified benefit plans for executive officers and certain key management employees, and invests in these fixed-income and equity securities for the purpose of earning investment returns and capital appreciation. These investments totaled $34.0 million as of June 30, 2008. The decrease in the fair value of these investments for the three and six months ended June 30, 2008, was $184,000 (before tax) and $2.3 million (before tax), respectively, which is considered part of the cost of the plan, and is classified in operation and maintenance

expense on the Consolidated Statements of Income. The Company did not elect the fair value option for its remaining available-for-sale securities, which are auction rate securities, as they are not intended for long-term investment. The Company’s auction rate securities, which totaled $11.4 million at June 30, 2008, are accounted for as available-for-sale in accordance with SFAS No. 115 and are recorded at fair value. The fair value of the auction rate securities approximate cost and, as a result, there are no accumulated unrealized gains or losses recorded in accumulated other comprehensive income on the Consolidated Balance Sheets related to these investments.

The Company’s assets and liabilities measured at fair value on a recurring basis are as follows:

			Fair Value Measurements at June 30, 2008, Using
	Balance at June 30,		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	2008		(Level 1)		(Level 2)		(Level 3)
	(In thousands)
Assets:
Available-for-sale securities	$	45,390	$	33,990	$	11,400	$	---
Commodity derivative agreements		89,136		---		89,136		---
Total assets measured at fair value	$	134,526	$	33,990	$	100,536	$	---
Liabilities:
Commodity derivative agreements	$	138,615	$	---	$	138,615	$	---
Total liabilities measured at fair value	$	138,615	$	---	$	138,615	$	---

The estimated fair value of the Company’s Level 1 available-for-sale securities is based on quoted market prices in active markets for identical equity and fixed-income securities. The estimated fair value of the Company’s Level 2 available-for-sale securities is based on comparable market transactions. The estimated fair value of the Company’s commodity derivative instruments reflects the estimated amounts the Company would receive or pay to terminate the contracts at the reporting date based upon quoted market prices of comparable contracts.

15. Business segment data

The Company’s reportable segments are those that are based on the Company’s method of internal reporting, which generally segregates the strategic business units due to differences in products, services and regulation. The vast majority of the Company’s operations are located within the United States. The Company also has investments in foreign countries, which largely consist of Centennial Resources’ equity method investment in the Brazilian Transmission Lines.

The electric segment generates, transmits and distributes electricity in Montana, North Dakota, South Dakota and Wyoming. The natural gas distribution segment distributes natural gas in those states as well as in Minnesota, Oregon and Washington. These operations also supply related value-added products and services.

The construction services segment specializes in electric line construction, pipeline construction, utility excavation, inside electrical wiring, cabling and mechanical work, fire protection and the manufacture and distribution of specialty equipment.

The pipeline and energy services segment provides natural gas transportation, underground storage and gathering services through regulated and nonregulated pipeline systems primarily in the Rocky Mountain and northern Great Plains regions of the United States. This segment also provides energy-related management services.

The natural gas and oil production segment is engaged in natural gas and oil acquisition, exploration, development and production activities in the Rocky Mountain and Mid-Continent regions of the United States and in and around the Gulf of Mexico.

The construction materials and contracting segment mines aggregates and markets crushed stone, sand, gravel and related construction materials, including ready-mixed concrete, cement, asphalt, liquid asphalt and other value-added products. It also performs integrated construction services. The construction materials and contracting segment operates in the central, southern and western United States and Alaska and Hawaii.

The Other category includes the activities of Centennial Capital, which insures various types of risks as a captive insurer for certain of the Company’s subsidiaries. The function of the captive insurer is to fund the deductible layers of the insured companies’ general liability and automobile liability coverages. Centennial Capital also owns certain real and personal property. The Other category also includes Centennial Resources' equity method investment in the Brazilian Transmission Lines.

The information below follows the same accounting policies as described in Note 1 of the Company’s Notes to Consolidated Financial Statements in the 2007 Annual Report. Information on the Company’s businesses was as follows:

			Inter-
	External		segment			Earnings
Three Months	Operating		Operating			on Common
Ended June 30, 2008	Revenues		Revenues			Stock
	(In thousands)
Electric	$	45,873	$	---		$	2,787
Natural gas distribution		196,956		---			5,443
Pipeline and energy services		133,495		21,621			6,842
		376,324		21,621			15,072
Construction services		324,632		38			14,089
Natural gas and oil production		123,370		91,824			71,687
Construction materials and contracting		427,446		---			12,735
Other		---		2,660			1,753
		875,448		94,522			100,264
Intersegment eliminations		---		(116,143	)		---
Total	$	1,251,772	$	---		$	115,336


			Inter-
	External		segment			Earnings
Three Months	Operating		Operating			on Common
Ended June 30, 2007	Revenues		Revenues			Stock
	(In thousands)
Electric	$	44,591	$	---		$	3,568
Natural gas distribution		53,403		---			(559	)
Pipeline and energy services		97,494		14,660			6,228
		195,488		14,660			9,237
Construction services		263,483		349			13,026
Natural gas and oil production		67,924		59,471			35,166
Construction materials and contracting		455,470		---			25,541
Other		---		2,440			6,334
		786,877		62,260			80,067
Intersegment eliminations		---		(76,920	)		---
Total	$	982,365	$	---		$	89,304

			Inter-
	External		segment			Earnings
Six Months	Operating		Operating			on Common
Ended June 30, 2008	Revenues		Revenues			Stock
	(In thousands)
Electric	$	98,129	$	---		$	8,267
Natural gas distribution		559,101		---			21,828
Pipeline and energy services		236,356		52,553			13,996
		893,586		52,553			44,091
Construction services		632,019		82			24,903
Natural gas and oil production		219,351		165,430			122,333
Construction materials and contracting		628,723		---			(8,362	)
Other		---		5,296			3,250
		1,480,093		170,808			142,124
Intersegment eliminations		---		(223,361	)		---
Total	$	2,373,679	$	---		$	186,215


			Inter-
	External		segment			Earnings
Six Months	Operating		Operating			on Common
Ended June 30, 2007	Revenues		Revenues			Stock
	(In thousands)
Electric	$	91,695	$	---		$	7,353
Natural gas distribution		189,465		---			5,584
Pipeline and energy services		182,340		42,952			11,938
		463,500		42,952			24,875
Construction services		500,120		474			20,260
Natural gas and oil production		123,193		122,781			65,787
Construction materials and contracting		683,043		---			15,745
Other		---		4,880			9,127
		1,306,356		128,135			110,919
Intersegment eliminations		---		(171,087	)		---
Total	$	1,769,856	$	---		$	135,794

The pipeline and energy services segment recognized income from discontinued operations, net of tax, of $89,000 and $57,000 for the three and six months ended June 30, 2007. The Other category reflects income from discontinued operations, net of tax, of $7.4 million and $12.6 million for the three and six months ended June 30, 2007.

Excluding the income from discontinued operations at pipeline and energy services, earnings from electric, natural gas distribution and pipeline and energy services are substantially all from regulated operations. Earnings (loss) from construction services, natural gas and oil production, construction materials and contracting, and other are all from nonregulated operations.

During the first six months of 2008, the Company acquired natural gas properties in Texas and construction materials and contracting businesses in Alaska, California and Texas, none of which were material. The total purchase consideration for these properties and purchase price adjustments with respect to certain other acquisitions made prior to 2008, consisting of the Company’s common stock and cash, was $276.3 million.

The above acquisitions were accounted for under the purchase method of accounting and, accordingly, the acquired assets and liabilities assumed have been preliminarily recorded at their respective fair values as of the date of acquisition. On certain of the above acquisitions, final fair market values are pending the completion of the review of the relevant assets, liabilities and issues identified as of the acquisition date. The results of operations of the acquired businesses and properties are included in the financial statements since the date of each acquisition. Pro forma financial amounts reflecting the effects of the above acquisitions are not presented, as such acquisitions were not material to the Company’s financial position or results of operations.

17. Employee benefit plans

The Company has noncontributory defined benefit pension plans and other postretirement benefit plans for certain eligible employees. Components of net periodic benefit cost for the Company's pension and other postretirement benefit plans were as follows:

							Other
							Postretirement
Three Months	Pension Benefits						Benefits
Ended June 30,	2008			2007			2008			2007
	(In thousands)
Components of net periodic benefit cost:
Service cost	$	2,191		$	2,011		$	660		$	447
Interest cost		6,505			4,222			1,797			1,180
Expected return on assets		(8,458	)		(5,094	)		(1,691	)		(1,279	)
Amortization of prior service cost (credit)		198			207			(988	)		14
Amortization net actuarial loss		332			426			246			164
Amortization of net transition obligation		---			---			763			635
Net periodic benefit cost, including amount capitalized		768			1,772			787			1,161
Less amount capitalized		217			217			124			90
Net periodic benefit cost	$	551		$	1,555		$	663		$	1,071

							Other
							Postretirement
Six Months	Pension Benefits						Benefits
Ended June 30,	2008			2007			2008			2007
	(In thousands)
Components of net periodic benefit cost:
Service cost	$	4,820		$	4,261		$	1,150		$	980
Interest cost		11,629			8,363			2,982			2,118
Expected return on assets		(14,494	)		(10,164	)		(3,388	)		(2,372	)
Amortization of prior service cost (credit)		364			416			(1,677	)		25
Amortization net actuarial (gain) loss		574			500			361			(149	)
Amortization of net transition obligation		---			---			1,294			1,166
Net periodic benefit cost, including amount capitalized		2,893			3,376			722			1,768
Less amount capitalized		396			368			189			141
Net periodic benefit cost	$	2,497		$	3,008		$	533		$	1,627

In addition to the qualified plan defined pension benefits reflected in the table, the Company has an unfunded, nonqualified benefit plan for executive officers and certain key management employees that generally provides for defined benefit payments at age 65 following the employee’s retirement or to their beneficiaries upon death for a 15-year period. The Company's net periodic benefit cost for this plan for the three and six months ended June 30, 2008, was $2.4 million and $4.4 million, respectively. The Company’s net periodic benefit cost for this plan for the three and six months ended June 30, 2007, was $2.1 million and $3.9 million, respectively.

18. Regulatory matters and revenues subject to refund

In November 2006, Montana-Dakota filed an application with the NDPSC requesting an advance determination of prudence of Montana-Dakota's ownership interest in Big Stone Station II. Hearings on the application were held in June 2007. In September 2007, Montana-Dakota informed the NDPSC that certain of the other participants in the project had withdrawn and it was considering the impact of these withdrawals on the project and its options. Supplemental hearings before the NDPSC were held in late April 2008 regarding possible plant configuration changes as a result of the participant withdrawals and updated supporting modeling. The NDPSC is expected to rule on the advance determination of prudence application in the third quarter of 2008.

In December 1999, Williston Basin filed a general natural gas rate change application with the FERC. Williston Basin began collecting such rates effective June 1, 2000, subject to refund. Currently, the only remaining issue outstanding related to this rate change application is in regard to certain service restrictions. In May 2004, the FERC remanded this issue to an ALJ for resolution. In November 2005, the FERC issued an Order on Initial Decision affirming the ALJ's Initial Decision regarding certain service and annual demand quantity restrictions. In April 2006, the FERC issued an Order on Rehearing denying Williston Basin's Request for Rehearing of the FERC's Order on Initial Decision. In April 2006, Williston Basin appealed to the D.C. Appeals Court certain issues addressed by the FERC's Order on Initial Decision and its Order on Rehearing. On March 18, 2008, the D.C. Appeals Court issued its opinion in this matter concerning the service restrictions. The D.C. Appeals Court found that the FERC was correct to decide the case under the “just and reasonable” standard of section 5(a) of the Natural Gas Act; however, it remanded the case back to the FERC as flaws in the FERC’s reasoning render its orders arbitrary and capricious. The matter concerning the service restrictions is pending resolution by the FERC.

Coalbed Natural Gas Operations Fidelity is a party to and/or certain of its operations are or have been the subject of approximately a dozen lawsuits in Montana and Wyoming in connection with Fidelity’s CBNG development in the Powder River Basin. The lawsuits generally involve either challenges to regulatory agency decisions under the NEPA or the MEPA or to Fidelity’s management of water produced in association with its operations.

Challenges to State/Federal Regulatory Agency Decision Making Under NEPA/MEPA

In 1999 and 2000, the BLM, the Montana BOGC, and the Montana DEQ announced their respective decisions to prepare an EIS analyzing CBNG development in Montana. In 2003, the agencies each signed RODs approving a final EIS and allowing CBNG development throughout the State of Montana. The approval actions by the agencies resulted in numerous lawsuits initiated by environmental groups and the Northern Cheyenne Tribe related to the validity of the final EIS and associated environmental assessments. Fidelity has intervened in several of these lawsuits to protect its interests.

In lawsuits filed in Montana Federal District Court in May 2003, the NPRC and the Northern Cheyenne Tribe asserted that the BLM violated NEPA and other federal laws when approving the 2003 EIS. Producers, including Fidelity, are operating under an order

that allows limited CBNG development of up to 500 CBNG wells to be drilled annually on private, state, and federal lands in the Montana Powder River Basin pending the BLM's preparation of a SEIS.

In December 2006, the BLM issued a draft SEIS that endorses a phased-development approach to CBNG production in the Montana Powder River Basin, whereby future projects would be reviewed against four screens or filters (relating to water quality, wildlife, Native American concerns and air quality). Fidelity filed written comments on the draft SEIS asking the BLM to reconsider its proposed phased-development approach and to make numerous other changes to the draft SEIS. The final SEIS is scheduled for release in September 2008 with a ROD expected in March 2009. Fidelity cannot predict what the final terms of the SEIS will be.

In a related action filed in Montana Federal District Court in December 2003, the NPRC asserted, among other things, that the actions of the BLM in approving Fidelity's applications for permits and the plan of development for the Badger Hills Project in Montana did not comply with applicable federal laws, including the NEPA. As a result of the litigation, Fidelity is operating under an Order, based on a stipulation between the parties, that allows production from existing wells in Fidelity’s Badger Hills Project to continue pending preparation of a revised environmental analysis.

Cases Involving Fidelity’s Management of Water Produced in Association with Its Operations

About half the CBNG cases Fidelity is involved in relate to administrative agency regulation of water produced in association with CBNG development in Montana and Wyoming. These cases involve legal challenges to the issuance of discharge permits, as well as challenges to the State of Wyoming’s CBNG water permitting procedures.

In April 2006, the Northern Cheyenne Tribe filed a complaint in Montana State District Court against the Montana DEQ seeking to set aside Fidelity’s renewed direct discharge and treatment permits. The Northern Cheyenne Tribe claimed the Montana DEQ violated the Clean Water Act and the Montana Water Quality Act by failing to include in the permits conditions requiring application of the best practicable control technology currently available and by failing to impose a nondegradation policy like the one the BER adopted soon after the permit was issued. In addition, the Northern Cheyenne Tribe claimed that the actions of the Montana DEQ violated the Montana State Constitution’s guarantee of a clean and healthful environment, that the Montana DEQ’s related environmental assessment was invalid, that the Montana DEQ was required, but failed, to prepare an EIS and that the Montana DEQ failed to consider other alternatives to the issuance of the permits. Fidelity, the NPRC and the TRWUA have been granted leave to intervene in this proceeding. Fidelity’s discharge of water pursuant to its two permits is its primary means for managing CBNG produced water. Fidelity believes that its discharge permits should, assuming normal operating conditions, allow Fidelity to continue its existing CBNG operations through the expiration of the permits in March 2011. If its permits are set aside, Fidelity’s CBNG operations in Montana could be significantly and adversely affected.

The Powder River Basin Resource Council is funding litigation, filed in Wyoming State District Court in June 2007, on behalf of two surface owners against the Wyoming State

Engineer and the Wyoming Board of Control. The plaintiffs seek a declaratory judgment that current ground water permitting practices are unlawful; that the state is required to adopt rules and procedures to ensure that coalbed groundwater is managed in accordance with the Wyoming Constitution and other laws; and that would prohibit the Wyoming State Engineer from issuing permits to produce coalbed groundwater and permits to store coalbed groundwater in reservoirs until the Wyoming State Engineer adopts such rules. The Petroleum Association of Wyoming has conditionally been granted intervention in this lawsuit and Fidelity is partly funding the intervention. On May 29, 2008, the Wyoming State District Court dismissed the case. The plaintiffs appealed to the Wyoming Supreme Court on June 27, 2008. Fidelity’s CBNG operations in Wyoming could be materially adversely affected if the plaintiffs are successful in this lawsuit.

Fidelity is involved in, or certain of its operations are the subject of, other legal proceedings that concern its CBNG operations. Although the outcomes of those proceedings can not be predicted, management believes that such outcomes will not have a material adverse effect on the Company’s financial position or results of its operations.

Fidelity will continue to vigorously defend its interests in all CBNG-related litigation in which it is involved, including the proceedings challenging its water permits. In those cases where damage claims have been asserted, Fidelity is unable to quantify the damages sought and will be unable to do so until after the completion of discovery. If the plaintiffs are successful in these lawsuits, the ultimate outcome of the actions could adversely impact Fidelity’s existing CBNG operations and/or the future development of this resource in the affected regions.

Electric Operations Montana-Dakota joined with two electric generators in appealing a September 2003 finding by the ND Health Department that it may unilaterally revise operating permits previously issued to electric generating plants. Although it is doubtful that any revision of Montana-Dakota's operating permits by the ND Health Department would reduce the amount of electricity its plants could generate, the finding, if allowed to stand, could increase costs for sulfur dioxide removal and/or limit Montana-Dakota's ability to modify or expand operations at its North Dakota generation sites. Montana-Dakota and the other electric generators filed their appeal of the order in October 2003 in the Burleigh County District Court in Bismarck, North Dakota. Proceedings were stayed pending conclusion of the periodic review of sulfur dioxide emissions in the state.

In September 2005, the ND Health Department issued its final periodic review decision based on its August 2005 final air quality modeling report. The ND Health Department concluded there were no violations of the sulfur dioxide increment in North Dakota. In March 2006, the DRC filed a complaint in Colorado Federal District Court seeking to force the EPA to declare that the increment had been violated based on earlier modeling conducted by the EPA. The EPA defended against the DRC claim and filed a motion to dismiss the case. The Colorado Federal District Court has dismissed the case.

In June 2007, the EPA noticed for public comment a proposed rule that would, among other things, adopt PSD increment modeling refinements that, if adopted, would operate to formally ratify the modeling techniques and conclusions contained in the September 2005 ND Health Department decision and the August 2005 final report. The public comment

period on the proposed rule closed in September 2007. The dismissal of the case in Burleigh County District Court referenced above is dependant upon the outcome of the proposed rule.

On June 10, 2008, the Sierra Club filed a complaint in the South Dakota Federal District Court against Montana-Dakota and the two other co-owners of the Big Stone Station. The complaint alleges certain violations of the PSD and NSPS provisions of the Clean Air Act and certain violation of the South Dakota SIP. The action further alleges that the Big Stone Station was modified and operated without obtaining the appropriate permits, without meeting certain emissions limits and NSPS requirements and without installing appropriate emission control technology, all allegedly in violation of the Clean Air Act and the South Dakota SIP. The Sierra Club alleges that these actions have contributed to air pollution and visibility impairment and have increased the risk of adverse health effects and environmental damage. The Sierra Club seeks both declaratory and injunctive relief to bring the co-owners of the Big Stone Station into compliance with the Clean Air Act and the South Dakota SIP and to require them to remedy the alleged violations. The Sierra Club also seeks unspecified civil penalties, including a beneficial mitigation project. The Company believes that these claims are without merit and that Big Stone Station has been and is being operated in compliance with the Clean Air Act and the South Dakota SIP. The ultimate outcome of these matters cannot be determined at this time.

Natural Gas Storage Based on reservoir and well pressure data and other information, Williston Basin believes that reservoir pressure (and therefore the amount of gas) in the EBSR, one of its natural gas storage reservoirs, has decreased as a result of Howell and Anadarko’s drilling and production activities in areas within and near the boundaries of the EBSR. As of June 30, 2008, Williston Basin estimated that between 10.25 and 10.75 Bcf of storage gas had been diverted from the EBSR as a result of Howell and Anadarko’s drilling and production.

Williston Basin filed suit in Montana Federal District Court in January 2006, seeking to recover unspecified damages from Howell and Anadarko, and to enjoin Howell and Anadarko’s present and future production from specified wells in and near the EBSR. The Montana Federal District Court entered an Order in July 2006, dismissing the case for lack of subject matter jurisdiction. Williston Basin appealed and on May 9, 2008, the Ninth Circuit affirmed the Montana Federal District Court’s decision.

In related litigation, Howell filed suit in Wyoming State District Court against Williston Basin in February 2006 asserting that it is entitled to produce any gas that might escape from the EBSR. In August 2006, Williston Basin moved for a preliminary injunction to halt Howell and Anadarko’s production in and near the EBSR. The Wyoming State District Court denied Williston Basin’s motion in July 2007. In December 2007, motions were argued to a court appointed special master concerning the application of certain legal principles to the production of Williston Basin’s storage gas, including gas residing outside the certificated boundaries of the EBSR, by Howell and Anadarko. On March 17, 2008, the special master issued recommendations to the Wyoming State District Court. The special master recommended that the Wyoming State District Court adopt a ruling that gas injected into an underground reservoir belongs to the injector and the injector does not lose title to that gas unless the gas escapes or migrates from the reservoir because it was not well defined or well maintained or if the injector is unable to identify such injected gas because it

has been commingled with native gas. The special master also recommended that the Wyoming State District Court adopt a ruling that generally would allow Howell and Anadarko to produce native gas residing inside or outside the certificated boundaries of the EBSR from its wells completed outside the certificated boundaries. The special master recognized that there are other issues yet to be developed that may be determinative of whether Howell and Anadarko may produce native or injected gas, or both. On July 1, 2008, the Wyoming State District Court adopted the special master’s report. On July 16, 2008, Williston Basin filed a petition requesting the Wyoming Supreme Court to review a ruling by the Wyoming State District Court that the Natural Gas Act does not preempt the state law that permits an oil and gas producer to take gas that has been dedicated for use in a federally certificated gas storage reservoir. The petition was denied on August 5, 2008 by the Wyoming Supreme Court. The Wyoming State District Court has scheduled the case for trial beginning March 16, 2009.

In a related proceeding, the FERC issued an order on July 18, 2008, in response to a petition filed by Williston Basin on April 24, 2008, declaring that the certification of a storage facility under the Natural Gas Act conveys to the certificate holder the right to acquire native gas within the certificated boundaries of the storage facility. The FERC also concurred that a state law precluding the certificate holder from acquiring the right to native gas would be preempted by federal law.

As previously noted, Williston Basin estimates that as of June 30, 2008, Howell and Anadarko had diverted between 10.25 and 10.75 Bcf from the EBSR. Williston Basin believes Howell and Anadarko continue to divert gas from the EBSR and Williston Basin continues to monitor and analyze the situation. At trial, Williston Basin will seek recovery based on the amount of gas that has been and continues to be diverted as well as on the amount of gas that must be recovered as a result of the equalization of the pressures of various interconnected geological formations.

In expert reports filed with the Wyoming State District Court in January 2008, Williston Basin’s experts are of the opinion that all of the gas produced by Howell and Anadarko is Williston Basin's gas and will have to be replaced. Williston Basin’s experts estimate that the replacement cost of the gas produced by Howell and Anadarko through October 2007 is approximately $106 million if injection is completed by the end of the 2010 injection season. Williston Basin's experts also estimate that Williston Basin will expend $8.7 million to mitigate the damages that Williston Basin suffered during the period of Howell and Anadarko’s production if the replacement gas is injected by the end of the 2010 injection season. Williston Basin believes that its experts’ opinions are based on sound law, economics, reservoir engineering, geology and geochemistry. The expert reports filed by Howell and Anadarko claim that storage gas owned by Williston Basin has migrated outside the EBSR into areas in which Howell and Anadarko have oil and gas rights. They theorize that Williston Basin is accountable to Howell and Anadarko for the migration of such gas. Although Howell and Anadarko have not specified the amount of damages they seek to recover, Williston Basin believes Howell and Anadarko’s proposed methodology for valuing their alleged injury, if any, is flawed, inconsistent and lacking in factual and legal support. Williston Basin continues to evaluate the Howell and Anadarko reports. The deadline to file rebuttal reports with the Wyoming State District Court is August 18, 2008.

Williston Basin intends to vigorously defend its rights and interests in these proceedings, to assess further avenues for recovery through the regulatory process at the FERC, and to pursue the recovery of any and all economic losses it may have suffered. Williston Basin cannot predict the ultimate outcome of these proceedings.

In light of the actions of Howell and Anadarko, Williston Basin installed temporary compression at the site in 2006 in order to maintain deliverability into the transmission system. Williston Basin leased working gas for the 2007 - 2008 heating season to supplement its cushion gas. While installation of the additional compression and leased working gas during the 2007 – 2008 heating season both provided temporary relief, Williston Basin believes that the adverse physical and operational effects occasioned by the continued loss of storage gas, if left unchecked, could threaten the operation and viability of the EBSR, impair Williston Basin’s ability to comply with the EBSR certificated operating requirements mandated by the FERC and adversely affect Williston Basin’s ability to meet its contractual storage and transportation service commitments to customers. In another effort to protect the viability of the EBSR, Williston Basin, on April 18, 2008, filed an application with the FERC to expand the boundaries of the EBSR. The proposed expansion includes the areas from which Howell and Anadarko are producing.

The Company also is involved in other legal actions in the ordinary course of its business. Although the outcomes of any such legal actions cannot be predicted, management believes that the outcomes with respect to these other legal proceedings will not have a material adverse effect upon the Company’s financial position or results of operations.

Environmental matters

Portland Harbor Site In December 2000, MBI was named by the EPA as a Potentially Responsible Party in connection with the cleanup of a riverbed site adjacent to a commercial property site acquired by MBI from Georgia Pacific-West, Inc. in 1999. The riverbed site is part of the Portland, Oregon, Harbor Superfund Site. Sixty-eight other parties were also named in this administrative action. The EPA wants responsible parties to share in the cleanup of sediment contamination in the Willamette River. To date, costs of the overall remedial investigation and feasibility study of the harbor site are being recorded, and initially paid, through an administrative consent order by the LWG, a group of several entities, which does not include MBI or Georgia-Pacific West, Inc. Although the LWG originally estimated the overall remedial investigation and feasibility study would cost approximately $10 million, it is now anticipated, on the basis of costs incurred to date and delays attributable to an additional round of sampling and potential further investigative work, that such cost could increase to a total in excess of $60 million. It is not possible to estimate the cost of a corrective action plan until the remedial investigation and feasibility study have been completed, the EPA has decided on a strategy and a record of decision has been published. It is also not possible to estimate the costs of natural resource damages until investigation and allocations are undertaken. While the remedial investigation and feasibility study for the harbor site has commenced, it is expected to take several more years to complete. The development of a proposed plan and ROD on the harbor site is not anticipated to occur until 2010, after which a cleanup plan will be undertaken. MBI also received notice in January 2008 that the Portland Harbor Natural Resource Trustee Council intends to perform an injury assessment to natural resources resulting from the release of hazardous substances at the Harbor Superfund Site. The Trustee Council indicates the injury

determination is appropriate to facilitate early settlement of damages and restoration for natural resource injuries.

Based upon a review of the Portland Harbor sediment contamination evaluation by the Oregon DEQ and other information available, MBI does not believe it is a Responsible Party. In addition, MBI has notified Georgia-Pacific West, Inc., that it intends to seek indemnity for any and all liabilities incurred in relation to the above matters, pursuant to the terms of their sale agreement. MBI has entered into an agreement tolling the statute of limitation in connection with the LWG’s potential claim for contribution to the costs of the remedial investigation and feasibility study.

The Company believes it is not probable that it will incur any material environmental remediation costs or damages in relation to the above referenced administrative action.

Manufactured Gas Plant Sites There are three claims against Cascade for cleanup of environmental contamination at manufactured gas plant sites operated by Cascade’s predecessors.

The first claim is for soil and groundwater contamination at a site in Oregon and was received in 1995. There are potentially responsible parties in addition to Cascade that may be liable for cleanup of the contamination. Some of these other parties have shared in the investigation costs. It is expected that these and other potentially responsible parties will share in the cleanup costs. Several alternatives for cleanup have been identified, with preliminary cost estimates ranging from approximately $500,000 to $11.0 million. It is not known at this time what share of the cleanup costs will actually be borne by Cascade. In November 2007, the Oregon DEQ provided notice that additional ecological risk assessment of the site was necessary. Completion of the assessment is anticipated by the end of 2008. The results of the assessment may affect the selection and implementation of a cleanup alternative.

The second claim is for contamination at a site in Washington and was received in 1997. Although a preliminary investigation has concluded the site is contaminated, it appears that other property owners may have contributed to the contamination. There is currently not enough information available to estimate the potential liability associated with this claim and no formal investigation plan has been communicated to Cascade.

The third claim is also for contamination at a site in Washington. Cascade received notice from a party in May 2008 that Cascade may be a potentially responsible party, along with other parties, for contamination from a manufactured gas plant owned by Cascade’s predecessor from about 1946 to 1962. The notice indicates that current estimates to perform a comprehensive remedial investigation/feasibility study and prepare a cleanup action plan exceed $8.0 million. There is currently not enough information available to estimate the potential liability to Cascade associated with this claim.

To the extent these claims are not covered by insurance, Cascade will seek recovery through the OPUC and WUTC of contamination remediation costs in its natural gas rates charged to customers.

In connection with the sale of MPX in June 2005 to Petrobras, an indirect wholly owned subsidiary of the Company has agreed to indemnify Petrobras for 49 percent of any losses that Petrobras may incur from certain contingent liabilities specified in the purchase agreement. Centennial has agreed to unconditionally guarantee payment of the indemnity obligations to Petrobras for periods ranging up to five and a half years from the date of sale. The guarantee was required by Petrobras as a condition to closing the sale of MPX.

Centennial continues to guarantee CEM's obligations under a construction contract for a 550-MW combined-cycle electric generating facility near Hobbs, New Mexico. As described in Note 3, Centennial Resources sold CEM in July 2007 to Bicent Power LLC, which has provided a $10 million bank letter of credit to Centennial in support of that guarantee obligation. The guarantee, which has no fixed maximum, expires when CEM has completed its obligations under the construction contract. Substantial completion of construction is expected to occur during the third quarter of 2008, and the warranty period associated with this project will expire one year after the date of substantial completion of the construction.

In addition, WBI Holdings has guaranteed certain of Fidelity’s natural gas and oil price swap and collar agreement obligations. There is no fixed maximum amount guaranteed in relation to the natural gas and oil price swap and collar agreements as the amount of the obligation is dependent upon natural gas and oil commodity prices. The amount of hedging activity entered into by the subsidiary is limited by corporate policy. The guarantees of the natural gas and oil price swap and collar agreements at June 30, 2008, expire in the years ranging from 2008 to 2011; however, Fidelity continues to enter into additional hedging activities and, as a result, WBI Holdings from time to time may issue additional guarantees on these hedging obligations. The amount outstanding by Fidelity was $66.0 million and was reflected on the Consolidated Balance Sheets at June 30, 2008. In the event Fidelity defaults under its obligations, WBI Holdings would be required to make payments under its guarantees.

Certain subsidiaries of the Company have outstanding guarantees to third parties that guarantee the performance of other subsidiaries of the Company. These guarantees are related to construction contracts, natural gas transportation and sales agreements, gathering contracts, a conditional purchase agreement and certain other guarantees. At June 30, 2008, the fixed maximum amounts guaranteed under these agreements aggregated $334.9 million. The amounts of scheduled expiration of the maximum amounts guaranteed under these agreements aggregate $5.1 million in 2008; $294.7 million in 2009; $600,000 in 2010; $25.1 million in 2011; $2.4 million in 2012; $800,000 in 2013; $1.2 million in 2018; $1.0 million, which is subject to expiration 30 days after the receipt of written notice; and $4.0 million, which has no scheduled maturity date. The amount outstanding by subsidiaries of the Company under the above guarantees was $600,000 and was reflected on the Consolidated Balance Sheet at June 30, 2008. In the event of default under these guarantee obligations, the subsidiary issuing the guarantee for that particular obligation would be required to make payments under its guarantee.

