
Item 1A. Risk Factors

The Company's business and financial results are subject to a number of risks and uncertainties, including those set forth below and in other documents filed with the SEC. The factors and 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. If any of the risks described below actually occur, the Company's business, prospects, financial condition or financial results could be materially harmed. The following are the most material risk factors applicable to the Company and are not necessarily listed in order of importance or probability of occurrence.

Separation Risks

The proposed separation of Knife River Holding Company into an independent, publicly traded company is subject to various risks and uncertainties, and may not be completed on the terms or timeline currently contemplated, if at all.

On August 4, 2022, the Company announced its plan to separate Knife River Holding Company, the construction materials and contracting business, from the Company, which would result in two independent, publicly traded companies. The execution of the proposed separation has required and will continue to require significant time and attention from the Company’s senior management and employees, which could disrupt the Company’s ongoing business and adversely affect financial results and results of operations. Further, the Company's employees may be distracted due to the uncertainty regarding their future roles with the Company or Knife River Holding Company pending the consummation of the proposed separation. Additionally, foreseen and unforeseen costs may be incurred in connection with the proposed separation, including fees such as advisory, accounting, tax, legal, reorganization, debt breakage, restructuring, severance/employee benefit-related, regulatory, SEC filing and other professional services, some of which may be incurred regardless if the separation occurs. The proposed separation is also complex, and completion of the proposed separation and the timing of its completion will be subject to a number of factors and conditions, including the readiness of the new company to operate as an independent public company and finalization of the capital structure of the new company. Unanticipated developments could delay, prevent or otherwise adversely affect the proposed separation, including, but not limited to, changes in general economic and financial market conditions, material adverse changes in business or industry conditions, unanticipated costs and potential problems or delays in obtaining various regulatory and tax approvals or clearances. In particular, changes in interest or exchange rates and the effects of inflation could delay or adversely affect the proposed separation, including in connection with any debt financing transactions undertaken in connection with the separation or the terms of any indebtedness incurred in connection therewith. There can be no assurances that the Company will be able to complete the proposed separation on the terms or on the timeline that was announced, if at all.

If the distribution, together with certain related transactions, does not qualify as a transaction that is generally tax-free for U.S. federal income tax purposes, the Company and its stockholders could be subject to significant tax liabilities.

The Company is seeking a private letter ruling from the IRS and opinion(s) of its tax advisors, regarding certain U.S. federal income tax matters relating to the separation and the distribution, including, with respect to the opinion(s), to the effect that the distribution will be a transaction described in Section 355(a) of the Code. The IRS private letter ruling and the opinion(s) of tax advisors will be based upon and rely on, among other things, various facts and assumptions, as well as certain representations, statements and undertakings of the Company, including those relating to the past and future conduct of the Company. If any of these representations, statements or undertakings is, or becomes, inaccurate or incomplete, or if the Company should breach any of the representations or covenants contained in any of the separation-related agreements and documents or in any documents relating to the IRS private letter ruling and/or the opinion(s) of tax advisors, the IRS private letter ruling and/or the opinion(s) of tax advisors may be invalid and the conclusions reached therein could be jeopardized.

Notwithstanding receipt of the IRS private letter ruling and the opinion(s) of tax advisors, the IRS could determine that the distribution and/or certain related transactions should be treated as taxable transactions for U.S. federal income tax purposes if it determines that any of the representations, assumptions, or undertakings upon which the IRS private letter ruling or the opinion(s) of tax advisors were based are false or have been violated. In addition, neither the IRS private letter ruling nor the opinion(s) of tax advisors will address all of the issues that are relevant to determining whether the distribution, together with certain related transactions, qualifies as a transaction that is generally tax-free for U.S. federal income tax purposes. Further, the opinion(s) of tax advisors represent the judgment of such tax advisors and are not binding on the IRS or any court, and the IRS or a court may disagree with the conclusions in the opinion(s) of tax advisors. Accordingly, notwithstanding receipt by the Company of the IRS private letter ruling and the opinion(s) of tax advisors, there can be no assurance that the IRS will not assert that the distribution and/or certain related transactions do not qualify for tax-free treatment for U.S. federal income tax purposes or that a court would not sustain such a challenge. In the event the IRS were to prevail in such challenge, the Company and its stockholders could be subject to significant U.S. federal income tax liability.

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If the distribution, together with related transactions, fails to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code, in general, for U.S. federal income tax purposes, the Company would recognize taxable gain as if it had sold Knife River Holding Company common stock in a taxable sale for its fair market value (unless the Company and Knife River Holding Company jointly make an election under Section 336(e) of the Code with respect to the distribution, in which case, in general, (a) the Company would recognize a taxable gain as if Knife River Holding Company had sold all of its assets in a taxable sale in exchange for an amount equal to the fair market value of Knife River Holding Company common stock and the assumption of all of its liabilities and (b) Knife River Holding Company would obtain a related step-up in the basis of its assets) and, if the distribution fails to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes under Section 355, the Company's stockholders who receive Knife River Holding Company shares in the distribution would be subject to tax as if they had received a taxable distribution equal to the fair market value of such shares.

The Company may not achieve some or all of the expected benefits of the separation, and the separation may materially and adversely affect its financial position, results of operations and cash flows.

The Company may be unable to achieve the full strategic and financial benefits expected to result from the separation, or such benefits may be delayed or not occur at all. The separation and distribution are expected to provide the following benefits, among others:

• A distinct investment identity allowing investors to evaluate the merits, strategy, performance and future prospects of the Company's regulated energy delivery business and Knife River Holding Company's aggregates-based construction materials and contracting services business.

• Enhanced strategic focus to more effectively pursue individualized strategies specific to the industries in which each operates and use equity tailored to its own business to enhance acquisition and capital programs.

•More efficient allocation of capital for both the Company and Knife River Holding Company based on each company’s profitability, cash flow and growth opportunities.

• Creating an independent equity structure that will facilitate the Company's and Knife River Holding Company's ability to deploy capital toward its specific growth opportunities.

• Enhanced employee hiring and retention by, among other things, improving the alignment of management and employee incentives with industry specific performance and growth objectives.

The Company may not achieve these and/or other anticipated benefits for a variety of reasons, including, among others, that: (a) the separation will require significant time and effort from management, which may divert management’s attention from operating and growing the business; (b) following the separation and distribution, the Company may be more susceptible to stock market fluctuations and other adverse events; (c) following the separation and distribution, the Company may not be able to maintain its historical practices with respect to dividends; (d) following the separation and distribution, the Company's business will be less diversified than prior to the separation and distribution; and (e) the other actions required to separate the Company and Knife River Holding Company’s respective businesses could disrupt their operations. If the Company fails to achieve some or all of the benefits expected to result from the separation, or if such benefits are delayed, it could have a material adverse effect on its financial position, results of operations and cash flows.

The Company may fail to perform under various transaction agreements that are expected be executed as part of the separation. The Company's inability to favorably resolve any disputes that arise with Knife River Holding Company with respect to their various past and ongoing relationships may adversely affect the Company's operating results.

In connection with the separation and prior to the distribution, it is anticipated that the Company will enter into a separation agreement and will also enter into various other agreements, including a transition services agreement, a tax matters agreement and an employee matters agreement with Knife River Holding Company. The separation agreement, the tax matters agreement and the employee matters agreement will determine the allocation of assets and liabilities between the companies following the separation for those respective areas and will include any necessary indemnifications related to liabilities and obligations. The transition services agreement will provide for the performance of certain services by the Company for the benefit of Knife River Holding Company, or in some cases certain services provided by Knife River Holding Company for the benefit of the Company, for a limited period of time after the separation. Knife River Holding Company will rely on the Company to satisfy its obligations under these agreements. If the Company is unable to satisfy its obligations under these agreements, including its indemnification obligations, the Company could be subject to disputes.

The Company may not be able to resolve potential conflicts, and even if it does, the resolution may be less favorable than if it were dealing with an unaffiliated party. Disputes may arise between the Company and Knife River Holding Company in a number of areas relating to the various transaction agreements, including, among other things:

• Labor, tax, employee benefit, indemnification and other matters arising from Knife River Holding Company's separation from the Company.

• Employee retention and recruiting.

• Business combinations involving Knife River Holding Company.

• And the nature, quality and pricing of services that the Companyhas agreed to provide.

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If the expected separation and distribution occurs, certain members of management, directors and stockholders will hold stock in both the Company and Knife River Holding Company, and as a result may face actual or potential conflicts of interest.

If the separation and distribution occurs, the management and directors of each of the Company and Knife River Holding Company may own both the Company common stock and Knife River Holding Company common stock. This ownership overlap could create, or appear to create, potential conflicts of interest when the Company's management and directors and Knife River Holding Company's management and directors face decisions that could have different implications for the Company and Knife River Holding Company. For example, potential conflicts of interest could arise in connection with the resolution of any dispute between the Company and Knife River Holding Company regarding the terms of the agreements governing the distribution and the relationship between the Company thereafter and Knife River Holding Company. These agreements include the separation and distribution agreement, the tax matters agreement, the employee matters agreement, the transition services agreement, the stockholder and registration rights agreement and any commercial agreements between the parties or their affiliates. Potential conflicts of interest may also arise out of any commercial arrangements that the Company or Knife River Holding Company may enter into in the future.

Following the separation, there may be a substantial change in the Company's stockholder base and its stock price may fluctuate significantly.

Until the market has fully evaluated the Company's remaining businesses without Knife River Holding Company, the price at which shares of the Company common stock trade may fluctuate more significantly than might otherwise be typical, even with other market conditions, including general volatility, held constant. There can be no assurance that the combined value of the common stock of the two companies will be equal to or greater than what the value of the Company’s common stock would have been had the proposed separation not occurred. It is possible that the Company's stockholders will sell shares of common stock for a variety of reasons. For example, such stockholders may not believe that the Company's remaining business profile or its level of market capitalization fits their investment objectives. The sale of significant amounts of the Company's common stock or the perception in the market that this will occur may lower the market price of the Company's common stock. The increased volatility of the Company's common stock price following the distribution may have a material adverse effect on its business, financial condition and results of operations.

The Company could experience temporary interruptions in business operations and incur additional costs as it separates information technology infrastructure and systems.

The Company is in the process of preparing information technology infrastructure and systems to support critical business functions at both the Company and Knife River Holding Company. If the Company cannot effectively transition both the Company and Knife River Holding Company to stand-alone systems and functions, they may experience disruptions to business operations, which could have a material adverse effect on profitability. In addition, the Company's costs for the operation of these systems may be higher than the amounts historically reflected in the consolidated financial statements.

The Company's review of options to optimize the value of its construction services business is subject to various risks and uncertainties and may not achieve its intended goals.

On November 3, 2022, the Company announced its intention to create two pure-play publicly traded companies, one focused on regulated energy delivery and the other on construction materials, and to achieve this future structure, the board authorized management to commence a strategic review process of MDU Construction Services. This process is active and ongoing. The uncertainties associated with this process, foreseen and unforeseen costs incurred, and efforts involved, may negatively affect the Company's operating results, business and the Company's relationships with employees, customers, suppliers and vendors. If the Company does not enter into or consummate a strategic transaction with respect to MDU Construction Services, the Company's business and results of operations could be adversely affected. Furthermore, if the Company does not consummate a transaction, the price of the Company's common stock may decline from the current market price, as the current market price might incorporate a market assumption that a transaction will be consummated. A failed transaction may also result in reduced employee morale and productivity, negative publicity and a negative impression of the Company in the investment community. Further, any disruptions to the Company's business resulting from any announcement and the uncertainty around the timing of a transaction, including any adverse changes in the Company's relationships with its customers, suppliers, vendors, and employees or recruiting and retention efforts, could continue or accelerate in the event of a failed transaction. Matters relating to any failed transaction may require significant costs and expenses and substantial management time and resources, which could otherwise have been devoted to operating and growing the Company's business.

Economic Risks

The Company is subject to government regulations that may have a negative impact on its business and its results of operations and cash flows. Statutory and regulatory requirements also may limit another party's ability to acquire the Company or impose conditions on an acquisition of or by the Company.

The Company's electric and natural gas transmission and distribution businesses are subject to comprehensive regulation by federal, state and local regulatory agencies with respect to, among other things, allowed rates of return and recovery of investments and ~~costs, financing,~~costs; financing; rate ~~structures,~~structures; customer ~~service,~~service; health care coverage and ~~costs, taxes,~~costs; taxes; franchises; recovery of fuel, purchased power and purchased natural gas costs; and construction and siting of generation and transmission facilities. These governmental regulations significantly influence the Company's operating environment and may affect its ability to recover costs from its customers. The Company is unable to predict the impact on operating results from future regulatory activities of any of these agencies. Changes in regulations or the imposition of additional regulations could have an adverse impact on the Company's results of operations and cash flows.

There can be no assurance that applicable regulatory commissions will determine that the Company's electric and natural gas transmission and distribution businesses' costs have been prudent, which could result in the disallowance of ~~costs.~~costs in setting rates for customers. Also, the regulatory

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process ~~for~~of approving rates for these businesses may not allow for timely and full recovery of the costs of providing services or a return on the Company's invested capital. Changes in regulatory requirements or operating conditions may require early retirement of certain assets. While regulation typically provides ~~relief~~rate recovery for these ~~types of~~ retirements, there is no assurance regulators will allow full recovery of all remaining costs, which could leave stranded asset costs. Rising fuel costs could increase the risk that the utility businesses will not be able to fully recover those fuel costs from customers.

Approval from federal and state regulatory agencies would be needed for acquisition of the Company, as well as for certain acquisitions by the Company. The approval process could be lengthy and the outcome uncertain, which may deter potential acquirers from approaching the Company or impact the Company's ability to pursue acquisitions.

Economic volatility affects the Company's operations, as well as the demand for its products and services.

Unfavorable economic conditions can negatively affect the level of public and private expenditures on projects and the timing of these projects which, in turn, can negatively affect demand for the Company's products and services, primarily at the Company's construction businesses. The level of demand for construction products and services could be adversely impacted by the economic conditions in the industries the Company serves, as well as in the general economy. State and federal budget issues affect the funding available for infrastructure spending.

Economic conditions and population growth affect the electric and natural gas distribution businesses' growth in service territory, customer base and usage demand. Economic volatility in the markets served, along with economic conditions such as increased unemployment which

~~MDU Resources Group, Inc.~~ ~~Form 10-K~~ 21

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could impact the ability of the Company's customers to make payments, could adversely affect the Company's results of operations, cash flows and asset values. Further, any material decreases in customers' energy demand, for economic or other reasons, could have ~~a material~~an adverse impact on the Company's earnings and results of operations.

The Company's operations involve risks that may result from catastrophic events.

The Company's operations, particularly those related to electric and natural gas ~~and electric~~ transmission and distribution, include a variety of inherent hazards and operating risks, such as product ~~leaks, explosions,~~leaks; explosions; mechanical ~~failures, vandalism, fires,~~failures; vandalism; fires; pandemics; social or civil unrest; protests and riots; natural disasters; cyberattacks; acts of ~~terrorism~~terrorism; and acts of ~~war,~~war. These hazards and operating risks have occurred and may recur in the future, which could result in loss of human life; personal injury; property damage; environmental ~~pollution;~~impacts; impairment of operations; and substantial financial losses. The Company maintains insurance against some, but not all, of these risks and losses. A significant incident could also increase regulatory scrutiny and result in penalties and higher amounts of capital expenditures and operational costs. Losses not fully covered by insurance could have ~~a material~~an adverse effect on the Company’s financial position, results of operations and cash flows.

A disruption of the regional electric transmission grid, local distribution infrastructure or interstate natural gas infrastructure could negatively impact the Company's business and reputation. There have been cyber and physical attacks within the energy industry on energy infrastructure, such as substations, and such attacks may occur in the future. Because the Company's electric and natural gas utility and pipeline systems are part of larger interconnecting systems, any attacks on the Company's infrastructure causing a disruption could result in a significant decrease in revenues and an increase in system repair costs ~~which could have a material impact on~~negatively impacting the Company's financial position, results of operations and cash flows.

The Company is subject to capital market and interest rate risks.

The Company's operations, particularly its electric and natural gas transmission and distribution businesses, require significant capital investment. Consequently, the Company relies on financing sources and capital markets as sources of liquidity for capital requirements not satisfied by ~~its~~ cash flows from operations. If the Company is not able to access capital at competitive rates, ~~including through its current "at-the-market" offering program,~~ the ability to implement ~~its~~ business plans, make capital expenditures or pursue acquisitions ~~that~~ the Company would otherwise rely on for future growth may be adversely affected. Market disruptions may increase the cost of borrowing or adversely affect the Company's ability to access one or more financial markets. Such disruptions could include:

•A significant economic downturn.

•The financial distress of unrelated industry leaders in the same line of business.

•Deterioration in capital market conditions.

•Turmoil in the financial services industry.

•Volatility in commodity prices.

•Pandemics, including COVID-19.

•War.

•Terrorist attacks.

•Cyberattacks.

The issuance of a substantial amount of the Company's common stock, whether issued in connection with an acquisition or otherwise, or the perception that such an issuance could occur, could have a dilutive effect on ~~shareholders~~stockholders and/or may adversely affect the market price of the Company's common stock. Higher interest rates on borrowings have impacted and could ~~also have an adverse effect on~~further impact the Company's future operating results.

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Financial market changes could impact the Company’s pension and postretirement benefit plans and obligations.

The Company has pension and postretirement defined benefit plans for some of its ~~employees~~current and former employees. Assumptions regarding future costs, returns on investments, interest rates and other actuarial assumptions have a significant impact on the funding requirements and expense recorded relating to these plans. Adverse changes in economic indicators, such as consumer spending, inflation data, interest rate changes, political developments and threats of terrorism, among other things, can create volatility in the financial ~~markets which~~markets. These changes could ~~change these~~impact the assumptions and negatively affect the value of assets held in the Company's pension and other postretirement benefit plans and may increase the amount and accelerate the timing of required funding contributions for those plans.

Significant changes in ~~energy~~ prices for commodities, labor or other production and delivery inputs could negatively affect the Company's businesses.

The Company's operations are exposed to fluctuations in prices for labor, oil, cement, raw materials and utilities. Prices are generally subject to change in response to fluctuations in supply and demand and other general economic and market conditions beyond the Company's control.

Fluctuations in oil ~~NGL~~ and natural gas production, supplies and prices; fluctuations in commodity price basis differentials; ~~supplies of domestic and foreign oil, NGL and natural gas;~~ political and economic conditions in oil-producing countries; actions of the Organization of Petroleum Exporting Countries; demand for oil due to economic conditions; war and other external factors impact the development of oil and natural gas supplies and the expansion and operation of natural gas pipeline systems. The Company has benefited from associated natural gas production in the Bakken, which has provided opportunities for organic growth projects. Depressed oil and natural gas prices, however, place pressure on the ability of oil exploration and production companies to meet credit requirements and can be a challenge if prices remain depressed long-term. Prolonged depressed prices for oil ~~NGL~~ and natural gas could negatively affect the growth, results of operations, cash flows and asset values of the Company's electric, natural gas and pipeline ~~and midstream business.~~businesses.

If oil and natural gas prices increase significantly, which has occurred and may reoccur, customer demand could decline for utility, pipeline and ~~midstream,~~construction products and ~~construction materials could decline,~~services, which could ~~have a material~~ impact on the Company's results of operations and cash flows. While the Company has fuel clause recovery mechanisms for its utility operations in ~~most~~all of the states ~~in which~~where it operates, higher utility fuel costs could also significantly impact results of operations if such costs are not recovered. Delays in the collection of utility fuel cost recoveries, as compared to expenditures for fuel purchases, could ~~have a negative~~also negatively impact on the Company's cash flows. High oil and fuel prices also affect the ~~cost~~margins realized and demand for ~~asphalt~~construction materials and related contracting services.

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~~products~~High energy prices, specifically for diesel fuel, natural gas and liquid asphalt have impacted and could further affect the margins realized, as well as demand for construction materials and related contracting services. ~~Low commodity prices could have a positive impact on sales but~~Increased labor costs, due to labor shortages, competition from other industries, or other factors, could negatively ~~impact oil and natural gas production activities and subsequently~~affect the Company's ~~pipeline~~results of operations. Due to their size and weight, aggregates are costly and difficult to transport efficiently. The Company's construction ~~revenues~~materials products and services are generally localized around its aggregate sites and served by truck or in ~~energy producing states in which~~certain markets by rail or barge. The Company could be negatively impacted by freight costs due to rising fuel costs; rate increases for third party freight; truck, railcar or barge shortages, including shortages of truck drivers and rail crews; rail service interruptions; and minimum tonnage requirements, among other things.

In 2022 and 2021, the Company ~~operates.~~experienced elevated commodity and supply chain costs including the costs of labor, raw materials, energy-related products and other inputs used in the production and distribution of its products and services. At the construction materials and contracting business, recent inflationary pressures have significantly increased the cost of raw materials above 10% in comparison to average historical increases of 3%. The Company' construction businesses try to mitigate some or all cost increases through increases in selling prices, maintaining positive relationships with numerous raw material suppliers, and escalation clauses in contracting services contracts and fuel surcharges. To the extent price increases or other mitigating factors are not sufficient to offset these increased costs adequately or timely, and/or if the price increases result in a significant decrease in sales volumes, the Company's results of operations, financial position and cash flows could be negatively impacted.

Reductions in the Company's credit ratings could increase financing costs.

There is no assurance the Company's current credit ratings, or those of its subsidiaries, will remain in effect or that a rating will not be lowered or withdrawn by a rating agency. Events affecting the Company's financial results may impact its cash flows and credit metrics, potentially resulting in a change in the Company's credit ratings. The Company's credit ratings may also change as a result of the differing methodologies or changes in the methodologies used by the rating agencies. ~~A downgrade in credit ratings could lead to higher borrowing costs.~~

Increasing costs associated with health care plans may adversely affect the Company's results of operations.

The Company's self-insured costs of health care benefits for eligible employees continues to increase. Increasing quantities of large individual health care claims and an overall increase in total health care claims could have an adverse impact on operating results, financial position and liquidity. Legislation related to health care could also change the Company's benefit program and costs.

The Company is exposed to risk of loss resulting from the nonpayment and/or nonperformance by the Company's customers and counterparties.

If the Company's customers or counterparties experience financial difficulties, which has occurred and may recur in the future, the Company could experience difficulty in collecting receivables. Nonpayment and/or nonperformance by the Company's customers and counterparties, particularly customers and counterparties of the Company’s pipeline, construction materials and contracting and construction services businesses for large construction projects, could have a negative impact on the Company's results of operations and cash flows. The Company could also have indirect credit risk from participating in energy markets such as MISO in which credit losses are socialized to all participants.

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Changes in tax law may negatively affect the Company's business.

Changes to federal, state and local tax laws have the ability to benefit or adversely affect the Company's earnings and customer costs. Significant changes to corporate tax rates could result in the impairment of deferred tax assets that are established based on existing law at the time of deferral. Changes to the value of various tax credits could change the economics of resources and the resource selection for the electric generation business. Regulation incorporates changes in tax law into the rate-setting process for the regulated energy delivery businesses, ~~and therefore~~which could create timing delays before the impact of changes are realized.

The Company's operations could be negatively impacted by import tariffs and/or other government mandates.

The Company operates in or provides services to capital intensive industries in which federal trade policies could significantly impact the availability and cost of materials. Imposed and proposed tariffs could significantly increase the prices and delivery lead times on raw materials and finished products that are critical to the Company and its customers, such as aluminum and steel. Prolonged lead times on the delivery of raw materials and further tariff increases on raw materials and finished products could ~~have a material adverse effect on~~adversely affect the Company's business, financial condition and results of operations.