Certain subsidiaries have outstanding letters of credit to third parties related to insurance policies, materials obligations, natural gas transportation agreements and other agreements

that guarantee the performance of other subsidiaries of the Company. At June 30, 2008, the fixed maximum amounts guaranteed under these letters of credit, aggregated $42.0 million. In 2008 and 2009, $32.3 million and $9.7 million, respectively, of letters of credit are scheduled to expire. There were no amounts outstanding under the above letters of credit at June 30, 2008.

Fidelity and WBI Holdings have outstanding guarantees to Williston Basin. These guarantees are related to natural gas transportation and storage agreements that guarantee the performance of Prairielands. At June 30, 2008, the fixed maximum amounts guaranteed under these agreements aggregated $24.0 million. Scheduled expiration of the maximum amounts guaranteed under these agreements aggregate $20.0 million in 2009 and $4.0 million in 2011. In the event of Prairielands’ default in its payment obligations, the subsidiary issuing the guarantee for that particular obligation would be required to make payments under its guarantee. The amount outstanding by Prairielands under the above guarantees was $1.7 million, which was not reflected on the Consolidated Balance Sheet at June 30, 2008, because these intercompany transactions are eliminated in consolidation.

In addition, Centennial and Knife River have issued guarantees to third parties related to the Company’s routine purchase of maintenance items, materials and lease obligations for which no fixed maximum amounts have been specified. These guarantees have no scheduled maturity date. In the event a subsidiary of the Company defaults under its obligation in relation to the purchase of certain maintenance items, materials or lease obligations, Centennial or Knife River would be required to make payments under these guarantees. Any amounts outstanding by subsidiaries of the Company for these maintenance items and materials were reflected on the Consolidated Balance Sheet at June 30, 2008.

In the normal course of business, Centennial has purchased surety bonds related to construction contracts and reclamation obligations of its subsidiaries. In the event a subsidiary of Centennial does not fulfill a bonded obligation, Centennial would be responsible to the surety bond company for completion of the bonded contract or obligation. A large portion of the surety bonds is expected to expire within the next 12 months; however, Centennial will likely continue to enter into surety bonds for its subsidiaries in the future. As of June 30, 2008, approximately $556 million of surety bonds were outstanding, which were not reflected on the Consolidated Balance Sheet.

20. Pending acquisition

On July 1, 2008, the Company entered into an agreement to acquire Intermountain, which is headquartered in Boise, Idaho, and serves more than 300,000 customers in 74 communities in Idaho. The acquisition is a cash-for-stock transaction. The enterprise value of the transaction, including outstanding indebtedness, is approximately $328 million.

The completion of the acquisition is subject to various regulatory reviews, as well as clearance under the Hart-Scott-Rodino Act, and satisfaction of other customary closing conditions. It is anticipated that closing will occur during the fourth quarter of 2008.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

OVERVIEW

The Company’s strategy is to apply its expertise in energy and transportation infrastructure industries to increase market share, increase profitability and enhance shareholder value through:

·	Organic growth as well as a continued disciplined approach to the acquisition of well-managed companies and properties

·	The elimination of system-wide cost redundancies through increased focus on integration of operations and standardization and consolidation of various support services and functions across companies within the organization

·	The development of projects that are accretive to earnings per share and return on invested capital

The Company has capabilities to fund its growth and operations through various sources, including internally generated funds, commercial paper facilities and the issuance from time to time of debt securities and the Company’s equity securities. For more information on the Company’s net capital expenditures, see Liquidity and Capital Commitments.

The key strategies for each of the Company’s business segments, and certain related business challenges, are summarized below. For a summary of the Company's business segments, see Note 15.

Key Strategies and Challenges

Electric and Natural Gas Distribution

Strategy Provide competitively priced energy to customers while working with them to ensure efficient usage. Both the electric and natural gas distribution segments continually seek opportunities for growth and expansion of their customer base through extensions of existing operations and through selected acquisitions of companies and properties at prices that will provide stable cash flows and an opportunity for the Company to earn a competitive return on investment. The natural gas distribution segment also continues to pursue growth by expanding its level of energy-related services.

Challenges Both segments are subject to extensive regulation in the state jurisdictions where they conduct operations with respect to costs and permitted returns on investment as well as subject to certain operational regulations at the federal level. The ability of these segments to grow through acquisitions is subject to significant competition from other energy providers. In addition, as to the electric business, the ability of this segment to grow its service territory and customer base is affected by significant competition from other energy providers, including rural electric cooperatives. The construction of electric generating facilities and transmission lines are subject to increasing cost and lead time, as well as extensive permitting procedures.

Construction Services

Strategy Provide a competitive return on investment while operating in a competitive industry by: building new and strengthening existing customer relationships; effectively controlling costs; retaining, developing and recruiting talented employees; focusing business development efforts on project areas that will permit higher margins; and properly managing risk. This segment continuously seeks opportunities to expand through strategic acquisitions.

Challenges This segment operates in highly competitive markets with many jobs subject to competitive bidding. Maintenance of effective operational and cost controls, retention of key personnel and managing through down turns in the economy are ongoing challenges.

Pipeline and Energy Services

Strategy Leverage the segment’s existing expertise in energy infrastructure and related services to increase market share and profitability through optimization of existing operations, internal growth, and acquisitions of energy-related assets and companies. Incremental and new growth opportunities include: access to new sources of natural gas for storage, gathering and transportation services; expansion of existing gathering and transmission facilities; and incremental expansion of pipeline capacity to allow customers access to more liquid and higher-priced markets.

Challenges Energy price volatility; natural gas basis differentials; regulatory requirements; ongoing litigation; recruitment and retention of a skilled workforce; and increased competition from other natural gas pipeline and gathering companies.

Natural Gas and Oil Production

Strategy Apply technology and leverage existing exploration and production expertise, with a focus on operated properties, to increase production and reserves from existing leaseholds, and to seek additional reserves and production opportunities in new areas to further diversify the segment’s asset base. By optimizing existing operations and taking advantage of new and incremental growth opportunities, this segment’s goal is to increase both production and reserves over the long term so as to generate competitive returns on investment.

Challenges Fluctuations in natural gas and oil prices; ongoing environmental litigation and administrative proceedings; timely receipt of necessary permits and approvals; recruitment and retention of a skilled workforce; availability of drilling rigs, materials and auxiliary equipment, and industry-related field services; inflationary pressure on development and operating costs; and increased competition from other natural gas and oil companies.

Construction Materials and Contracting

Strategy Focus on high-growth strategic markets located near major transportation corridors and desirable mid-sized metropolitan areas; strengthen long-term, strategic aggregate reserve position through purchase and/or lease opportunities; enhance profitability through cost containment, margin discipline and vertical integration of the segment’s operations; and continue growth through organic and acquisition opportunities. Ongoing efforts to increase margin are being pursued through the implementation of a variety of continuous improvement programs, including corporate purchasing of equipment, parts and commodities (liquid asphalt, diesel fuel, cement and other materials), and negotiation of contract price escalation provisions. Vertical integration allows the segment to manage operations from aggregate mining to final lay-down of concrete and asphalt, with control of and access to adequate quantities of permitted aggregate reserves being significant. A key element of the Company’s long-term strategy for this business is to further expand its presence, through acquisition, in the higher-margin materials business (rock, sand, gravel, liquid asphalt, ready-mixed concrete and related products), complementing and expanding on the Company’s expertise.

Challenges The economic slow-down has adversely impacted operations, particularly in the private market. This business unit expects to continue cost containment efforts and a greater emphasis on industrial, energy and public works projects. The Company is experiencing significant increases in the

cost of raw materials such as diesel, gasoline, liquid asphalt and steel. Increased competition in certain construction markets has also lowered margins.

For further information on the risks and challenges the Company faces as it pursues its growth strategies and other factors that should be considered for a better understanding of the Company’s financial condition, see Part II, Item 1A – Risk Factors, as well as Part I, Item 1A – Risk Factors in the 2007 Annual Report. For further information on each segment’s key growth strategies, projections and certain assumptions, see Prospective Information. For information pertinent to various commitments and contingencies, see Notes to Consolidated Financial Statements.

Earnings Overview

The following table summarizes the contribution to consolidated earnings by each of the Company's businesses.

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2008		2007			2008			2007
	(Dollars in millions, where applicable)
Electric	$	2.8	$	3.6		$	8.3			$	7.4
Natural gas distribution		5.4		(.6	)		21.8				5.6
Construction services		14.1		13.0			24.9				20.3
Pipeline and energy services		6.8		6.1			14.0				11.8
Natural gas and oil production		71.7		35.2			122.3				65.8
Construction materials and contracting		12.7		25.5			(8.4	)			15.7
Other		1.8		(1.0	)		3.3				(3.5	)
Earnings before discontinued operations		115.3		81.8			186.2				123.1
Income from discontinued operations, net of tax		---		7.5			---				12.7
Earnings on common stock	$	115.3	$	89.3		$	186.2			$	135.8
Earnings per common share – basic:
Earnings before discontinued operations	$	.63	$	.45		$	1.02			$	.68
Discontinued operations, net of tax		---		.04			---				.07
Earnings per common share – basic	$	.63	$	.49		$	1.02			$	.75
Earnings per common share – diluted:
Earnings before discontinued operations	$	.63	$	.45		$	1.01			$	.67
Discontinued operations, net of tax		---		.04			---				.07
Earnings per common share – diluted	$	.63	$	.49		$	1.01			$	.74
Return on average common equity for the 12 months ended							19.3	%			15.2	%

Three Months Ended June 30, 2008 and 2007 Consolidated earnings for the quarter ended June 30, 2008, increased $26.0 million from the comparable prior period largely due to:

Higher average realized natural gas and oil prices of 35 percent and 97 percent, respectively, and increased oil and natural gas production of 22 percent and 9 percent, respectively, partially offset by higher depreciation, depletion and amortization expense at the natural gas and oil production business

·	Increased earnings at the natural gas distribution business, largely earnings at Cascade, which was acquired on July 2, 2007

Partially offsetting these increases were construction workloads and margins as well as product volumes that were significantly lower at the construction materials and contracting business as a result of the economic slowdown and unfavorable weather conditions, and the absence in 2008 of earnings from discontinued operations as discussed in Note 3.

Six Months Ended June 30, 2008 and 2007 Consolidated earnings for the six months ended June 30, 2008, increased $50.4 million primarily due to:

Higher average realized oil and natural gas prices of 94 percent and 26 percent, respectively, and increased natural gas and oil production of 8 percent and 17 percent, respectively, partially offset by higher depreciation, depletion and amortization expense at the natural gas and oil production business

·	Increased earnings at the natural gas distribution business, largely earnings at Cascade as previously discussed

·	Higher construction workloads at the construction services business

Partially offsetting these increases were construction workloads and margins as well as product volumes that were significantly lower at the construction materials and contracting business as previously discussed, and the absence in 2008 of earnings from discontinued operations as discussed in Note 3.

FINANCIAL AND OPERATING DATA

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

Electric

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2008		2007		2008		2007
	(Dollars in millions, where applicable)
Operating revenues	$	45.9	$	44.6	$	98.1	$	91.7
Operating expenses:
Fuel and purchased power		15.7		15.5		34.5		32.6
Operation and maintenance		16.5		14.5		31.4		29.5
Depreciation, depletion and amortization		6.1		5.6		12.1		11.2
Taxes, other than income		2.2		2.1		4.4		4.3
		40.5		37.7		82.4		77.6
Operating income		5.4		6.9		15.7		14.1
Earnings	$	2.8	$	3.6	$	8.3	$	7.4
Retail sales (million kWh)		577.7		596.3		1,285.5		1,242.0
Sales for resale (million kWh)		51.5		47.0		99.9		91.2
Average cost of fuel and purchased power per kWh	$	.024	$	.024	$	.024	$	.024

Three Months Ended June 30, 2008 and 2007 Electric earnings decreased $800,000, primarily due to higher operation and maintenance costs of $1.1 million (after tax), including higher payroll and materials costs, as well as increased depreciation, depletion and amortization expense of $300,000

(after tax) related to higher property, plant and equipment balances. Partially offsetting the decrease were increased sales for resale volumes of 10 percent and higher retail sales margins.

Six Months Ended June 30, 2008 and 2007 Electric earnings increased $900,000 due to:

·	Increased retail sales margins and volumes of $2.3 million (after tax), largely due to the resolution of a rate proceeding and higher system load

·	Higher sales for resale volumes of 10 percent, largely due to the addition of the wind-powered electric generating station near Baker, Montana, and higher plant availability

Partially offsetting these increases were:

·	Higher operations and maintenance costs of $1.1 million (after tax), primarily higher payroll and benefit related costs, as well as electric generating station costs associated with scheduled maintenance

·	Increased depreciation, depletion and amortization expense of $600,000 (after tax), as previously discussed

Natural Gas Distribution

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2008			2007			2008			2007
	(Dollars in millions, where applicable)
Operating revenues	$	197.0		$	53.4		$	559.1		$	189.5
Operating expenses:
Purchased natural gas sold		137.4			34.3			420.0			140.5
Operation and maintenance		28.7			15.6			55.7			31.2
Depreciation, depletion and amortization		7.2			2.5			14.3			5.0
Taxes, other than income		11.0			1.5			25.6			3.2
		184.3			53.9			515.6			179.9
Operating income (loss)		12.7			(.5	)		43.5			9.6
Earnings (loss)	$	5.4		$	(.6	)	$	21.8		$	5.6
Volumes (MMdk):
Sales		15.4			5.3			46.6			21.2
Transportation		18.5			2.9			45.1			6.3
Total throughput		33.9			8.2			91.7			27.5
Degree days (% of normal)*
Montana-Dakota		117	%		94	%		104	%		94	%
Cascade		120	%		---			111	%		---
Average cost of natural gas, including transportation, per dk**
Montana-Dakota	$	9.45		$	6.44		$	8.16		$	6.64
Cascade	$	8.55			---		$	8.07			---

* Degree days are a measure of the daily temperature-related demand for energy for heating.

** Regulated natural gas sales only.

Note: Cascade was acquired on July 2, 2007.

Three Months Ended June 30, 2008 and 2007 Earnings at the natural gas distribution business increased $6.0 million compared to the prior year due to:

·	Earnings of $5.3 million, including a $4.4 million (after tax) gain on the sale of its natural gas management service, at Cascade which was acquired on July 2, 2007

·	Increased retail sales volumes from existing operations resulting from 25 percent colder weather than last year

·	Higher nonregulated energy-related services of $200,000 (after tax)

Six Months Ended June 30, 2008 and 2007 Earnings at the natural gas distribution business increased $16.2 million due to:

·	Earnings of $15.2 million at Cascade, as previously discussed

·	Increased retail sales volumes from existing operations resulting from 12 percent colder weather than last year

·	Higher nonregulated energy-related services of $400,000 (after tax)

Partially offsetting these increases was higher operation and maintenance expense, excluding Cascade, of $800,000 (after tax), largely payroll and benefit related costs.

Construction Services

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2008		2007		2008		2007
	(In millions)
Operating revenues	$	324.7	$	263.8	$	632.1	$	500.6
Operating expenses:
Operation and maintenance		286.6		230.6		560.5		442.4
Depreciation, depletion and amortization		3.1		3.4		6.5		6.9
Taxes, other than income		10.4		7.5		22.4		16.2
		300.1		241.5		589.4		465.5
Operating income		24.6		22.3		42.7		35.1
Earnings	$	14.1	$	13.0	$	24.9	$	20.3

Three Months Ended June 30, 2008 and 2007 Construction services earnings increased $1.1 million due to higher construction workloads of $5.0 million (after tax), largely in the Southwest region. Partially offsetting the increase were lower construction margins in certain regions, as well as higher general and administrative expense of $1.2 million (after tax), largely payroll related.

Six Months Ended June 30, 2008 and 2007 Construction services earnings increased $4.6 million due to:

·	Higher construction workloads of $9.5 million (after tax), largely in the Southwest region

·	Increased equipment sales and rentals

Partially offsetting the increases were lower construction margins in certain regions of $4.4 million (after tax) and higher general and administrative expense of $1.3 million (after tax), largely payroll related.

Pipeline and Energy Services

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2008		2007		2008		2007
	(Dollars in millions)
Operating revenues	$	155.1	$	112.2	$	288.9	$	225.3
Operating expenses:
Purchased natural gas sold		116.6		75.8		210.7		155.4
Operation and maintenance		16.7		16.6		34.3		30.6
Depreciation, depletion and amortization		5.9		5.2		11.5		10.6
Taxes, other than income		2.8		2.7		5.6		5.5
		142.0		100.3		262.1		202.1
Operating income		13.1		11.9		26.8		23.2
Income from continuing operations		6.8		6.1		14.0		11.8
Income from discontinued operations, net of tax		---		.1		---		.1
Earnings	$	6.8	$	6.2	$	14.0	$	11.9
Transportation volumes (MMdk):
Montana-Dakota		7.2		7.1		15.5		15.1
Other		26.8		29.7		48.2		50.2
		34.0		36.8		63.7		65.3
Gathering volumes (MMdk)		25.5		22.5		49.5		44.7

Three Months Ended June 30, 2008 and 2007 The pipeline and energy services segment experienced an increase in earnings of $600,000 due to:

·	Higher storage and gathering rates of $700,000 (after tax), partially offset by lower storage balances

·	Increased gathering volumes of 14 percent

·	Increased on- and off-system transportation and demand fees of $600,000 (after tax), largely offset by a decrease in volumes transported to storage

Partially offsetting these increases was increased depreciation, depletion and amortization expense of $400,000 (after tax) resulting from higher property, plant and equipment balances.

Six Months Ended June 30, 2008 and 2007 Pipeline and energy services earnings increased $2.1 million due to:

·	Higher storage and gathering rates of $1.4 million (after tax), partially offset by lower storage balances

·	Increased gathering volumes of 11 percent

·	Increased off-system transportation and demand fees mainly related to an expansion of the Grasslands system ($1.2 million after tax), partially offset by a decrease in volumes transported to storage

Partially offsetting these increases were higher operation and maintenance costs of $800,000 (after tax), largely higher materials and legal costs, as well as higher depreciation, depletion and amortization expense of $500,000 (after tax) as previously discussed.

Natural Gas and Oil Production

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2008		2007		2008		2007
	(Dollars in millions, where applicable)
Operating revenues:
Natural gas	$	140.5	$	96.1	$	258.0	$	190.0
Oil		74.6		31.2		126.7		55.8
Other		.1		.1		.1		.2
		215.2		127.4		384.8		246.0
Operating expenses:
Purchased natural gas sold		.1		---		.1		.3
Operation and maintenance:
Lease operating costs		19.2		15.6		37.5		31.1
Gathering and transportation		6.2		5.0		11.9		9.5
Other		13.7		9.1		22.6		17.5
Depreciation, depletion and amortization		41.7		29.8		81.0		59.6
Taxes, other than income:
Production and property taxes		16.3		9.3		29.9		18.2
Other		.3		.3		.5		.5
		97.5		69.1		183.5		136.7
Operating income		117.7		58.3		201.3		109.3
Earnings	$	71.7	$	35.2	$	122.3	$	65.8
Production:
Natural gas (MMcf)		16,531		15,231		33,092		30,671
Oil (MBbls)		717		589		1,338		1,145
Total Production (MMcf equivalent)		20,830		18,770		41,118		37,543
Average realized prices (including hedges):
Natural gas (per Mcf)	$	8.50	$	6.31	$	7.80	$	6.20
Oil (per barrel)	$	104.19	$	52.83	$	94.72	$	48.71
Average realized prices (excluding hedges):
Natural gas (per Mcf)	$	9.33	$	5.82	$	8.11	$	5.78
Oil (per barrel)	$	105.34	$	52.83	$	95.60	$	48.71
Average depreciation, depletion and amortization rate, per equivalent Mcf	$	1.94	$	1.52	$	1.91	$	1.52
Production costs, including taxes, per equivalent Mcf:
Lease operating costs	$	.92	$	.83	$	.91	$	.83
Gathering and transportation		.30		.27		.29		.25
Production and property taxes		.78		.50		.73		.49
	$	2.00	$	1.60	$	1.93	$	1.57

Three Months Ended June 30, 2008 and 2007 Natural gas and oil production earnings increased $36.5 million due to:

·	Higher average realized natural gas prices of 35 percent and higher average realized oil prices of 97 percent

·	Increased oil and natural gas production of 22 percent and 9 percent, respectively, largely related to the East Texas property acquired in January 2008 and additional drilling activity including wells in the Bakken formation and Paradox Basin

Partially offsetting these increases were:

·	Higher depreciation, depletion and amortization expense of $7.4 million (after tax) due to higher depletion rates and increased production

·	Higher production taxes of $4.3 million (after tax) associated with increased revenue

·	Increased lease operating expenses of $2.2 million (after tax)

Six Months Ended June 30, 2008 and 2007 The natural gas and oil production business experienced an increase in earnings of $56.5 million due to:

·	Higher average realized oil prices of 94 percent and higher average realized natural gas prices of 26 percent

·	Increased natural gas and oil production of 8 percent and 17 percent, respectively, as previously discussed

Partially offsetting these increases were:

·	Higher depreciation, depletion and amortization expense of $13.3 million (after tax) due to higher depletion rates and increased production

·	Higher production taxes of $7.3 million (after tax) associated with increased revenue

·	Increased lease operating expenses of $4.0 million (after tax)

Construction Materials and Contracting

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2008		2007		2008			2007
	(Dollars in millions)
Operating revenues	$	427.4	$	455.5	$	628.7		$	683.0
Operating expenses:
Operation and maintenance		366.1		372.8		561.3			581.6
Depreciation, depletion and amortization		25.4		23.2		50.9			45.8
Taxes, other than income		10.4		13.9		19.5			21.6
		401.9		409.9		631.7			649.0
Operating income (loss)		25.5		45.6		(3.0	)		34.0
Earnings (loss)	$	12.7	$	25.5	$	(8.4	)	$	15.7
Sales (000's):
Aggregates (tons)		8,719		10,339		12,960			15,896
Asphalt (tons)		1,452		1,769		1,648			2,105
Ready-mixed concrete (cubic yards)		1,052		1,092		1,663			1,718

Three Months Ended June 30, 2008 and 2007 Earnings at the construction materials and contracting business decreased $12.8 million due to:

Decreased construction workloads, margins and product volumes that were significantly lower as a result of the economic slowdown and unfavorable weather conditions as well as significantly higher diesel fuel costs at existing operations had a combined negative effect on earnings of $13.4 million (after tax)

·	Higher depreciation, depletion and amortization expense, largely the result of higher property, plant and equipment balances

Partially offsetting these decreases were earnings from companies acquired since the comparable prior period which contributed 11 percent to earnings for the current quarter.

Six Months Ended June 30, 2008 and 2007 The construction materials and contracting business experienced a loss of $8.4 million compared to earnings of $15.7 million for the comparable prior period. The decrease of $24.1 million is due to:

·	Decreased construction workloads, margins and product volumes that were significantly lower as previously described as well as significantly higher diesel fuel costs at existing operations had a combined negative effect on earnings of $23.2 million (after tax)

·	Higher depreciation, depletion and amortization expense, as previously discussed

Partially offsetting these decreases were earnings from companies acquired since the comparable prior period.

Other and Intersegment Transactions

Amounts presented in the preceding tables will not agree with the Consolidated Statements of Income due to the Company’s other operations and the elimination of intersegment transactions. The amounts relating to these items are as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2008		2007		2008		2007
	(In millions)
Other:
Operating revenues	$	2.7	$	2.4	$	5.3	$	4.9
Operation and maintenance		2.8		3.7		5.5		7.5
Depreciation, depletion and amortization		.3		.4		.6		.8
Taxes, other than income		.1		---		.1		.1
Intersegment transactions:
Operating revenues	$	116.2	$	76.9	$	223.3	$	171.1
Purchased natural gas sold		109.0		69.8		209.1		157.1
Operation and maintenance		7.2		7.1		14.2		14.0

For further information on intersegment eliminations, see Note 15.

PROSPECTIVE INFORMATION

The following information highlights the key growth strategies, projections and certain assumptions for the Company and its subsidiaries and other matters for each of the Company’s businesses. Many of

these highlighted points are “forward-looking statements.” There is no assurance that the Company’s projections, including estimates for growth and changes in earnings, will in fact be achieved. Please refer to assumptions contained in this section, as well as the various important factors listed in Part II, Item 1A – Risk Factors, as well as Part I, Item 1A – Risk Factors in the 2007 Annual Report. Changes in such assumptions and factors could cause actual future results to differ materially from growth and earnings projections.

MDU Resources Group, Inc.

·	Earnings per common share for 2008 are projected in the range of $2.10 to $2.35. The Company expects the percentage of 2008 earnings per common share by quarter to be in the following approximate ranges:

o	Third quarter – 30 percent to 35 percent

o	Fourth quarter – 25 percent to 30 percent

·	Long-term compound annual growth goals on earnings per share from operations are in the range of 7 percent to 10 percent.

Electric

The Company is analyzing potential projects for accommodating load growth and replacing an expired purchased power contract with company-owned generation, which will add to base-load capacity and rate base. The Company is a participant in the Big Stone Station II project. A final decision on construction of the Big Stone Station II project will be made when major permits are issued and certain regulatory approvals are obtained. Those permits and approvals include a certificate of need and route permit from the MNPUC for construction and operation of a portion of the transmission line for delivery of the electric energy from the Big Stone Station II. In May 2008, administrative law judges from the Minnesota Office of Administrative Hearings recommended the MNPUC deny issuance of the certificate of need and route permit, or alternatively impose certain conditions on project participants subject to rate regulation by the MNPUC. On June 5, 2008, the MNPUC voted to delay its decision on the Big Stone Station II application for a transmission certificate of need and a route permit. The decision to delay was made so that the MNPUC can receive information from an independent expert on construction costs, natural gas prices and potential costs related to carbon dioxide. A hearing and decision is expected by the fall of 2008. If the decision is to proceed with construction of the plant, it is projected to be completed in 2013. The Company anticipates it would own at least 116 MW of this plant or other generation sources.

·	This business continues to pursue expansion of energy-related services.

Natural gas distribution

·	As discussed in Note 20, the Company has entered into an agreement to acquire Intermountain for approximately $328 million, pending regulatory approvals. It is anticipated that closing will occur during the fourth quarter of 2008.

·	This business continues to pursue expansion of energy-related services and expects continued strong customer growth in Washington and Oregon.

Construction services

·	The Company anticipates margins in 2008 to be slightly lower than 2007.

·	The Company continues to focus on costs and efficiencies to enhance margins.

·	Work backlog as of June 30, 2008, was approximately $655 million, compared to $765 million at June 30, 2007.

·	This business continually seeks opportunities to expand through strategic acquisitions and organic growth opportunities.

Pipeline and energy services

Based on indicated demand from a recent open season, an incremental expansion to the Grasslands Pipeline in the range of 40,000 Mcf per day or more is now anticipated for 2009. Through additional compression, the pipeline firm capacity could ultimately reach 200,000 Mcf per day, an increase from the current firm capacity of 138,000 Mcf per day.

The Company is pursuing the development of the Bakken Pipeline, a new natural gas pipeline designed to transport natural gas from the fast-growing Bakken Play in northwestern North Dakota and northeastern Montana to a new pipeline interconnect with Alliance Pipeline. The Bakken Pipeline is anticipated to have an initial capacity of approximately 100,000 Mcf per day, with the flexibility to expand capacity to 200,000 Mcf per day. The pipeline project remains subject to shipper commitment and regulatory approvals.

·	In 2008, total gathering and transportation throughput is expected to be slightly higher than 2007 record levels.

Natural gas and oil production

·	The Company expects a combined natural gas and oil production increase in 2008 in the range of 10 percent to 14 percent over 2007 levels. Meeting these targets will depend on the success of exploration activities and the timely receipt of regulatory approvals.

The Company is involved in exploratory drilling in the Bakken area in North Dakota and in the Paradox Basin in Utah. Net acreage in the Bakken includes over 65,000 acres with plans to participate in 50 to 60 wells in 2008, roughly half of which will be operated. If the Three Forks/Sanish formation proves to be a separate reservoir from the middle Bakken, the Company expects the Three Forks/Sanish will provide additional opportunities to grow reserves and production within our existing leasehold position. In the Paradox Basin, the Company has net acreage of approximately 90,000 acres with plans to drill approximately 5 wells in 2008.

·	Currently, this segment's net combined natural gas and oil production is approximately 225,000 Mcf equivalent to 240,000 Mcf equivalent per day.

The Company’s combined proved natural gas and oil reserves as of December 31, 2007, were 707 Bcf equivalent. In January, 97 Bcf equivalent of proved reserves were added with the East Texas property acquisition. The Company is pursuing continued reserve growth through further exploitation of its existing properties, exploratory drilling and property acquisitions.

·	Earnings guidance reflects estimated natural gas prices for August through December as follows:

Index*		Price Per Mcf
Ventura		$7.75 to $8.25
NYMEX		$8.50 to $9.00
CIG		$6.00 to $6.50
* Ventura is an index pricing point related to Northern Natural Gas Co.’s system; CIG is an index pricing point related to Colorado Interstate Gas Co.’s system.

During 2007, more than three-fourths of natural gas production was priced at non-NYMEX prices, the majority of which was at Ventura pricing.

·	Earnings guidance reflects estimated NYMEX crude oil prices for August through December in the range of $110 to $115 per barrel.

For the last six months of 2008, the Company has hedged approximately 45 percent to 50 percent of its estimated natural gas production and less than 5 percent of its estimated oil production. Of its estimated 2009 natural gas production, the Company has hedged approximately 30 percent to 35 percent and less than 5 percent for 2010 and 2011. The hedges that are in place as of August 1, 2008, are summarized in the following chart:

Commodity	Type	Index *	Period Outstanding	Forward Notional Volume (MMBtu/Bbl)		Price (Per MMBtu/Bbl)
Natural Gas	Collar	Ventura	7/08 - 10/08		615,000	$7.00-$8.05
Natural Gas	Collar	Ventura	7/08 - 10/08		615,000	$7.00-$8.06
Natural Gas	Swap	Ventura	7/08 - 10/08		615,000	$7.45
Natural Gas	Collar	Ventura	7/08 - 10/08		615,000	$7.50-$8.70
Natural Gas	Swap	Ventura	7/08 - 10/08		615,000	$8.005
Natural Gas	Collar	Ventura	7/08 - 10/08		430,500	$7.25-$8.02
Natural Gas	Collar	CIG	7/08 - 10/08		430,500	$5.75-$7.40
Natural Gas	Collar	Ventura	7/08 - 12/08		920,000	$7.00-$8.45
Natural Gas	Collar	Ventura	7/08 - 12/08		920,000	$7.50-$8.34
Natural Gas	Swap	Ventura	7/08 - 12/08		1,656,000	$8.55
Natural Gas	Collar	NYMEX	7/08 - 12/08		920,000	$7.50-$10.15
Natural Gas	Swap	HSC	7/08 - 12/08		1,251,200	$7.91
Natural Gas	Collar	CIG	7/08 - 12/08		920,000	$6.75-$7.04
Natural Gas	Swap	CIG	7/08 - 12/08		920,000	$6.35
Natural Gas	Swap	CIG	7/08 - 12/08		920,000	$6.41
Natural Gas	Swap	Ventura	7/08 - 12/08		2,576,000	$9.10
Natural Gas	Collar	NYMEX	7/08 - 12/08		920,000	$9.00-$10.50
Natural Gas	Swap	Ventura	11/08 - 12/08		427,000	$9.25
Natural Gas	Swap	Ventura	11/08 - 12/08		610,000	$8.85
Natural Gas	Swap	Ventura	11/08 - 12/08		915,000	$12.465
Natural Gas	Swap	CIG	1/09 - 3/09		225,000	$8.45
Natural Gas	Swap	HSC	1/09 - 12/09		2,482,000	$8.16
Natural Gas	Collar	Ventura	1/09 - 12/09		1,460,000	$7.90-$8.54
Natural Gas	Collar	Ventura	1/09 - 12/09		4,380,000	$8.25-$8.92
Natural Gas	Swap	Ventura	1/09 - 12/09		3,650,000	$9.02
Natural Gas	Collar	CIG	1/09 - 12/09		3,650,000	$6.50-$7.20
Natural Gas	Swap	CIG	1/09 - 12/09		912,500	$7.27
Natural Gas	Collar	NYMEX	1/09 - 12/09		1,825,000	$8.75-$10.15
Natural Gas	Swap	Ventura	1/09 - 12/09		3,650,000	$9.20
Natural Gas	Collar	NYMEX	1/09 - 12/09		3,650,000	$11.00-$12.78
Natural Gas	Basis	NYMEX to Ventura	1/09 - 12/09		3,650,000	$0.61
Natural Gas	Swap	HSC	1/10 - 12/10		1,606,000	$8.08
Natural Gas	Swap	HSC	1/11 - 12/11		1,350,500	$8.00
Crude Oil	Collar	NYMEX	7/08 - 12/08		36,800	$67.50-$78.70

*	Ventura is an index pricing point related to Northern Natural Gas Co.’s system; CIG is an index pricing point related to Colorado Interstate Gas Co.’s system; HSC is the Houston Ship Channel hub in southeast Texas which connects to several pipelines.

Construction materials and contracting

·	The economic slowdown has adversely impacted operations. It is expected that 2008 earnings will be significantly lower than 2007.

The Company continues its strong emphasis on industrial, energy and public works projects and cost containment. It is also pursuing expansion of its liquid asphalt materials business to cost effectively meet the liquid asphalt and diesel requirements of the Company, as well as third party customers.

·	Work backlog as of June 30, 2008, was approximately $634 million, compared to $662 million at June 30, 2007. Margins on the backlog have declined as a result of a shift to more public sector work and increased competition.

·	A key long-term strategy for the Company is its 1.2 billion tons of strategically located aggregate reserves.

NEW ACCOUNTING STANDARDS

For information regarding new accounting standards, see Note 9, which is incorporated by reference.

CRITICAL ACCOUNTING POLICIES INVOLVING SIGNIFICANT ESTIMATES

The Company’s critical accounting policies involving significant estimates include impairment testing of long-lived assets and intangibles, impairment testing of natural gas and oil production properties, revenue recognition, purchase accounting, asset retirement obligations, pension and other postretirement benefits, and income taxes. There were no material changes in the Company’s critical accounting policies involving significant estimates from those reported in the 2007 Annual Report. For more information on critical accounting policies involving significant estimates, see Part II, Item 7 in the 2007 Annual Report.

LIQUIDITY AND CAPITAL COMMITMENTS

Cash flows

Operating activities Net income before depreciation, depletion and amortization is a significant contributor to cash flows from operating activities. The changes in cash flows from operating activities generally follow the results of operations as discussed in Financial and Operating Data and also are affected by changes in working capital.

Cash flows provided by operating activities in the first six months of 2008 increased $100.2 million from the comparable 2007 period, the result of:

·	Higher income from continuing operations of $63.1 million, largely reflecting increases at the natural gas and oil production and natural gas distribution businesses, partially offset by the loss at the construction materials and contracting business

·	The absence in 2008 of cash used in 2007 by discontinued operations of $41.9 million, primarily the result of quarterly income tax payments due to the estimated gain on the sale of the domestic independent power production assets

·	Higher depreciation, depletion and amortization expense of $37.1 million, largely at the natural gas and oil production business

Partially offsetting the increase in cash flows from operating activities was increased cash used for working capital requirements.

Investing activities Cash flows used in investing activities in the first six months of 2008 increased $334.2 million from the comparable period in 2007, primarily the result of increased cash used for

acquisitions of $270.9 million and higher ongoing capital expenditures of $143.3 million, both primarily at the natural gas and oil production business.

Partially offsetting this increase was an increase in cash flows provided by investments of $63.1 million, primarily due to the sale of auction rate securities, partially offset by the proceeds received from the sale of equity method investments in 2007.

Financing activities Cash flows provided by financing activities in the first six months of 2008 increased $215.1 million from the comparable period in 2007, primarily the result of an increase in the issuance of long-term debt of $193.1 million and an increase in the issuance of short-term borrowings of $80.0 million. Partially offsetting this increase was an increase in the repayment of long-term debt of $40.6 million and a decrease in the issuance of common stock of $10.8 million.

Defined benefit pension plans

There were no material changes to the Company’s qualified noncontributory defined benefit pension plans from those reported in the 2007 Annual Report. For further information, see Note 17 and Part II, Item 7 in the 2007 Annual Report.

Capital expenditures

Net capital expenditures for the first six months of 2008 were $640.6 million and are estimated to be approximately $1.4 billion for 2008. Estimated capital expenditures include:

·	Completed acquisitions

·	Anticipated acquisition of Intermountain

·	System upgrades

·	Routine replacements

·	Service extensions

·	Routine equipment maintenance and replacements

·	Buildings, land and building improvements

·	Pipeline and gathering projects

·	Further enhancement of natural gas and oil production and reserve growth

·	Power generation opportunities, including certain costs for additional electric generating capacity

·	Other growth opportunities

Approximately 45 percent of estimated 2008 net capital expenditures referred to previously are associated with completed acquisitions and the anticipated acquisition of Intermountain. The Company continues to evaluate potential future acquisitions and other growth opportunities; however, they are dependent upon the availability of economic opportunities and, as a result, capital expenditures may vary significantly from the estimated 2008 capital expenditures referred to previously. It is anticipated that all of the funds required for capital expenditures will be met from various sources, including internally generated funds; the Company's credit facilities, as described below; and through the issuance of long-term debt and the Company’s equity securities.

Capital resources

Certain debt instruments of the Company and its subsidiaries, including those discussed below, contain restrictive covenants, all of which the Company and its subsidiaries were in compliance with at June 30, 2008.

MDU Resources Group, Inc. The Company has a revolving credit agreement with various banks totaling $125 million (with provision for an increase, at the option of the Company on stated conditions, up to a maximum of $150 million). There were no amounts outstanding under the credit agreement at June 30, 2008. The credit agreement supports the Company’s $100 million commercial paper program. Under the Company’s commercial paper program, $64.3 million was outstanding at June 30, 2008. The commercial paper borrowings are classified as long-term debt as they are intended to be refinanced on a long-term basis through continued commercial paper borrowings (supported by the credit agreement, which expires on June 21, 2011).

The Company’s objective is to maintain acceptable credit ratings in order to access the capital markets through the issuance of commercial paper. Minor fluctuations in the Company’s credit ratings have not limited, nor would they be expected to limit, the Company’s ability to access the capital markets. In the event of a minor downgrade, the Company may experience a nominal basis point increase in overall interest rates with respect to its cost of borrowings. If the Company were to experience a significant downgrade of its credit ratings, it may need to borrow under its credit agreement.

Prior to the maturity of the credit agreement, the Company expects that it will negotiate the extension or replacement of this agreement. If the Company is unable to successfully negotiate an extension of, or replacement for, the credit agreement, or if the fees on this facility became too expensive, which the Company does not currently anticipate, the Company would seek alternative funding.

In order to borrow under the Company’s credit agreement, the Company must be in compliance with the applicable covenants and certain other conditions. For information on the covenants and certain other conditions of the Company’s credit agreement, see Part II, Item 8 – Note 10, in the 2007 Annual Report. The Company was in compliance with these covenants and met the required conditions at June 30, 2008. In the event the Company does not comply with the applicable covenants and other conditions, alternative sources of funding may need to be pursued.

There are no credit facilities that contain cross-default provisions between the Company and any of its subsidiaries.

The Company's issuance of first mortgage debt is subject to certain restrictions imposed under the terms and conditions of its Mortgage. Generally, those restrictions require the Company to fund $1.43 of unfunded property or use $1.00 of refunded bonds for each dollar of indebtedness incurred under the Mortgage and, in some cases, to certify to the trustee that annual earnings (pretax and before interest charges), as defined in the Mortgage, equal at least two times its annualized first mortgage bond interest costs. Under the more restrictive of the tests, as of June 30, 2008, the Company could have issued approximately $570 million of additional first mortgage bonds.

The Company's coverage of fixed charges including preferred dividends was 7.3 times and 6.4 times for the 12 months ended June 30, 2008 and December 31, 2007, respectively. Common stockholders' equity as a percent of total capitalization was 61 percent and 66 percent at June 30, 2008 and December 31, 2007, respectively.

The Company has repurchased, and may from time to time seek to repurchase, outstanding first mortgage bonds through open market purchases or privately negotiated transactions. The Company will evaluate any such transactions in light of then existing market conditions, taking into account its liquidity and prospects for future access to capital. As of June 30, 2008, the Company had $50.5 million of first mortgage bonds outstanding, $30.0 million of which were held by the Indenture trustee for the benefit of the senior note holders. The aggregate principal amount of the Company’s outstanding first mortgage bonds, other than those held by the Indenture trustee, is $20.5 million and

satisfies the lien release requirements under the Indenture. As a result, the Company may at any time, subject to satisfying certain specified conditions, require that any debt issued under its Indenture become unsecured and rank equally with all of the Company’s other unsecured and unsubordinated debt (as of June 30, 2008, the only such debt outstanding under the Indenture was $30.0 million in aggregate principal amount of the Company’s 5.98% Senior Notes due in 2033).

The Company has entered into a Sales Agency Financing Agreement, as amended June 25, 2007, with Wells Fargo Securities, LLC with respect to the issuance and sale of up to 3,000,000 shares of the Company’s common stock, par value $1.00 per share, together with preference share purchase rights appurtenant thereto. The common stock may be offered for sale, from time to time, in accordance with the terms and conditions of the agreement, which terminates on December 1, 2008. Proceeds from the sale of shares of common stock under the agreement are expected to be used for corporate development purposes and other general corporate purposes. The Company has not issued any stock under the Sales Agency Financing Agreement through June 30, 2008.

On May 28, 2008, the Company filed a registration statement with the SEC, pursuant to Rule 415 under the Securities Act, relating to the possible issuance from time to time of common stock or debt securities of the Company. The amount of securities issuable by the Company is established from time to time by its board of directors. At June 30, 2008, the Company's board of directors had authorized the issuance of up to an aggregate offering price of $1.0 billion of registered securities. The Company may sell all or a portion of such securities if warranted by market conditions and the Company's capital requirements. Any offer and sale of such securities will be made only by means of a prospectus meeting the requirements of the Securities Act and the rules and regulations thereunder.

MDU Energy Capital, LLC MDU Energy Capital has a master shelf agreement that allows for borrowings up to $125 million. Under the terms of the master shelf agreement, $85.0 million was outstanding at June 30, 2008. MDU Energy Capital may incur additional indebtedness under the master shelf agreement until the earlier of August 14, 2010, or such time as the agreement is terminated by either of the parties thereto.

In order to borrow under its master shelf agreement, MDU Energy Capital must be in compliance with the applicable covenants and certain other conditions. For information on the covenants and certain other conditions of the MDU Energy Capital master shelf agreement, see Part II, Item 8 – Note 10, in the 2007 Annual Report. MDU Energy Capital was in compliance with these covenants and met the required conditions at June 30, 2008.

Cascade Natural Gas Corporation Cascade has a revolving credit agreement with various banks totaling $50 million with certain provisions allowing for increased borrowings, up to a maximum of $75 million. The $50 million credit agreement expires on December 28, 2012, with provisions allowing for an extension of up to two years upon consent of the banks. Cascade also has a $20 million uncommitted line of credit which may be terminated by the bank or Cascade at any time. There were no amounts outstanding under the Cascade credit agreements at June 30, 2008. As of June 30, 2008, there were outstanding letters of credit, as discussed in Note 19, of which $1.9 million reduced amounts available under the $50 million credit agreement.

In order to borrow under Cascade's $50 million credit agreement, Cascade must be in compliance with the applicable covenants and certain other conditions. For information on the covenants and certain other conditions of Cascade's $50 million credit agreement, see Part II, Item 8 – Note 9, in the 2007 Annual Report. Cascade was in compliance with these covenants and met the required conditions at June 30, 2008.

Cascade's $50 million credit agreement contains cross-default provisions. These provisions state that if Cascade fails to make any payment with respect to any indebtedness or contingent obligation, in excess of a specified amount, under any agreement that causes such indebtedness to be due prior to its stated maturity or the contingent obligation to become payable, the agreement will be in default. Certain of Cascade's financing agreements and Cascade's practices limit the amount of subsidiary indebtedness.

Centennial Energy Holdings, Inc. Centennial has a revolving credit agreement and an uncommitted line of credit with various banks and institutions totaling $425 million with certain provisions allowing for increased borrowings. These credit agreements support Centennial’s $400 million commercial paper program. There were no outstanding borrowings under the Centennial credit agreements at June 30, 2008. Under the Centennial commercial paper program, $276.5 million was outstanding at June 30, 2008. The Centennial commercial paper borrowings are classified as long-term debt as Centennial intends to refinance these borrowings on a long-term basis through continued Centennial commercial paper borrowings (supported by Centennial credit agreements). The revolving credit agreement is for $400 million, which includes a provision for an increase, at the option of Centennial on stated conditions, up to a maximum of $450 million and expires on December 13, 2012. The uncommitted line of credit for $25 million may be terminated by the bank at any time. As of June 30, 2008, Centennial had letters of credit outstanding, as discussed in Note 19, of which $24.3 million reduced amounts available under these agreements.

Centennial has an uncommitted long-term master shelf agreement that allows for borrowings of up to $550 million. Under the terms of the master shelf agreement, $517.5 million was outstanding at June 30, 2008. The ability to request additional borrowings under this master shelf agreement expires on May 8, 2009. To meet potential future financing needs, Centennial may pursue other financing arrangements, including private and/or public financing.

Centennial’s objective is to maintain acceptable credit ratings in order to access the capital markets through the issuance of commercial paper. Minor fluctuations in Centennial’s credit ratings have not limited, nor would they be expected to limit, Centennial’s ability to access the capital markets. In the event of a minor downgrade, Centennial may experience a nominal basis point increase in overall interest rates with respect to its cost of borrowings. If Centennial were to experience a significant downgrade of its credit ratings, it may need to borrow under its committed bank lines.

Prior to the maturity of the Centennial credit agreements, Centennial expects that it will negotiate the extension or replacement of these agreements, which provide credit support to access the capital markets. In the event Centennial was unable to successfully negotiate these agreements, or in the event the fees on such facilities became too expensive, which Centennial does not currently anticipate, it would seek alternative funding.

In order to borrow under Centennial’s credit agreements and the Centennial uncommitted long-term master shelf agreement, Centennial and certain of its subsidiaries must be in compliance with the applicable covenants and certain other conditions. For more information on the covenants and certain other conditions for the $400 million credit agreement and the master shelf agreement, see Part II,

Item 8 – Note 10, in the 2007 Annual Report. Centennial and such subsidiaries were in compliance with these covenants and met the required conditions at June 30, 2008. In the event Centennial or such subsidiaries do not comply with the applicable covenants and other conditions, alternative sources of funding may need to be pursued.

On June 27, 2008, Centennial entered into an $80 million term loan agreement which matures on December 26, 2008. At June 30, 2008, $80.0 million was outstanding under the term loan agreement. The term loan agreement contains customary covenants and default provisions, including a covenant not to permit, as of the end of any fiscal quarter, Centennial’s ratio of total debt to total capitalization to exceed 65 percent. The covenants also include certain limitations on subsidiary indebtedness and restrictions on the sale of certain assets and on the making of certain loans and investments. Centennial was in compliance with these covenants and met the required conditions at June 30, 2008.

Certain of Centennial’s financing agreements contain cross-default provisions. These provisions state that if Centennial or any subsidiary of Centennial fails to make any payment with respect to any indebtedness or contingent obligation, in excess of a specified amount, under any agreement that causes such indebtedness to be due prior to its stated maturity or the contingent obligation to become payable, the applicable agreements will be in default. Certain of Centennial’s financing agreements and Centennial’s practices limit the amount of subsidiary indebtedness.

Williston Basin Interstate Pipeline Company Williston Basin has an uncommitted long-term master shelf agreement that allows for borrowings of up to $100 million. Under the terms of the master shelf agreement, $80.0 million was outstanding at June 30, 2008. The ability to request additional borrowings under this master shelf agreement expires on December 20, 2008.

In order to borrow under its uncommitted long-term master shelf agreement, Williston Basin must be in compliance with the applicable covenants and certain other conditions. For more information on the covenants and certain other conditions for the uncommitted long-term master shelf agreement, see Part II, Item 8 – Note 10, in the 2007 Annual Report. Williston Basin was in compliance with these covenants and met the required conditions at June 30, 2008. In the event Williston Basin does not comply with the applicable covenants and other conditions, alternative sources of funding may need to be pursued.

Off balance sheet arrangements

Centennial continues to guarantee CEM's obligations under a construction contract for a 550-MW combined-cycle electric generating facility near Hobbs, New Mexico. For further information, see Note 19.

Contractual obligations and commercial commitments

There are no material changes in the Company’s contractual obligations relating to estimated interest payments, operating leases and uncertain tax positions from those reported in the 2007 Annual Report.

There are no material changes to the Company’s contractual obligations relating to purchase commitments, except for the anticipated acquisition of Intermountain. For more information, see Note 20.

The Company’s contractual obligations relating to long-term debt at June 30, 2008, increased $253.8 million or 19 percent from December 31, 2007. At June 30, 2008, the Company’s contractual obligations related to long-term debt aggregated $1,562.3 million. The scheduled amounts of redemption (for the twelve months ended June 30, of each year listed) aggregate $87.4 million in 2009; $22.6 million in 2010; $131.6 million in 2011; $61.4 million in 2012; $550.3 million in 2013; and $709.0 million thereafter.

For more information on contractual obligations and commercial commitments, see Part II, Item 7 in the 2007 Annual Report.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to the impact of market fluctuations associated with commodity prices, interest rates and foreign currency. The Company has policies and procedures to assist in controlling these market risks and utilizes derivatives to manage a portion of its risk.

Commodity price risk

Fidelity utilizes derivative instruments to manage a portion of the market risk associated with fluctuations in the price of natural gas and oil on its forecasted sales of natural gas and oil production. Cascade utilizes derivative instruments to manage a portion of the market risk associated with fluctuations in the price of natural gas on its forecasted purchases of natural gas. For more information on derivative instruments and commodity price risk, see Part II, Item 7A in the 2007 Annual Report, and Notes 10 and 13.

The following table summarizes hedge agreements entered into by Fidelity and Cascade as of June 30, 2008. These agreements call for Fidelity to receive fixed prices and pay variable prices, and for Cascade to receive variable prices and pay fixed prices.

(Forward notional volume and fair value in thousands)

	Weighted		Forward
	Average		Notional
	Fixed Price		Volume
Fidelity	(Per MMBtu)		(MMBtu)		Fair Value
Natural gas swap agreements maturing in 2008		$8.52		10,505	$	(38,377	)
Natural gas swap agreements maturing in 2009		$8.73		10,920	$	(32,224	)
Natural gas swap agreements maturing in 2010		$8.08		1,606	$	(4,273	)
Natural gas swap agreements maturing in 2011		$8.00		1,351	$	(3,007	)
Natural gas basis swap agreement maturing in 2009		$0.61		3,650	$	(484	)

Cascade
Natural gas swap agreements maturing in 2008		$8.08		9,217	$	36,600
Natural gas swap agreements maturing in 2009		$8.17		14,945	$	40,068
Natural gas swap agreements maturing in 2010		$8.03		7,107	$	12,138


	Weighted
	Average		Forward
	Floor/Ceiling		Notional
	Price (Per		Volume
Fidelity	MMBtu/Bbl)		(MMBtu/Bbl)		Fair Value
Natural gas collar agreements maturing in 2008		$7.33/$8.60		7,306	$	(25,413	)
Natural gas collar agreements maturing in 2009		$8.52/$9.56		14,965	$	(32,232	)
Oil collar agreement maturing in 2008		$67.50/$78.70		37	$	(2,275	)

Interest rate risk

There were no material changes to interest rate risk faced by the Company from those reported in the 2007 Annual Report. For more information on interest rate risk, see Part II, Item 7A in the 2007 Annual Report.

At June 30, 2008 and 2007, and December 31, 2007, the Company had no outstanding interest rate hedges.

Foreign currency risk

MDU Brasil’s equity method investments in the Brazilian Transmission Lines are exposed to market risks from changes in foreign currency exchange rates between the U.S. dollar and the Brazilian Real. For further information on foreign currency risk, see Part II, Item 8 – Note 4 in the 2007 Annual Report.

At June 30, 2008 and 2007, and December 31, 2007, the Company had no outstanding foreign currency hedges.

ITEM 4. CONTROLS AND PROCEDURES

The following information includes the evaluation of disclosure controls and procedures by the Company’s chief executive officer and the chief financial officer, along with any significant changes in internal controls of the Company.

Evaluation of disclosure controls and procedures

The term "disclosure controls and procedures" is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. These rules refer to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within required time periods. The Company’s chief executive officer and chief financial officer have evaluated the effectiveness of the Company’s disclosure controls and procedures and they have concluded that, as of the end of the period covered by this report, such controls and procedures were effective.

Changes in internal controls

The Company maintains a system of internal accounting controls that is designed to provide reasonable assurance that the Company’s transactions are properly authorized, the Company’s assets are safeguarded against unauthorized or improper use, and the Company’s transactions are properly recorded and reported to permit preparation of the Company’s financial statements in conformity with generally accepted accounting principles in the United States of America. There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended June 30, 2008, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II -- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For information regarding legal proceedings, see Note 19, which is incorporated by reference.

ITEM 1A. RISK FACTORS

This Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Exchange Act. Forward-looking statements are all statements other than statements of historical fact, including without limitation those statements that are identified by the words "anticipates," "estimates," "expects," "intends," "plans," "predicts" and similar expressions.

The Company is including the following factors and cautionary statements in this Form 10-Q to make applicable and to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for any forward-looking statements made by, or on behalf of, the Company. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions (many of which are based, in turn, upon further assumptions) and other statements that are other than statements of historical facts. From time to time, the Company may publish or otherwise make available forward-looking statements of this nature, including statements contained within Prospective Information. All these subsequent forward-looking statements, whether written or oral and whether made by or on behalf of the Company, also are expressly qualified by these factors and cautionary statements.

Forward-looking statements involve risks and uncertainties, which could cause actual results or outcomes to differ materially from those expressed. The Company's expectations, beliefs and projections are expressed in good faith and are believed by the Company to have a reasonable basis, including without limitation, management's examination of historical operating trends, data contained in the Company's records and other data available from third parties. Nonetheless, the Company's expectations, beliefs or projections may not be achieved or accomplished.

Any forward-looking statement contained in this document speaks only as of the date on which the statement is made, and the Company undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances that occur after the date on which the statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for management to predict all of the factors, nor can it assess the effect of each factor on the Company's business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement.

There are no material changes in the Company’s risk factors from those reported in Part I, Item 1A – Risk Factors in the 2007 Annual Report other than the risk associated with the regulatory approval, permitting, construction, startup and operation of power generation facilities; the risk related to environmental laws and regulations; the risk related to a pending utility company acquisition; and the risk related to litigation with a nonaffiliated natural gas producer; as discussed below. These factors and the other matters discussed herein are important factors that could cause actual results or outcomes for the Company to differ materially from those discussed in the forward-looking statements included elsewhere in this document.

Economic Risks

The regulatory approval, permitting, construction, startup and operation of power generation facilities may involve unanticipated changes or delays that could negatively impact the Company's business and its results of operations and cash flows.

The construction, startup and operation of power generation facilities involves many risks, including: delays; breakdown or failure of equipment; competition; inability to obtain required governmental

permits and approvals; inability to negotiate acceptable acquisition, construction, fuel supply, off-take, transmission or other material agreements; changes in market price for power; cost increases; as well as the risk of performance below expected levels of output or efficiency. Such unanticipated events could negatively impact the Company's business, its results of operations and cash flows.

The Company is analyzing potential projects for accommodating load growth and replacing an expired purchased power contract with company-owned generation, which will add base-load capacity and rate base. A potential project is the planned participation in Big Stone Station II. Should regulatory approvals and permits not be received on a timely basis, the project could be at risk and the Company would need to pursue other generation sources.

Environmental and Regulatory Risks

Some of the Company's operations are subject to extensive environmental laws and regulations that may increase costs of operations, impact or limit business plans, or expose the Company to environmental liabilities.

The Company is subject to extensive environmental laws and regulations affecting many aspects of its present and future operations including air quality, water quality, waste management and other environmental considerations. These laws and regulations can result in increased capital, operating and other costs, and delays as a result of ongoing litigation and administrative proceedings and compliance, remediation, containment and monitoring obligations, particularly with regard to laws relating to power plant emissions and CBNG development. These laws and regulations generally require the Company to obtain and comply with a wide variety of environmental licenses, permits, inspections and other approvals. Public officials and entities, as well as private individuals and organizations, may seek injunctive relief or other remedies to enforce applicable environmental laws and regulations. The Company cannot predict the outcome (financial or operational) of any related litigation or administrative proceedings that may arise.

Existing environmental regulations may be revised and new regulations seeking to protect the environment may be adopted or become applicable to the Company. Various proposals related to the emission of greenhouse gases, such as carbon dioxide, are being considered at both the federal and state level. Revised or additional regulations, which result in increased compliance costs or additional operating restrictions, particularly if those costs are not fully recoverable from customers, could have a material adverse effect on the Company's results of operations and cash flows.

Other Risks

The Company’s pending acquisition of Intermountain may be delayed or may not occur if certain conditions are not satisfied. Upon completion of the acquisition, if the Company is unable to integrate the Intermountain operations effectively, its future financial position or results of operations may be adversely affected.

The Company has entered into an agreement to acquire Intermountain. The total value of the transaction, including outstanding indebtedness, is approximately $328 million. The completion of the acquisition is subject to the approval of various regulatory authorities and the satisfaction of other customary closing conditions. The Company’s pending acquisition of Intermountain may be delayed or may not occur if the Company is unable to timely obtain necessary regulatory approvals, satisfy closing conditions or obtain financing. If the Company is unable to integrate the Intermountain operations effectively, its future financial position or results of operations may be adversely affected.

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.

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 the drilling and production activities of Anadarko and its wholly owned subsidiary, Howell. Williston Basin filed suit in Montana Federal District Court seeking to recover unspecified damages from Anadarko and Howell, and to enjoin Anadarko and Howell's present and future production operations in and near the EBSR. This suit was dismissed by the Montana Federal District Court. The dismissal was affirmed by the Ninth Circuit. 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.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Between April 1, 2008 and June 30, 2008, the Company issued 133,640 shares of common stock, $1.00 par value, and the preference share purchase rights appurtenant thereto, as part of the consideration paid by the Company in the acquisition of businesses acquired by the Company in a prior period. The common stock and preference share purchase rights issued by the Company in these transactions were issued in a private transaction exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 4(2) thereof, Rule 506 promulgated thereunder, or both. The classes of persons to whom these securities were sold were either accredited investors or other persons to whom such securities were permitted to be offered under the applicable exemption.

The following table includes information with respect to the Company’s purchase of equity securities:

ISSUER PURCHASES OF EQUITY SECURITIES

Period	(a) Total Number of Shares (or Units) Purchased (1)		(b) Average Price Paid per Share (or Unit)		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (2)	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (2)
April 1 through April 30, 2008		36,625	$	28.51
May 1 through May 31, 2008
June 1 through June 30, 2008
Total		36,625

(1) Represents 175 shares of common stock withheld by the Company to pay taxes in connection with the vesting of shares granted pursuant to a compensation plan and 36,450 shares of common stock purchased on the open market in connection with annual stock grants made to the Company’s non-employee directors.

(2) Not applicable. The Company does not currently have in place any publicly announced plans or programs to repurchase equity securities.

ITEM 6. EXHIBITS

See the index to exhibits immediately preceding the exhibits filed with this report.

SIGNATURES

Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	MDU RESOURCES GROUP, INC.



DATE: August 7, 2008	BY:	/s/ Vernon A. Raile
		Vernon A. Raile
		Executive Vice President, Treasurer
		and Chief Financial Officer


	BY:	/s/ Doran N. Schwartz
		Doran N. Schwartz
		Vice President and Chief Accounting Officer

EXHIBIT INDEX

Exhibit No.

2	Stock Purchase Agreement by and between Intermountain Industries, Inc. and MDU Resources Group, Inc., dated as of July 1, 2008

+10(a)	Deferred Compensation Plan for Directors, as amended May 15, 2008

+10(b)	Directors' Compensation Policy, as amended May 15, 2008

+10(c)	Non-Employee Director Long-Term Incentive Compensation Plan, as amended May 15, 2008

+10(d)	Non-Employee Director Stock Compensation Plan, as amended May 15, 2008

12	Computation of Ratio of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Stock Dividends

31(a)	Certification of Chief Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31(b)	Certification of Chief Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32	Certification of Chief Executive Officer and Chief Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

+ Management contract, compensatory plan or arrangement.

MDU Resources Group, Inc. agrees to furnish to the SEC upon request any instrument with respect to long-term debt that MDU Resources Group, Inc. has not filed as an exhibit pursuant to the exemption provided by Item 601(b)(4)(iii)(A) of Regulation S-K.

STOCK PURCHASE AGREEMENT

INTERMOUNTAIN INDUSTRIES, INC.

MDU RESOURCES GROUP, INC.