Pandemics, including COVID-19, may have a negative impact on the Company's business operations, revenues, results of operations, liquidity and cash flows.

Pandemics have disrupted national, state and local economies. To the extent pandemics adversely impact the Company's businesses, operations, revenues, liquidity or cash flows, they could also have a heightened effect on other risks described in this section. The degree to which pandemics impact the Company depends on, among other things, federal and state mandates, actions taken by governmental authorities, availability, timing and effectiveness of vaccines being administered, and the pace and extent to which the economy recovers and operates under normal market conditions.

Operational Risks

Significant portions of the Company’s natural gas pipelines and power generation and transmission facilities are aging. The aging infrastructure may require significant additional maintenance or replacement that could adversely affect the Company’s results of operations.

~~The Company’s~~Certain risks increase as the Company's energy delivery infrastructure ~~is aging, which increases certain risks,~~ages, including breakdown or failure of equipment, pipeline leaks and fires developing from power ~~lines.~~lines, all of which have occurred and may recur in the future resulting in material costs. Aging infrastructure is more prone to failure, which increases maintenance costs, unplanned outages and the need to replace facilities. Even if properly maintained, reliability may ultimately deteriorate and negatively affect the Company’s ability to serve its customers, which could result in increased costs associated with regulatory oversight. The costs associated with maintaining the aging infrastructure and capital expenditures for new or replacement infrastructure could cause rate volatility and/or regulatory lag in some jurisdictions. If, at the end of its life, the investment costs of a facility have not been fully recovered, the Company may be adversely affected if commissions do not allow such costs to be recovered in rates. Such impacts of an aging infrastructure could ~~have a material adverse effect on~~adversely affect the Company’s results of operations and cash flows.

Additionally, hazards from aging infrastructure could result in serious injury, loss of human life, significant damage to property, environmental impacts and impairment of operations, which in turn could lead to substantial financial losses. The location of facilities near populated areas, including residential areas, business centers, industrial sites and other public gathering places, could increase the ~~level of~~ damages resulting from these risks. A major incident involving another natural gas system could lead to additional capital expenditures, increased regulation, and fines and penalties on natural gas ~~utilities.~~utilities and pipelines. The occurrence of any of these events could adversely affect the Company’s results of operations, financial position and cash flows.

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The Company's utility and pipeline operations are subject to planning risks.

Most electric and natural gas utility investments, including natural gas transmission pipeline investments, are made with the intent of being used for decades. In particular, electric transmission and generation resources are planned well in advance of when they are placed into service based upon resource plans using assumptions over the planning ~~horizon;~~horizon, including sales growth, commodity prices, equipment and construction costs, regulatory treatment, available technology and public policy. Public policy changes and technology advancements related to areas such as energy efficient appliances and buildings, renewable and distributive electric generation and storage, carbon dioxide emissions, electric vehicle penetration, restrictions on or disallowance of new or existing services, and natural gas availability and cost may significantly impact the planning assumptions. Changes in critical planning assumptions may result in excess generation, transmission and distribution resources creating increased per customer costs and downward pressure on load growth. These changes could also result in a stranded investment if the Company is unable to fully recover the costs of its investments.

The regulatory approval, permitting, construction, startup and/or operation of pipelines, power generation and transmission facilities, and aggregate reserves may involve unanticipated events, delays and unrecoverable costs.

The construction, startup and operation of natural gas pipelines and electric power generation and transmission facilities involve many risks, which may include delays; breakdown or failure of equipment; inability to obtain required governmental permits and approvals; inability to obtain or renew easements; public opposition; inability to complete financing; inability to negotiate acceptable equipment acquisition, construction, fuel supply, off-take, transmission, transportation or other material agreements; changes in markets and market prices for power; cost increases and overruns; the risk of performance below expected levels of output or efficiency; and the inability to obtain full cost recovery in regulated rates. Additionally, in a number of states in which the Company operates, it can be difficult to permit new aggregate sites or expand existing aggregate sites due to community ~~resistance.~~resistance and regulatory requirements, among other things. Such unanticipated events could negatively impact the Company's business, its results of operations and cash flows.

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Operating or other costs required to comply with current or potential pipeline safety regulations and potential new regulations under various agencies could be significant. The regulations require verification of pipeline infrastructure records by pipeline owners and operators to confirm the maximum allowable operating pressure of certain lines. Increased emphasis on pipeline safety and increased regulatory scrutiny may result in penalties and higher costs of operations. If these costs are not fully recoverable from customers, they could have ~~a material~~an adverse effect on the Company’s results of operations and cash flows.

The backlogs at the Company's construction materials and contracting and construction services businesses may not accurately represent future revenue.

Backlog consists of the uncompleted portion of services to be performed under job-specific contracts. Contracts are subject to delay, default or cancellation, and ~~the~~ contracts in the Company's backlog are subject to changes in the scope of services to be provided, as well as adjustments to the costs relating to the applicable contracts. Backlog may also be affected by project delays or cancellations resulting from weather conditions, external market factors and economic factors beyond the Company's ~~control.~~control, among other things. Accordingly, there is no assurance that backlog will be realized. The timing of contract awards, duration of large new contracts and the mix of services can significantly affect backlog. Backlog at any given point in time may not accurately represent the revenue or net income that is realized in any ~~period, and~~period. Also, the backlog as of the end of the year may not be indicative of the revenue and net income expected to be earned in the following year and should not be relied upon as a stand-alone indicator of future revenues or net income.

The Company's participation in joint venture contracts may have a negative impact on its reputation, business operations, revenues, results of operations, liquidity and cash flows.

The Company enters into certain joint venture arrangements typically to bid and execute particular projects. Generally, these agreements are directly with a third-party client; however, services may be performed by the venture, the joint venture partners or a combination thereof. Engaging in joint venture contracts exposes the Company to risks and uncertainties, some of which are outside the Company's control.

The Company is reliant on joint venture partners to satisfy their contractual obligations, including obligations to commit working capital and equity, and to perform the work as outlined in the agreement. Failure to do so could result in the Company providing additional investments or services to address such performance issues. If the Company is unable to satisfactorily resolve any partner performance issues, the customer could terminate the contract, opening the Company to legal liability which could negatively impact the Company's reputation, revenues, results of operations, liquidity and cash flows.

Supply chain disruptions may adversely affect Company operations.

The Company relies on third-party vendors and manufacturers to supply many of the materials necessary for its operations. Global logistic disruptions have impacted the flow of materials and restricted global trade flows. Manufacturers are competing for a limited supply of key commodities and logistical capacity which has impacted lead times, pricing, supply and demand. National and regional demand for cement and liquid asphalt may at times outpace the supply in the market. This imbalance creates a temporary shortage which may cause prices to increase faster than downstream products. Disruptions or delays in receiving materials; price increases from suppliers or manufacturers; or inability to source needed materials, which has occurred and could reoccur, could adversely affect the Company’s results of operations, financial condition and cash flows.

Environmental and Regulatory Risks

The Company's operations could be adversely impacted by climate change.

Severe weather events, such as tornadoes, hurricanes, rain, drought, ice and snowstorms, and high and low temperature extremes, occur in regions in which the Company operates and maintains infrastructure. Climate change could change the frequency and severity of these weather events, which may create physical and financial risks to the Company. Such risks could have an adverse effect on the Company's financial condition, results of operations and cash flows. To date, the Company has not experienced any material impacts to its financial condition, results of operations or cash flows due to the physical effects of climate change.

Severe weather events may damage or disrupt the Company's electric and natural gas transmission and distribution facilities, which could result in disruption of service and ability to meet customer demand and increase maintenance or capital costs to repair facilities and restore ~~service to customers.~~customer service. The cost of providing service could increase ~~to the extent~~if the frequency of severe weather events increases because of climate change or otherwise. The Company may not recover all costs related to mitigating these physical risks.

Severe weather may result in disruptions to the pipeline and midstream business's natural gas supply and transportation systems, and potentially increase the cost of gas and the natural gas utility's ability to procure gas to meet customer demand. These changes could result in increased maintenance and capital costs, disruption of service, regulatory actions and lower customer satisfaction.

Increases in severe weather conditions or extreme ~~temperature~~temperatures may cause infrastructure construction projects to be delayed or canceled and limit resources available for such projects resulting in decreased revenue or increased project costs at the construction materials and

~~24 MDU Resources Group, Inc.~~ ~~Form 10-K~~

~~Part I~~

contracting and construction services businesses. In addition, drought conditions could restrict the availability of water supplies, inhibiting the ability of the construction businesses to conduct operations.

Utility customers’ energy needs vary with weather conditions, primarily temperature and humidity. For residential customers, heating and cooling represent the largest energy use. To the extent weather conditions are affected by climate change, customers’ energy use could increase or decrease. Increased energy use by its utility customers due to weather may require the Company to invest in additional generating assets, transmission and other infrastructure to serve increased load. Decreased energy use due to weather may result in decreased revenues. Extreme weather conditions, such as uncommonly long periods of high or low ambient temperature in general require more system backup, adding to costs, and can contribute to increased system stress, including service interruptions. Weather conditions outside of the Company's service territory could also have an impact on revenues. The Company buys and sells electricity that might be generated outside its service territory, depending upon system needs and market

30 MDU Resources Group, Inc. Form 10-K

I ndex

Part I

opportunities. Extreme temperatures may create high energy demand and raise electricity prices, which could increase the cost of energy provided to customers.

Climate change may impact a region’s economic health, which could impact revenues at all of the Company's businesses. The Company's financial performance is tied to the health of the regional economies served. The Company provides natural gas and electric utility service, as well as construction materials and services, for some states and communities that are economically affected by the agriculture industry. Increases in severe weather events or significant changes in temperature and precipitation patterns could adversely affect the agriculture industry and, correspondingly, the economies of the states and communities affected by that industry.

The insurance industry ~~has also been~~may be adversely affected by severe weather events, which may impact ~~the~~ availability of insurance coverage, insurance premiums and insurance policy terms.

The Company may ~~also~~ be subject to litigation related to climate change. Costs of such litigation could be significant, and an adverse outcome could require substantial capital expenditures, changes in operations and possible payment of penalties or damages, which could affect the Company's results of operations and cash flows if the costs are not recoverable in rates.

The price of energy also has an impact on the economic health of communities. The cost of additional regulatory requirements related to ~~combat~~ climate change, such as regulation of carbon dioxide emissions under the federal Clean Air Act, requirements to replace fossil fuels with renewable energy or credits, or other environmental regulation or taxes, could impact the availability of goods and the prices charged by suppliers, which would normally be borne by consumers through higher prices for energy and purchased ~~goods.~~goods, and could adversely impact economic conditions of areas served by the Company. To the extent financial markets view climate change and emissions of GHGs as a financial risk, this could negatively affect the Company's ability to access capital markets or ~~cause~~result in less ~~than ideal~~competitive terms and conditions.

The Company's operations are subject to 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 environmental laws and regulations affecting many aspects of its operations, including air and water quality, wastewater discharge, the generation, transmission and disposal of solid waste and hazardous substances, aggregate permitting and other environmental considerations. These laws and regulations can increase capital, operating and other costs; cause delays as a result of litigation and administrative proceedings; and create compliance, remediation, containment, monitoring and reporting obligations, particularly relating to electric generation, permitting and environmental compliance for construction material facilities, and natural gas ~~gathering, and~~ transmission and storage operations. Environmental laws and regulations can also require the Company to install pollution control equipment at its facilities, clean up spills and other contamination and correct environmental hazards, including payment of all or part of the cost to remediate sites where the Company's past activities, or the activities of other parties, caused environmental contamination. These laws and regulations generally require the Company to obtain and comply with a variety of environmental licenses, permits, inspections and other approvals and may cause the Company to shut down existing facilities due to difficulties in assuring compliance or where the cost of compliance makes operation of the facilities ~~no longer economical.~~uneconomical. Although the Company strives to comply with all applicable environmental laws and regulations, public and private entities and private individuals may interpret the Company's legal or regulatory requirements differently and seek injunctive relief or other remedies against the Company. The Company cannot predict the outcome, financial or operational, of any such litigation or administrative proceedings.