Dated as of July 1, 2008

TABLE OF CONTENTS

ARTICLE I	DEFINITIONS	1
Section 1.1	Definitions	1
ARTICLE II	PURCHASE AND SALE OF SHARES	13
Section 2.1	Purchase and Sale of Shares.	13
Section 2.2	Purchase Price Adjustments.	14
Section 2.3	Closing.	17
ARTICLE III	REPRESENTATIONS AND WARRANTIES OF SELLER	19
Section 3.1	Corporate Status	19
Section 3.2	Authorization	19
Section 3.3	No Conflict	19
Section 3.4	Governmental Filings	20
Section 3.5	Capital Structure; Subsidiaries.	20
Section 3.6	Financial Statements	20
Section 3.7	Undisclosed Liabilities	21
Section 3.8	Absence of Certain Changes	21
Section 3.9	Legal Proceedings	22
Section 3.10	Compliance with Laws; Permits; Certain Filings.	22
Section 3.11	Environmental Matters.	23
Section 3.12	Taxes	23
Section 3.13	Labor	25
Section 3.14	Employee Benefit Plans.	25
Section 3.15	Company Material Contracts.	27
Section 3.16	Insurance	27
Section 3.17	Regulation as a Utility	28
Section 3.18	Regulatory Proceedings	28
Section 3.19	Real Property.	28
Section 3.20	Intellectual Property.	29
Section 3.21	Intercompany Arrangements	29
Section 3.22	Brokers' Fees	30
Section 3.23	Disclaimer of Other Warranties	30
ARTICLE IV	REPRESENTATIONS AND WARRANTIES OF PURCHASER	30
Section 4.1	Status	30
Section 4.2	Authorization	30
Section 4.3	No Conflict	31
Section 4.4	Governmental Filings	31
Section 4.5	Legal Proceedings	31
Section 4.6	Acquisition for Investment	32
Section 4.7	Funding	32
Section 4.8	Solvency	32

Section 4.9	Foreign Persons	33
Section 4.10	Brokers' Fees	33
Section 4.11	No Reliance	33
ARTICLE V	COVENANTS	33
Section 5.1	Conduct of the Business	33
Section 5.2	Employment Matters.	36
Section 5.3	Publicity	38
Section 5.4	Confidentiality	39
Section 5.5	Access to Information	39
Section 5.6	Filings, Authorizations and Consents.	39
Section 5.7	Director and Officer Liability; Indemnification	41
Section 5.8	Reasonable Best Efforts	41
Section 5.9	Insurance	42
Section 5.10	Indebtedness; Termination of Affiliate Agreements.	42
Section 5.11	Names	43
Section 5.12	Tax Matters.	43
Section 5.13	Non-Solicitation of Employees	45
Section 5.14	Purchaser's Financing Activities.	46
ARTICLE VI	CONDITIONS OF CLOSING	46
Section 6.1	Conditions to Obligations of Purchaser and Seller	46
Section 6.2	Additional Conditions to Obligations of Purchaser	47
Section 6.3	Additional Conditions to Obligations of Seller	48
ARTICLE VII	TERMINATION	49
Section 7.1	Termination of Agreement	49
Section 7.2	Effect of Termination	50
ARTICLE VIII	INDEMNIFICATION	50
Section 8.1	Indemnification of Purchaser by Seller	50
Section 8.2	Indemnification of Seller by Purchaser	51
Section 8.3	Survival	51
Section 8.4	Limitation on Liability.	52
Section 8.5	Notice and Opportunity to Defend	53
Section 8.6	No Knowledge of Breach; Mitigation; Other Indemnification Provisions.	54
Section 8.7	Tax Treatment of Indemnification Provisions	54
Section 8.8	Exclusivity	54
ARTICLE IX	MISCELLANEOUS	55
Section 9.1	Assignment; Binding Effect	55
Section 9.2	Choice of Law	55
Section 9.3	Consent to Jurisdiction; Waiver of Jury Trial	55

Section 9.4	Notices	55
Section 9.5	Headings	56
Section 9.6	Fees and Expenses	56
Section 9.7	Entire Agreement	57
Section 9.8	Interpretation.	57
Section 9.9	Seller Disclosure Schedule	57
Section 9.10	Waiver and Amendment	58
Section 9.11	Counterparts; Facsimile Signatures	58
Section 9.12	Third-Party Beneficiaries	58
Section 9.13	Specific Performance	58
Section 9.14	Severability	59

INDEX OF DEFINED TERMS

Page

AAA	1
Action	1
Adjusted Net Working Capital	1
Adjustment Date	2
Affiliate	2
Affiliated Group	2
Aggregate Net Company Indebtedness	2
Aggregate SERP Adjustment Amount	2
Agreement	1, 2
Balance Sheet	2
Balance Sheet Date	2
Base Claim	2
Base Purchase Price	13
Business	2
Business Day	3
Closing	3, 17
Closing Adjustment Statement	3
Closing Balance Sheet	3
Closing Date	3, 18
Closing Date Financial Statements	3
Closing Date Purchase Price	3
Code	3
Company	1, 3
Company Deferred Compensation Plan	3
Company Employees	3, 36
Company Indemnitees	3, 41
Company Intellectual Property	3
Company Leases	3, 28
Company Material Contracts	4, 27
Company Owned Intellectual Property	4, 29
Company Plans	4, 25
Company Retiree	4
Company Savings Plan	4
Company Savings Plan	37
Company SERP	4, 37
Company Severance Plan	4, 36
Confidentiality Agreement	4, 39
Contract	4
Copyrights	4
Credit Agreement	4
Debenture Purchase Agreement	4

Debt	4
Deductible	5
Determination Date	5
Dispute Notice	5
Electronic Data Room	5
Encumbrance	5
Environmental Law	5, 23
ERISA	5, 25
ERISA Affiliate	5, 26
Estimated Adjusted Net Working Capital	5
Estimated Adjustment Statement	5
Estimated Aggregate Net Company Indebtedness	5
Estimated Closing Balance Sheet	5
Estimated Financial Statements	5
Estimated Net PP&E Amount	5
Excluded SERP Employees	6
Excluded Warranties	6
Existing CBA	35
Final Adjusted Net Working Capital	6
Final Aggregate Net Company Indebtedness	6
Final Net PP&E Amount	6
Final Order	6
Final Purchase Price	6
Final Report	6
Financial Statements	6
GAAP	6
Governmental Entity	6
Governmental Filings	7, 20
Governmental Order	7
Hazardous Substance	7, 23
Hedging Transaction	7
HSR Act	7, 20
Indemnitee	7
Indemnitor	7
Independent Accounting Firm	7
Initial Outside Date	7, 49
Intellectual Property	7
IPUC	7
IPUC Notification Filing	7
IRS	7
Knowledge of Seller	7
Law	7
Leased Real Property	8, 28
License Agreements	8, 29
Losses	8
March 31 Calculations	8

Marks	8
Material Adverse Effect	8
Material Easement Agreements	9, 28
Multiemployer Plan	9
Net PP&E Amount	9
Offering Materials	9, 46
Owned Real Property	9, 28
Patents	9
Permits	9, 22
Permitted Encumbrance	9
Person	10
Pre-Closing Straddle Period Taxes	10
Pre-Closing Tax Period	10
Pre-Closing Tax Returns	10
Purchase Price	10
Purchaser	1, 10
Purchaser Governmental Filings	10, 31
Purchaser Indemnified Parties	10
Purchaser Material Adverse Effect	10
Purchaser Savings Plan	10, 37
Purchaser Warranty Claim	10
Real Property	11
Refund	11, 45
Representatives	11
Seller	1, 11
Seller Deferred Compensation Plan	11
Seller Disclosure Schedule	11
Seller Indemnified Parties	11
SERP Accrual	11
Shares	1, 11
Solvent	11
Straddle Period	12
Straddle Period Tax Returns	12
Subsidiary	12
Target Adjusted Net Working Capital	12
Target Aggregate Net Company Indebtedness	12
Target Net PP&E Amount	12
Tax	12
Tax Benefits	12
Tax Return	12
Taylor Litigation	12
Terminating Contracts	12, 42
Title IV Plan	12, 25
Trade Secrets	13
Trademarks	13
Transfer Taxes	13

STOCK PURCHASE AGREEMENT

THIS STOCK PURCHASE AGREEMENT is made and entered into and effective as of the 1 st day of July, 2008 (this " Agreement "), by and between Intermountain Industries, Inc., an Idaho corporation (" Seller "), and MDU Resources Group, Inc., a Delaware corporation (" Purchaser ").

WHEREAS, Seller is the beneficial owner of 1,513,060 shares of common stock, par value $1.00 per share (the " Shares "), of Intermountain Gas Company, an Idaho corporation (the " Company ");

WHEREAS, the Shares constitute all of the issued and outstanding shares of capital stock of the Company; and

WHEREAS, Purchaser desires to purchase, and Seller desires to sell to Purchaser, the Shares, upon the terms and subject to the conditions set forth herein.

NOW, THEREFORE, in consideration of the foregoing, the representations, warranties, covenants and agreements set forth in this Agreement, and other good and valuable consideration, the adequacy and receipt of which are hereby acknowledged, the parties hereby agree as follows:

ARTICLE I

DEFINITIONS

Section 1.1 Definitions . Capitalized terms used in this Agreement shall have the meanings set forth in this Agreement. In addition, for purposes of this Agreement, the following terms, when used in this Agreement, shall have the meanings assigned to them in this Section 1.1.

" AAA " shall have the meaning set forth in Section 2.2(e).

" Action " means any action, complaint, suit, arbitration or other proceeding, whether civil, criminal, administrative or otherwise, at Law or in equity, in each case instituted by or pending before any Governmental Entity.

" Adjusted Net Working Capital " means the current assets of the Company less the current liabilities of the Company, in each case, determined as of the close of business on the earlier of November 30, 2008 or the Closing Date and in accordance with GAAP (applied using the same principles and policies used to prepare the Balance Sheet and the March 31 Calculations); provided , however , that for purposes of determining Adjusted Net Working Capital, (a) prepaid insurance shall not be accrued as a current asset of the Company and (b) the current assets and current liabilities of the Company shall not include (i) any items included in Aggregate Net Company Indebtedness or the Net PP&E Amount as of the close of business on the earlier of November 30, 2008 or the Closing Date or (ii) any assets or liabilities that are transferred to the Company pursuant to, or incurred

by the Company in accordance with, the terms set forth in Section 5.2(c) or Section 5.2(d) of this Agreement.

" Adjustment Date "shall have the meaning set forth in Section 2.1(b).

" Affiliate " means a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, a specified Person. A Person shall be deemed to control another Person if such first Person possesses, directly or indirectly, the power to direct, or cause the direction of, the management and policies of such other Person, whether through the ownership of voting securities, by contract or otherwise.

" Affiliated Group " means an affiliated group within the meaning of Code §1504(a) or any group of entities required or permitted to file consolidated, combined or unitary Tax Returns under federal, state, local or foreign Law.

" Aggregate Net Company Indebtedness " means, as of any date, the aggregate amount of Debt of the Company as of such date, less the aggregate amount of cash and cash equivalents of the Company as of such date, in each case, determined in accordance with GAAP (applied using the same principles and policies used to prepare the Balance Sheet and the March 31 Calculations). For the sake of clarity, the parties acknowledge and agree that any assets or liabilities that are transferred to the Company pursuant to, or incurred by the Company in accordance with, the terms set forth in Section 5.2(c) or Section 5.2(d) of this Agreement shall not be considered in calculating Aggregate Net Company Indebtedness.

" Aggregate SERP Adjustment Amount " shall have the meaning set forth in Section 2.2(b)(iv).

" Agreement " shall have the meaning set forth in the first paragraph of this Agreement.

" Balance Sheet " means the unaudited balance sheet of the Company as at March 31, 2008, a copy of which is attached to Section 1.1(a) of the Seller Disclosure Schedule .

" Balance Sheet Date " means March 31, 2008.

" Base Claim " shall have the meaning set forth in Section 8.4(a).

“ Base Purchase Price ” shall have the meaning set forth in Section 2.1(b).

" Business " means the business of delivering, distributing, transporting, and, where applicable, selling, natural gas to industrial, commercial

and residential customers in the State of Idaho, as such business is currently conducted by the Company.

" Business Day " means any day other than a Saturday, a Sunday or a day on which banks are required or authorized to be closed in New York, New York. Bismarck, North Dakota, or Boise, Idaho.

" Closing " shall have the meaning set forth in Section 2.3(a).

" Closing Adjustment Statement " shall have the meaning set forth in Section 2.2(c).

" Closing Balance Sheet " shall have the meaning set forth in Section 2.2(c).

" Closing Date " shall have the meaning set forth in Section 2.3(a).

" Closing Date Purchase Price " shall have the meaning set forth in Section 2.1(b).

" Closing Date Financial Statements " shall have the meaning set forth in Section 2.2(c).

" Code " means the United States Internal Revenue Code of 1986, as amended.

" Company " shall have the meaning set forth in the recitals to this Agreement.

" Company Deferred Compensation Plan "means the Intermountain Gas Company Deferred Compensation/Salary Reduction Plan for Executives and Key Managers.

" Company Employees " shall have the meaning set forth in Section 5.2(a).

" Company Indemnitees " shall have the meaning set forth in Section 5.7.

" Company Intellectual Property " means the Intellectual Property owned by the Company or licensed from third parties by the Company.

" Company Leases " shall have the meaning set forth in Section 3.19(b).

" Company Material Contracts " shall have the meaning set forth in Section 3.15(a).

" Company Owned Intellectual Property " shall have the meaning set forth in Section 3.20(a).

" Company Plans " shall have the meaning set forth in Section 3.14(a).

" Company Retiree " shall have the meaning set forth in Section 5.2(b).

“ Company Savings Plan " shall have the meaning set forth in Section 5.2(d).

" Company SERP " shall have the meaning set forth in Section 5.2(c).

" Company Severance Plan "shall have the meaning set forth in Section 5.2(a).

" Confidentiality Agreement " shall have the meaning set forth in Section 5.4.

" Contract " means any written contract, agreement, commitment, franchise, indenture, lease, license or other binding written arrangement.

" Copyrights " means all copyrights (including all registrations and applications to register the same).

“ Credit Agreement "means that certain Credit Agreement, dated as of October 19, 2005, by and among the Company, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, and the other lenders party thereto from time to time, as the same has been amended, modified or supplemented from time to time.

“ Debenture Purchase Agreement "means that certain Debenture Purchase Agreement, dated as of September 18, 1998, by and between the Company and Teachers Insurance and Annuity Association of America, relating to the Company’s 7.26% Senior Debentures due September 18, 2018, as the same has been amended, modified or supplemented from time to time.

" Debt " means, of any Person at any date and without duplication, (i) all indebtedness of such Person for borrowed money; (ii) any other indebtedness of such Person which is evidenced by a promissory note, debenture or similar instrument; and (iii) all indebtedness of the type referred to in the immediately preceding clauses (i) or (ii) of third Persons guaranteed, directly or indirectly, by such Person or as to which such Person has an obligation (contingent or otherwise) that is substantially the economic equivalent of a guarantee.

" Deductible " shall have the meaning set forth in Section 8.4(a).

" Determination Date " means the earlier to occur of (a) if Seller does not deliver a Dispute Notice, the date that is thirty-one (31) days following the date on which Purchaser delivers the Closing Date Financial Statements to Seller, and (b) if Seller delivers a Dispute Notice, the earlier to occur of (i) the date on which Purchaser and Seller finally and conclusively resolve any and all disputes set forth in the Dispute Notice, and (ii) the date of the Final Report of the Independent Accounting Firm.

" Dispute Notice " shall have the meaning set forth in Section 2.2(d).

" Electronic Data Room " means the electronic data room established by Seller in connection with the transactions contemplated hereby as it exists as of the date hereof.

" Encumbrance " means any lien, encumbrance, security interest, pledge, mortgage or restriction on transfer of title.

" Environmental Law " shall have the meaning set forth in Section 3.11(c).

" ERISA " shall have the meaning set forth in Section 3.14(a).

" ERISA Affiliate " shall have the meaning set forth in Section 3.14(c).

" Estimated Adjusted Net Working Capital " shall have the meaning set forth in Section 2.2(a).

" Estimated Adjustment Statement " shall have the meaning set forth in Section 2.2(a).

" Estimated Aggregate Net Company Indebtedness " shall have the meaning set forth in Section 2.2(a).

" Estimated Closing Balance Sheet " shall have the meaning set forth in Section 2.2(a).

" Estimated Financial Statements " shall have the meaning set forth in Section 2.2(a).

" Estimated Net PP&E Amount " shall have the meaning set forth in Section 2.2(a).

" Excluded SERP Employees " means, collectively, any Person (other than William C. Glynn, Richard Hokin and Kenneth Smith) who (a) participates in the Intermountain Industries, Inc. Supplemental Retirement Plan as of the Closing Date and (b) is employed by Seller or any of its post-Closing Affiliates (and not the Company) as of the Closing Date, and each such Person is sometimes referred to herein as an “ Excluded SERP Employee .”

" Excluded Warranties " shall have the meaning set forth in Section 8.4(b).

“ Existing CBA ” shall have the meaning set forth in Section 5.1(e).

" Final Adjusted Net Working Capital " means the amount of Adjusted Net Working Capital as finally determined in accordance with the provisions of Section 2.2.

" Final Aggregate Net Company Indebtedness " means the amount of Aggregate Net Company Indebtedness as finally determined in accordance with the provisions of Section 2.2.

" Final Net PP&E Amount " means the Net PP&E Amount as finally determined in accordance with the provisions of Section 2.2.

“Final Order " means any action by the relevant Governmental Entity which has not been reversed, stayed, enjoined, set aside, annulled or suspended, with respect to which any waiting period prescribed by Law before the transactions contemplated hereby may be consummated has expired, and as to which all conditions to the consummation of such transactions prescribed by Law have been satisfied.

" Final Purchase Price " shall have the meaning set forth in Section 2.1(b).

" Final Report " shall have the meaning set forth in Section 2.2(e).

" Financial Statements " means (a) the Balance Sheet and the related unaudited statements of income, capitalization, retained earnings and cash flows of the Company for the fiscal quarter ended March 31, 2008; and (b) the audited balance sheet of the Company as at September 30, 2007 and the related audited statements of income, capitalization, retained earnings and cash flows of the Company for the fiscal year ended September 30, 2007, including, in the case of clauses (a) and (b), the notes thereto.

" GAAP " means United States generally accepted accounting principles, as in effect from time to time.

" Governmental Entity " means any federal, state, local or foreign government, or any agency, board, commission, court, tribunal, administrative body or instrumentality thereof.

" Governmental Filings " shall have the meaning set forth in Section 3.4.

" Governmental Order " means any order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Entity.

" Hazardous Substance " shall have the meaning set forth in Section 3.11(c).

" Hedging Transaction " means any contract, agreement or arrangement which is related to hedges, forwards, derivatives or similar transactions to which the Company is a party.

" HSR Act " shall have the meaning set forth in Section 3.4.

“ Indemnitee " shall have the meaning set forth in Section 8.5.

" Indemnitor " shall have the meaning set forth in Section 8.5.

" Independent Accounting Firm " shall have the meaning set forth in Section 2.2(e).

" Initial Outside Date " shall have the meaning set forth in Section 7.1(b).

" Intellectual Property " means all Trademarks, Patents, Copyrights and Trade Secrets.

" IPUC " means the Idaho Public Utilities Commission.

“ IPUC Notification Filing " shall have the meaning set forth in Section 5.6(c).

" IRS " means the United States Internal Revenue Service.

" Knowledge of Seller " (or similar phrases) means the actual knowledge of William C. Glynn, Paul Powell, Eldon Book, Michael Rich, Timothy Clark and Scott Madison, and the knowledge that such individual would have obtained after inquiring concerning the matter to which the phrase “to the Knowledge of Seller” pertains of the employee or employees of the Company or Seller, as applicable, who report directly to such Person.

" Law " means any statute, code, rule, regulation, ordinance or other pronouncement of any Governmental Entity having the effect of law.

" Leased Real Property " shall have the meaning set forth in Section 3.19(b).

" License Agreements " shall have the meaning set forth in Section 3.20(c).

" Losses " shall have the meaning set forth in Section 8.1.

" March 31 Calculations " shall have the meaning set forth in Section 2.2(a).

" Marks " shall have the meaning set forth in Section 5.11.

" Material Adverse Effect " means any event, change or effect that, individually or in the aggregate with all other events, changes and effects, is materially adverse to the business, financial condition or results of operations of the Company taken as a whole; provided , however , that no event, change or effect arising out of, resulting from or attributable to the following shall be deemed to constitute a Material Adverse Effect or shall be taken into account when determining whether a Material Adverse Effect has occurred: (a) general market (including the capital, financial, credit, securities or commodities markets, including coal, natural gas, oil and other commodity prices), economic or political conditions (or changes therein) in the United States, the State of Idaho or in the global economy as a whole, including changes in interest or exchange rates or the availability of debt or other financing; (b) the announcement, pendency or consummation of the transactions contemplated by this Agreement, including any loss of or adverse change in the relationship of the Company with its employees, customers, partners, or suppliers related thereto; (c) acts of war, sabotage or terrorism, or any escalation or worsening of any such acts of war, sabotage or terrorism threatened or underway as of the date of this Agreement or hereafter commenced, or any storms, earthquakes or other natural disasters, weather conditions or force majeure events, (d) general conditions in the industry in which the Company operates; (e) any changes or proposed changes, in each case after the date hereof, in GAAP or applicable Law or the interpretation thereof; (f) any failure to take any action as a result of restrictions or other prohibitions set forth in Section 5.1, or the taking of any specific action at the direction of Purchaser or that is expressly required by this Agreement; (g) any failure of the Company to meet internal estimates, projections or forecasts of revenues, earnings or other financial or business metrics (it being understood that any cause of any such failure may be taken into consideration when determining whether a Material Adverse Effect has occurred) or (h) any change or proposed change in the debt ratings of the Company or any debt securities of the Company (it being understood that any cause of any such change or proposed change may be taken into consideration when determining whether a Material Adverse Effect has occurred): provided further , however , that any event, change or effect referred to in clauses (a), (c), (d) or (e) immediately above shall be taken into account in determining whether a Material Adverse Effect has occurred to the extent that such event, change or effect has a materially disproportionate effect on the Company taken as a whole, compared to other participants in the industry and in the geographic markets in which the Company conducts the Business.

" Material Easement Agreements " shall have the meaning set forth in Section 3.19(c).

“ Multiemployer Plan " shall have the meaning set forth in Section 3.14(a).

" Net PP&E Amount " means the total property, plant and equipment (as such term is used in the Balance Sheet) of the Company, determined as of the close of business on the earlier of November 30, 2008 or the Closing Date and in accordance with GAAP (applied using the same principles and policies used to prepare the Balance Sheet and the March 31 Calculations), it being understood and agreed that the total property, plant and equipment of the Company as of the close of business on the earlier of November 30, 2008 or the Closing Date shall be equal to the utility plant (as such term is used in the Balance Sheet) of the Company less the accumulated depreciation (as such term is used in the Balance Sheet) thereon, in each case, determined as of the close of business on the earlier of November 30, 2008 or the Closing Date and in accordance with GAAP (applied using the same principles and policies used to prepare the Balance Sheet and the March 31 Calculations).

" Offering Materials " shall have the meaning set forth in Section 5.14(a).

" Owned Real Property " shall have the meaning set forth in Section 3.19(a).

" Patents " means all patents and patent applications, including divisions, continuations, continuations-in-part, reissues, reexaminations, and any extensions thereof.

" Permits " shall have the meaning set forth in Section 3.10(b).

" Permitted Encumbrance " means: (i) mechanics', carriers', workers', repairers', materialmen's, warehousemen's, construction and other similar Encumbrances arising or incurred in the ordinary course of business which, in each case, do not materially detract from the use or value of the property or asset subject thereto; (ii) Encumbrances for Taxes, utilities and other governmental charges that are not due and payable, are being contested in good faith by appropriate proceedings or may thereafter be paid without penalty; (iii) in the case of Real Property, matters that are disclosed in any survey or inspection or title report that is contained in the Electronic Data Room, or that would be disclosed in an accurate survey of such Real Property and any Encumbrances of record that could not reasonably be expected to materially impair the operation of the Business as it is currently conducted; (iv) requirements and restrictions of zoning, building and other applicable Laws and municipal by-laws, and development, site plan, subdivision or other agreements with municipalities; (v) statutory Encumbrances of landlords for amounts not yet due and payable, which are being contested in good faith by appropriate proceedings or which may thereafter be paid without penalty; (vi) Encumbrances arising under conditional sales contracts and equipment leases with third parties entered into in the ordinary course of business; (vii) Encumbrances constituting

easements or rights of way arising in the ordinary course of business; (viii) defects, irregularities or imperfections of title and other Encumbrances which, individually or in the aggregate, do not materially impair the continued use of or the value of the asset or property to which they relate; (ix) Encumbrances attaching to inventory held by consignees arising in the ordinary course of business; (x) pledges and deposits to secure the performance of bids, trade contracts, leases, surety bonds, performance bonds and other obligations of a similar nature, in each case in the ordinary course of business, and (xi) any Encumbrance that could not reasonably be expected to materially impair the operation of the Business as it is currently conducted.

" Person " means an individual, an association, a corporation, an individual, a partnership, a limited liability company, an unlimited liability company, a trust or any other entity or organization, including a Governmental Entity.

" Pre-Closing Straddle Period Taxes " shall mean Taxes payable with respect to any Straddle Period and shall (i) in the case of property Taxes, be deemed equal to the amount of such Taxes for the entire Straddle Period multiplied by a fraction the numerator of which is the number of calendar days in the portion of the Straddle Period ending on the Closing Date and the denominator of which is the number of calendar days in the entire Straddle Period; and (ii) in the case of all Taxes other than property Taxes, be deemed equal to the amount that would be payable if the Tax year or period ended on the Closing Date.

" Pre-Closing Tax Period " means a Tax period ending on or before the Closing Date.

“ Pre-Closing Tax Returns " shall have the meaning set forth in Section 5.12(a).

" Purchase Price " shall have the meaning set forth in Section 2.1.

" Purchaser " shall have the meaning set forth in the first paragraph of this Agreement.

" Purchaser Governmental Filings " shall have the meaning set forth in Section 4.4.

" Purchaser Indemnified Parties " shall have the meaning set forth in Section 8.1.

“ Purchaser Material Adverse Effect " shall have the meaning set forth in Section 5.8.

“ Purchaser Savings Plan " shall have the meaning set forth in Section 5.2(d).

" Purchaser Warranty Claim " shall have the meaning set forth in Section 8.4(a).

" Real Property " means, collectively, the Leased Real Property and the Owned Real Property.

" Refund " shall have the meaning set forth in Section 5.12(d).

" Representatives " shall have the meaning set forth in the Confidentiality Agreement.

" Seller " shall have the meaning set forth in the first paragraph of this Agreement.

" Seller Deferred Compensation Plan "shall have the meaning set forth in Section 5.2(b).

" Seller Disclosure Schedule " shall mean the disclosure schedule of Seller referred to in, and delivered pursuant to, this Agreement.

" Seller Indemnified Parties " shall have the meaning set forth in Section 8.2.

" SERP Accrual " means, with respect to each Excluded SERP Employee, the amount set forth opposite such Excluded SERP Employee’s name on Section 1.1(b) of the Seller Disclosure Schedule , it being understood and agreed that Section 1.1(b) of the Seller Disclosure Schedule sets forth the estimated accrued benefit obligation under the Intermountain Industries, Inc. Supplemental Retirement Plan as of the date specified therein for all participants in such plan (other than William C. Glynn, Richard Hokin and Kenneth Smith), and is not limited to Persons who are or shall be Excluded SERP Employees as of the Closing.

" Shares " shall have the meaning set forth in the recitals to this Agreement.

" Solvent " with regard to any Person, means that (i) the sum of the assets of such Person, both at a fair valuation and at present fair salable value, exceeds its liabilities, including contingent, subordinated, unmatured, unliquidated and disputed liabilities, (ii) such Person has sufficient capital with which to conduct its business and (iii) such Person has not incurred debts, and does not intend to incur debts, beyond its ability to pay such debts as they mature. For purposes of this definition, " debt " means any liability on a claim, and " claim " means (i) a right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured, or (ii) a right to an equitable remedy for breach of performance if such breach gives rise to a payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured or unsecured. With respect to any such contingent liabilities, such liabilities shall be computed at the amount which, in light of all the facts and circumstances existing at the time, represents the amount which can reasonably be expected to become an actual or matured liability.

" Straddle Period " means any Tax period that includes, but ends after, the Closing Date.

“ Straddle Period Tax Returns " shall have the meaning set forth in Section 5.12(a).

" Subsidiary " of any Person means, on any date, any Person (i) the accounts of which would be consolidated with and into those of the applicable Person in such Person's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date or (ii) of which securities or other ownership interests representing more than fifty percent (50%) of the equity or more than fifty percent (50%) of the ordinary voting power or, in the case of a partnership, more than fifty percent (50%) of the general partnership interests or more than fifty percent (50%) of the profits or losses of which are, as of such date, owned or held by the applicable Person or one or more subsidiaries of such Person.

" Target Adjusted Net Working Capital " means negative $6,744,000.

" Target Aggregate Net Company Indebtedness " means $81,995,000.

" Target Net PP&E Amount " means $192,941,000.

" Tax " means any foreign, federal, provincial, state, county, tribal or local income, sales or use, excise, franchise, real or personal property, gross receipt, capital stock, production, business and occupation, disability, employment, payroll, severance, or withholding tax or other tax, duty, fee, assessment or charge imposed, assessed or collected by any Governmental Entity, and any interest, penalties or additions related thereto.

“ Tax Benefits " shall have the meaning set forth in Section 8.4(a).

" Tax Return " means any return, report, declaration, information return or other document required to be filed with any Governmental Entity with respect to Taxes, including any amendments thereof.

“ Taylor Litigation " shall have the meaning set forth in Section 8.1.

" Terminating Contracts " shall have the meaning set forth in Section 5.10(b).

" Title IV Plan " shall have the meaning set forth in Section 3.14(a).

" Trade Secrets " means all formulas, processes, devices or compilations of information used in a business that confer a competitive advantage over those in similar businesses who or which do not possess such formulas, processes, devices or compilations of information.

" Trademarks " means all trademarks, trade names, business names and Internet domain names, together with the goodwill associated with any of the foregoing, and all registrations and applications for registration of the foregoing.

" Transfer Taxes " means any sales, use, stock transfer, real property transfer, real property gains, transfer, stamp, registration, documentary, recording or similar duties or taxes together with any interest thereon, penalties, fines, costs, fees, additions to tax or additional amounts with respect thereto incurred in connection with Seller’s sale of the Shares to Purchaser contemplated hereby.

ARTICLE II

PURCHASE AND SALE OF SHARES

Section 2.1 Purchase and Sale of Shares .

(a) Purchaser and Seller hereby agree that, upon the terms and subject to the satisfaction or waiver, if permissible, of the conditions set forth in Article VI hereof, at the Closing, Purchaser shall purchase, acquire and accept from Seller, and Seller shall sell, transfer, assign and deliver to Purchaser, all of the Shares, free and clear of all Encumbrances (other than Encumbrances arising under applicable securities Laws), which Shares shall represent one hundred percent (100%) of the issued and outstanding shares of capital stock of the Company.

(b) At the Closing, Purchaser shall pay to Seller, in consideration for the purchase of the Shares pursuant to Section 2.1(a) hereof, an amount in cash equal to $245,005,000 (the " Base Purchase Price ”), which Base Purchase Price shall be subject to adjustment on the Closing Date on the terms set forth in Section 2.2(b) hereof; provided , however , that in the event that the Closing Date shall not have occurred on or before November 30, 2008 (the “ Adjustment Date ”), the Base Purchase Price shall be increased for each day after the Adjustment Date through and including the Closing Date by adding thereto an amount equal to $54,445.55 per day. The Base Purchase Price, after giving effect to (i) any adjustment made thereto on the Closing Date pursuant to the terms set forth in Section 2.2(b) hereof and (ii) any additional amount payable thereon pursuant to the terms of the immediately preceding proviso, is referred to herein as the “ Closing Date Purchase Price .” The Closing Date Purchase Price shall be paid to Seller by Purchaser by wire transfer of immediately available funds to such account or accounts of Seller as is set forth in a writing delivered to Purchaser from Seller at least one (1) Business Day prior to the Closing Date. The parties acknowledge and agree that the Closing Date Purchase Price shall be subject to further adjustment following the Closing Date pursuant to the terms set forth in Section 2.2(f) hereof (the Closing Date Purchase Price, as further adjusted following the Closing Date pursuant to the terms set forth in Section 2.2(f) hereof, is referred to herein as the “ Final Purchase Price ”).

Section 2.2 Purchase Price Adjustments . .

(a) Not more than seven (7) Business Days, but in no event less than two (2) Business Days, before the Closing Date, Seller shall deliver to Purchaser (i) an estimated unaudited balance sheet of the Company as of the close of business on the earlier of November 30, 2008 or the Closing Date, and after giving effect to the completion of the transactions contemplated by Section 5.10(b) hereof (the “ Estimated Closing Balance Sheet ”), (ii) a statement (the “ Estimated Adjustment Statement ” and, together with the Estimated Closing Balance Sheet, the “ Estimated Financial Statements ”), which Estimated Adjustment Statement shall set forth Seller’s good faith estimate of (x) the Aggregate Net Company Indebtedness (such estimated amount, the “ Estimated Aggregate Net Company Indebtedness ”), (y) the Adjusted Net Working Capital (such estimated amount, the “ Estimated Adjusted Net Working Capital ”) and (z) the Net PP&E Amount (such estimated amount, the “ Estimated Net PP&E Amount ”), in each case as of the close of business on the earlier of November 30, 2008 or the Closing Date (and after giving effect to the completion of the transactions contemplated by Section 5.10(b) hereof), with such amounts being derived from the Estimated Closing Balance Sheet, and (iii) a statement setting forth the name of each Excluded SERP Employee, the SERP Accrual for each Excluded SERP Employee and the Aggregate SERP Adjustment Amount. The Estimated Financial Statements shall be prepared in accordance with GAAP (applied using the same principles and policies used to prepare the Balance Sheet and the March 31 Calculations). The parties acknowledge and agree that the calculations of Aggregate Net Company Indebtedness, Adjusted Net Working Capital and the Net PP&E Amount attached to Section 2.2(a) of the Seller Disclosure Schedule are calculations of such amounts as of March 31, 2008 and have been derived from the Balance Sheet (such calculations are referred to herein as the “ March 31 Calculations ”)

(b) The Base Purchase Price shall be subject to adjustment on the Closing Date as follows (it being understood and agreed that, if applicable, the adjustments contemplated by clauses (i), (ii), (iii) and (iv) immediately below shall be netted against each other for purposes of determining the adjustment to the Base Purchase Price to be made on the Closing Date):

(i) If the Estimated Adjusted Net Working Capital is less than the Target Adjusted Net Working Capital, the Base Purchase Price shall be decreased by an amount equal to the amount by which the Target Adjusted Net Working Capital exceeds the Estimated Adjusted Net Working Capital. If the Estimated Adjusted Net Working Capital is greater than the Target Adjusted Net Working Capital, the Base Purchase Price shall be increased by an amount equal to the amount by which the Estimated Adjusted Net Working Capital exceeds the Target Adjusted Net Working Capital;

(ii) If the Estimated Aggregate Net Company Indebtedness is less than the Target Aggregate Net Company Indebtedness, the Base Purchase Price shall be increased by an amount equal to the amount by which the Target Aggregate Net Company Indebtedness exceeds the Estimated Aggregate Net Company Indebtedness. If the Estimated Aggregate Net Company Indebtedness is greater than the Target Aggregate Net Company Indebtedness, the Base Purchase Price

shall be decreased by an amount equal to the amount by which the Estimated Aggregate Net Company Indebtedness exceeds the Target Aggregate Net Company Indebtedness;

(iii) If the Estimated Net PP&E Amount is less than the Target Net PP&E Amount, the Base Purchase Price shall be decreased by an amount equal to the amount by which the Target Net PP&E Amount exceeds the Estimated Net PP&E Amount. If the Estimated Net PP&E Amount is greater than the Target Net PP&E Amount, the Base Purchase Price shall be increased by an amount equal to the amount by which the Estimated Net PP&E Amount exceeds the Target Net PP&E Amount; and

(iv) The Base Purchase Price shall be decreased by the positive amount obtained by subtracting (A) the sum of $1,000,000 plus the income tax effected aggregate amount (62%) of the SERP Accrual for each Excluded SERP Employee, from (B) $3,700,000 (the amount obtained by subtracting clause (A) from clause (B) is referred to herein as the “ Aggregate SERP Adjustment Amount ”), it being understood and agreed that Purchaser shall not have the right to dispute Seller’s calculation of the Aggregate SERP Adjustment Amount except in the case of mathematical error.

(c) Within thirty (30) days after the Closing Date, Purchaser shall prepare and deliver to Seller (i) an unaudited balance sheet of the Company as of the close of business on the earlier of November 30, 2008 or the Closing Date, and after giving effect to the completion of the transactions contemplated by Section 5.10(b) hereof (the “ Closing Balance Sheet ”), and (ii) a statement (the “ Closing Adjustment Statement ” and, together with the Closing Balance Sheet, the “ Closing Date Financial Statements ”), which Closing Adjustment Statement shall set forth (x) the Aggregate Net Company Indebtedness, (y) the Adjusted Net Working Capital and (z) the Net PP&E Amount, in each case as of the close of business on the earlier of November 30, 2008 or the Closing Date (and after giving effect to the completion of the transactions contemplated by Section 5.10(b) hereof), with such amounts being derived from the Closing Balance Sheet. The Closing Date Financial Statements shall be prepared in accordance with GAAP (applied using the same principles and policies used to prepare the Balance Sheet and the March 31 Calculations). Contemporaneously with the delivery of the Closing Date Financial Statements, Purchaser shall also deliver to Seller copies of the calculations that Purchaser used in preparing the Closing Date Financial Statements and Purchaser shall also promptly provide to Seller such other calculations, documents and information as Seller may reasonably request for the purpose of verifying the accuracy of the Closing Date Financial Statements. Without limiting the foregoing, Purchaser shall allow Seller and its Representatives reasonable access to the books and records of the Company to the extent reasonably necessary to review and verify the information contained in the Closing Date Financing Statements.

(d) In the event that Seller either has no objections to the Closing Date Financial Statements as prepared by Purchaser and does not deliver a Dispute Notice to Purchaser or if Seller otherwise fails to deliver a Dispute Notice to Purchaser within the time period required by the immediately following sentence, then, on the date that is thirty-one (31)

days following the date on which Purchaser delivers the Closing Date Financial Statements to Seller, the Closing Date Financial Statements prepared by Purchaser, including the Aggregate Net Company Indebtedness, Adjusted Net Working Capital and Net PP&E Amount set forth therein, shall be deemed to be and shall become final, binding and conclusive on the parties hereto, including Seller. In the event that Seller disputes the amount of Aggregate Net Company Indebtedness, the amount of Adjusted Net Working Capital and/or the Net PP&E Amount as set forth in the Closing Date Financial Statements, Seller shall, within thirty (30) days following the date on which Purchaser delivers the Closing Date Financial Statements to Seller, prepare and deliver to Purchaser a written notice of dispute (the “ Dispute Notice ”), which Dispute Notice shall specifically identify, and provide a reasonably detailed explanation of the basis upon which Seller has delivered such Dispute Notice.

(e) In the event Seller timely delivers a Dispute Notice to Purchaser in accordance with the terms hereof, Purchaser and Seller shall attempt to reconcile their differences, and any resolution by them as to any such disputes shall be final, binding and conclusive on each of them. If Purchaser and Seller are unable to resolve any such dispute within fifteen (15) days of Purchaser’s receipt of the Dispute Notice from Seller, Purchaser and Seller shall submit the items remaining in dispute for resolution to an independent accounting firm of national reputation that is mutually acceptable to Purchaser and Seller (the “ Independent Accounting Firm ”), provided that if Purchaser and Seller are unable to agree on a mutually acceptable Independent Accounting Firm, then the parties shall request that the New York City, New York office of the American Arbitration Association (the “ AAA ”) select an accounting firm to as the Independent Accounting Firm hereunder, provided that any such Independent Accounting Firm selected by the AAA shall be of national reputation and shall (i) not be an Affiliate of Seller or Purchaser, (ii) not have had a material business relationship with Seller or Purchaser in the two (2) year period immediately preceding the proposed engagement of such Independent Accounting Firm and (iii) have expertise in general accounting matters. Upon the selection of the Independent Accounting Firm, and in any event within five (5) Business Days following such selection, Purchaser and Seller shall submit to such Independent Accounting Firm (and the other party) all documentary materials and analyses that Purchaser or Seller, as the case may be, believes to be relevant to a resolution of the dispute set forth in the Dispute Notice and, without limiting the foregoing, Purchaser shall allow the Independent Accounting Firm and its Representatives reasonable access to the books and records of the Company to the extent reasonably necessary to perform the duties for which it is engaged hereunder. The Independent Accounting Firm shall, within twenty (20) Business Days after receipt of all such submissions by Purchaser and Seller, determine and deliver to Purchaser and Seller a written report (the “ Final Report ”) containing such Independent Accounting Firm’s determination of the disputed matters that were so submitted to it (and only such matters), and the determinations of the Independent Accounting Firm that are contained therein shall be final, binding and conclusive on Purchaser and Seller. The fees and disbursements of the Independent Accounting Firm and, if applicable, the AAA, shall be allocated to Seller in the same proportion that the aggregate amount of such remaining disputed items so submitted to the Independent Accounting Firm that is unsuccessfully disputed by Seller (as finally determined by the Independent Accounting Firm) bears to the total amount of such remaining disputed items so submitted, and the balance shall be paid by Purchaser.

(f) No later than two (2) Business Days following the Determination Date, Seller or Purchaser, as the case may be, shall make the following payments, after netting against each other all payments required to be made by Seller and/or Purchaser, as the case may be, pursuant to clauses (i), (ii) and (iii) immediately below, with all such payments being made to the applicable Person via wire transfer of immediately available funds to the account or accounts designated in writing by the Person entitled to receive such payment:

(i) If the Estimated Adjusted Net Working Capital is less than the Final Adjusted Net Working Capital, Purchaser shall pay to Seller an amount equal to the amount by which the Final Adjusted Net Working Capital exceeds the Estimated Adjusted Net Working Capital. If the Estimated Adjusted Net Working Capital is greater than the Final Adjusted Net Working Capital, Seller shall pay to Purchaser an amount equal to the amount by which the Estimated Adjusted Net Working Capital exceeds the Final Adjusted Net Working Capital;

(ii) If the Estimated Aggregate Net Company Indebtedness is less than the Final Aggregate Net Company Indebtedness, Seller shall pay to Purchaser an amount equal to the amount by which the Final Aggregate Net Company Indebtedness exceeds Estimated Aggregate Net Company Indebtedness. If the Estimated Aggregate Net Company Indebtedness is greater than the Final Aggregate Net Company Indebtedness, Purchaser shall pay to Seller an amount equal to the amount by which the Estimated Aggregate Net Company Indebtedness exceeds the Final Aggregate Net Company Indebtedness; and

(iii) If the Estimated Net PP&E Amount is less than the Final Net PP&E Amount, Purchaser shall pay to Seller an amount equal to the amount by which the Final Net PP&E Amount exceeds Estimated Net PP&E Amount. If the Estimated Net PP&E Amount is greater than the Final Net PP&E Amount, Seller shall pay to Purchaser an amount equal to the amount by which the Estimated Net PP&E Amount exceeds the Final Net PP&E Amount.

(g) Any amount paid pursuant to Section 2.3(f) shall bear interest from the Closing Date through but excluding the date of payment, at a rate of eight percent (8%) per annum. Such interest shall accrue daily on the basis of a three hundred sixty (360) day year calculated for the actual number of days for which payment is due and such payment shall be payable together with the amount payable pursuant to Section 2.2(f).

Section 2.3 Closing .

(a) The closing of the transactions contemplated by this Agreement (the " Closing ") shall be held at the offices of Willkie Farr & Gallagher LLP, located at 787 Seventh Avenue, New York, New York 10019, as promptly as practicable (and in any event within three (3) Business Days) after the date of the satisfaction or waiver, if permissible, of the last of the conditions to Closing set forth in Article VI of this Agreement (other than those conditions which, by their nature, are to be satisfied on the Closing Date, but subject to the satisfaction or waiver, if permissible, of such conditions), or at such other location

and on such other date as Seller and Purchaser may mutually agree in writing. The date on which the Closing occurs is referred to herein as the " Closing Date ".

(b) At the Closing, Seller shall deliver to Purchaser a certificate or certificates representing all of the Shares being sold by Seller pursuant to the terms hereof, each duly endorsed or accompanied by a duly executed stock power in appropriate form and sufficient for transfer of all of such Shares to Purchaser free and clear of all Encumbrances (other than Encumbrances arising pursuant to applicable securities Laws), against the payment by Purchaser to Seller of the Closing Date Purchase Price in accordance with the terms set forth in Section 2.1 hereof.

(c) At the Closing, in addition to any other documents required to be delivered pursuant to this Agreement, Seller shall deliver to Purchaser the following:

(i) A certificate of the Secretary of State of Idaho, as of a date not earlier than five (5) Business Days prior to the Closing Date, as to the valid existence and good standing of Seller;

(ii) A true and complete copy of the Articles of Incorporation of Seller, including all amendments thereto, certified as of a date not earlier than five (5) Business Days prior to the Closing Date by the Secretary of State of Idaho;

(iii) A true and complete copy of the By-Laws of Seller, including all amendments thereto, certified by the Secretary or an Assistant Secretary of Seller;

(iv) A true and complete copy of the resolutions adopted by the Board of Directors of Seller authorizing the execution, delivery and performance by Seller of this Agreement and the transactions contemplated hereby, certified by the Secretary or an Assistant Secretary of Seller;

(v) An incumbency certificate of Seller as to the Person executing this Agreement (and any other documents being executed in connection herewith) on behalf of Seller;

(vi) A certificate of the Secretary of State of Idaho, as of a date not earlier than five (5) Business Days prior to the Closing Date, as to the valid existence and good standing of the Company;

(vii) A true and complete copy of the Articles of Incorporation of the Company, including all amendments thereto, certified as of a date not earlier than five (5) Business Days prior to the Closing Date by the Secretary of State of Idaho;

(viii) A true and complete copy of the By-Laws of the Company, including all amendments thereto, certified by the Secretary or an Assistant Secretary of the Company;

(ix) Written resignations substantially in the form attached as Exhibit A hereto of (A) each director of the Company and (B) each officer of the Company that shall cease to be employed by the Company and shall become employed by Seller or any of its post-Closing Affiliates, in each case effective at the Closing; and

(x) A non-foreign person certificate dated the Closing Date, substantially in the form of Exhibit B hereto, as to the matters set forth therein, executed by Seller.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF SELLER

Subject to the terms set forth in Section 9.9 hereof and except as set forth on the Seller Disclosure Schedule , Seller represents and warrants to Purchaser as follows:

Section 3.1 Corporate Status . The Company (a) is duly incorporated and validly existing under the Laws of the State of Idaho, (b) has all requisite corporate power and authority to carry on its business as it is now being conducted and (c) is duly qualified to do business and is in good standing in each of the jurisdictions in which the ownership or operation its properties and assets and the conduct of the Business requires it to be so qualified, except where the failure to be so qualified and in good standing would not, individually or in the aggregate, have a Material Adverse Effect.

Section 3.2 Authorization . The execution and delivery of this Agreement by Seller and the consummation by Seller of the transactions contemplated hereby have been duly and validly authorized by the Board of Directors and stockholders of Seller and no other corporate proceedings are necessary to authorize the execution and delivery of this Agreement by Seller or the consummation by Seller of the transactions contemplated hereby. This Agreement has been duly executed and delivered by Seller, and (assuming the due authorization, execution and delivery of this Agreement by Purchaser) this Agreement constitutes a valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar Laws relating to or affecting creditors’ rights generally or by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at Law).

Section 3.3 No Conflict . Assuming that all Governmental Filings and waiting periods described in or contemplated by Section 3.4 have been obtained or made, or have expired, the execution and delivery of this Agreement by Seller and the consummation by Seller of the transactions contemplated hereby will not (a) violate any Law or Governmental Order to which Seller or the Company is subject, (b) with or without notice, lapse of time or both, conflict with, result in a violation or breach of, or constitute a default under, result in the acceleration of or create in any Person the right to accelerate, terminate or cancel any Company Material Contract or (c) violate the articles of incorporation or bylaws of Seller or the Company, other than, in the case of clauses (a) and (b) above, any such violations, conflicts, breaches, defaults, accelerations or rights that (i) would not, individually or in the aggregate, have a Material Adverse Effect or

(ii) would not materially impair or materially delay Seller’s ability to perform its obligations under this Agreement or to consummate the transactions contemplated hereby.

Section 3.4 Governmental Filings . No filings or registrations with, notifications to, or authorizations, consents or approvals of, a Governmental Entity (collectively, " Governmental Filings ") are required to be obtained or made by Seller or the Company in connection with the execution and delivery of this Agreement by Seller or the consummation by Seller of the transactions contemplated hereby, except (a) filings and notices under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the rules and regulations promulgated thereunder (the " HSR Act "), (b) Governmental Filings that become applicable as a result of matters specifically and solely related to Purchaser or its Affiliates, (c) the IPUC Notification Filing and (d) such other Governmental Filings the failure of which to be obtained or made (i) would not, individually or in the aggregate, have a Material Adverse Effect or (ii) would not materially impair or materially delay Seller’s ability to perform its obligations under this Agreement or to consummate the transactions contemplated hereby.

Section 3.5 Capital Structure; Subsidiaries .

(a) The authorized capital stock of the Company consists of 5,000,000 Shares of which 1,513,060 are issued and outstanding as of the date hereof. The Shares are duly authorized, validly issued, fully paid and nonassessable, and are held of record by Seller, free and clear of all Encumbrances (other than Encumbrances arising pursuant to applicable securities Laws). The Shares constitute all of the outstanding capital stock of the Company. There are no (i) outstanding obligations, options, warrants, convertible or exchangeable securities or other rights, agreements or commitments obligating the Company or Seller to issue or sell or otherwise transfer shares of capital stock of the Company, (ii) outstanding obligations of the Company to repurchase, redeem or otherwise acquire shares of capital stock of the Company or (iii) voting trusts, stockholder agreements, proxies or other agreements or understandings in effect with respect to the voting or transfer of shares of capital stock of the Company.

(b) The Company does not have any Subsidiaries and, other than cash equivalents, the Company does not own any capital stock of, or other equity or voting interests in, any other Person.

(c) As of the date hereof, the Company is not obligated in any manner (whether as a primary obligor, guarantor or otherwise) with respect to any indebtedness for borrowed money (excluding any capital lease obligations).

Section 3.6 Financial Statements . Seller has made available to Purchaser a true and complete copy of the Financial Statements. The Financial Statements were prepared in accordance with GAAP consistently applied for the periods covered thereby, except (a) in the case of audited Financial Statements, as disclosed in the footnotes thereto, and (b) that Seller makes no representation or warranty that any footnotes included in the unaudited Financial Statements were prepared in accordance with GAAP. The Financial Statements fairly present, in all material respects, the financial position, results of operations and cash flows of the Company

as of the dates thereof and for the periods covered thereby, subject, in the case of unaudited Financial Statements, to year-end audit adjustments.

Section 3.7 Undisclosed Liabilities . Except (a) for liabilities which are accrued or reserved against in the Balance Sheet (or reflected or described in the footnotes, if any, thereto), (b) for liabilities incurred since the Balance Sheet Date in the ordinary course of business, (c) for liabilities that were incurred in connection with the transactions contemplated by this Agreement, and (d) for liabilities arising pursuant to the terms of any Contracts to which the Company is or may hereafter become a party or is or may hereafter become bound (other than liabilities thereunder due to breaches by the Company of the terms set forth therein), the Company does not have any liabilities required to be accrued or reserved against on a balance sheet of the Company prepared in accordance with GAAP, other than any liabilities which would not, individually or in the aggregate, have a Material Adverse Effect.

Section 3.8 Absence of Certain Changes . From March 31, 2008 through the date of this Agreement, there has not occurred any change, event or effect that, individually or in the aggregate, has had a Material Adverse Effect. Except in connection with the transactions contemplated by this Agreement, from March 31, 2008 through the date of this Agreement, the Company has conducted the Business in the ordinary course in all material respects, and the Company has not:

(a) amended its articles of incorporation or bylaws;

(b) adopted a plan or agreement of liquidation, dissolution, restructuring, merger, consolidation, recapitalization or other reorganization;

(c) (i) issued, sold, transferred, pledged, disposed of or suffered any Encumbrance on any shares of its capital stock, (ii) granted any options, warrants or other rights to purchase or obtain any shares of its capital stock, (iii) split, combined, subdivided or reclassified any shares of its capital stock, (iv) declared, set aside or paid any dividend or other distribution with respect to any shares of its capital stock or (v) redeemed, purchased or otherwise acquired any shares of its capital stock;

(d) issued any note, bond or other debt security or incurred or guaranteed any indebtedness for borrowed money, other than in the ordinary course of business pursuant to existing credit facilities, or mortgaged, pledged or subjected to any Encumbrance (other than Permitted Encumbrances) any of its assets or properties;

(e) (i) except as required under the terms of any Company Plan or any existing employment Contract, materially increased (x) the benefits under any Company Plan or (y) the compensation payable to any officer of the Company, or (ii) entered into any change in control, severance, retention or similar Contract with any employee of the Company;

(f) entered into or consummated any transaction involving the acquisition of the business, stock, assets or other properties of any other Person for consideration in excess of $2,000,000, except for purchases of assets or properties in the ordinary course of business;

(g) sold, leased, exclusively licensed or otherwise disposed of any assets or properties for consideration in excess of $2,000,000 with respect to all such assets and properties, except in the ordinary course of business;

(h) suffered any material loss, damage, destruction or other casualty to its material assets or properties, regardless of whether such loss, damage, destruction or other casualty was covered by insurance;

(i) except as may be required as a result of a change in Law or in GAAP, made, nor has there been, (i) any material change to any of its accounting methods, principles or practices, or (ii) any material Tax election made, or any material Tax election changed or revoked, or any material Tax position taken that is new or inconsistent with any prior position, or any material change in any method of accounting or method of reporting items for Tax purposes; or

(j) entered into any agreement or made any commitment to do any of the foregoing.

Section 3.9 Legal Proceedings . There are no Actions pending or, to the Knowledge of Seller, threatened against the Company which if adversely determined, would have, individually or in the aggregate, a Material Adverse Effect. The Company is not subject to any Governmental Order or judicial or administrative proceeding which would materially impair or delay the ability of Seller or the Company to perform their respective obligations under this Agreement or consummate the transactions contemplated hereby, or which would, individually or in the aggregate, have a Material Adverse Effect, other than Governmental Orders that are generally applicable to Persons engaged in a business similar to the Business.

Section 3.10 Compliance with Laws; Permits; Certain Filings .

(a) The Company is operating the Business in compliance with applicable Laws, except for any non-compliance which would not, individually or in the aggregate, have a Material Adverse Effect. Notwithstanding the foregoing, no representation or warranty is made in this Section 3.10(a) with respect to (i) environmental matters, which are covered exclusively in Section 3.11, (ii) Taxes, which are covered exclusively in Section 3.12, and (iii) labor and employee benefit plan matters, which are covered exclusively in Sections 3.13 and 3.14, respectively.

(b) All approvals, permits and licenses of Governmental Entities (collectively, " Permits ") required to conduct the Business as currently conducted have been obtained by the Company, and all such Permits are in full force and effect, and the Business is being operated in compliance therewith, except for such Permits the failure of which to possess or be in full force and effect or with which to be in compliance would not, individually or in the aggregate, have a Material Adverse Effect. Notwithstanding the foregoing, no representation or warranty is made in this Section 3.10(b) with respect to environmental matters, which are covered exclusively in Section 3.11.

(c) The Company has filed with the IPUC and other applicable Governmental Entities in the State of Idaho all documents required to be filed by the Company

since October 1, 2005 under applicable public utility Laws of the State of Idaho, and all such documents complied, as of the date so filed or, if amended, as of the date of the last amendment, with all applicable requirements of such Laws, except for such filings, the failure of which to make, or the failure of which to make in compliance with all applicable requirements of such Laws, would not, individually or in the aggregate, have a Material Adverse Effect.

Section 3.11 Environmental Matters .

(a) Except as would not, individually or in the aggregate, have a Material Adverse Effect: (i) the Company has obtained all Permits that are required under any Environmental Law for the operation of the Business as currently being conducted and all such Permits are in full force and effect and the Business is being operated in compliance therewith; (ii) the Company and its operations are in compliance with all applicable Environmental Laws; (iii) there has been no release, threatened release or discharge of any Hazardous Substances on, under, in, from or about the Real Property that is currently subject to any investigation, remediation or monitoring, or that is reasonably likely to result in a liability to the Company pursuant to Environmental Laws; (iv) there is no Action pending, or to the Knowledge of Seller, threatened against the Company, under any Environmental Law, and, in the two (2) year period immediately preceding the date of this Agreement, the Company has not received any written notice alleging a violation or liability under any Environmental Law, excluding matters that have been fully resolved with no further liability to the Company; and (v) there is no pending or written threatened claim against the Company involving, relating to, or arising out of, asbestos or any asbestos-containing material, silica or silica-containing material, or manganese-containing welding rods or the exposure to or release thereof.

(b) Seller has delivered to Purchaser complete and accurate copies of all material reports, material studies and material assessments relating to the Company or its current or former businesses or properties and relating to environmental conditions, liabilities, or compliance matters that are in it possession or custody as of the date hereof.

(c) As used herein, " Environmental Law " means any Law relating to (i) the protection of the environment or natural resources, (ii) the protection of human health and safety as it pertains to exposure to Hazardous Substances released or discharged into the natural environment or (iii) the handling, use, presence, transport, disposal, treatment, storage, release, discharge or threatened release or discharge of any Hazardous Substance. " Hazardous Substance " means any substance, including without limitation, any gas or liquid, that is (w) listed, classified, regulated or defined pursuant to any Environmental Law to be a pollutant, contaminant, waste, hazardous waste, hazardous substance, hazardous material, toxic substance, deleterious substance or dangerous good or that is otherwise harmful to human health or natural resources, (x) any petroleum product or by-product, (y) any asbestos-containing material and (z) any radioactive material.

Section 3.12 Taxes . (a) (i) The Company has timely filed or joined in the timely filing of (taking into account valid extensions) all material Tax Returns required to have been filed with respect to the Company, and such Tax Returns are true, correct and complete in all

material respects, and the Company has timely paid (or caused to be timely paid on its behalf) all material Taxes due and payable with respect to the Company (whether or not shown to be due on filed Tax Returns), and (ii) with respect to any period for which Tax Returns have not yet been filed or for which material Taxes of the Company are not yet due or owing, adequate accruals for such Taxes on the Financial Statements as required by GAAP have been made; (b) as of the date hereof, there are no pending or, to the Knowledge of Seller, threatened Actions for the assessment or collection of a material amount of Taxes with respect to the Company; (c) there are no Encumbrances for Taxes against any of the assets of the Company, other than Encumbrances for Taxes not yet due and payable; (d) no agreement extending the period for assessment or collection of any Taxes of the Company has been executed or filed with any Governmental Entity or is in effect; (e) since January 1, 2005, no written claim has been received from a Governmental Entity in a jurisdiction where the Company does not file Tax Returns asserting that the Company is or may be subject to Tax in any jurisdiction; (f) the Company has materially complied with all applicable Tax Laws relating to the payment and withholding of Taxes and has duly and timely withheld and paid over to the appropriate Governmental Entity all material amounts required to be so withheld and paid under all applicable Tax Laws; (g) other than the Affiliated Group of which Seller is currently a member, the Company is not and has not been, a member of an Affiliated Group; (h) neither the IRS nor any other Governmental Entity is asserting or is threatening in writing to assert any claim for Taxes for which the Company may be liable; (i) no Tax deficiency notice or notice of assessment or collection has been received in writing by or on behalf of the Company that has not been paid in full; (j) no audit or other examination of any Tax Return of the Company or any of its Affiliates is presently in progress, nor has the Company or any of its Affiliates been notified in writing of any request for such an audit or other examination; (k) there is no contract, plan or arrangement, including but not limited to the provisions of this Agreement, covering any employee or former employee of the Company that, individually or collectively, could give rise to the payment of any amount that would not be deductible by the Company by reason of Section 404 of the Code; (l) the Company has made available to Purchaser true, complete and correct copies of (i) pro forma corporate stand-alone U.S. federal income Tax Returns (including all schedules and attachments thereto) correctly reflecting information reported on consolidated federal income Tax Returns filed by Seller for each Tax period with respect to which the federal statute of limitations on assessment is currently open, (ii) all other material Tax Returns filed by or on behalf of the Company after December 31, 2005, and (iii) all material correspondence and other written submissions to or communications with the IRS or any other Governmental Entities relating to all such income and other Tax Reports; (m) the Company is not and has not been a member of a limited liability company or a party to any joint venture, partnership, or other arrangement or contract that is properly treated as a partnership for federal income tax purposes; (n) the Company has not engaged in any “listed transaction”, as defined under Section 6011 of the Code and the regulations thereunder or any transaction substantially similar to the foregoing, and the Tax Returns filed by or on behalf of the Company have not reported any “reportable transaction” within the meaning of Code section 6707A(c); (o) the Company has no liability for the Taxes of any Person (other than the Company) under Treas. Reg. section 1.1502-6 (or any similar provision of state, local or foreign Law), except as a result of being a member of the Affiliated Group of which Seller is the common parent, and has no liability for the Taxes of any Person as transferee or successor or by contract (other than pursuant to customary commercial contracts not primarily related to Taxes and entered into in the ordinary course of business), and

(p) the Company is not required to include any item of income in, or exclude any item of deduction from, or otherwise adjust, taxable income in a Tax Return for any Tax period ending after the Closing Date as a result of any: (i) change in method of accounting for any Tax period (or portion thereof) ending on or prior to the Closing Date; (ii) agreement with any Governmental Entity relating to Taxes entered into on or prior to the Closing Date; (iii) installment sale or open transaction disposition or intercompany transaction made on or prior to the Closing Date; (iv) the completed contract method of accounting or other method of accounting applicable to long-term contracts (or any comparable provisions of state, local or foreign law); (v) prepaid amount received on or prior to the Closing Date; or (vi) other Tax position taken, election made or method used by the Company having the effect of either deferring taxable income to any Tax period (or portion thereof) ending after the Closing Date or accelerating deductions to any Tax period (or portion thereof) ending on or prior to the Closing Date.

Section 3.13 Labor . (a) The Company is not a party to any collective bargaining agreement or any other labor-related agreements with any labor union applicable to employees of the Company, nor is any such agreement currently being negotiated; (b) no material work stoppage involving the Company is pending or, to the Knowledge of Seller, threatened by any labor dispute or Action and (c) (i) there are no charges against the Company pending or, to the Knowledge of Seller, threatened in writing before the Equal Employment Opportunity Commission or any state or local agency responsible for the prevention of unlawful employment practices and (ii) there is no unfair labor practice charge or complaint against the Company pending or, to the Knowledge of Seller, threatened before the National Labor Relations Board or any comparable state or local except, in the case of clauses (i) and (ii) immediately above, where any such charge or complaint, would not, individually or in the aggregate, have a Material Adverse Effect.

Section 3.14 Employee Benefit Plans .

(a) Section 3.14(a) of the Seller Disclosure Schedule contains a true and complete list, as of the date hereof, of each material deferred compensation, incentive compensation, stock purchase, stock option and other equity compensation plan, program or agreement; each material severance or material termination pay, medical, surgical, hospitalization, life insurance and other "welfare" plan, fund or program (within the meaning of section 3(1) of the Employee Retirement Income Security Act of 1974, as amended (" ERISA ")); each material profit-sharing, stock bonus or other "pension" plan, fund or program (within the meaning of section 3(2) of ERISA); each multiemployer plan (within the meaning of Section 3(37) or Section 4001(a)(3) of ERISA)(a “ Multiemployer Plan” ); each employment agreement with any executive officer of the Company; and each other material employee benefit plan, fund, program or agreement, in each case, that is sponsored, maintained or contributed to by the Company, or to which the Company is a party, that, in any such case, is for the benefit of any employee or former employee of the Company (the " Company Plans "). Each of the Company Plans that is subject to section 302 or Title IV of ERISA or section 412 of the Code is hereinafter referred to in this Section 3.14 as a " Title IV Plan ."

(b) Seller or the Company has heretofore made available to Purchaser current and complete copies of each Company Plan and any amendments thereto and, with respect to each Company Plan, any related trust, insurance or annuity contract, or other funding vehicle and any reports or summaries required under ERISA or the Code that have been prepared or filed in the twelve (12) month period immediately preceding the date of this Agreement.

(c) No liability under Title IV or section 302 of ERISA has been incurred by the Company or by any trade or business, whether or not incorporated (an " ERISA Affiliate "), that together with the Company would be deemed a "single employer" within the meaning of section 4001(b) of ERISA, that has not been satisfied in full, and no condition exists that presents a material risk to the Company or any ERISA Affiliate of incurring any such liability. No Title IV Plan or any trust established thereunder has incurred any "accumulated funding deficiency" (as defined in section 302 of ERISA and section 412 of the Code), whether or not waived, as of the last day of the most recent fiscal year of each Title IV Plan ended prior to the Closing Date.

(d) Each Company Plan has been funded, operated and administered in accordance with its terms and applicable Law, including ERISA and the Code, except where the failure of such Company Plan to be so funded, operated and administered would not, individually or in the aggregate, have a Material Adverse Effect.