Existing environmental laws and regulations may be revised and new laws and regulations seeking to protect the environment may be adopted or become applicable to the Company. These laws and regulations could require the Company to limit the use or output of certain facilities; restrict the use of certain fuels; prohibit or restrict new or existing services; replace certain fuels with renewable fuels; retire and replace certain facilities; install pollution controls; remediate environmental impacts; remove or reduce environmental hazards; or forego or limit the development of resources. Revised or new laws and regulations that increase compliance and disclosure costs and/or restrict operations, particularly if costs are not fully recoverable from customers, could ~~have a material adverse effect on~~adversely affect the Company's results of operations and cash flows.

~~MDU Resources Group, Inc.~~ ~~Form 10-K~~ 25

~~Part I~~

~~Initiatives~~Stakeholder actions and increased regulatory activity related to ~~global~~environmental, social and governance matters, particularly climate change and ~~to reduce~~reducing GHG emissions, could adversely impact the Company's operation, costs of or access to capital and impact or limit business plans.

The Company, primarily at its electric, natural gas distribution and pipeline businesses, is facing increasing stakeholder scrutiny related to environmental, social and governance matters. Recently, the Company has seen a rise in certain stakeholders, such as investors, customers, employees and lenders, placing increasing importance on the impacts and social cost associated with climate change. Concern that GHG emissions ~~are contributing~~contribute to global climate change has led to international, federal, state and local legislative and regulatory proposals to reduce or mitigate the effects of GHG emissions. The Company’s primary GHG emission is carbon dioxide from fossil fuels combustion at Montana-Dakota's electric generating facilities, particularly its coal-fired facilities. ~~Approximately 46 percent of Montana-Dakota's owned generating capacity and approximately 73 percent of the electricity it generated in 2019 was from coal-fired facilities.~~

Treaties, legislation or regulations to reduce GHG emissions in response to climate change may be adopted that affect the Company's utility and pipeline operations by requiring additional energy conservation efforts or renewable energy sources, limiting emissions, imposing carbon taxes or other compliance costs; as well as other mandates that could significantly increase capital expenditures and operating costs or reduce demand for the Company's utility services. If the Company’s utility and pipeline operations do not receive timely and full recovery of GHG emission compliance costs from customers, then such costs could adversely impact the results of ~~its~~ operations and cash flows. Significant reductions in demand for the

MDU Resources Group, Inc. Form 10-K 31

Index

Part I

Company's utility and pipeline services as a result of increased costs or emissions limitations could also adversely impact the results of ~~its~~ operations and cash flows.

The Company monitors, analyzes and reports GHG emissions from its other operations as required by applicable laws and regulations. The Company will continue to monitor GHG regulations and their potential impact on operations.

Due to the uncertain availability of technologies to control GHG emissions and the unknown obligations that potential GHG emission legislation or regulations may create, the Company cannot determine the potential financial impact on its operations.

In addition, the increasing focus on climate change and stricter regulatory requirements may result in the Company facing adverse reputational risks associated with certain of its operations producing GHG emissions. There have also been ~~recent~~ efforts to ~~influence~~discourage the investment community ~~to discourage investment~~from investing in equity and debt securities of companies engaged in fossil fuel related business and pressuring lenders to limit funding to such companies. Additionally, some insurance carriers have indicated an unwillingness to insure assets and operations related to certain fossil fuels. Although the Company has not experienced difficulties in these areas, if the Company is unable to satisfy the increasing climate-related expectations of certain stakeholders, the Company may suffer reputational harm, which may cause its stock price to decrease or difficulty in accessing the capital ~~markets~~ or ~~insurance; such~~insurance markets. Such efforts, if successfully directed at the Company, could increase the costs of or access to capital or insurance and interfere with ~~its~~ business operations and ability to make capital expenditures.

Other Risks

The Company's various businesses are seasonal and subject to weather conditions that ~~can~~could adversely affect the Company's operations, revenues and cash flows.

The Company's results of operations ~~can~~could be affected by changes in the weather. Weather conditions influence the demand for electricity and natural gas and affect the price of energy commodities. Utility operations have historically generated lower revenues when weather conditions are cooler than normal in the summer and warmer than normal in the winter, particularly in jurisdictions that do not have weather normalization mechanisms in place. Where weather normalization mechanisms are in place, there is no assurance the Company will continue to receive such regulatory protection from adverse weather in future rates.

Adverse weather conditions, which have occurred and may recur, such as heavy or sustained rainfall or snowfall, storms, wind and colder weather may affect the demand for products and the ability to perform services at the construction businesses and affect ongoing operation and maintenance and construction activities for the electric and natural gas transmission and distribution businesses. In addition, severe weather can be destructive, causing outages ~~and/or~~and property damage, which could require additional remediation costs. The Company could also be impacted by drought conditions, which may restrict the availability of water supplies and inhibit the ability of the construction businesses to conduct operations. As a result, ~~unusually mild winters or summers~~unusual or adverse weather conditions could negatively affect the Company's results of operations, financial position and cash flows.

Competition exists in all of the Company's businesses.

The Company's businesses are subject to competition. Construction services' competition is based primarily on price and reputation for quality, safety and reliability. Construction materials products are marketed under highly competitive conditions and are subject to competitive forces such as price, service, delivery time and proximity to the customer. The electric utility and natural gas ~~industries~~businesses also experience competitive pressures as a result of consumer demands, technological advances and other factors. The pipeline ~~and midstream~~ business competes with several pipelines for access to natural gas supplies and for transportation and storage business. New acquisition opportunities are subject to competitive bidding environments which impact prices the Company must pay to successfully acquire new properties and acquisition opportunities to grow its business. The Company's failure to effectively compete could negatively affect the Company's results of operations, financial position and cash flows.

~~26 MDU Resources Group, Inc.~~ ~~Form 10-K~~

~~Part I~~

The Company's operations may be negatively affected if it is unable to obtain, develop and retain key personnel and skilled labor forces.

The Company must attract, develop and retain executive officers and other professional, technical and skilled labor forces with the skills and experience necessary to successfully manage, operate and grow the Company's businesses. ~~Competition~~Due to the changing workforce demographics and a lack of younger employees who are qualified to replace employees as they retire and remote work opportunities, among other things, competition for these employees is ~~high, and in~~high. In some cases competition for these employees is on a regional or national basis. At times of low unemployment, it can be difficult for the Company to attract and retain qualified and affordable personnel. A shortage in the supply of skilled personnel creates competitive hiring markets, increased labor expenses, decreased productivity and potentially lost business opportunities to support the Company's operating and growth strategies. Additionally, if the Company is unable to hire employees with the requisite skills, the Company may be forced to incur significant training expenses. As a result, the Company's ability to maintain productivity, relationships with customers, competitive costs, and quality services is limited by the ability to employ, retain and train the necessary skilled personnel and could negatively affect the Company's results of operations, financial position and cash flows.

The Company's construction materials and contracting and construction services businesses may be exposed to warranty claims.

The Company, particularly its construction businesses, may provide warranties guaranteeing the work performed against defects in workmanship and material. If warranty claims occur, they may require the Company to re-perform the services or to repair or replace the warranted item at a cost to the Company and could also result in other damages if the Company is not able to adequately satisfy warranty obligations. In addition, the Company may be required under contractual arrangements with customers to warrant any defects from subcontractors or failures in materials the Company purchased from third parties. While the Company generally requires suppliers to provide warranties that are consistent with those the Company

32 MDU Resources Group, Inc. Form 10-K

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Part I

provides to customers, if any of the suppliers default on their warranty obligations to the Company, the Company may nonetheless incur costs to repair or replace the defective materials. Costs incurred as a result of warranty claims could adversely affect the Company's results of operations, financial condition and cash flows.

The Company is a holding company and relies on cash from its subsidiaries to pay dividends.

The ~~Company is a holding company as a result of the Holding Company Reorganization in 2019. The~~ Company's investments in its subsidiaries comprise the Company's primary assets. The Company depends on earnings, cash flows and dividends from its subsidiaries to pay dividends on its ~~common stock. The Company's subsidiaries are separate legal entities that have no obligation to pay any amounts due on its obligations or to make funds available to pay dividends on~~ common stock. Regulatory, contractual and legal limitations, as well as their capital requirements, affect the ability of the subsidiaries to pay dividends to the Company and thereby could restrict or influence the Company's ability or decision to pay dividends on its common stock, which could adversely affect the Company's stock price.

Costs related to obligations under MEPPs could have a material negative effect on the Company's results of operations and cash flows.

Various operating subsidiaries of the Company participate in ~~approximately 75~~ MEPPs for employees represented by certain unions. The Company is required to make contributions to these plans in amounts established under numerous collective bargaining agreements between the operating subsidiaries and those unions.

The Company may be obligated to increase its contributions to underfunded plans that are classified as being in endangered, seriously endangered or critical status as defined by the Pension Protection Act of 2006. Plans classified as being in one of these statuses are required to adopt RPs or FIPs to improve their funded status through increased contributions, reduced benefits or a combination of the two. ~~Based on available information, the Company believes that approximately 25 percent of the MEPPs to which it contributes are currently in endangered, seriously endangered or critical status.~~

The Company may also be required to increase its contributions to MEPPs if the other participating employers in such plans withdraw from the plans and are not able to contribute amounts sufficient to fund the unfunded liabilities associated with their participation in the plans. The amount and timing of any increase in the Company's required contributions to MEPPs may ~~also~~ depend upon one or more factors, including the outcome of collective bargaining; actions taken by trustees who manage the plans; actions taken by the plans' other participating employers; the industry for which contributions are made; future determinations that additional plans reach endangered, seriously endangered or critical status; newly-enacted government laws or regulations and the actual return on assets held in the plans; among others. The Company could experience increased operating expenses as a result of required contributions to MEPPs, which could have ~~a material~~an adverse effect on the Company's results of operations, financial position or cash flows.

In addition, pursuant to ERISA, as amended by MPPAA, the Company could incur a partial or complete withdrawal liability upon withdrawing from a plan, exiting a market in which it does business with a union workforce or upon termination of a plan. The Company could also incur additional withdrawal liability if its withdrawal from a plan is determined by that plan to be part of a mass withdrawal.

~~Information technology~~Technology disruptions or cyberattacks could adversely impact the Company's operations.

The Company uses technology in substantially all aspects of its business operations and requires uninterrupted operation of information technology and operation technology systems, including disaster recovery and backup systems and network infrastructure. While the Company has policies, procedures and processes in place designed to strengthen and protect these systems, they may be vulnerable to physical and cybersecurity failures or unauthorized access, ~~including disaster recovery and backup systems,~~ due to to:

•hacking,

•human error,

•theft,

•sabotage,

•malicious software,

•ransomware,

•third-party compromise,

•acts of terrorism,

•acts of war,

•acts of nature or

•other causes. ~~If these systems~~

~~MDU Resources Group, Inc.~~ ~~Form 10-K~~ 27

~~Part I~~

~~fail~~Although there are manual processes in place, should a compromise or ~~become compromised, and they are not recovered in a timely manner,~~system failure occur, interdependencies to technology may disrupt the ~~Company may be unable~~Company's ability to fulfill critical business functions. This may include interruption of electric generation, transmission and distribution facilities, natural gas storage and pipeline facilities and facilities for delivery of construction materials or other products and services, any of which could ~~have a material adverse effect on~~adversely affect the Company's reputation, business, cash flows and results of operations or subject the Company to legal or regulatory liabilities and increased costs. Additionally, the Company's electric generation and transmission systems and natural gas pipelines are part of interconnected systems with other operators’ facilities; therefore, a cyber-related disruption in another operator’s system could negatively impact the Company's business.

MDU Resources Group, Inc. Form 10-K 33

Index

Part I

The Company’s accounting systems and its ability to collect information and invoice customers for products and services could ~~also~~ be disrupted. If the Company’s operations ~~were~~are disrupted, it could result in decreased revenues orand remediation costs that could ~~have a material adverse effect on~~adversely affect the Company's results of operations and cash flows. Additionally, because electric generation and transmission systems and natural gas pipelines are part of interconnected systems with other operators’ facilities, a cyber-related disruption in another operator’s system could negatively impact the Company's business.

The Company is subject to ~~cyber security~~cybersecurity and privacy laws, regulations and ~~regulations~~security directives of many government agencies, including TSA, FERC and NERC. NERC issues comprehensive regulations and standards surrounding the security of bulk power systems and is continually ~~in the process of updating~~updates these requirements, as well as establishing new requirements with which the utility industry must comply. As these regulations evolve, the Company ~~will~~may experience increased compliance costs and may be at higher risk for violating these standards. Experiencing a cybersecurity incident could cause the Company to be non-compliant with applicable laws and regulations, causing the Company to incur costs related to legal claims, or proceedings and regulatory fines or penalties. ~~FERC continues its efforts to address cybersecurity challenges facing the nation's energy infrastructure. FERC has identified five areas of focus:~~

~~Supply Chain/Insider Threat/Third-Party Authorized Access;~~

~~Industry access to timely information on threats and vulnerabilities;~~

~~Cloud/Managed Security Service Providers;~~

~~Adequacy of security controls; and~~

~~Internal network monitoring and detection.~~

The Company, through the ordinary course of business, requires access to sensitive customer, supplier, employee and Company data. While the Company has implemented extensive security measures, including limiting the amount of sensitive information retained, a breach of its systems could compromise sensitive data and could go unnoticed for some time. ~~In addition, there has been an increase in the number and sophistication of cyber-attacks across all industries worldwide and the threats are continually evolving.~~ Such an event could result in negative publicity and reputational harm, remediation costs, legal claims and fines that could have an adverse effect on the Company's financial results. Third-party service providers that perform critical business functions for the Company or have access to sensitive information within the Company also may be vulnerable to security breaches and information technology risks that could ~~have an adverse effect on~~adversely affect the Company.

The Company’s information systems experience ~~on-going~~ongoing and often sophisticated ~~cyber-attacks~~cyberattacks by a variety of sources with the apparent aim to breach the Company's cyber-defenses. ~~As cyber-attacks~~The Company may face increased cyber risk due to the increased use of employee owned devices, work from home arrangements, and the proposed separation of Knife River Holding Company. Although the incidents the Company has experienced to date have not had a material effect on its business, financial condition or results of operations, such incidents could have a material adverse effect in the future as cyberattacks continue to increase in frequency and ~~sophistication, the Company may be unable to prevent all such attacks in the future.~~sophistication. The Company is continuously reevaluating the need to upgrade and/or replace systems and network infrastructure. These upgrades and/or replacements could adversely impact operations by imposing substantial capital expenditures, creating delays or outages, or experiencing difficulties transitioning to new systems. ~~Systems implementation disruption and any other information technology disruption,~~System disruptions, if not anticipated and appropriately mitigated, could ~~have an adverse effect on~~adversely affect the Company.

~~Other~~General risk factors that could impact the Company's businesses.

The following are ~~other~~additional factors that should be considered for a better understanding of the risks to the Company. These ~~other~~ factors may ~~have a materially negative~~negatively impact on the Company's financial results in future periods.

•Acquisition, disposal and impairments of assets or facilities.

~~Changes in operation, performance and construction of plant facilities or other assets.~~

•Changes in present or prospective electric generation.

~~The availability of economic expansion or development opportunities.~~

•Population decline and demographic ~~patterns.~~patterns in the Company's areas of service.

~~Economic and social impacts of epidemics.~~

~~Market demand for, available supplies of, and/or costs of, energy- and construction-related products and services.~~

•The cyclical nature of large construction projects at certain operations.

~~Unanticipated project delays or changes in project costs, including related energy costs.~~

~~Unanticipated changes in operating expenses or capital expenditures.~~

•Labor negotiations or disputes.

~~28 MDU Resources Group, Inc.~~• ~~Form 10-K~~Succession planning.

•Attracting and retaining employees.

~~Part I~~•Stockholder and environmental activism.

•Inability of ~~the~~ contract counterparties to meet their contractual obligations.

~~Changes in accounting principles and/or the application of such principles to the Company.~~

~~Changes in technology.~~

~~Changes in legal or regulatory proceedings.~~

~~Losses or costs relating to litigation.~~

•The inability to effectively integrate the operations and the internal controls of acquired companies.


Item 1B. Unresolved Staff Comments

The Company has no unresolved comments with the SEC.


Item 3. Legal Proceedings

SEC regulations require the Company to disclose certain information about proceedings arising under federal, state or local environmental provisions if the Company reasonably believes that such proceedings may result in monetary sanctions above a stated threshold. Pursuant to SEC regulations, the Company has adopted a threshold of $1.0 million for purposes of determining whether disclosure of any such proceedings is required.

For information regarding legal proceedings required by this item, see Item 8 - Note ~~20,~~21, which is incorporated herein by reference.


Item 4. Mine Safety Disclosures

For information regarding mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Act and Item 104 of Regulation S-K, see Exhibit 95 to this Form 10-K, which is incorporated herein by reference.

34 MDU Resources Group, Inc. Form 10-K29

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Part II

~~Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities~~


Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The Company's common stock is listed on the New York Stock Exchange under the symbol "MDU."

As of December 31, ~~2019~~,2022, the Company's common stock was held by approximately ~~10,700~~9,600 stockholders of record.

The Company depends on earnings and dividends from its subsidiaries to pay dividends on common stock. The Company has paid ~~quarterly~~uninterrupted dividends to stockholders for ~~more than 80~~85 consecutive years with an increase in the payout amount for the last 2932 consecutive years. The declaration and payment of dividends is at the sole discretion of the board of directors, subject to limitations imposed by agreements governing the Company's ~~credit agreements,~~indebtedness, federal and state laws, and applicable regulatory limitations. For more information on factors that may limit the Company's ability to pay dividends, see Item 8 - Note 12.

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

~~ISSUER PURCHASES 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)
October 1 through October 31, 2022	—	—	—	—
November 1 through November 30, 2022	40,800	$30.64	—	—
December 1 through December 31, 2022	—	—	—	—
Total	40,800	$30.64	—	—

(1) Represents shares of common stock purchased on the open market in connection with annual stock grants made to the Company's non-employee directors and for those directors who elected to receive additional shares of common stock in lieu of a portion of their cash retainer.

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)

October 1 through October 31, 2019 —
—
—
—
November 1 through November 30, 2019 41,644
$29.16 —
—
December 1 through December 31, 2019 —
—
—
—
Total 41,644
—
—
(2) Not applicable. The Company does not currently have in place any publicly announced plans or programs to repurchase equity securities.


~~(1)~~			~~Represents 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 purchase equity securities.~~

Item 6.

Reserved.

~~30 MDU Resources Group, Inc.~~ ~~Form 10-K~~

~~Part II~~

~~Item 6. Selected Financial Data~~

2019
2018
2017
2016
2015
2014
Selected Financial Data
Operating revenues (000's):
Electric $ 351,725
$ 335,123
$ 342,805
$ 322,356
$ 280,615
$ 277,874
Natural gas distribution 865,222
823,247
848,388
766,115
817,419
921,986
Pipeline and midstream 140,444
128,923
122,213
141,602
154,904
157,292
Construction materials and contracting 2,190,717
1,925,854
1,812,529
1,874,270
1,904,282
1,765,330
Construction services 1,849,266
1,371,453
1,367,602
1,073,272
926,427
1,119,529
Other 16,551
11,259
7,874
8,643
9,191
9,364
Intersegment eliminations (77,149 ) (64,307 ) (58,060 ) (57,430 ) (78,786 ) (136,302 )
$ 5,336,776
$ 4,531,552
$ 4,443,351
$ 4,128,828
$ 4,014,052
$ 4,115,073
Operating income (loss) (000's):

Electric $ 64,039
$ 65,148
$ 79,902
$ 67,929
$ 59,915
$ 61,515
Natural gas distribution 69,188
72,336
84,239
66,166
54,974
68,185
Pipeline and midstream 42,796
36,128
36,004
42,864
30,218
46,500
Construction materials and contracting 179,955
141,426
143,230
178,753
148,312
87,243
Construction services 126,426
86,764
81,292
53,546
43,678
82,408
Other (1,184 ) (79 ) (619 ) (349 ) (8,414 ) (5,370 )
Intersegment eliminations —
—
—
—
(2,942 ) (9,900 )
$ 481,220
$ 401,723
$ 424,048
$ 408,909
$ 325,741
$ 330,581
Earnings (loss) on common stock (000's):

Electric $ 54,763
$ 47,000
$ 49,366
$ 42,222
$ 35,914
$ 36,731
Natural gas distribution 39,517
37,732
32,225
27,102
23,607
30,484
Pipeline and midstream 29,603
28,459
20,493
23,435
13,250
24,666
Construction materials and contracting 120,371
92,647
123,398
102,687
89,096
51,510
Construction services 92,998
64,309
53,306
33,945
23,762
54,432
Other (2,086 ) (761 ) (1,422 ) (3,231 ) (14,941 ) (7,386 )
Intersegment eliminations —
—
6,849
6,251
5,016
(6,095 )
Earnings on common stock before income (loss) from discontinued operations 335,166
269,386
284,215
232,411
175,704
184,342
Income (loss) from discontinued operations, net of tax* 287
2,932
(3,783 ) (300,354 ) (834,080 ) 109,311
Loss from discontinued operations attributable to noncontrolling interest —
—
—
(131,691 ) (35,256 ) (3,895 )
$ 335,453
$ 272,318
$ 280,432
$ 63,748
$ (623,120 ) $ 297,548
Earnings per common share before discontinued operations - diluted $ 1.69
$ 1.38
$ 1.45
$ 1.19
$ .90
$ .96
Discontinued operations attributable to the Company, net of tax —
.01
(.02 ) (.86 ) (4.10 ) .59
$ 1.69
$ 1.39
$ 1.43
$ .33
$ (3.20 ) $ 1.55
Common Stock Statistics

Weighted average common shares outstanding -diluted (000's) 198,626
196,150
195,687
195,618
194,986
192,587
Dividends declared per common share $ .8150
$ .7950
$ .7750
$ .7550
$ .7350
$ .7150
Book value per common share $ 14.21
$ 13.09
$ 12.44
$ 11.78
$ 12.83
$ 16.66
Market price per common share (year end) $ 29.71
$ 23.84
$ 26.88
$ 28.77
$ 18.32
$ 23.50
Market price ratios:

Dividend payout** 48 % 58 % 53 % 63 % 82 % 74 %
Yield 2.8 % 3.4 % 2.9 % 2.7 % 4.1 % 3.1 %
Market value as a percent of book value 209.1 % 182.1 % 216.1 % 244.2 % 142.8 % 141.1 %


*	Reflects oil and natural gas properties noncash write-downs of $315.3 million (after tax) in 2015 and fair value impairments of assets held for sale of $157.8 million (after tax) and $475.4 million (after tax) in 2016 and 2015, respectively.