(e) The consummation of the transactions contemplated by this Agreement will not (in and of itself) (i) entitle any current or former employee of the Company to severance pay, unemployment compensation or any other payment or benefit under any Company Plan, (ii) accelerate the time of payment or vesting, or increase the amount of compensation due any such employee under any Company Plan or (iii) reasonably be likely to result in any payment or benefit that would, individually or in combination with any other payment or benefit, fail to be deductible as a result of Section 280G of the Code.

(f) As of the date hereof, there are no pending or, to the Knowledge of Seller, threatened claims against the Company by or on behalf of any Company Plan, by any employee or beneficiary covered under any such Company Plan, or otherwise involving any such Company Plan (other than routine claims for benefits)

(g) There is no withdrawal liability to the Company under any Multiemployer Plan.

(h) No Company Employee or former employee is eligible for post-employment welfare coverage of any type other than COBRA continuation coverage, and to the extent any Company Employee or former employee of the Company or any former Subsidiary thereof whose names appear on Section 3.14(h) of the Seller Disclosure Schedule or who retires or otherwise ceases to be employed by the Company (except in connection with such Person becoming an employee of Seller or any of its post Closing Affiliates at the Closing) between the date hereof and the Closing Date is eligible for post-employment coverage, the Company has reserved the right to amend to terminate that coverage at any time for any reason.

Section 3.15 Company Material Contracts. (a) Section 3.15(a) of the Seller Disclosure Schedule sets forth a true and complete list of each Contract that is in effect as of the date of this Agreement to which the Company is a party or by which it is otherwise bound, which are in the following categories (collectively, and together with the Company Leases and the License Agreements, and any amendments, modifications or supplements thereto, the " Company Material Contracts "): (i) any natural gas supply, gathering, distribution, transportation or storage Contract that is reasonably likely to require payments by or to the Company following the date hereof in excess of $5,000,000 during any fiscal year, or $25,000,000 over the remaining term of any such Contract; (ii) any material hedging or other material derivative Contract, including, without limitation, with respect to the purchase or sale of natural gas; (iii) any franchise or similar Contract with any Governmental Entity that is material to the Company; (iv) any partnership, joint venture or similar Contract with a third party that is material to the Company; (v) any Contract containing a covenant not to compete that materially impairs the ability of the Company to freely conduct the Business or any other business in any geographic area; (vi) any Contract (including letters of credit or similar instruments) evidencing or guaranteeing indebtedness for borrowed money or any obligation that, in accordance with GAAP, would be classified as a capital lease, and pursuant to which the Company has repayment or other payment obligations following the date of this Agreement in excess of $3,000,000, and any material mortgage, security agreement, guarantee, pledge agreement or similar Contract providing for any Encumbrance (other than Permitted Encumbrances) on any of the material assets of the Company and that secures indebtedness for borrowed money or the Company’s payment obligations under a Contract that, in accordance with GAAP, would be classified as a capital lease; and (vii) any other Contract, not otherwise covered by clauses (i) through (vi) of this Section 3.15(a), that is reasonably likely to require payments by or to the Company following the date hereof in excess of $3,000,000 during any fiscal year, or $6,000,000 over the remaining term of any such Contract. Seller or the Company has heretofore made available to Purchaser true and complete copies of each Company Material Contract.

(b) (i) Each Company Material Contract (x) constitutes a valid and binding obligation of the Company and, to the Knowledge of Seller, the other parties thereto, and (y) assuming such Company Material Contract is a valid and binding obligation of and enforceable against the other party(ies) thereto, is enforceable against the Company, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar Laws affecting the enforcement of creditors' rights in general and subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding at Law or in equity), and (ii) the Company is not in breach or default, and no event has occurred which, with due notice or lapse of time or both, would constitute a breach or default by the Company, under any Company Material Contract, except, in each case, where such failure to be so valid, binding and enforceable, or such breach or default, would not, individually or in the aggregate, have a Material Adverse Effect, and the Company has not given notice of a material breach or material default of any material provision thereof to any other party thereto).

Section 3.16 Insurance . Section 3.16 of the Seller Disclosure Schedule sets forth a true and complete list, as of the date hereof, of all material insurance policies under which the Company or its properties and assets are insured, whether such insurance policies are maintained

in the name of the Company or an Affiliate thereof. All such insurance policies are in full force and effect (other than any policies that cease to be in full force and effect as a result of expiring in accordance with their terms). As of the date hereof, there is no material claim by the Company or any other Person (as it relates to the Business or the Company) pending under any such policies as to which coverage has been denied or disputed in writing by the applicable insurers. All premiums due and payable under all such policies have been paid, and the Company or the other holder thereof, as applicable, is in compliance with the terms and conditions of such policies other than any non-compliance which would not, individually or in the aggregate, have a Material Adverse Effect.

Section 3.17 Regulation as a Utility . The Company is subject to regulation as a public utility by the State of Idaho. Except as set forth above, the Company is not subject to regulation as a public utility or public service company (or similar designation) by any other state in the United States. Pursuant to Sections 1(b) or 1(c) of the Natural Gas Act (15 U.S.C. 717(b), (c)), the Company is not regulated as a “natural gas company”. The Company is a “gas utility company” as defined by the Public Utility Holding Company Act of 2005.

Section 3.18 Regulatory Proceedings . Section 3.18 of the Seller Disclosure Schedule sets forth a true and complete list, as of the date hereof, of each rate proceeding pending before a Governmental Entity with respect to rates charged by the Company. The Company (a) does not have rates in any amounts that are being collected subject to a refund, pending final resolution of any rate proceeding pending before a Governmental Entity or on appeal to a court of competent jurisdiction and (b) is not a party to any Contract with any Governmental Entity imposing conditions on rates or services.

Section 3.19 Real Property .

(a) Section 3.19(a) of the Seller Disclosure Schedule sets forth a true and complete list, as of the date hereof, of all real property owned by the Company (the " Owned Real Property "). The Company has title in fee simple, free and clear of Encumbrances (other than Permitted Encumbrances), to all of the Owned Real Property.

(b) Section 3.19(b) of the Seller Disclosure Schedule sets forth a true and complete list, as of the date hereof, of all of the leases, subleases or other instruments or permits (collectively, the " Company Leases ") pursuant to which the Company holds a leasehold or subleasehold estate or other right to use or occupy any interest in real property and under which (i) the Company is a landlord, sublandlord, licensor, grantor of occupancy rights, tenant, subtenant, licensee or occupant and (ii) the Company pays or receives annual base rental payments in excess of $25,000 during any calendar year (the " Leased Real Property ").

(c) Section 3.19(c) of the Seller Disclosure Schedule sets forth a true and complete list, as of the date hereof, of all easements and rights of way in respect of real property that are held by or that benefit the Company and that are material to the Company (the " Material Easement Agreements ")

(d) There are no eminent domain, condemnation or other similar proceedings pending or, to the Knowledge of Seller, threatened affecting any portion of the Owned Real Property that would, individually or in the aggregate, have a Material Adverse Effect. To the Knowledge of Seller, there are no eminent domain, condemnation or similar proceedings pending or threatened affecting any portion of the Leased Real Property that would, individually or in the aggregate, have a Material Adverse Effect.

Section 3.20 Intellectual Property .

(a) Section 3.20(a) of the Seller Disclosure Schedule sets forth, for the Company Intellectual Property owned by the Company (" Company Owned Intellectual Property "), a list of all material (i) Patent applications and Patents, (ii) Trademark applications and registrations and (iii) Copyright applications and registrations. Except as would not, individually or in the aggregate, have a Material Adverse Effect, (x) the Company owns all right, title and interest in and to all the Company Owned Intellectual Property set forth in Section 3.20(a) of the Seller Disclosure Schedule and (y) the Company Owned Intellectual Property represents, together with the Intellectual Property used by the Company pursuant to a license or other right, all Intellectual Property necessary to the conduct of their Business as now conducted.

(b) Except as would not, individually or in the aggregate, have a Material Adverse Effect, to the Knowledge of Seller, (i) the conduct of the Business as currently conducted does not infringe or otherwise violate any Person's Intellectual Property, and there is no such claim pending or threatened in writing against the Company, and (ii) no Person is infringing or otherwise violating in any respect any Company Owned Intellectual Property, and no such claims are pending or threatened in writing against any Person by the Company.

(c) Section 3.20(c) of the Seller Disclosure Schedule sets forth a true and complete list, as of the date hereof, of all Contracts to which the Company is a party or by which it is otherwise bound and pursuant to which Company Intellectual Property owned by a third Person that is material to the Business is licensed or leased to the Company in connection with the operation of the Business (collectively, the " License Agreements ").

Section 3.21 Intercompany Arrangements . The Company (i) does not lease any real or personal property either to or from Seller or any of its Affiliates, (ii) does not license technology or Intellectual Property that is material to the Business either to or from Seller or any of its Affiliates, (iii) is not obligated to purchase any tangible or intangible asset from or sell such asset to Seller or any of its Affiliates or (iv) does not pay or receive material payments either to or from Seller or any of its Affiliates (other than the payment of dividends to Seller). Neither Seller nor any Affiliate thereof (other than the Company) has any rights in or to any of the assets or properties used by the Company in connection with the operation of the Business that are material to the Business. Other than the Terminating Contracts, there do not exist any other agreements, arrangements or understandings between the Company and Seller or any Affiliate of Seller. After giving effect to the actions required to be taken pursuant to Section 5.10(b), all agreements, arrangements and understandings between the Company and Seller and any Affiliate

of Seller shall have been terminated, and all obligations of the Company to Seller or any Affiliate of Seller shall have been satisfied in full.

Section 3.22 Brokers' Fees . Except for Citigroup Global Markets Inc., the fees and expenses for which shall be paid by Seller, no broker, investment banker, financial advisor or other Person is entitled to any broker's, finder's, financial advisor's or other similar fee or commission in connection with this Agreement or the transactions contemplated hereby based upon arrangements made by or on behalf of Seller or any of its Affiliates.

Section 3.23 Disclaimer of Other Warranties . NOTWITHSTANDING ANY PROVISION OF THIS AGREEMENT TO THE CONTRARY, EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES EXPRESSLY MADE BY SELLER IN THIS ARTICLE III, NEITHER SELLER, ANY AFFILIATE THEREOF (INCLUDING THE COMPANY) NOR ANY OTHER PERSON MAKES ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THE COMPANY, SELLER OR ANY OTHER PERSON OR THEIR RESPECTIVE BUSINESSES (INCLUDING THE BUSINESS), OPERATIONS, ASSETS, LIABILITIES, CONDITION (FINANCIAL OR OTHERWISE) OR PROSPECTS, NOTWITHSTANDING THE DELIVERY OR DISCLOSURE TO PURCHASER OR ANY OF ITS AFFILIATES OR REPRESENTATIVES OF ANY DOCUMENTATION, FORECASTS, PROJECTIONS OR OTHER INFORMATION WITH RESPECT TO ANY ONE OR MORE OF THE FOREGOING. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES EXPRESSLY MADE BY SELLER IN THIS ARTICLE III, ALL OTHER REPRESENTATIONS AND WARRANTIES, WHETHER EXPRESS OR IMPLIED, ARE EXPRESSLY DISCLAIMED BY SELLER.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF PURCHASER

Purchaser represents and warrants to Seller as follows:

Section 4.1 Status . Purchaser (a) is duly organized and validly existing under the Laws of its jurisdiction of incorporation or organization, as applicable, (b) has all requisite corporate power and authority to carry on its business as it is now being conducted and (c) is duly qualified to do business and is in good standing in each of the jurisdictions in which the ownership or operation of its properties and assets and the conduct of its business requires it to be so qualified, except where the failure to have such power and authority or to be so qualified and in good standing would not, individually or in the aggregate, materially impair or materially delay Purchaser's ability to perform its obligations under this Agreement or consummate the transactions contemplated hereby.

Section 4.2 Authorization . The execution and delivery of this Agreement by Purchaser and the consummation by Purchaser of the transactions contemplated hereby have been duly and validly authorized by the board of directors of Purchaser and no other corporate proceedings are necessary to authorize the execution and delivery of this Agreement by Purchaser or the consummation by Purchaser of the transactions contemplated hereby. This Agreement has been duly executed and delivered by Purchaser and (assuming due authorization,

execution and delivery by Seller) this Agreement constitutes a valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar Laws relating to or affecting creditors' rights generally or by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at Law).

Section 4.3 No Conflict . Assuming all Governmental Filings and waiting periods described in or contemplated by Section 4.4 have been obtained or made and except as set forth on Exhibit C to this Agreement, or have expired, the execution and delivery of this Agreement by Purchaser and the consummation by Purchaser of the transactions contemplated hereby will not (a) violate any applicable Law or Governmental Order to which Purchaser or any of its Subsidiaries is subject, (b) with or without notice, lapse of time or both, conflict with, result in a violation or breach of, or constitute a default under, result in the acceleration of, create in any Person the right to accelerate, terminate or cancel any material Contract to which Purchaser or its Subsidiaries is a party or by which Purchaser or its Subsidiaries is otherwise bound or (c) violate the certificate of incorporation, bylaws, limited liability company agreement or other organizational documents, as applicable, of Purchaser or its Subsidiaries, other than, in the case of clauses (a) and (b) above, any such violations, conflicts, breaches, defaults, accelerations or rights that would not, individually or in the aggregate, materially impair or materially delay Purchaser's ability to perform its obligations under this Agreement or to consummate the transactions contemplated hereby. There is no provision in the certificate of incorporation, bylaws, limited liability company agreement or other organizational document, as applicable, of Purchaser or any of its Subsidiaries that would prohibit Purchaser from owning or operating a natural gas distribution company.

Section 4.4 Governmental Filings . Except as set forth on Exhibit C to this Agreement, no Governmental Filings are required to be obtained or made by Purchaser or any Affiliate thereof in connection with the execution and delivery of this Agreement by Purchaser or the consummation by Purchaser of the transactions contemplated hereby (collectively, the " Purchaser Governmental Filings "), except (a) filings and notices under the HSR Act and (b) such other Governmental Filings, the failure of which to be obtained or made would not, individually or in the aggregate, materially impair or materially delay Purchaser's ability to perform its obligations under this Agreement or to consummate the transactions contemplated hereby.

Section 4.5 Legal Proceedings . There are no Actions pending or, to the knowledge of Purchaser, threatened against Purchaser or its Affiliates, which (a) if adversely determined, would, individually or in the aggregate, materially impair or materially delay Purchaser's ability to perform its obligations under this Agreement or consummate the transactions contemplated hereby or (b) challenge the validity or enforceability of this Agreement or seek to enjoin or prohibit consummation of the transactions contemplated hereby. Neither Purchaser nor any of its Affiliates is subject to any Governmental Order that would reasonably be expected to materially impair or materially delay Purchaser's ability to perform its obligations under this Agreement or consummate the transactions contemplated hereby.

Section 4.6 Acquisition for Investment . Purchaser has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of Purchaser's purchase of the Shares. Purchaser confirms that it can bear the economic risk of its investment in the Shares and can afford to lose its entire investment in the Shares, has been furnished any and all materials relating to Purchaser's purchase of the Shares that it has requested, and Seller has provided Purchaser the opportunity to ask questions of the officers and management employees of the Company and Seller and to acquire additional information about the Business and financial condition of the Company. Purchaser is acquiring the Shares for investment and not with a view toward or for sale in connection with any distribution thereof, or with any present intention of distributing or selling such Shares. Purchaser agrees that the Shares may not be sold, transferred, offered for sale, pledged, hypothecated or otherwise disposed of without qualification under applicable securities Laws, except pursuant to an exemption from such qualification available under such securities Laws. Purchaser is an “accredited investor” within the meaning of applicable securities Laws.

Section 4.7 Funding . Purchaser has or will have available to it as of the Closing Date, funds that are sufficient for the satisfaction of all of Purchaser's obligations under this Agreement, including the payment of the Base Purchase Price (including any adjustments thereto effected pursuant to the terms set forth in this Agreement) and all fees and expenses of Purchaser relating to the transactions contemplated hereby.

Section 4.8 Solvency . As of the Closing Date, assuming (a) the satisfaction of the conditions to Purchaser's obligation to consummate the transactions contemplated by this Agreement, or waiver of such conditions, if permissible, and (b) that the estimates, projections or forecasts provided to Purchaser or its Affiliates by Seller or any of its Affiliates, including the Company, prior to the date hereof have been prepared in good faith on assumptions that were and continue to be reasonable, and after giving effect to the consummation of the transactions contemplated by this Agreement, including any financing effected by Purchaser in connection therewith, the payment of the Base Purchase Price (including any adjustments thereto effected pursuant to the terms set forth in this Agreement), payment of all other amounts required to be paid in connection with the consummation of the transactions contemplated hereby, and payment of all related fees and expenses, each of Purchaser and the Company will be Solvent as of the Closing and immediately after giving effect to the transactions contemplated by this Agreement and the incurrence of any financings in connection therewith.

Section 4.9 Foreign Persons . Purchaser is not a foreign person, and no foreign person or persons has, directly or indirectly, ownership of or otherwise controls Purchaser. For purposes of this Section 4.9(a), (i) “ foreign person ” shall mean (x) any natural person other than a citizen of the United States or a natural person who, although not a citizen of the United States, owes permanent allegiance to the United States or (y) any other Person over which control is exercised or exercisable by a foreign interest, including a Governmental Entity other than the government of the United States or any state or instrumentality thereof, (ii) “ ownership ” shall mean ownership of a majority or a dominant minority of the total outstanding voting securities of Purchaser and (iii) “ control ” shall mean the power, direct or indirect, whether or not exercised, and whether or not exercised or exercisable through the ownership of securities or by proxy voting, contractual arrangements or other means, to determine, direct or decide matters affecting Purchaser, including the general policies or day-to-day operations of Purchaser.

Section 4.10 Brokers' Fees . Except for J.P. Morgan Securities Inc., the fees and expenses of which will be paid by Purchaser, no broker, investment banker, financial advisor or other Person is entitled to any broker's, finder's, financial advisor's or other similar fee or commission in connection with this Agreement or the transactions contemplated hereby based upon arrangements made by or on behalf of Purchaser or any of its Affiliates.

Section 4.11 No Reliance . Purchaser acknowledges that it has conducted to its satisfaction an independent investigation of the financial condition, liabilities, results of operations and projected operations of the Company and the nature and condition of its properties and assets and the Business and, in making the determination to proceed with the transactions contemplated by this Agreement, has relied solely on the results of its own independent investigation and the representations and warranties expressly set forth in Article III. Purchaser acknowledges that none of Seller, the Company or any other Person has made any representation or warranty, express or implied, as to the accuracy or completeness of any information regarding the Company, Seller the Business or other matters that is not expressly included in Article III. Without limiting the generality of the foregoing, none of Seller, the Company or any other Person has made a representation or warranty to Purchaser with respect to (a) any projections, estimates or budgets for the Business or the Company or (b) any material, documents or information relating to the Company or its Business, including any information memorandum, management presentation, question and answer session or otherwise, except in each case as expressly covered by a representation or warranty set forth in Article III.

ARTICLE V

COVENANTS

Section 5.1 Conduct of the Business . Except (x) as otherwise permitted or contemplated by this Agreement (including Section 5.2 hereof), (y) as required by applicable Law or (z) as set forth in Section 5.1 of the Seller Disclosure Schedule , from and after the date hereof and until the earlier to occur of the Closing Date and the termination of this Agreement in accordance with the terms set forth in Article VII hereof, without the prior written consent of Purchaser (which consent shall not be unreasonably withheld, conditioned or delayed), Seller shall cause the Company to use its commercially reasonable efforts to conduct the Business, in all material respects, in the ordinary course consistent with past practice. To the extent

consistent with the foregoing, from and after the date hereof and until the earlier to occur of the Closing Date and the termination of this Agreement in accordance with the terms set forth in Article VII hereof, Seller shall cause the Company to use its commercially reasonable efforts to preserve its business organization intact and maintain existing relations and goodwill with Governmental Entities, customers, suppliers, employees and business associates. Without limiting the generality of the foregoing, except (1) as otherwise permitted or contemplated by this Agreement (including Section 5.2 hereof), (2) for actions approved by Purchaser in writing (which approval shall not be unreasonably withheld, conditioned or delayed), (3) as required by applicable Law or (4) as set forth in Section 5.1 of the Seller Disclosure Schedule , from and after the date hereof and until the earlier to occur of the Closing Date and the termination of this Agreement in accordance with the terms set forth in Article VII hereof, Seller shall cause the Company not to take any of the following actions:

(a) amend its articles of incorporation or bylaws;

(b) adopt a plan or agreement of liquidation, dissolution, restructuring, merger, consolidation, recapitalization or other reorganization, or otherwise merge or consolidate with or into any other Person;

(c) (i) issue, sell, transfer, pledge, dispose of or voluntarily suffer any Encumbrance on any shares of its capital stock, (ii) grant any options, warrants or other rights to purchase or acquire any shares of its capital stock, (iii) split, combine, subdivide or reclassify any shares of its capital stock, (iv) declare, set aside or pay any dividend or other distribution with respect to any shares of its capital stock, other than dividends paid or payable in cash on or before the earlier of the Closing Date or November 30, 2008, or (v) redeem, purchase or otherwise acquire any shares of its capital stock;

(d) issue any note, bond or other debt security or incur or guarantee any indebtedness for borrowed money, or mortgage, pledge or voluntarily subject to any Encumbrance (other than Permitted Encumbrances) any of its assets (whether tangible or intangible) or properties, provided that the foregoing shall not limit the ability of the Company to (i) incur indebtedness pursuant to the Credit Agreement (as in effect on the date hereof) in the ordinary course of business or (ii) issue or incur any liability with respect to any bond, letter of credit or similar instrument issued to secure the performance of the Company under any Contract entered into (or in respect of any Contract bid on by the Company) in the ordinary course of business;

(e) (i) except as required under the terms of any Company Plan or any existing employment Contract, in each case as in effect on the date hereof, (x) materially increase the benefits under any Company Plan, or (y) expand the availability of any Company Plan to any class or type of employees not eligible to participate therein as of the date hereof, expand benefits or participants in the Intermountain Industries, Inc. Supplemental Retirement Plan (other than in respect of Persons who participate therein or who are permitted to participate therein, in each case, that are not employed by the Company), or materially increase the compensation payable to any officer of the Company, except, in the case of this clause (y), in the ordinary course of business consistent with past practice, (ii) enter into or amend any change in control, severance, retention or similar Contract with any officer or employee of the Company or

(iii) adopt, enter into, terminate or amend in any material respect any Company Plan or other arrangement for the current or future benefit or welfare of any officer or employee of the Company that, if in effect on the date hereof, would be a Company Plan hereunder; provided , however , that nothing contained herein shall limit the ability of the Company to enter into a new collective bargaining agreement (or to extend the existing collective bargaining agreement to which the Company is a party as of the date hereof (the " Existing CBA ")) to replace the Existing CBA, so long as the material terms of such new collective bargaining agreement (or the terms of the extension of the Existing CBA) are consistent, in all material respects, with the terms set forth in the Existing CBA; provided further , however , that Seller shall keep Purchaser reasonably apprised of the status of the negotiations with respect to the new or extended collective bargaining agreement and shall provide to Purchaser such information as it may reasonably request in connection therewith; and provided further, however, that the Company shall not enter into any new or extended collective bargaining agreement that grants compensation and benefit increases without the consent of Purchaser such consent not to be unreasonably withheld, conditioned or delayed;

(f) enter into or consummate any transaction involving the acquisition of the business, stock, assets or other properties of any other Person (whether by merger, consolidation, stock purchase, asset purchase or otherwise), except purchases of assets or other properties in the ordinary course of business;

(g) sell, lease, license or otherwise voluntarily dispose of any material amount of assets or property, except pursuant to existing Contracts that are in effect on the date hereof (which Contracts, if required, are disclosed in the applicable Section of the Seller Disclosure Schedule) , and except in the ordinary course of business;

(h) settle or compromise any Action in which the Company is a named defendant for an amount in excess of $500,000, provided that the Company shall not settle or compromise any Action if such settlement or compromise would have, individually or in the aggregate, a material adverse effect on the ability of the Company to continue to operate the Business in substantially the manner in which the Business is operated as of the date hereof;

(i) except for capital expenditures within the scope of the Company’s capital expenditure forecasts for fiscal years 2008, 2009 and 2010, a copy of which is attached to Section 5.1(i) of the Seller Disclosure Schedule , and for capital expenditures related to or arising from operational emergencies, equipment failures or similar circumstances, make or authorize any capital expenditure in excess of $3,000,000 in the aggregate;

(j) enter into, terminate (other than at the end of a term), renew or materially extend or materially amend any Company Material Contract or any other Contract that, if in effect on the date hereof, would be a Company Material Contract, other than in the ordinary course of business;

(k) enter into any Hedging Transactions other than in the ordinary course of business consistent with past practice and as allowed for cost recovery under the Company’s purchased gas adjustment tariff authorized by the IPUC;

(l) except as may be required as a result of a change in Law or in GAAP, (i) change any of its accounting methods, principles or practices or (ii) make any material Tax election, or change or revoke any Tax election, or take any Tax position that is new or inconsistent with any prior position, or change any method of accounting or method of reporting items for Tax purposes;

(m) create or establish any additional employee positions that would be eligible to participate in the Company Severance Plan, other than for Persons hired by the Company following the date hereof to fill existing positions in the ordinary course of business consistent with past practice;

(n) engage in any transaction with Seller or any Affiliate of Seller in any manner or involving any amount that is not consistent in all material respects with the Company’s past practice regarding such transactions; or

(o) agree or otherwise commit to take any of the actions set forth in the foregoing subsections (a) through (n) of this Section 5.1.

Nothing contained in this Agreement, including this Section 5.1, is intended to give Purchaser, directly or indirectly, the right to control or direct the Company’s operations prior to the Closing Date. Prior to the Closing Date, the Company shall exercise, consistent with the terms and conditions of this Agreement, including this Section 5.1, complete control and supervision over its Business, assets and operations.

Section 5.2 Employment Matters .

(a) During the one (1) year period following the Closing, Purchaser shall, or shall cause its Affiliates to, provide to the employees of the Company who are employed at the Closing (" Company Employees ") and who remain employed with Purchaser or any Affiliate of Purchaser for so long as the Company Employee remains so employed, compensation and employee benefits that, with respect to each Company Employee, are substantially similar in the aggregate to the compensation and benefits provided to such Company Employee under the Company Plans immediately prior to the Closing. Purchaser shall, or shall cause the Company to, perform all of the obligations under the Company Plans as in effect on the Closing Date or as may thereafter be amended in accordance with the terms hereof and thereof. Without limiting the foregoing, Purchaser shall, or shall cause the Company to, adopt a severance plan effective at the Closing in a form reasonably satisfactory to Seller and having the terms set forth on Section 5.2(a) of the Seller Disclosure Schedule (the " Company Severance Plan "), it being understood and agreed that notwithstanding anything contained in the first sentence of this Section 5.2(a) to the contrary, Purchaser shall maintain, or cause the Company to maintain, the Company Severance Plan in accordance with the term thereof as set forth in Section 5.2(a) of the Seller Disclosure Schedule . The parties acknowledge and agree that for purposes of this Section 5.2, Company Plans shall include the Company SERP and the Company Severance Plan.

(b) At or prior to the Closing, Seller shall create a new deferred compensation/salary reduction plan (the " Seller Deferred Compensation Plan ") for executives

and key managers of Seller and Seller's post-Closing Affiliates, and any and all liabilities under the Company Deferred Compensation Plan not associated with (i) a Company Employee or (ii) a former employee of the Company or any former Subsidiary thereof whose names appear on Section 5.2(b) of the Seller Disclosure Schedule or who retires or otherwise ceases to be employed by the Company (except in connection with such Person becoming an employee of Seller or any of its post-Closing Affiliates at the Closing) between the date hereof and the Closing Date (each, a “ Company Retiree ”), shall be transferred to, and become liabilities of, Seller pursuant to the Seller Deferred Compensation Plan, and the Company shall no longer have any liability or obligations in respect thereof. Except as expressly set forth in the immediately preceding sentence, all deferred compensation liabilities and obligations under the Company Deferred Compensation Plan shall remain obligations of the Company.

(c) At or prior to the Closing Date, the Company shall create and, subject to the terms set forth in this Section 5.2, including Section 5.2(a) hereof, maintain, a supplemental retirement plan, substantially in the form attached to Section 5.2(c) of the Seller Disclosure Schedule and approved by Purchaser, such approval not to be unreasonably withheld, conditioned or delayed (the " Company SERP "). At or prior to the Closing Date, any and all liabilities under the Intermountain Industries, Inc. Supplemental Retirement Plan (other than liabilities thereunder that are associated with an Excluded SERP Employee, William C. Glynn, Richard Hokin and Kenneth Smith) shall be transferred to, and become liabilities of, the Company pursuant to the Company SERP, and, without limiting the terms set forth in Section 2.2(b)(iv) hereof, neither Seller nor any of its post-Closing Affiliates shall have any liability or obligations in respect thereof.

(d) At or prior to the Closing, the Board of Directors of the Company shall adopt a resolution terminating the Intermountain Gas Company Employee Savings and Profit Sharing Plan and the Intermountain Gas Company Employee Pension, Savings and Profit Sharing Plan (collectively, the “ Company Savings Plans ” ) effective upon, and subject to the occurrence of, the Closing, and Purchaser shall be solely responsible for reimbursing participants in the Company Savings Plans for fees (if any) incurred in connection with such termination. At and after the Closing, all such participants that are Company Employees shall be eligible to participate in a defined contribution plan maintained by Purchaser (the “ Purchaser Savings Plan ” ) on terms, for at least one (1) year following the Closing, that are substantially similar in the aggregate to those that applied to such participants under the Company Savings Plans immediately prior to the Closing. Upon receipt by the Company of a favorable IRS determination letter with respect to the termination of the Company Savings Plans, Purchaser shall allow the Purchaser Savings Plan to accept direct rollovers for participants from the Company Savings Plans.

(e) Purchaser shall, or shall cause its Affiliates, as applicable, to give Company Employees full credit for such Company Employees' service with the Company and its Affiliates for purposes of eligibility, vesting, and determination of the level of benefits (including for purposes of vacation and severance), but not for purposes of benefit accruals, under any benefit plans made generally available to employees or officers or any class or level of employees or officers maintained by Purchaser or any of its Affiliates in which a Company Employee participates to the same extent recognized by the Company or an Affiliate thereof

immediately prior to the Closing; provided , however , that such service shall not be recognized to the extent that such recognition would result in a duplication of benefits with respect to the same period of service.

(f) Purchaser shall, or shall cause its Affiliates, as applicable, to (i) waive any preexisting condition limitations otherwise applicable to Company Employees and their eligible dependents under any plan of Purchaser or any Subsidiary of Purchaser that provides health benefits in which Company Employees may be eligible to participate following the Closing, other than any limitations that were in effect with respect to such Company Employees as of the Closing under the analogous Company Plan, (ii) honor any deductible, co-payment and out-of-pocket maximums incurred by the Company Employees and their eligible dependents under the health plans in which they participated immediately prior to the Closing during the portion of the calendar year prior to the Closing in satisfying any deductibles, co-payments or out-of-pocket maximums under health plans of Purchaser or any of its Affiliates in which they are eligible to participate after the Closing in the same plan year in which such deductibles, co-payments or out-of-pocket maximums were incurred and (iii) waive any waiting period limitation or evidence of insurability requirement that would otherwise be applicable to a Company Employee and his or her eligible dependents on or after the Closing, in each case to the extent such Company Employee or eligible dependent had satisfied any similar limitation or requirement under an analogous Company Plan prior to the Closing.

(g) The provisions of this Section 5.2 (other than in respect of the Company Severance Plan) are solely for the benefit of the parties to this Agreement, and except with respect to the provisions regarding the Company Severance Plan, no employee or former employee of the Company or any other individual associated therewith shall be regarded for any purpose as a third party beneficiary of this Agreement, and nothing herein shall be construed as an amendment to any Company Plan for any purpose. The parties acknowledge and agree that nothing contained in this Agreement, including in this Section 5.2, shall require Purchaser or any Affiliate thereof (including, after the Closing Date, the Company) to maintain the employment of any employee of the Company.