**	~~Based on continuing operations.~~

MDU Resources Group, Inc. Form 10-K 3135

Index

Part II

~~Item 6. Selected Financial Data (continued)~~

2019
2018
2017
2016
2015
2014
General
Total assets (000's) $ 7,683,059
$ 6,988,110
$ 6,334,666
$ 6,284,467
$ 6,565,154
$ 7,805,405
Total long-term debt (000's) $ 2,243,107
$ 2,108,695
$ 1,714,853
$ 1,790,159
$ 1,796,163
$ 2,016,198
Capitalization ratios:
Total equity 56 % 55 % 59 % 56 % 58 % 62 %
Total debt 44
45
41
44
42
38
100 % 100 % 100 % 100 % 100 % 100 %
Electric
Retail sales (thousand kWh) 3,314,307
3,354,401
3,306,470
3,258,537
3,316,017
3,308,358
Electric system summer and firm purchase contract ZRCs (Interconnected system) 591.3
574.5
553.1
559.7
547.3
584.0
Electric system peak demand obligation, including firm purchase contracts, planning reserve margin requirement (Interconnected system) 537.2
537.2
530.2
559.7
547.3
522.4
All-time demand peak - kW (Interconnected system) 611,542
611,542
611,542
611,542
611,542
582,083
Electricity produced (thousand kWh) 2,792,770
2,840,353
2,630,640
2,626,763
1,898,160
2,519,938
Electricity purchased (thousand kWh) 891,539
831,039
955,687
904,702
1,658,002
1,010,422
Average cost of electric fuel and purchased power per kWh $ .023
$ .022
$ .022
$ .021
$ .024
$ .025
Natural Gas Distribution

Retail sales (Mdk) 123,675
112,566
112,551
99,296
95,559
104,297
Transportation sales (Mdk) 166,077
149,497
144,477
147,592
154,225
145,941
Pipeline and Midstream

Transportation (Mdk) 429,660
351,498
312,520
285,254
290,494
233,483
Gathering (Mdk) 13,900
14,882
16,064
20,049
33,441
38,372
Customer natural gas storage balance (Mdk) 16,223
13,928
22,397
26,403
16,600
14,885
Construction Materials and Contracting

Sales (000's):
Aggregates (tons) 32,314
29,795
28,213
27,580
26,959
25,827
Asphalt (tons) 6,707
6,838
6,237
7,203
6,705
6,070
Ready-mixed concrete (cubic yards) 4,123
3,518
3,548
3,655
3,592
3,460
Aggregate reserves (000's tons) 1,054,186
1,014,431
965,036
989,084
1,022,513
1,061,156

~~32 MDU Resources Group, Inc.~~ ~~Form 10-K~~

~~Part II~~


Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation

The Company is Building a Strong America® by providing essential infrastructure and ~~Analysis~~services. The Company and its employees work hard to keep the economy of ~~Financial Condition~~America moving with the products and ~~Results~~services provided, which include powering, heating and connecting homes, factories, offices and stores; and building roads, highways, data infrastructure and airports. The Company is authorized to conduct business in nearly every state in the United States and during peak construction season has employed over 16,800 employees. The Company’s organic investments are strong drivers of ~~Operations~~high-quality earnings and continue to be an important part of the Company’s growth. Management believes the Company is well positioned in the industries and markets in which it operates.

~~On January 2, 2019,~~As part of the Company's strategic planning to optimize stockholder value, the Company announced its board of directors unanimously approved a plan to pursue a separation of Knife River from the Company on August 4, 2022, and, as a next step in its strategic planning, on November 3, 2022, the Company announced the ~~completion~~board of directors' plan to create two pure-play companies: a leading construction materials company and a regulated energy delivery company. The separation of Knife River is planned as a tax-free spinoff transaction to the Company’s stockholders for U.S. federal income tax purposes. The transaction is expected to result in two independent, publicly traded companies. Completion of the ~~Holding~~separation will be subject to, among other things, the effectiveness of a registration statement on Form 10 with the SEC, final approval from the Company’s board of directors, receipt of one or more tax opinions and a private letter ruling from the IRS, and other customary conditions. The Company ~~Reorganization, which resulted~~may, at any time and for any reason until the proposed transaction is complete, abandon the separation or modify or change its terms. The separation is expected to be complete in ~~Montana-Dakota becoming a subsidiary~~the second quarter of 2023, but there can be no assurance regarding the ultimate timing of the ~~Company.~~separation or that the separation will ultimately occur. In addition, the board has authorized management to commence a strategic review process for MDU Construction Services with the objective of achieving the board’s goal of creating two pure-play public companies. The ~~merger was conducted pursuant to Section 251(g)~~strategic review is well underway, and the Company anticipates completing it during the second quarter of 2023. See Item 1A - Risk Factors for a description of the ~~General Corporation Law of~~risks and uncertainties with the ~~State of Delaware, which provides for~~proposed future structure. The Company incurred costs in connection with the ~~formation of a holding company without a vote of~~announced strategic initiatives in 2022, as noted in the ~~stockholders of~~Business Segment Financial and Operating Data section, and expects to continue to incur these costs until the constituent corporation. Immediately after consummation of the Holding Company Reorganization, the Company had, on a consolidated basis, the same assets, businesses and operations as Montana-Dakota had immediately prior to the consummation of the Holding Company Reorganization. As a result of the Holding Company Reorganization, the Company became the successor issuer to Montana-Dakota pursuant to Rule 12g-3(a) of the Exchange Act, and as a result, the Company's common stock was deemed registered under Section 12(b) of the Exchange Act.initiatives are completed.

The Company ~~operates with a two-platform~~continues to manage the inflationary pressures experienced throughout the United States, including the impact that inflation, rising interest rates, commodity price volatility and supply chain disruptions may have on its business ~~model. Its regulated energy delivery platform~~ and customers and proactively looks for ways to lessen the impact to its construction materials and services platform are each comprised of different operating segments. Some of these segments experience seasonality related to the industries in which they operate. The two-platform approach helps balance this seasonality and the risk associated with each type of industry. Through its regulated energy delivery platform, the Company provides electric and natural gas services to customers, generates, transmits and distributes electricity, and provides natural gas transportation, storage and gathering services. These businesses are regulated by state public service commissions and/or the FERC. The construction materials and services platform provides construction services to a variety of industries, including commercial, industrial and governmental, and provides construction materials through aggregate mining and marketing of related products, such as ready-mixed concrete and asphalt.

The Company is organized into five reportable business segments. These business segments include: electric, natural gas distribution, pipeline and midstream, construction materials and contracting, and construction services. The Company's business segments are determined 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 internal reporting of these segments is defined based on the reporting and review process used by the Company's chief executive officer.

~~The Company's strategy is to apply its expertise~~business. Inflation rates in the ~~regulated energy delivery~~Unites States increased significantly during 2022, relative to historical precedent, and ~~construction materials and services businesses~~may continue to increase market share, increase profitability and enhance shareholder value through organic growth opportunities and strategic acquisitions. The Company is focused on a disciplined approach to the acquisition of well-managed companies and properties.

rise. The Company has ~~capabilities~~continued to ~~fund~~evaluate its ~~growth~~businesses and ~~operations through various sources, including internally generated funds, commercial paper facilities, revolving credit facilities~~has increased pricing for its products and services where necessary as evidenced by the increase in revenues recognized in 2022. The ability to raise selling prices to cover higher costs due to inflation are subject to customer demand, industry competition and the ~~issuance from time~~availability of materials, among other things. Rising interest rates have resulted in, and will likely continue to ~~time~~result in, higher borrowing costs on new debt, resulting in impacts to the Company's asset valuations and negatively impacting the purchasing power of ~~debt and equity securities.~~its customers. For more information on possible impacts to the Company's ~~capital expenditures,~~businesses, see ~~Liquidity~~the Outlook for each segment below and ~~Capital Commitments.~~Item 1A - Risk Factors.

36 MDU Resources Group, Inc. Form 10-K

Index

Part II

Consolidated Earnings Overview

The following table summarizes the contribution to the consolidated ~~earnings~~income by each of the Company's business segments.

Years ended December 31, 2019
2018
2017
(In millions, except per share amounts)
Electric $ 54.8
$ 47.0
$ 49.4
Natural gas distribution 39.5
37.7
32.2
Pipeline and midstream 29.6
28.5
20.5
Construction materials and contracting 120.4
92.6
123.4
Construction services 93.0
64.3
53.3
Other (2.1 ) (.7 ) (1.5 )
Intersegment eliminations —
—
6.9
Earnings before discontinued operations 335.2
269.4
284.2
Income (loss) from discontinued operations, net of tax .3
2.9
(3.8 )
Earnings on common stock $ 335.5
$ 272.3
$ 280.4
Earnings per common share - basic:
Earnings before discontinued operations $ 1.69
$ 1.38
$ 1.46
Discontinued operations, net of tax —
.01
(.02 )
Earnings per common share - basic $ 1.69
$ 1.39
$ 1.44
Earnings per common share - diluted:
Earnings before discontinued operations $ 1.69
$ 1.38
$ 1.45
Discontinued operations, net of tax —
.01
(.02 )
Earnings per common share - diluted $ 1.69
$ 1.39
$ 1.43


Years ended December 31,	2022		2021		2020
	(In millions, except per share amounts)
Electric	$	57.1	$	51.9	$	55.6
Natural gas distribution	45.2		51.6		44.0
Pipeline	35.3		40.9		37.0
Construction materials and contracting	116.2		129.8		147.3
Construction services	124.8		109.4		109.7
Other	(11.3)		(5.9)		(3.1)

Income from continuing operations	367.3		377.7		390.5
Discontinued operations, net of tax	.2		.4		(.3)

Net income	$	367.5	$	378.1	$	390.2
Earnings per share - basic:
Income from continuing operations	$	1.81	$	1.87	$	1.95
Discontinued operations, net of tax	—		—		—
Earnings per share - basic	$	1.81	$	1.87	$	1.95
Earnings per share - diluted:
Income from continuing operations	$	1.81	$	1.87	$	1.95
Discontinued operations, net of tax	—		—		—
Earnings per share - diluted	$	1.81	$	1.87	$	1.95

~~MDU Resources Group, Inc.~~ ~~Form 10-K~~ 33

~~Part II~~

~~2019~~2022 compared to ~~2018~~2021 The Company's consolidated earnings ~~increased $63.2~~decreased $10.6 million.

~~Positively~~The Company experienced decreased earnings at the construction materials and contracting, natural gas distribution and pipeline businesses. While the construction materials and contracting business experienced higher average pricing on materials and increased contracting revenues, results were negatively impacted by ongoing inflationary pressures, including energy and other operating costs. The natural gas distribution business experienced higher operating expenses, including subcontractor costs, as well as higher interest and depreciation expenses, partially offset by increased sales volumes and approved rate recovery in certain jurisdictions. The pipeline business experienced higher interest expense and lower non-regulated project margins, partially offset by the net benefit of the North Bakken Expansion project. The Company's earnings were further impacted by $21.0 million in lower returns on the Company's nonqualified benefit plan investments, as discussed in Note 8, and the costs incurred in connection with the announced strategic initiatives of $12.7 million, after tax. Partially offsetting the decreases were increased earnings at the construction services business resulting from higher electrical and mechanical project margins and earnings from the segment's joint ventures, partially offset by higher overall operating expenses related to increased payroll-related costs and expected credit losses. The electric business benefited from interim rate relief in North Dakota, higher net transmission revenues and higher retail sales volumes as a result of colder weather, as well as lower operation and maintenance expenses, largely related to plant closures.

2021 compared to 2020 The Company's consolidated earnings decreased $12.1 million.

Negatively impacting the Company's earnings was ~~an increase~~a decrease in gross margin ~~at the construction services business, largely resulting from higher inside and outside specialty contracting workloads. Also contributing to the increase in earnings was an increase in gross margin~~across most product lines at the construction materials and contracting business asresulting from labor constraints; increased material costs, including asphalt oil and diesel fuel; higher equipment, repair and maintenance costs; and less available paving work in certain regions. The decrease was partially offset by higher AFUDC for the construction of the North Bakken Expansion project and higher earnings due to increased natural gas transportation volumes at the pipeline business. Also positively impacting earnings was higher operating income at the electric and natural gas businesses, largely a result of strong economic environments in certain states, as well as contributions from the businesses acquired and an increase in gains recognized on asset sales. The electric business also positively impacted earnings primarily due to approved rate relief in Montana and recovery of the investment in the BSSE project placed into service in the first quarter of 2019. Higher returns on the Company's benefit plan investments also increased earnings across all businesses. At the pipeline and midstream business, increased rates and volumes of natural gas being transported through its pipeline were mostly offset by the absence of a $4.2 million income tax benefit included in 2018, as discussed below, and higher depreciation, depletion and amortization expense.