Section 5.3 Publicity . Purchaser and Seller agree that no public release or announcement concerning this Agreement or the transactions contemplated hereby shall be issued by any party without the prior written consent of Purchaser and Seller (which consent shall not be unreasonably withheld, delayed or conditioned), except (a) such release or announcement as may be required by applicable Law, in which case, to the extent practicable, the party required to make the release or announcement shall allow the other party reasonable time to comment on such release or announcement in advance of such issuance, (b) Seller and Purchaser shall be permitted to disclose this Agreement and the transactions contemplated hereby in connection with making any Governmental Filing or Purchaser Governmental Filing, as applicable, or in response to the request of any Government Entity having jurisdiction over Purchaser or any of its Subsidiaries, and Seller and Purchaser shall be permitted to take such actions in connection with obtaining or making any other filings, registrations, notifications, authorizations, consents or approvals, in each case in connection with the transactions contemplated by this Agreement, and (c) nothing contained herein shall preclude disclosure of this Agreement or the transactions contemplated hereby in the event of litigation between the parties hereto, but then only to the extent necessary to prosecute or defend any such litigation.

Section 5.4 Confidentiality . Purchaser and its Representatives (as such term is defined in the Confidentiality Agreement between Citigroup Global Markets Inc. (on behalf of the Company) and Purchaser, dated April 7, 2008 (as the same may be amended, modified or supplemented from time to time, the " Confidentiality Agreement ")) shall treat all materials and information obtained in connection with this Agreement and the transactions contemplated hereby as confidential in accordance with the terms of the Confidentiality Agreement. If this Agreement is, for any reason, terminated prior to the Closing, the Confidentiality Agreement shall continue in full force and effect in accordance with the terms set forth therein.

Section 5.5 Access to Information . Subject to Section 5.4, Seller shall cause the Company to afford Purchaser and its Representatives reasonable access, during normal business hours and upon reasonable notice, to the officers, properties, offices and other facilities of the Company and to its books and records, and shall furnish Purchaser with available financial, operating and other data and information with respect to the business and properties of the Company as Purchaser may reasonably request. In exercising its rights hereunder, Purchaser shall (and shall cause each of its Representatives to) conduct itself so as not to interfere in the conduct of the business of the Company prior to Closing. Purchaser acknowledges and agrees that any contact by Purchaser or its Representatives with officers, employees, customers or agents of the Company shall be arranged and supervised by representatives of Seller, unless Seller otherwise expressly consents in writing with respect to any specific unsupervised contact. Notwithstanding anything to the contrary set forth in this Agreement, neither Seller nor any of its Affiliates (including the Company) shall be required to disclose to Purchaser or any Representative thereof any information (a) relating to any sale or divestiture process conducted by Seller for the Company or the Business or Seller's (or its Representatives') evaluation of the Company or the Business in connection therewith, including projections, financial information or other information relating thereto or (b) if doing so could violate any Contract or Law to which Seller or any of its Affiliates (including the Company) is a party or to which it is subject or which it believes in good faith could result in a loss of the ability to successfully assert a claim of privilege (including the attorney-client and work product privileges). In addition, notwithstanding anything contained in this Agreement to the contrary, without the prior written consent of Seller, none of Purchaser or its Representatives shall have any right to perform or conduct, or cause to be performed or conducted, any environmental sampling or testing at, in, on or underneath the Real Property.

Section 5.6 Filings, Authorizations and Consents .

(a) Seller and Purchaser shall, as promptly as reasonably practicable (and, in any event, within fifteen (15) Business Days following the date of this Agreement (computed by excluding the date of this Agreement)), cause to be filed with the applicable Governmental Entity the notification and report form pursuant to the HSR Act required for the transactions contemplated by this Agreement. Seller and Purchaser shall, as promptly as practicable, comply with any request for additional information and documents pursuant to the HSR Act. Seller and Purchaser shall inform the other party promptly of any material communication made by or on behalf of such party to (including permitting the other party to review such material communication in advance), or received from, such Governmental Entity and shall furnish to the other such information and assistance as the other may reasonably

request in connection with its preparation of any filing, submission or other act that is necessary or advisable under the HSR Act. Seller and Purchaser shall keep each other timely apprised of the status of any material communications with, and any inquiries or requests for additional information from, such Governmental Entity, and shall comply promptly with any such inquiry or request. Neither party shall agree to participate in any meeting, whether in person or telephonically, with any Governmental Entity in respect of filings referred to in this Section 5.6(a) or any investigation or other inquiries relating thereto, unless the relevant party consults with the other party in advance, and to the extent permitted by such Governmental Entity, gives the other party the opportunity to attend and participate thereat.

(b) [Intentionally omitted.]

(c) Seller and/or Purchaser, as applicable, shall, as promptly as reasonably practicable following the date of this Agreement, cause to be filed all applications, reports, notices and other documents, if any, required to be filed by Purchaser and/or Seller or any of their respective Affiliates (including, in the case of Seller, the Company) with any Governmental Entities (other than the filings contemplated by Section 5.6(a) hereof), including (i) the filing of a written notification with the IPUC in such form and containing such information as the IPUC may request from time to time, together with any other applications, reports, notices and other documents that the IPUC may request from time to time (collectively, the “ IPUC Notification Filing ”), in each case, concerning the transactions contemplated hereby, and (ii) the filing of such applications, reports, notices and other documents, if any, required to be filed by Purchaser or any of its Affiliates in connection with obtaining the consents of the Governmental Entities listed on Part I , Part II or Part III (if applicable, in the case of Part II and Part III) of Exhibit C hereto, which notifications, applications, reports and other documents referred to in the immediately preceding clause (i) shall be in form and substance reasonably satisfactory to each of Seller and Purchaser, and with Seller being provided a reasonable opportunity to review and comment on the foregoing referred to in the immediately preceding clause (ii). Seller and Purchaser shall inform the other party promptly of any material communication made by or on behalf of such party to (including permitting the other party to review such material communication in advance), or received from, the IPUC in connection with the transactions contemplated by this Agreement, and shall furnish to the other such information and assistance as the other may reasonably request in connection with its preparation of any notifications, applications, reports, notices and other documents, if any, contemplated by this Section 5.6(c). Without limiting the foregoing, Seller and Purchaser shall keep each other timely apprised of the status of any material actions, material communications with, and any material inquiries or requests for additional information from, any Governmental Entity in connection with the transactions contemplated by this Agreement, and shall promptly comply with any such inquiry or request. Neither party shall agree to participate in any meeting, whether in person or telephonically, with the IPUC or any investigation or other inquiries relating thereto, unless the relevant party consults with the other party in advance, and to the extent permitted by the IPUC, gives the other party the opportunity to attend and participate thereat.

(d) Purchaser and Seller shall cooperate with one another in determining whether any action by or in respect of, or filing with, any Governmental Entity (excluding the actions and filings described in subsections (a) and (c) of this Section 5.6) is required or reasonably appropriate, or any action, consent, approval or waiver from any party to

any Company Material Contract is required or reasonably appropriate, in connection with the consummation of the transactions contemplated by this Agreement. Subject to the terms and conditions of this Agreement and the Confidentiality Agreement, in taking such actions or making any such filings, the parties shall furnish such information as may be required in connection therewith and timely seek to obtain any such actions, consents, approvals or waivers.

Section 5.7 Director and Officer Liability; Indemnification . If the Closing occurs, Purchaser and Seller agree that all rights to indemnification and all limitations on liability existing in favor of any individual who, on or prior to the Closing Date, was an officer, director or employee of the Company (collectively, the " Company Indemnitees "), as provided in (a) the articles of incorporation or bylaws of the Company in effect on the date of this Agreement or (b) any agreement providing for indemnification by the Company of any Company Indemnitee in effect on the date of this Agreement to which the Company is a party or by which it is bound as of the date of this Agreement and which in each case of this clause (b) is listed on Section 5.7 of the Seller Disclosure Schedule , shall survive the consummation of the transactions contemplated hereby and continue in full force and effect and be honored by the Company after the Closing for a period of not less than six (6) years. Purchaser shall cause the Company to take all actions required by, and otherwise comply with, the provisions of this Section 5.7. It is expressly agreed that the Company Indemnitees to whom this Section 5.7 applies shall be third party beneficiaries of this Section 5.7.

Section 5.8 Reasonable Best Efforts . Upon the terms and subject to the conditions herein provided, each of the parties agrees to use its reasonable best efforts to take or cause to be taken all actions, to do or cause to be done and to assist and cooperate with the other party in doing all things necessary, proper or advisable under applicable Laws to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated hereby, including: (a) the satisfaction of the conditions precedent to the obligations of any of the parties; (b) the obtaining of applicable consents, waivers or approvals of any Governmental Entities or third parties; (c) the defending of any Actions challenging this Agreement or the performance of the obligations hereunder; and (d) the execution and delivery of such instruments, and the taking of such other actions as the other party may reasonably require in order to carry out the intent of this Agreement, it being understood and agreed that in connection with the obtaining of applicable consents, waivers or approvals of any Governmental Entities, if it is reasonably likely that the condition to Closing set forth in Section 6.1(c) and/or Section 6.1(d) hereof (in each case, without giving effect to the terms thereof regarding the imposition of terms and/or conditions by the applicable Governmental Entity) will not be satisfied at or prior to the Initial Outside Date (including any extension thereof), then Purchaser shall be required to (and shall cause its Subsidiaries to) take such actions and/or accept such terms and/or conditions (and Purchaser shall consent to the Company taking such actions and/or accepting such terms and/or conditions) as may be requested or imposed by the applicable Governmental Entity unless the effect thereof would result in the condition to Closing set forth in Section 6.1(c) and/or Section 6.1(d) not being satisfied. In addition, but subject to the terms set forth in the immediately following sentence, Seller agrees to use its reasonable best efforts to assist Purchaser in obtaining a waiver or amendment, as appropriate, to Section 9.17 of the Debenture Purchase Agreement to permit Purchaser to include the Company in its consolidated income Tax returns, and to permit the Company to make tax payments as part of Purchaser’s consolidated group in the same

manner as currently provided for in such Section 9.17 with respect to Seller. Notwithstanding the foregoing, except as otherwise expressly contemplated by this Agreement, neither the Company nor any of its Affiliates nor Purchaser nor any of its Affiliates shall be obligated to make any payments or otherwise pay any consideration to any third party (excluding Governmental Entities) to obtain any applicable consent, waiver or approval.

Section 5.9 Insurance . Purchaser acknowledges and agrees that all insurance coverage for the Company and the Business under policies of Seller and its Affiliates (other than the Company) shall terminate as of the Closing and, except as otherwise provided herein, no claims may be brought thereunder by the Company from and after the Closing for losses that occur after the Closing. Notwithstanding the foregoing, upon written notice to Seller, the Company may bring claims under such policies that are occurrence-based policies for losses that occur prior to the Closing if permitted under such policies, provided that uninsured costs of such claims shall be at the Company's sole cost and expense (including any applicable retentions or deductibles in connection with such claims).

Section 5.10 Indebtedness; Termination of Affiliate Agreements .

(a) Subject to the terms of this Agreement, including the last sentence of Section 5.8 hereof, if Purchaser desires to obtain the consent of the lenders party to the Credit Agreement to waive the change of control provision set forth therein or to assign the Credit Agreement, Seller agrees to cooperate with any reasonable request of Purchaser in connection with Purchaser’s seeking and obtaining such consent. However, if such consent has not been obtained, on the Closing Date, Purchaser shall repay, or shall cause one of its Affiliates to repay, any and all amounts that are outstanding on the Closing Date, whether principal, accrued and unpaid interest or otherwise, under the terms of the Credit Agreement, and Seller and Purchaser shall, at the Closing, cause the administrative agent or other lenders, as applicable, under the Credit Agreement to deliver written evidence thereof to the parties hereto. Seller acknowledges and agrees that all amounts that are outstanding on the Closing Date, whether principal, accrued and unpaid interest or otherwise, under the terms of the Credit Agreement, and that are repaid by Purchaser as contemplated by this Section 5.10(a) shall constitute Debt for purposes of calculating the amount of Aggregate Net Company Indebtedness hereunder. Notwithstanding anything contained in this Agreement to the contrary, Purchaser acknowledges and agrees that any and all amounts that are outstanding on the Closing Date, whether principal, accrued and unpaid interest or otherwise, under the terms of the Debenture Purchase Agreement shall remain outstanding upon the Closing and shall not be repaid or otherwise extinguished at the Closing, provided that all such amounts shall constitute Debt for purposes of calculating the amount of Aggregate Net Company Indebtedness hereunder.

(b) Effective at the Closing, except for those Contracts set forth in Section 5.10(b)(i) of the Seller Disclosure Schedule , all Contracts between the Company, on the one hand, and Seller or any of its Affiliates, on the other hand (the " Terminating Contracts "), shall be terminated as between them and shall be without any further force and effect, and there shall be no further obligations of any of the relevant parties thereunder. Purchaser agrees to take and to cause the Company to take, and Seller agrees to take and to cause its Affiliates (other than the Company) to take, any action following the Closing that would be required to give effect to the termination of the Terminating Contracts. Without

limiting the foregoing, except as set forth in Section 5.10(b)(ii) of the Seller Disclosure Schedule , all inter-company accounts, whether payables or receivables, between any of Seller and its Affiliates, on the one hand, and the Company, on the other hand, as of the Closing shall be settled in cash or otherwise discharged and released as of the Closing.

Section 5.11 Names . Following the Closing Date, the Company shall be permitted to continue to use the name “Intermountain Gas Company” and any other name, trademark or service mark used by the Company in the operation of the Business as of the Closing Date and that is listed on Section 5.11 of the Seller Disclosure Schedule (such name and such other names, trademarks and service marks are collectively referred to herein as the “ Marks ”), provided that Purchaser shall cause the Company to use the Marks solely in connection with the operation of the Business, it being understood and agreed that neither Purchaser nor any of its Affiliates (including, after the Closing Date, the Company) shall be permitted to use any of the Marks in connection with any other activities. Without limiting the foregoing, Purchaser shall not, and shall cause its Affiliates (including, after the Closing Date, the Company) not to, (a) hold itself out as having any affiliation or relationship of any kind with Seller or any post-Closing Affiliate thereof, provided that Purchaser shall be permitted, and may permit its Affiliates (including, after the Closing Date, the Company) to refer to the fact that the Company was purchased from Seller or (b) use the Marks in a manner that would be reasonably likely to reflect negatively thereon or on Seller or its post-Closing Affiliates. Purchaser shall, and shall cause the Company to, indemnify and hold harmless Seller and its post-Closing Affiliates from and against any Losses relating to or arising from any use by Purchaser or the Company of the Marks in a manner not permitted by this Section 5.11 or otherwise. Notwithstanding anything contained in this Agreement to the contrary, Seller and its post-Closing Affiliates shall be permitted to use the Marks (other than the name “Intermountain Gas Company” or any other Mark that is used exclusively in the Business as of the date hereof) in connection with the operation of any business or activities in which they may be engaged from time to time, provided that Seller shall not, and shall cause its post-Closing Affiliates not to, hold itself out as having any affiliation or relationship of any kind with the Company, provided that Seller shall be permitted to, and may permit its post-Closing Affiliates to, refer to the fact that the Company was previously owned by Seller. Without limiting the foregoing, Seller shall not use the Marks in a manner that would be reasonably likely to reflect negatively thereon or on the Company or its post-Closing Affiliates. Seller shall indemnify and hold harmless Company and its post-Closing Affiliates from and against any Losses relating to or arising from any use by Seller or its post-Closing Affiliates of the Marks in a manner not permitted by this Section 5.11.

Section 5.12 Tax Matters .

(a) Seller shall timely prepare and file, or cause to be timely prepared and filed, on a basis consistent with past practice to the extent consistent with applicable Law, all Tax Returns with respect to the Company for any Tax period of the Company ending on or prior to the Closing Date (the “ Pre-Closing Tax Returns ”). With respect to all income Tax Returns (other than income Tax Returns filed on a consolidated, combined or unitary basis with Seller or any of Seller’s Affiliates) and other material Pre-Closing Tax Returns that are filed by Seller after the Closing Date, Seller shall permit Purchaser to review and comment on each such Tax Return prior to its filing and Seller shall make such revisions to such Tax Returns as are reasonably requested by Purchaser as long as such revisions are consistent with the prior

practices of the Company that are consistent with applicable Law. In connection with Purchaser’s review, Seller shall provide any and all financial data that is reasonably necessary to confirm the correctness of any such Tax Returns. Seller shall deliver a copy of each Pre-Closing Tax Return (or the portion thereof that specifically related to the Company) to Purchaser promptly after filing. Seller shall timely pay or cause to be timely paid all Taxes due with respect to the Pre-Closing Tax Returns to the extent that such Taxes exceed the amount (if any) of such Taxes that are included as current liabilities in Adjusted Net Working Capital, as finally determined pursuant to Section 2.2 of this Agreement. Notwithstanding anything herein to the contrary, no position shall be taken, election made, or method adopted on any Pre-Closing Tax Return that (i) is inconsistent with positions taken, elections made or methods used in preparing or filing similar Tax Returns in the immediately prior period, or (ii) would reasonably be expected to materially and adversely affect the Tax position or liability of Purchaser, the Company or any of their Affiliates for any period following the Closing Date (including, without limitation, positions, elections or methods that would have the effect of deferring income to Tax periods (or portions thereof) ending after the Closing Date or accelerating deductions to Tax periods (or portions thereof) ending on or prior to the Closing Date), in case of either clause (i) or this clause (ii), without the prior written consent of the Purchaser, which consent shall not be unreasonably withheld, conditioned or delayed. Purchaser shall timely prepare and file, or cause to be timely prepared and filed, on a basis consistent with past practice to the extent consistent with applicable Law, all Tax Returns for any Straddle Period of the Company (“ Straddle Period Tax Returns ”). Purchaser shall permit Seller to review and comment on each Straddle Period Tax Return prior to its filing and Purchaser shall make such revisions to such Straddle Period Tax Returns as are reasonably requested by Seller as long as such revisions are consistent with the prior practices of the Company that are consistent with applicable Law. In connection with Seller’s review, Purchaser shall provide any and all financial data that is reasonably necessary to confirm the correctness of any such Tax Returns. Purchaser shall deliver a copy of each such Tax Return to Purchaser promptly after filing.

(b) All tax-sharing or similar agreements with respect to or involving the Company shall be terminated as of the Closing Date and after the Closing Date, the Company shall not be ound thereby or have any liability thereunder. Seller may elect to control, at its own expense, the conduct of any audit or administrative or judicial proceeding with respect to any Taxes of, or any Tax Return required to be filed by, the Company with respect to any Pre-Closing Tax Period for which Seller is liable for indemnification pursuant to Section 8.1, if Seller acknowledged in writing that Seller has sole responsibility for any Taxes that arise in such audit or proceeding; provided , however , that Seller shall not resolve, abandon, compromise or settle any such audit or proceeding without obtaining Purchaser's prior written consent (which consent may not be unreasonably withheld, conditioned or delayed) if it would reasonably be expected to have a materially adverse effect on Purchaser, the Company or any Affiliate thereof; provided further , however , that (i) Seller shall keep Purchaser reasonably apprised of the status of the audit or proceeding, and (ii) Purchaser shall have the right, at its own expense, to retain separate counsel and to reasonably participate (but not control) in the aspects of the prosecution or defense of such Tax audit or proceeding that are reasonably anticipated to materially adversely affect the Taxes of Purchaser or any of its Affiliates with respect to any Tax period ending after the Closing Date.

(c) Purchaser and Seller shall cooperate fully, as and to the extent reasonably requested by the other party, in connection with the filing of Tax Returns and any audit, litigation or other proceeding with respect to Taxes of the Company. Such cooperation shall include the retention and (upon the other party's request) the provision of records and information reasonably relevant to any such audit, litigation or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. Purchaser and Seller shall retain all books and records with respect to Tax matters pertinent to the Company relating to any taxable period beginning before the Closing Date until expiration of the statute of limitations on assessment (taking into account any extensions thereof) of the respective taxable periods. Seller shall provide reasonable prior written notice to Purchaser prior to disposing of books and records with respect to Tax matters pertinent to the Company, at Purchaser’s request, shall provide Purchaser with copies of all such books and records with respect to Tax matters pertinent to the Company.

(d) Neither Purchaser nor any of its Affiliates (including after the Closing, the Company) shall, without the prior written consent of Seller (which consent shall not be unreasonably withheld, delayed or conditioned), (i) make or change any Tax election affecting a taxable period ending on or before the Closing Date of Seller or any of its Affiliates (including, before the Closing, the Company), (ii) amend, refile or otherwise modify (or grant an extension of any applicable statute of limitations on assessment with respect to) any Tax Return prepared by Seller or any of its Affiliates (including, before the Closing, the Company) relating to a taxable period ending on or before the Closing Date or (iii) take any action that results in any increased Tax liability (including a reduction in a refund) or reduction of any Tax asset of the Company (or Seller or any of its Affiliates) in respect of a taxable period ending on or before the Closing Date.

(e) If, following the Closing Date, a refund of Taxes (the " Refund ") is received by or credited to the account of the Company in respect of any Pre-Closing Tax Period or of Pre-Closing Straddle Period Taxes, Purchaser shall cause the Company to pay the amount of the Refund to Seller to the extent such Refund exceeds the amount (if any) of such Refund that is included as a current asset in Adjusted Net Working Capital, as finally determined pursuant to Section 2.2 of this Agreement.

Section 5.13 Non-Solicitation of Employees . For a period of one (1) year from and after the Closing, Seller shall not, and shall cause each of its post-Closing Affiliates not to, directly or indirectly, for its own account or for the account of any other Person, knowingly encourage, solicit or induce, or in any manner attempt to knowingly encourage, solicit or induce, any Person employed by the Company as of the Closing Date to terminate such Person's employment with the Company. Notwithstanding the foregoing, nothing contained in the immediately preceding sentence shall preclude Seller or its post-Closing Affiliates from (i) making a general solicitation for employment contained in a newspaper or other periodical or on the radio, internet or similar media or hiring any employee of the Company as a result thereof or (ii) taking any actions otherwise prohibited pursuant to the terms of the immediately preceding sentence if the Person subject thereto has initiated discussions with Seller or any of its post-Closing Affiliates without any knowing encouragement, solicitation or inducement by Seller or such post-Closing Affiliates. Seller and Purchaser acknowledge that the restrictions contained in this Section 5.13 are reasonable in scope and duration in light of the nature, size and location of

the Business. Seller and Purchaser further acknowledge that the restrictions contained in this Section 5.13 are necessary to protect Purchaser's significant investment in the Business, including its goodwill. If any court of competent jurisdiction shall at any time deem the duration or scope of any of the provisions of this Section 5.13 to be unenforceable, the other provisions of this Section shall nevertheless stand and the duration and/or scope set forth herein shall be deemed to be the longest period and/or greatest size permissible by Law under the circumstances, and the parties hereto agree that such court shall reduce the time period and/or scope to permissible duration or size.

Section 5.14 Purchaser's Financing Activities .

(a) Purchaser acknowledges and agrees that, except as otherwise set forth in this Agreement, Seller and its Affiliates shall have no responsibility for any financing that Purchaser may raise or attempt to raise in connection with the transactions contemplated hereby. Any offering memorandum, banker's book or other materials prepared by or on behalf of Purchaser or its Affiliates, or Purchaser's financing sources, in connection with Purchaser's financing activities in connection with the transactions contemplated hereby (collectively, " Offering Materials ") which include any information provided by or on behalf of Seller or any of its Affiliates (including the Company) shall include a conspicuous disclaimer to the effect that neither Seller nor any of its Affiliates (other than the Company only after the Closing Date) nor any employees thereof have any responsibility for the content of such Offering Materials and disclaim all responsibility therefor and shall further include a disclaimer with respect to Seller and its Affiliates (other than the Company only after the Closing Date) in any oral disclosure with respect to such financing activities.

(b) Seller shall provide, and shall cause the Company to provide, and shall use its commercially reasonable efforts to cause the respective officers, employees, Representatives and advisors (including legal and accounting advisors) of Seller and its Affiliates (including the Company) to provide, to Purchaser all reasonable and customary cooperation requested by Purchaser in connection with any debt or equity financing that Purchaser may determine to obtain prior to the Closing, in each case upon the reasonable request of Purchaser with reasonable prior notice. Purchaser shall promptly, upon request by Seller, reimburse Seller for all reasonable and documented out-of-pocket expenses incurred by Seller or its Representatives in connection with such cooperation.

ARTICLE VI

CONDITIONS OF CLOSING

Section 6.1 Conditions to Obligations of Purchaser and Seller . The respective obligations of Seller and Purchaser to consummate the transactions contemplated by this Agreement are subject to the fulfillment on the Closing Date of each of the following conditions:

(a) there shall not be any Law in effect making illegal the consummation of the transactions contemplated hereby, and there shall not be any Governmental Order in effect prohibiting the consummation of the transactions contemplated hereby;

(b) any required waiting periods (including any extension thereof) applicable to the consummation of the transactions contemplated by this Agreement under the HSR Act shall have terminated or expired;

(c) the IPUC shall have confirmed in writing to the Company (or, if applicable, any other party hereto) that it has completed its review of the IPUC Notification Filing and any other investigation of the transactions contemplated by this Agreement, and the IPUC shall not have conditioned the consummation of the transactions contemplated by this Agreement on the imposition of any terms and/or conditions on Seller or any of its Subsidiaries, Purchaser or any of its Subsidiaries, or the Company, other than terms and/or conditions that, in the aggregate, have not had or would not reasonably be expected to have (i) a material adverse effect on the business, financial condition or results of operations of Seller and its Subsidiaries (other than the Company), taken as a whole, (ii) a material adverse effect on the business, financial condition or results of operations of Purchaser and its Subsidiaries, taken as a whole (a “ Purchaser Material Adverse Effect ”), or (iii) a material adverse effect on the business, financial condition or results of operations of the Company, taken as a whole; the parties acknowledge and agree that a statement by the IPUC reserving its right to regulate the business of the Company from and after the Closing Date in accordance with its regulatory authority shall not be deemed to be an investigation of the transactions contemplated by this Agreement for purposes hereof; and

(d) the consent of each Governmental Entity whose name is set forth on Part I of Exhibit C to this Agreement shall have been obtained and shall have become a Final Order, and such Final Orders will not impose any terms and/or conditions other than terms and/or conditions that, in the aggregate, have not had or would not reasonably be expected to have (i) a Purchaser Material Adverse Effect or (ii) if any such terms and/or conditions apply to the Company, a material adverse effect on the business, financial condition or results of operations of the Company, taken as a whole.

Section 6.2 Additional Conditions to Obligations of Purchaser . The obligation of Purchaser to consummate the transactions contemplated by this Agreement is subject to the fulfillment, on the Closing Date, of each of the following conditions (any or all of which may be waived by Purchaser in whole or in part in its sole discretion):

(a) (i) the representations and warranties of Seller contained in Article III of this Agreement (other than the representations and warranties set forth in Section 3.2, the third sentence of Section 3.5(a), clause (i) of the fourth sentence of Section 3.5(a) and the first sentence of Section 3.8) shall be true and correct in all respects, without giving effect to any materiality or Material Adverse Effect qualifications contained therein, on and as of the Closing Date (except to the extent such representations and warranties shall have been expressly made as of an earlier date, in which case such representations and warranties shall have been true and correct in all respects as of such earlier date, without giving effect to any materiality or Material Adverse Effect qualifications contained therein) with the same force and effect as if made on and as of the Closing Date, except where any failures of such representations and warranties to be so true and correct, individually or in the aggregate, would not have a Material Adverse Effect, and (ii) the representations and warranties set forth in Section 3.2, the third sentence of Section 3.5(a), clause (i) of the fourth sentence of Section 3.5(a) and the first sentence of Section 3.8

shall be true and correct in all respects on and as of the Closing Date (except to the extent such representations and warranties shall have been expressly made as of an earlier date, in which case such representations and warranties shall have been true and correct in all respects as of such earlier date) with the same force and effect as if made on and as of the Closing Date;

(b) Seller shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by Seller on or prior to the Closing Date;

(c) During the period from the date hereof to the Closing Date, there shall not have occurred any change, event or effect that, individually or in the aggregate, has had a Material Adverse Effect; and

(d) Purchaser shall have received a certificate of an executive officer of Seller that the conditions set forth in subsections (a), (b) and (c) of this Section 6.2 have been satisfied.

Section 6.3 Additional Conditions to Obligations of Seller . The obligation of Seller to consummate the transactions contemplated by this Agreement is subject to the fulfillment, on the Closing Date, of each of the following conditions (any or all of which may be waived by Seller in whole or in part in its sole discretion):

(a) the representations and warranties of Purchaser contained in this Agreement shall be true and correct in all respects, without giving effect to any materiality qualifications contained therein, on and as of the Closing Date (except to the extent such representations and warranties shall have been expressly made as of an earlier date, in which case such representations and warranties shall have been true and correct in all respects as of such earlier date, without giving effect to any materiality qualifications contained therein) with the same force and effect as if made on and as of the Closing Date, except where any failures of such representations and warranties to be so true and correct, individually or in the aggregate, would not materially impair or delay Purchaser's ability to perform its obligations under this Agreement or consummate the transactions contemplated hereby;

(b) Purchaser shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by Purchaser on or prior to the Closing Date; and

(c) Seller shall have received a certificate of an executive officer of Purchaser that the conditions set forth in subsections (a) and (b) of this Section 6.3 have been satisfied.

ARTICLE VII

TERMINATION

Section 7.1 Termination of Agreement . This Agreement may be terminated at any time prior to the Closing Date as follows:

(a) by mutual written consent of Purchaser and Seller;

(b) by the written notice of Seller to Purchaser if the Closing shall not have occurred on or before December 31, 2008 (the " Initial Outside Date "); provided , however , that if the conditions to Closing set forth in Section 6.1(a), 6.1(c) and/or Section 6.1(d) hereof shall not have been satisfied on or before December 31, 2008, but all other conditions set forth in Article VI hereof would be satisfied if the Closing Date were to occur on such date, then Seller shall be entitled, upon written notice to Purchaser, to extend the Initial Outside Date until March 30, 2009; provided further , however , that the right to terminate this Agreement under this Section 7.1(b) shall not be available to Seller if the failure of Seller to fulfill any obligation under this Agreement shall have been the cause of, or shall have resulted in, the failure of the Closing to occur on or prior to the Initial Outside Date or any extension thereof contemplated hereby;

(c) by the written notice of Purchaser to Seller if the Closing shall not have occurred on or before the Initial Outside Date; provided , however , that if the conditions to Closing set forth in Section 6.1(a), 6.1(c) and/or Section 6.1(d) hereof shall not have been satisfied on or before December 31, 2008, but all other conditions set forth in Article VI hereof would be satisfied if the Closing Date were to occur on such date, then Purchaser shall be entitled, upon written notice to Seller, to extend the Initial Outside Date until March 30, 2009; provided further , however , that the right to terminate this Agreement under this Section 7.1(c) shall not be available to Purchaser if the failure of Purchaser to fulfill any obligation under this Agreement shall have been the cause of, or shall have resulted in, the failure of the Closing to occur on or prior to the Initial Outside Date or any extension thereof contemplated hereby;

(d) by Seller or Purchaser, by written notice to the other, if there shall be a final Law in effect making illegal the consummation of the transactions contemplated hereby, or there shall be a Governmental Order that is a Final Order in effect prohibiting the consummation of the transactions contemplated hereby or that would cause the condition set forth in Section 6.1 (a), (c) or (d) not to be satisfied; provided , however , that the right to terminate this Agreement under this Section 7.1(d) shall not be available to such party if the failure of such party to fulfill any obligation under this Agreement shall have been the cause of, or shall have resulted in, the enactment of such Law or the issuance of such Governmental Order;

(e) by Purchaser if there shall have been (i) a breach of any of the representations and warranties of Seller set forth in this Agreement, which breach would cause the condition set forth in Section 6.2(a) not to be satisfied, or (ii) a breach of any of the covenants or agreements on the part of Seller set forth in this Agreement, which breach would cause the condition set forth in Section 6.2(b) not to be satisfied (and, in the case of either (i) or

(ii) immediately above, such breach is not cured within thirty (30) days after receipt of written notice thereof from Purchaser to Seller informing Seller of such breach or is incapable of being cured by Seller by the Initial Outside Date or, if it has been extended as herein provided, the Initial Outside Date as so extended);

(f) by Seller if there shall have been (i) a breach of any of the representations and warranties of Purchaser set forth in this Agreement, which breach would cause the condition set forth in Section 6.3(a) not to be satisfied, or (ii) a breach of any of the covenants or agreements on the part of Purchaser set forth in this Agreement (other than the covenants and agreements set forth in 2.1 and 2.2(b)), which breach would cause the condition set forth in Section 6.3(b) not to be satisfied (and, in the case of either (i) or (ii) immediately above, such breach is not cured within thirty (30) days after receipt of written notice thereof from Seller to Purchaser informing Seller of such breach or is incapable of being cured by Purchaser by the Outside Date or, if it has been extended as herein provided, the Initial Outside Date as so extended); and

(g) by Seller if Purchaser breaches its obligations under Section 2.1 or Section 2.3(b) in any respect, provided that at such time all of the conditions to Closing set forth in Article VI hereof shall have been satisfied or waived, if permissible (or would be satisfied or waived if the Closing was scheduled on the date of any termination pursuant to this clause (g)).

Section 7.2 Effect of Termination . In the event of termination of this Agreement by a party pursuant to Section 7.1, written notice thereof shall forthwith be given by the terminating party to the other party, and this Agreement shall thereupon terminate and become void and have no effect, and the transactions contemplated hereby shall be abandoned without further action by the parties, except that the provisions of Sections 5.4, 9.1, 9.2, 9.3, 9.4, 9.5, 9.6, 9.7, 9.8, 9.9, 9.10 and 9.13 and this Section 7.2 shall survive the termination of this Agreement; provided , however , that, if such termination shall have been caused by, or shall have resulted from, the intentional and material breach by a party of any of its representations, warranties, covenants or agreements set forth in this Agreement, including, in the case of Purchaser, Purchaser's failure to pay any portion of the Closing Date Purchase Price upon the satisfaction or waiver of the applicable conditions to Closing set forth in Article VI, Seller, on the one hand, or Purchaser, on the other hand, as the case may be, shall be fully liable for any and all Losses of the other party as a result of such breach or failure. Nothing contained herein shall limit or otherwise preclude any party hereto from, in lieu of terminating this Agreement pursuant to this Article VII, seeking specific performance of the terms set forth herein as contemplated by Section 9.13.

ARTICLE VIII

INDEMNIFICATION

Section 8.1 Indemnification of Purchaser by Seller . Subject to the terms and conditions of this Article VIII, including, without limitation, the terms and conditions set forth in Sections 8.4 and 8.6, from and after the Closing Date, Seller shall indemnify, defend and hold Purchaser, its Affiliates (including, after the Closing Date, the Company), and each of their respective directors, officers, employees, successors and permitted assigns (collectively, the “ Purchaser Indemnified Parties ”) harmless from and against any and all losses, liabilities,

damages or expenses, including reasonable attorneys’ fees (collectively, “ Losses ”), that any Purchaser Indemnified Party has suffered, sustained, incurred or become subject to and that arises out of: (a) the breach of any of the representations and warranties of Seller contained in Article III of this Agreement, provided that Losses arising out of any breach of any of the representations and warranties contained in Section 3.4 (Governmental Filings), clause (ii) of Section 3.8(i), Section 3.9 (Legal Proceedings), 3.10 (Compliance with Laws), Section 3.12 (Taxes) and Section 3.14(d) (Employee Benefit Plans) shall be determined without giving effect to any “Material Adverse Effect” or other materiality qualification contained in such representations and warranties; (b) the breach of any covenant or agreement of Seller set forth in this Agreement; (c) all Losses incurred by any Purchaser Indemnified Party in respect of Taxes of Seller or any member of an Affiliated Group of which the Company is a part for any Pre-Closing Tax Period of the Company pursuant to Treasury Regulations Section 1.1502-6 (or analogous state or local Tax law); (d) all Losses incurred by any Purchaser Indemnified Party in respect of Taxes with respect to any Pre-Closing Tax Period and for any Pre-Closing Straddle Period Taxes, except to the extent that the Taxes set forth in clauses (c) and (d) are included as current liabilities in Adjusted Net Working Capital, as finally determined pursuant to Section 2.2 of this Agreement; and (e) all uninsured liability arising out of the pending litigation brought by plaintiffs Warren G. Taylor, Melinda Taylor, Stacey Taylor and Christine Taylor identified on Section 3.9 of the Seller Disclosure Schedule (the “ Taylor Litigation ”). For purposes of this Article VIII only, “Losses” shall not include any losses, liabilities, damages or expenses that are in the nature of punitive, incidental, consequential, special, treble or indirect damages or damages based on any multiple, including business interruption, loss of future revenue, profits or income, or loss of business reputation or opportunity, in each case of any kind or nature, regardless of the form of action through which any of the foregoing are sought.

Section 8.2 Indemnification of Seller by Purchaser . Subject to the terms and conditions of this Article VIII, including, without limitation, the terms and conditions set forth in Sections 8.6, from and after the Closing Date, Purchaser shall indemnify, defend and hold Seller, its Affiliates, directors, officers, employees, successors and permitted assigns (collectively, the “ Seller Indemnified Parties ”), harmless from and against any and all Losses that any such Seller Indemnified Party has suffered, sustained, incurred or become subject to and that arises out of: (a) the breach of any of the representations and warranties of Purchaser contained in Article IV of this Agreement; or (b) the breach of any covenant or agreement of Purchaser under this Agreement.

Section 8.3 Survival . The pre-Closing covenants of the parties set forth in this Agreement and the related rights of the Purchaser Indemnified Parties or the Seller Indemnified Parties, as the case may be, to indemnity with respect to any breach thereof in accordance with the applicable Sections hereof shall survive the Closing and the consummation of the transactions contemplated by this Agreement until the one (1) year anniversary of the Closing Date unless a shorter period of performance is specified with respect to such covenant. The representations and warranties of the parties contained in this Agreement other than the representations and warranties of Seller set forth in Section 3.2 (Authorization), Section 3.5 (Capital Structure; Subsidiaries), Section 3.12 (Taxes) or Section 3.14 (Employee Benefit Plans), the representations and warranties of Purchaser set forth in Section 4.2 (Authorization), Section 4.8 (Solvency), and Section 4.9 (Foreign Persons), and the related rights of the Purchaser Indemnified Parties or the Seller Indemnified Parties, as the case may be, to indemnity with

respect to any breach thereof in accordance with the applicable Sections hereof, shall survive the Closing for a period of eighteen (18) months following the Closing Date. Notwithstanding the foregoing provisions of this Section 8.3, but subject to the other provisions of this Article VIII, the representations and warranties of Seller set forth in (i) Section 3.2 (Authorization), Section 3.5 (Capital Structure; Subsidiaries) and Section 3.12 (Taxes), and the representations and warranties of Purchaser set forth in Section 4.2 (Authorization), Section 4.8 (Solvency) and Section 4.9 (Foreign Persons), and the related rights of the Purchaser Indemnified Parties or the Seller Indemnified Parties, as the case may be, to indemnity with respect to any breach thereof in accordance with the applicable Sections hereof, shall survive the Closing until the fourth (4 th ) anniversary of the Closing Date, and (ii) Section 3.14 (Employee Benefit Plans), and the related rights of the Purchaser Indemnified Parties to indemnity with respect to any breach thereof in accordance with the applicable Sections hereof, shall survive the Closing until the third (3 rd ) anniversary of the Closing Date. The parties hereto hereby acknowledge and agree that any bona fide claim (and only such bona fide claim, but not the related representations and warranties) for indemnification made in writing in accordance with the terms of this Article VIII on or prior to the applicable expiration date with respect to any such claim as set forth herein shall survive the Closing and any such applicable expiration date until the final resolution thereof.

Section 8.4 Limitation on Liability .

(a) Purchaser (on behalf of itself and the other Purchaser Indemnified Parties) hereby acknowledges and agrees that, except as otherwise provided in the immediately following proviso, no claim for indemnification by a Purchaser Indemnified Party pursuant to the terms of Section 8.1(a) above (an indemnification claim by a Purchaser Indemnified Party pursuant to the terms of Section 8.1(a) above is referred to herein as a “ Purchaser Warranty Claim ”) shall be asserted by a Purchaser Indemnified Party unless and until (i) the aggregate amount of Losses incurred by the Purchaser Indemnified Parties with respect to the event or occurrence giving rise to such Purchaser Warranty Claim exceeds $100,000 (a “ Base Claim ”) and (ii) the aggregate amount of all Losses to which all of the Purchaser Indemnified Parties shall be entitled by reason of any and all Purchaser Warranty Claims that constitute Base Claims exceeds, in the aggregate, one percent (1%) of the Closing Date Purchase Price (the “ Deductible ”), provided that once the Deductible has been exceeded, the Purchaser Indemnified Parties shall be entitled to indemnification for only the amount of Losses in respect of Purchaser Warranty Claims that constitute Base Claims that are in excess of the Deductible; provided , however , that, with respect to a breach of the Excluded Warranties or the representations and warranties contained in clause (ii) of Section 3.8(i) and Section 3.12 (Taxes), the amount of the Base Claim and the amount of the Deductible shall be zero, it being understood and agreed that, subject to the terms set forth in Section 8.4(b), in the case of a breach of the Excluded Warranties, the Purchaser Indemnified Parties shall be entitled to be paid an amount equal to all Losses incurred by them in connection with a breach of such Excluded Warranties as and when such Losses are incurred (and whether or not the Deductible has been exceeded or the Purchaser Warranty Claim constitutes a Base Claim). The parties hereto hereby acknowledge and agree that liability hereunder of any Indemnitor for any Losses shall be limited to the amount of such Losses net of (i) any insurance or other recoveries from third parties (other than Seller or Purchaser, as applicable) payable to the Purchaser Indemnified Parties or the Seller Indemnified Parties, as the case may be, in connection with the facts giving rise to the right of

indemnification hereunder and (ii) the present value of the amount of any net Tax Benefits reasonably expected to be realized by the Purchaser Indemnified Parties or the Seller Indemnified Parties, as the case may be, as a result of the Losses that the Purchaser Indemnified Parties or the Seller Indemnified Parties, as the case may be, have suffered, sustained, incurred or become subject to in connection with the facts giving rise to the right of indemnification hereunder, with such net Tax Benefits to be calculated in good faith by such parties. For purposes of this subsection, “ Tax Benefits ” means, after utilizing all deductions, credits, and losses otherwise available or reasonably anticipated to be available, any refund of income Taxes paid or an actual reduction in the amount of income Taxes that would otherwise be required or reasonably anticipated to be required to be paid in the particular Tax period.

(b) Notwithstanding anything contained in this Agreement to the contrary, and except as otherwise provided in the immediately following proviso, in no event shall the aggregate amount of Losses paid by Seller to the Purchaser Indemnified Parties arising out of any and all Purchaser Warranty Claims exceed an aggregate amount equal to ten percent (10%) of the Closing Date Purchase Price; provided , however , that the foregoing limitation on the aggregate amount of Losses that arise out of Purchaser Warranty Claims shall not apply to any such Purchaser Warranty Claims arising out of or resulting from a breach of the representations and warranties (collectively, the “ Excluded Warranties ”) of Seller set forth in Section 3.2 (Authorization) or Section 3.5 (Capital Structure; Subsidiaries), it being understood and agreed that the Purchaser Indemnified Parties shall be entitled to be paid an amount equal to all Losses incurred by them in connection with a breach of such Excluded Warranties, which payments in respect of such Losses, in the aggregate with all other payments by Seller under this Article VIII, shall not exceed one hundred percent (100%) of the Closing Date Purchase Price.

Section 8.5 Notice and Opportunity to Defend . If there occurs an event which any party hereto (or any Purchaser Indemnified Party or any Seller Indemnified Party) asserts is an indemnifiable event pursuant to this Article VIII, the Person or Persons seeking indemnification (collectively, the “ Indemnitee ”) shall notify in writing the party or parties obligated to provide indemnification pursuant to the terms hereof (collectively, the “ Indemnitor ”) promptly after obtaining knowledge of the occurrence of such event. If such event involves any claim or the commencement of any action or proceeding by a third Person, the Indemnitee shall give the Indemnitor prompt written notice of such claim or the commencement of such action or proceeding. The notice shall describe the claim, the amount of the claim if known and quantifiable, and the basis therefor, or if not then known, a good faith estimate of the amount thereof and the basis therefor. Any delay or failure by an Indemnitee to so notify the Indemnitor shall relieve the Indemnitor of its indemnification obligations hereunder to the extent that the Indemnitor is prejudiced by reason of such delay or failure. The Indemnitor shall be entitled to assume and control (with counsel of its choice) the defense of such matter at the Indemnitor’s expense by sending written notice to the Indemnitee of its election to do so within thirty (30) days after receiving written notice from the Indemnitee. The Indemnitee agrees to cooperate fully with the Indemnitor and its counsel in the defense against any such asserted claim; provided , however , that neither the Indemnitee nor the Indemnitor shall be required pursuant to this Section 8.5 to disclose any privileged information or any attorney work product in connection with the defense of any such asserted claim. In any event, the Indemnitee shall have the right to participate (but not control) in the defense of such asserted claim with separate counsel, if it desires, at its own expense. Any settlement or compromise of such asserted claim

by the Indemnitor shall require the prior written consent of the Indemnitee, which consent shall not be unreasonably withheld, conditioned or delayed, provided that no such consent shall be required as long as it is solely a monetary settlement that provides a full release of the Indemnitee with respect to such matter and does not contain an admission of liability on the part of the Indemnitee. If the Indemnitor shall not have assumed the defense of such claim within the thirty (30) day period set forth above, the Indemnitee may assume the defense of such claim with counsel of its choice and the Indemnitor shall be required to pay all reasonable costs and reasonable expenses incurred by the Indemnitee in connection with such matter; provided , however , in the event the Indemnitee assumes control of the defense of any such claim as contemplated by this sentence, the Indemnitee shall not be permitted to settle or compromise any such claim without the prior written consent of the Indemnitor, which consent shall not be unreasonably withheld, conditioned or delayed.

Section 8.6 No Knowledge of Breach; Mitigation; Other Indemnification Provisions .

(a) Notwithstanding anything to the contrary contained herein, no party shall make an indemnification claim hereunder with respect to any breach of any representation, warranty, covenant or agreement set forth in this Agreement to the extent that the liability underlying such claim were accounted for in the adjustment to the Base Purchase Price or the Closing Date Purchase Price, as applicable, pursuant to Section 2.2 hereof.

(b) Without limiting the computation of Losses as hereunder as set forth in Section 8.4(a) hereof, to the extent that an Indemnitor makes any payment pursuant to this Article VIII in respect of Losses for which the Purchaser Indemnified Parties or the Seller Indemnified Parties, as the case may be, have a right to recover against a third party, the Indemnitor shall, if applicable, after the Purchaser Indemnified Parties have recouped any amounts not paid to them by the Indemnitor, including any amount not recouped as a result of the Deductible, be subrogated to the right of the Purchaser Indemnified Parties or the Seller Indemnified Parties, as the case may be, to seek and obtain recovery from such third party at the expense of the Indemnitor; provided , however , that if the Indemnitor shall be prohibited from such subrogation, the Purchaser Indemnified Parties or the Seller Indemnified Parties, as the case may be, shall seek recovery from such third party on the Indemnitor’s behalf and expense and shall, subject to the foregoing in respect of non-indemnified Losses, including the Deductible, pay any such recovery to the Indemnitor, provided that any amount so paid to the Indemnitor shall not exceed the amount of the indemnification payment made by it hereunder.

Section 8.7 Tax Treatment of Indemnification Provisions . The parties agree that any indemnification payments made pursuant to this Agreement shall be treated for Tax purposes as an adjustment to the Final Purchase Price, unless otherwise required by applicable Law.

Section 8.8 Exclusivity . After the Closing, except for the rights of the parties hereunder to specific performance or other equitable relief, except pursuant to Section 2.2 hereof and except in the case of actual fraud, in which case the Purchaser Indemnified Parties and the Seller Indemnified Parties reserve any and all rights and remedies available to them, the indemnities set forth in this Article VIII shall be the exclusive remedies of the Purchaser Indemnified Parties and the Seller Indemnified Parties for any breach of any representation or

warranty or breach of any covenant or agreement contained in this Agreement, and such parties shall not be entitled to a rescission of this Agreement or to any further indemnification rights or claims of any nature whatsoever in respect thereof, all of which Seller (on behalf of the Seller Indemnified Parties) and Purchaser (on behalf of the Purchaser Indemnified Parties) hereby waive to the fullest extent permitted by applicable Law.

ARTICLE IX

MISCELLANEOUS

Section 9.1 Assignment; Binding Effect . This Agreement and the rights hereunder are not assignable (whether by operation of Law or otherwise) unless such assignment is consented to in writing by both Purchaser and Seller and, subject to the preceding clause, this Agreement and all the provisions hereof shall be binding upon and shall inure to the benefit of the parties and their respective successors and permitted assigns.

Section 9.2 Choice of Law . This Agreement shall be governed by and interpreted and enforced in accordance with the Laws of the State of New York, without regard to the conflicts of laws rules thereof.

Section 9.3 Consent to Jurisdiction; Waiver of Jury Trial . By executing and delivering this Agreement, the parties irrevocably accept generally and unconditionally the non-exclusive jurisdiction and venue of the state and federal courts sitting in the City of New York, New York. Each party acknowledges and agrees that any controversy which may arise under this Agreement is likely to involve complicated and difficult issues and, therefore, each such party irrevocably and unconditionally waives any right it may have to a trial by jury in respect of any Action arising out of or relating to this Agreement or the transactions contemplated by this Agreement. Each party to this Agreement certifies and acknowledges that (a) no Representative of any other party has represented, expressly or otherwise, that such other party would not seek to enforce the foregoing waiver in the event of an Action, (b) such party has considered the implications of this waiver, (c) such party makes this waiver voluntarily, and (d) such party has been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section 9.3.

Section 9.4 Notices . All notices, demands and other communications to be given or delivered under or by reason of the provisions of this Agreement will be in writing and will be deemed to have been given (a) when delivered if personally delivered by hand (with written confirmation of receipt), (b) one (1) Business Day following the day sent by a nationally recognized overnight courier service, (c) five (5) Business Days after being mailed, if sent by first class mail, return receipt requested, or (d) on the day of transmission (between the hours of 9:00 A.M. and 5:00 P.M. in the recipient’s time zone) if sent via facsimile transmission to the facsimile number given below, and confirmation of receipt is obtained by the Person sending such notice, demand or other communication promptly after completion of the transmission. Notices, demands and communications to Purchaser and Seller will, unless another address or facsimile number is specified in writing in accordance with the terms set forth herein, be sent to the address or facsimile number indicated below:

If to Purchaser, to:

MDU Resources Group, Inc.

1200 West Century Avenue

P.O. Box 5650

Bismarck, ND 58506-5650

Attn: Paul K. Sandness, General Counsel and Secretary

Fax: (701) 530-1731

with copies, in the case of notice to Purchaser, to (which shall not constitute notice):

Thelen Reid Brown Raysman & Steiner LLP

875 Third Avenue

New York, NY 10022-6225

Attn: Richard S. Green, Esq.

Fax: 212-829-2006

If to Seller, to:

Intermountain Industries Inc.

555 South Cole Road

Boise, ID 83709

Attn: William C. Glynn

Fax: (208) 377-6097

with copies, in the case of notice to Seller, to (which shall not constitute notice):

Willkie Farr & Gallagher LLP

787 Seventh Ave

New York, New York 10019

Attn: Roger Blanc, Esq.

William H. Gump, Esq.

Fax: (212) 728-8111

Section 9.5 Headings . The headings contained in this Agreement are inserted for convenience only and shall not be considered in interpreting or construing any of the provisions contained in this Agreement.

Section 9.6 Fees and Expenses . Except as otherwise expressly set forth in this Agreement, including in this Section 9.6, each party shall bear its own costs and expenses (including financial advisory and legal fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby; provided , however , that Purchaser shall be responsible for all Transfer Taxes (as well as the filing of all Tax Returns with respect thereto), and for any fees in connection with any filing pursuant to the HSR Act or any other regulatory filings required to be made by any party hereto in connection with the consummation of the transactions contemplated hereby.

Section 9.7 Entire Agreement . This Agreement (including the Exhibits and Schedules) constitute the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings between the parties with respect to such subject matter; provided , however , that the terms and provisions of the Confidentiality Agreement shall remain in full force and effect until expiration or termination thereof in accordance with its terms, provided that all terms thereof (other than the terms thereof that are applicable to information relating to Seller and its Affiliates (other than the Company)) shall terminate immediately following the Closing.

Section 9.8 Interpretation .

(a) When a reference is made in this Agreement to an Article, Section, Exhibit or Schedule, such reference shall be to an Article, Section, Exhibit or Schedule of or to this Agreement unless otherwise indicated.

(b) Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation."

(c) When a reference in this Agreement is made to a "party" or "parties," such reference shall be to a party or parties to this Agreement unless otherwise indicated.

(d) Unless the context requires otherwise, the terms "hereof," "herein," "hereby," "hereto" and derivative or similar words in this Agreement refer to this entire Agreement.

(e) Unless the context requires otherwise, words in this Agreement using the singular or plural number also include the plural or singular number, respectively, and the use of any gender herein shall be deemed to include the other genders.

(f) References in this Agreement to "dollars" or "$" are to U.S. dollars.

(g) This Agreement was prepared jointly by the parties and no rule that it be construed against the drafter will have any application in its construction or interpretation.

Section 9.9 Seller Disclosure Schedule . Any matter disclosed in any Section of the Seller Disclosure Schedule shall be deemed to be disclosed for all purposes of the Agreement and all other Sections of the Seller Disclosure Schedule set forth herein to the extent that it is reasonably apparent that such disclosure is applicable to such other Sections of the Seller Disclosure Schedule . The inclusion of any information in any Section of the Seller Disclosure Schedule shall not be deemed to be an admission or acknowledgment or otherwise imply that such information is required to be listed in any Section of the Seller Disclosure Schedule or that any such matter rises to a Material Adverse Effect or is material to or outside the ordinary course of business of the Company or the Business (or that any such matter is above any specified threshold). Matters reflected in the Seller Disclosure Schedule are not necessarily limited to matters required by this Agreement to be reflected in the Seller Disclosure Schedule . Such

additional matters are set forth for informational purposes and do not necessarily include other matters of a similar nature. All references in the Seller Disclosure Schedule to the enforceability of agreements with third parties, the existence or non-existence of third-party rights, the absence of breaches or defaults by third parties, or similar matters or statements, are intended only to allocate rights and risks between Purchaser and Seller and are not intended to be admissions against interests, give rise to any inference or proof of accuracy, be admissible against any party to this Agreement by any Person who is not a party to this Agreement, or give rise to any claim or benefit to any Person who is not a party to this Agreement. In addition, the disclosure of any matter in the Seller Disclosure Schedule is not to be deemed an admission that such matter actually constitutes non-compliance with, or a violation of Law, any Permit or Contract or other topic to which such disclosure is applicable. In no event shall the disclosure of matters disclosed in the Seller Disclosure Schedule be deemed or interpreted to broaden Seller's representations and warranties, obligations, covenants, conditions or agreements contained in this Agreement. The headings contained in the Seller Disclosure Schedule are for convenience of reference only and shall not be deemed to modify or influence the interpretation of the information contained in the Seller Disclosure Schedule or this Agreement.

Section 9.10 Waiver and Amendment . This Agreement may be amended, modified or supplemented only by a written mutual agreement executed and delivered by Seller and Purchaser. Except as otherwise expressly provided in this Agreement, any failure of any party to comply with any obligation, covenant, agreement or condition herein may be waived by the party entitled to the benefits thereof only by a written instrument signed by the party granting such waiver, but such waiver or failure to insist upon strict compliance with such obligations, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure.

Section 9.11 Counterparts; Facsimile Signatures . This Agreement may be executed in any number of counterparts, each of which when executed, shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument binding upon all of the parties notwithstanding the fact that all of the parties are not signatory to the original or the same counterpart. For purposes of this Agreement, facsimile signatures shall be deemed originals.

Section 9.12 Third-Party Beneficiaries . This Agreement is for the sole benefit of the parties and their successors and permitted assigns and nothing herein express or implied shall give or be construed to give to any Person, other than the parties and such successors and permitted assigns, any legal or equitable rights hereunder, except that (a) each Company Indemnitee shall be a third party beneficiary of this Agreement and shall have the right to enforce the obligations of Purchaser pursuant to Section 5.7 hereof and (b) each Company Employee shall be a third party beneficiary of this Agreement and shall have the right to enforce the obligations of Purchaser relating to the Company Severance Plan.

Section 9.13 Specific Performance . The parties agree that if any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached, irreparable damage would occur, no adequate remedy at Law would exist and damages

would be difficult to determine, and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at Law or in equity.

Section 9.14 Severability . If any provision of this Agreement or the application of any such provision to any Person or circumstance shall be held invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision hereof.

IN WITNESS WHEREOF, the parties hereto have caused this Stock Purchase Agreement to be executed the day and year first above written.

INTERMOUNTAIN INDUSTRIES, INC.

By: /s/ William C. Glynn

Name: William C. Glynn

Title: President

MDU RESOURCES GROUP, INC.

By: /s/ Vernon A. Raile

Name: Vernon A. Raile

Title: Executive Vice President, Treasurer and Chief Financial Officer

MDU RESOURCES GROUP, INC.

DEFERRED COMPENSATION PLAN FOR DIRECTORS

(as amended and restated effective May 15, 2008)

The Board of Directors of MDU Resources Group, Inc. (the “Company”) established the Deferred Compensation Plan for Directors (the “Plan”) effective as of September l, 1988. The Plan is hereby amended and restated effective May 15, 2008. The Plan shall continue until terminated by the Board of Directors of the Company, subject to the provisions of Article XI, below.

The purpose of this Plan is to aid the Company in attracting and retaining as Directors persons whose abilities, experience and judgment can contribute to the continued progress of the Company. The Plan will provide a method of deferring compensation to the Directors.

Beneficiary . “Beneficiary” means the person or persons designated as such in accordance with Article X.

Change in Control . “Change in Control” means the earliest of the following to occur: (a) any person (which shall not include the Company, any subsidiary of the Company or any employee benefit plan of the Company or of any subsidiary of the Company) ("Person") or group (as that term is defined in Treasury Regulation Section 1.409A-3(i)(5)(v)(B)) acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such Person or Persons) ownership of stock of the Company possessing 30% or more of the total voting power of the stock of the Company; (b) any Person or group (as that term is defined in Treasury Regulation Section 1.409A-3(i)(5)(v)(B)) acquires ownership of the stock of the Company that, together with stock held by such Person or group, constitutes more than 50% of the total fair market value or total voting power of the stock of the Company (this part (b) applies only when there is a transfer of stock of the Company and the Company's stock remains outstanding after the transaction); (c) a majority of the members of the Board of Directors of the Company is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Board of Directors of the Company; or (d) any Person or group (as that term is defined in Treasury Regulation Section 1.409A-3(i)(5)(v)(B)) acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such Person or Persons) assets from the Company that have a gross fair market value equal to or more than 40% of the total gross fair market value of all of the assets of the Company immediately before such acquisition or acquisitions.

Notwithstanding anything contained herein to the contrary, no transaction or event shall constitute a Change in Control for purposes of the Plan unless the transaction or event constitutes a change in the ownership of a corporation (as defined in Treasury Regulation Section 1.409A-3(i)(5)(v)), a change in effective control of a corporation (as defined in Treasury Regulation Section 1.409A-3(i)(5)(vi)) or a change in the ownership of a substantial portion of the assets of a corporation (as defined in Treasury Regulation Section 1.409A-3(i)(5)(vii)) and the term Change in Control shall be interpreted in a manner consistent with the proper interpretation of the similar provisions in the Section 409A Treasury Regulations.

Code . “Code” means the Internal Revenue Code of 1986, as amended.

Compensation . “Compensation” means any cash retainer, meeting fees and any other cash compensation payable to Eligible Directors by the Company for services as a Director.

Deferral Amount . “Deferral Amount” means the Compensation Participants elect to defer and have credited to their Deferred Compensation Accounts.

Deferred Compensation Account . “Deferred Compensation Account” means the account maintained on the books of account of the Company for each Participant pursuant to Article VI.

Disability . “Disability” means those circumstances where the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months.

Effective Date. “Effective Date” means May 15, 2008, the date on which the amendment and restatement of the Plan became effective.

Eligible Director . “Eligible Director” means those Directors of the Company who are not employees of the Company.

Investment Units . This term shall have the meaning defined in Article VI.B.

Market Price . “Market Price” means the average of the highest and lowest transaction prices for the Company's common stock on the New York Stock Exchange for a given day.

Participant . “Participant” means an Eligible Director participating in the Plan in accordance with the provisions of Article IV.

Separation from Service . “Separation from Service” means a Participant's separation from service (as that term is used in Section 409A(a)(2)(A)(i) of the Code) with the Company.

III. ADMINISTRATION OF THE PLAN

The Board of Directors shall be the sole administrator of the Plan.

The Board of Directors may from time to time establish rules and regulations for the administration of the Plan.

All determinations of the Board of Directors, irrespective of their character or nature, including, but not limited to, all questions of construction and interpretation, shall be final, binding and conclusive upon all parties. Without limiting the generality of the foregoing, the determination of the Board of Directors as to whether a Participant has had a Separation from Service and the date thereof shall be final, binding and conclusive upon all persons.

The Company and/or the Board of Directors may consult with legal counsel, who may be counsel for the Company or other counsel, with respect to its obligations and duties hereunder or with respect to any claim, action or proceeding or any other matter, and shall not be liable for any action taken or not taken by it in good faith pursuant to the advice of such counsel.

The Chairman, at the direction of the Board of Directors, shall be responsible for maintaining books and records for the Plan and adopting standard forms for such matters as Beneficiary designations and applications for benefits, provided such rules and forms are not inconsistent with the provisions of the Plan. Such books and records shall only be open for examination by a Participant or his duly designated Beneficiary to the extent that they specifically involve the Deferred Compensation Account created for his benefit or any payments which are to be made to him or his Beneficiary hereunder. Each Participant or his duly designated Beneficiary shall be notified no less frequently than annually of the balance in his account.

Neither the Board of Directors nor any member of the Board of Directors nor the Company nor any other person who is acting on behalf of the Board of Directors or the Company shall be liable for any act or failure to act hereunder except for gross negligence or fraud.

All Eligible Directors, including any person who becomes a Director after the Effective Date, shall be Participants in the Plan.

	Twelve Months Ended June 30, 2008			Year Ended December 31, 2007
	(In thousands of dollars)
Earnings Available for Fixed Charges:

Net Income (a)	$	371,331		$	308,288

Income Taxes		225,322			190,024
		596,653			498,312

Rents (b)		11,348			11,947

Interest (c)		79,746			76,248

Total Earnings Available for Fixed Charges	$	687,747		$	586,507

Preferred Dividend Requirements	$	685		$	685

Ratio of Income Before Income Taxes to Net Income		161	%		159	%

Preferred Dividend Factor on Pretax Basis		1,103			1,089

Fixed Charges (d)		93,717			90,545

Combined Fixed Charges and Preferred Stock Dividends	$	94,820		$	91,634

Ratio of Earnings to Fixed Charges		7.3	x		6.5	x

Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends		7.3	x		6.4	x