~~2018 compared to 2017~~ ~~The Company's consolidated earnings decreased $8.1 million.~~

~~The Company's earnings were positively impacted in 2018 as a result of the lower federal statutory tax rate, which was~~certain jurisdictions, partially offset by the absence of a $39.5 million tax benefit recorded in the fourth quarter of 2017 for the revaluation of the business's net deferred tax liabilities. Both tax impacts were the result of the enactment of the TCJA, as further discussed in Item 8 - Note 14. Decreased earnings due to lower returns on investments also offset the lower income tax rate. Also positively impacting the Company's earnings were higher ~~outside specialty contracting gross margins due to increased outside equipment sales~~operations and rentals at the construction services business, as well as a $4.2 million income tax benefit relating to the reversal of a regulatory liability recorded in 2017 based on a FERC final accounting order issued during the third quarter of 2018 at the pipeline and midstream business.maintenance expenses.

A discussion of key financial data from the Company's business segments follows.

Business Segment Financial and Operating Data

Following are key financial and operating data for each of the Company's business segments. Also included are highlights on key growth strategies, projections and certain assumptions for the Company and its subsidiaries and other matters of the Company's business segments. Many of these highlighted points are "forward-looking statements." For more information, see Part I - 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 Item 1A - Risk Factors. Changes in such assumptions and factors could cause actual future results to differ materially from the Company's growth and earnings projections.

MDU Resources Group, Inc. Form 10-K 37

Index

Part II

For information pertinent to various commitments and contingencies, see Item 8 - Notes to Consolidated Financial Statements. For a summary of the Company's business segments, see Item 8 - Note ~~16.~~17.

Electric and Natural Gas Distribution

Strategy and challenges The electric and natural gas distribution segments provide electric and natural gas distribution services to customers, as discussed in Items 1 and 2 - Business Properties. Both segments strive to be a top performing utility ~~company~~companies measured by integrity, employee safety ~~employee~~and satisfaction, customer service and ~~shareholder return, while continuing to focus on providing~~stockholder return. The segments provide safe, ~~environmentally friendly,~~ reliable, ~~and~~ competitively priced and environmentally responsible energy service to customers while focusing on growth and ~~related services to customers.~~expansion opportunities within and beyond its existing territories. The Company is focused on cultivating organic growth while managing operating costs and ~~continues to monitor~~monitoring opportunities for these segments to retain, grow and expand their customer base through extensions of existing operations, including building and upgrading electric generation, transmission and distribution, and natural gas systems, and through selected acquisitions of companies and properties with similar operating and growth objectives at prices that will provide stable cash flows and an opportunity to earn a competitive return on investment. The continued efforts to create operational improvements and efficiencies across both segments promotes the Company's business integration strategy. The primary factors that impact the results of these segments are the ability to earn authorized rates of return, the cost of natural gas, cost of electric fuel and purchased power, weather, climate change initiatives, competitive factors in the energy industry, population growth and economic conditions in the segments' service areas.

The electric and natural gas distribution segments are subject to extensive regulation in the jurisdictions where they conduct operations with respect to costs, timely recovery of investments and permitted returns on investment, as well as certain operational, environmental and system integrity regulations. To assist in the reduction of regulatory lag with the increase in investments, tracking mechanisms have been implemented in certain jurisdictions, as further discussed in Items 1 and 2 - Business Properties and Item 8 - Note 19. The Pipeline and Hazardous Materials Safety Administration recently issued additional rules to strengthen the safety of natural gas transmission and hazardous liquid pipelines.investment. The Company is ~~currently evaluating~~focused on modernizing utility infrastructure to meet the ~~first phase~~varied energy needs of both its customers and communities while ensuring the ~~rules. Legislative~~delivery of safe, reliable, affordable and regulatory initiatives to increase renewable energy resources and reduce GHG emissions could impact the price and demand for electricity and natural gas, as well as increase costs to produce electricity and natural gas.environmentally responsible energy. The segments continue to invest in facility upgrades to be in compliance with ~~the~~ existing and known future regulations. To assist in the reduction of regulatory lag in obtaining revenue increases to align with increased investments, tracking mechanisms have been implemented in certain jurisdictions. The Company also seeks rate adjustments for operating costs and capital investments, as well as reasonable returns on investments not covered by tracking mechanisms. For more information on the Company's tracking mechanisms and recent cases, see Items 1 and 2 - Business Properties and Item 8 - Note 20.

~~34 MDU Resources Group, Inc.~~ ~~Form 10-K~~

~~Part II~~

~~Tariff increases~~These segments are also subject to extensive regulation related to certain operational and environmental compliance, cybersecurity, permit terms and system integrity. Both segments are faced with the ongoing need to actively evaluate cybersecurity processes and procedures related to its transmission and distribution systems for opportunities to further strengthen its cybersecurity protections. Within the past year, there have been cyber and physical attacks within the energy industry on ~~steel~~energy infrastructure, such as substations, and ~~aluminum materials could negatively affect~~ the ~~segments' construction projects and maintenance work. The~~ Company continues to ~~monitor~~evaluate the ~~impact of tariffs on raw material costs. The~~safeguards implemented to protect its electric and natural gas ~~distribution segment~~utility systems. Implementation of enhancements and additional requirements to protect the Company's infrastructure is ~~also facing~~ongoing.

To date, many states have enacted, and others are considering, mandatory clean energy standards requiring utilities to meet certain thresholds of renewable and/or carbon-free energy supply. The current presidential administration has made climate change a focus, as further discussed in the Outlook section. Over the long-term, the Company expects overall electric demand to be positively impacted by increased ~~lead times on delivery~~electrification trends, including electric vehicle adoption, as a means to address economy-wide carbon emission concerns and changing customer conservation patterns. MISO and NERC have recently announced concerns with reliability of ~~certain raw materials used~~the electric grid due to capacity shortages, which has resulted from rapid expansion of renewables and rapid reduction of baseload resources such as coal, while load growth has increased faster than expected. MISO received FERC approval of a seasonal resource adequacy construct, or accreditation process, versus the previous annual summer peak capacity requirement process. The new construct will include a higher planning reserve margin in ~~pipeline projects. In addition~~winter, spring and fall and a higher Coincident Load Factor for Montana-Dakota in the winter season. This is a change from the current summer requirement only process. These changes have not required Montana-Dakota to obtain additional accredited seasonal capacity but additional future accreditation process changes could impact the ~~effect of tariffs, long lead times are attributable~~Company and result in increased costs to ~~increased demand for steel products from pipeline companies as they respond to the United States Department of Transportation Pipeline System Safety and Integrity Plan.~~produce electricity. The Company ~~continues~~will continue to monitor the ~~material lead times~~progress of these changes and ~~is working with manufacturers to proactively order such materials to help mitigate~~assess the ~~risk~~potential impacts they may have on its stakeholders, business processes, results of ~~delays due to extended lead times.~~

~~The ability to grow through acquisitions is subject to significant competition~~operations, cash flows and acquisition premiums. In addition, the ability of the segments to grow their service territory and customer base is affected by the economic environment of the markets served and competition from other energy providers and fuels. The construction of any new electric generating facilities, transmission lines and other service facilities is subject to increasing costs and lead times, extensive permitting procedures, and federal and state legislative and regulatory initiatives, which will likely necessitate increases in electric energy prices.disclosures.

Revenues are impacted by both customer growth and usage, the latter of which is primarily impacted by ~~weather.~~weather, as well as impacts associated with commercial and industrial slow-downs, including economic recessions, and energy efficiencies. Very cold winters increase demand for natural gas and to a lesser extent, electricity, while warmer than normal summers increase demand for electricity, especially among residential and commercial customers. Average consumption among both electric and natural gas customers has tended to decline as more efficient appliances and furnaces are installed, and as the Company has implemented conservation programs. Natural gas weather normalization and decoupling mechanisms in certain jurisdictions have been implemented to largely mitigate the effect that would otherwise be caused by variations in volumes sold to these customers due to weather and changing consumption patterns on the Company's distribution ~~margins.~~margins, as further discussed in Items 1 and 2 - Business Properties.

In December 2022 and January 2023, natural gas prices significantly increased across the Pacific Northwest from multiple price-pressuring events including wide-spread below-normal temperatures; higher natural gas consumption; reduced natural gas flows due to pipeline constraints, including maintenance in West Texas; and historically low regional natural gas storage levels. These higher natural gas prices impacted both Intermountain and Cascade, both of which initiated $125.0 million and $150.0 million in early 2023, respectively, of short-term debt to finance the increased natural gas costs. Intermountain filed an out of cycle purchased gas adjustment effective February 1, 2023, to start recovering the higher prices. For a discussion of the Company's most recent cases by jurisdiction, see Item 8 - Note 20.

38 MDU Resources Group, Inc. Form 10-K

Index

Part II

The Company continues to proactively monitor and work with its manufacturers to reduce the effects of increased pricing and lead times on delivery of certain raw materials and equipment used in electric generation, transmission and distribution system and natural gas pipeline projects. Long lead times are attributable to increased demand for steel products from pipeline companies as they continue pipeline system safety and integrity replacement projects driven by PHMSA regulations, as well as delays in the manufacturing and shipping of electrical equipment as a result of the lingering effects of the COVID-19 pandemic, staffing shortages across multiple industries and global conflicts. While not material, these segments have experienced delays and inflationary pressures, including increased costs related to purchased natural gas and capital expenditures. The Company has been able to minimize the effects by working closely with suppliers or obtaining additional suppliers, as well as modifying project plans to accommodate extended lead times and increased costs. The Company expects these delays and inflationary pressures to continue.

The ability to grow through acquisitions is subject to significant competition and acquisition premiums. In addition, the ability of the segments to grow their service territory and customer base is affected by regulatory constraints, the economic environment of the markets served and competition from other energy providers and fuels. As the industry continues to expand the use of renewable energy sources, the need for additional transmission infrastructure is growing. On July 25, 2022, as part of its long range transmission plan, MISO announced approval of 18 transmission projects totaling $10.3 billion of investments in MISO's midwest subregion, of which Montana-Dakota is a part. As part of MISO's long range transmission plan, in August 2022, the Company announced its intent to develop, construct and co-own an approximately 95 mile 345 kV transmission line with Otter Tail Power Company in central North Dakota. The construction of new electric generating facilities, transmission lines and other service facilities is subject to increasing costs and lead times, extensive permitting procedures, and federal and state legislative and regulatory initiatives, which may necessitate increases in electric energy prices.

Earnings overview - The following information summarizes the performance of the electric segment.


							2022 vs. 2021		2021 vs. 2020
Years ended December 31,	2022		2021		2020		Variance		Variance
	(In millions)
Operating revenues	$	377.1	$	349.6	$	332.0	8	%	5	%
Operating expenses:
Electric fuel and purchased power	92.0		74.1		66.9		24	%	11	%
Operation and maintenance	120.7		124.9		121.3		(3)	%	3	%
Depreciation, depletion and amortization	67.8		66.8		63.0		1	%	6	%
Taxes, other than income	16.9		17.5		17.4		(3)	%	1	%
Total operating expenses	297.4		283.3		268.6		5	%	5	%
Operating income	79.7		66.3		63.4		20	%	5	%
Other income	.5		4.6		7.2		(89)	%	(36)	%
Interest expense	28.5		26.7		26.7		7	%	—	%
Income before income taxes	51.7		44.2		43.9		17	%	1	%
Income tax benefit	(5.4)		(7.7)		(11.7)		(30)	%	(34)	%
Net income	$	57.1	$	51.9	$	55.6	10	%	(7)	%

Years ended December 31, 2019
2018
2017
(Dollars in millions, where applicable)
Operating revenues $ 351.7
$ 335.1
$ 342.8
Electric fuel and purchased power 86.6
80.7
78.7
Taxes, other than income .6
.7
.8
Adjusted gross margin 264.5
253.7
263.3
Operating expenses:
Operation and maintenance 125.7
123.0
122.2
Depreciation, depletion and amortization 58.7
51.0
47.7
Taxes, other than income 16.1
14.5
13.5
Total operating expenses 200.5
188.5
183.4
Operating income 64.0
65.2
79.9
Other income 3.4
1.2
3.2
Interest expense 25.3
25.9
25.4
Income before income taxes 42.1
40.5
57.7
Income taxes (12.7 ) (6.5 ) 7.7
Net income 54.8
47.0
50.0
Loss/dividends on preferred stock —
—
.6
Earnings $ 54.8
$ 47.0
$ 49.4
Retail sales (million kWh):
Residential 1,177.9
1,196.6
1,153.5
Commercial 1,499.9
1,513.9
1,513.1
Industrial 549.4
551.0
539.9
Other 87.1
92.9
100.0
3,314.3
3,354.4
3,306.5
Average cost of electric fuel and purchased power per kWh $ .023
$ .022
$ .022

Adjusted gross margin is a non-GAAP financial measure. For additional information and reconciliation of the non-GAAP adjusted gross margin attributable to the electric segment, see the Non-GAAP Financial Measures section later in this Item.

~~2019 compared to 2018~~ ~~Electric earnings increased $7.8 million (17 percent) as a result of:~~

~~Adjusted gross margin:~~ Increase of $10.8 million, primarily due to an increase in revenues. The revenue increase was driven by implemented regulatory mechanisms, which include approved Montana interim and final rates and recovery of the investment in the


Operating statistics
	2022		2021		2020
Revenues (millions)
Retail sales:
Residential	$	135.4	$	123.0	$	122.6
Commercial	142.7		133.3		131.2
Industrial	43.0		40.5		36.7
Other	7.3		6.8		6.6
	328.4		303.6		297.1
Transportation and other	48.7		46.0		34.9
	$	377.1	$	349.6	$	332.0
Volumes (million kWh)
Retail sales:
Residential	1,226.4		1,164.8		1,170.9
Commercial	1,437.7		1,433.0		1,419.4
Industrial	596.1		589.4		532.1
Other	83.7		84.4		82.1
	3,343.9		3,271.6		3,204.5
Average cost of electric fuel and purchased power per kWh	$	.026	$	.021	$	.019

MDU Resources Group, Inc. Form 10-K 3539

Index

Part II

2022 compared to 2021 Electric earnings increased $5.2 million as a result of:

•Revenue increased $27.5 million.

~~BSSE project placed into service~~◦Largely attributable to:

▪Higher fuel and purchased power costs of $17.9 million recovered in ~~the first quarter~~customer rates and offset in expense, as described below.

▪Interim rate relief in North Dakota of ~~2019. Also contributing to the increase was the absence in 2019~~$5.0 million.

▪Higher net transmission revenues of a$3.9 million, largely from increased investment, and higher transmission ~~formula rate adjustment recognized in the third quarter~~interconnect upgrades of ~~2018 for decreased costs on the BSSE project. These increases were partially offset by lower~~$800,000.

▪Higher retail sales volumes of ~~1.2~~2.2 percent, ~~across all major customer classes.~~primarily to residential customers, largely due to colder weather in the first and fourth quarters of the year.

◦Partially offset by:

▪Lower renewable tracker revenues associated with higher production tax credits offset in expense, as described below.

▪Lower per unit average rates of $1.0 million related to block rates in certain jurisdictions.

•Electric fuel and purchased power increased $17.9 million.

◦Primarily the result of $17.4 million higher commodity price, including higher recovery of fuel clause adjustments, and increased retail sales volumes.

•Operation and ~~maintenance:~~maintenance decreased $4.2 million.

◦ ~~Increase of $2.7 million, primarily resulting from higher~~Primarily due to:

▪Decreased payroll-related costs, ~~partially~~largely $2.8 million related to the Heskett Station and Lewis & Clark Station plant closures and lower incentive accruals of $1.9 million.

▪Reduced materials costs and contract services from the Heskett Station and Lewis & Clark Station plant closures.

▪Reduced costs due to the absence of the Big Stone Station outage in 2021.

◦Partially offset by ~~lower material expenses across all locations.~~increased contract services associated with a planned outage at Coyote Station of $2.6 million.

•Depreciation, depletion and ~~amortization:~~ ~~Increase of $7.7~~amortization increased $1.0 million, ~~as a result of~~largely resulting from increased property, plant and equipment balances ~~including the BSSE project, as previously discussed,~~placed in service, mostly related to growth and replacement projects.

•Taxes, other ~~capital projects, as well~~than income decreased $600,000, largely as a ~~reserve for~~result of lower coal conversion taxes in certain ~~costs~~jurisdictions.

•Other income decreased $4.1 million, primarily due to lower returns on the Company's nonqualified benefit plan investments of $4.6 million, as discussed in Note 8, partially offset by higher AFUDC equity largely due to higher rates.

•Interest expense increased $1.8 million, largely resulting from $3.2 million due to higher long-term debt balances, partially offset by higher AFUDC debt largely due to higher rates.

•Income tax benefit decreased $2.3 million.

◦Largely due to:

▪Higher income taxes of $1.8 million related to higher taxable income.

▪Higher permanent tax adjustments and decreased excess deferred amortization.

◦Partially offset by higher production tax credits of $1.4 million driven by higher wind production.

2021 compared to 2020 Electric earnings decreased $3.7 million as a result of:

•Revenue increased $17.6 million

◦Higher fuel and purchased power costs of $7.2 million recovered in customer rates and offset in expense, as described below.

◦Higher transmission revenues of $3.3 million.

◦Higher transmission interconnect upgrades of $2.4 million.

◦Higher MISO revenue of $2.0 million.

◦Higher demand revenues of $1.5 million.

◦Increased retail sales volumes of 2.1 percent, largely as a result of increased industrial and commercial sales volumes, offset in part by lower residential sales volumes, as the impacts of the COVID-19 pandemic began to reverse and businesses reopened.

•Electric fuel and purchased power increased $7.2 million attributable to higher MISO costs as a result of increased energy costs, partially offset by decreased fuel costs associated with the Lewis & Clark Station plant closure.

•Operation and maintenance expense increased $3.6 million.

◦Primarily the result of:

▪Higher planned maintenance outage costs of $2.1 million at Big Stone Station and $800,000 higher maintenance fees at Thunder Spirit.

▪Higher other miscellaneous expenses.

◦Partially offset by lower payroll-related costs of $700,000, which includes lower employee incentive accruals, offset in part by higher health care costs.

•Depreciation, depletion and amortization increased $3.8 million largely resulting from:

◦Increased property, plant and equipment balances, primarily related to transmission projects placed in service.

◦Increased amortization of plant retirement and closure costs of ~~three aging coal-fired electric generating units,~~$1.7 million recovered in operating revenues, as discussed in Item 8 - Note ~~7, which is offset in income taxes.~~6.

•Taxes, other than ~~income:~~ ~~Increase of $1.6 million, primarily from higher property taxes in certain jurisdictions.~~

~~Other income:~~ Increase of $2.2 million, largely the result of higher returns on the Company's benefit plan investments, partially offset by the write-down of a non-utility investment, as discussed in Item 8 - Note 8.

~~Interest expense:~~ ~~Decrease of $600,000 driven by higher AFUDC, which resulted in more interest being capitalized on regulated construction projects.~~

~~Income taxes:~~ ~~Increase in~~ income ~~tax benefits of $6.2 million, largely due to increased production tax credits, as well as increased excess deferred tax amortization.~~

~~2018 compared to 2017Electric earnings decreased $2.4 million (5 percent) as a result of:~~

~~Adjusted gross margin:~~ ~~Decrease of $9.6 million, primarily due to lower operating revenues driven by the reserves against revenues in certain jurisdictions for anticipated refunds to customers for lower income taxes due~~was comparable to the ~~enactment of TCJA and a transmission formula rate adjustment due to lower than anticipated project costs on the BSSE project recorded~~same period in the third quarter of 2018. Partially offsetting the decreases to adjusted gross margin were the absence in 2018 of reserves related to tracker balances in prior years and increased retail sales volumes of 1 percent to all major customer classes.

~~Operation and maintenance:~~ ~~Increase of $800,000, largely from higher contract services at certain generating stations. Partially offsetting the increase were lower payroll-related costs.~~

~~Depreciation, depletion and amortization:~~ ~~Increase of $3.3 million as a result of increased plant balances.~~

~~Taxes, other than income:~~ ~~Increase of $1.0 million, primarily from higher property taxes in certain jurisdictions.~~

~~Other income:~~ ~~Decrease of $2.0 million, largely the result of lower returns on investments.~~

~~Interest expense:~~ ~~Comparable to~~ the prior year.

~~Income taxes:~~ Decrease of $14.2 million, largely due to the enactment of the TCJA reduced corporate tax rate, reduced income before income taxes and the absence of $2.1 million of income tax expense in 2018 for the revaluation of nonutility net deferred tax assets in 2017. Partially offsetting these decreases were lower production tax credits. A portion of the reduction in income taxes are being reserved against revenues, as previously discussed, resulting in a minimal impact on overall earnings.

3640 MDU Resources Group, Inc. Form 10-K

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Part II

•Other income decreased $2.6 million.

◦Primarily due to:

▪The absence of an out-of-period adjustment of $2.5 million in 2020 as a result of previously overstated benefit plan expenses.

▪Lower returns on the Company's nonqualified benefit plan investments of $1.3 million.

◦Partially offset by increased interest income associated with higher contributions in aid of construction.

•Interest expense was comparable to the same period in the prior year.

•Income tax benefit decreased $4.0 million largely resulting from:

◦Lower production tax credits of $2.1 million related to the expiration of the 10-year credit-qualifying period on certain facilities and less wind generation.

◦Lower excess deferred tax amortization.

Earnings overview - The following information summarizes the performance of the natural gas distribution segment.


							2022 vs. 2021		2021 vs. 2020
Years ended December 31,	2022		2021		2020		Variance		Variance
	(In millions)
Operating revenues	$	1,273.8	$	971.9	$	848.2	31	%	15	%
Operating expenses:
Purchased natural gas sold	816.1		542.0		448.1		51	%	21	%
Operation and maintenance	205.3		194.1		185.4		6	%	5	%
Depreciation, depletion and amortization	89.4		86.0		84.6		4	%	2	%
Taxes, other than income	71.1		60.6		57.0		17	%	6	%
Total operating expenses	1,181.9		882.7		775.1		34	%	14	%
Operating income	91.9		89.2		73.1		3	%	22	%
Other income	3.3		8.1		13.5		(59)	%	(40)	%
Interest expense	42.2		37.3		36.8		13	%	1	%
Income before income taxes	53.0		60.0		49.8		(12)	%	20	%
Income tax expense	7.8		8.4		5.8		(7)	%	45	%
Net income	$	45.2	$	51.6	$	44.0	(12)	%	17	%


Operating statistics
	2022		2021		2020
Revenues (millions)
Retail sales:
Residential	$	715.5	$	548.1	$	480.5
Commercial	450.9		330.4		281.2
Industrial	41.5		31.1		26.2
	1,207.9		909.6		787.9
Transportation and other	65.9		62.3		60.3
	$	1,273.8	$	971.9	$	848.2
Volumes (MMdk)
Retail sales:
Residential	74.8		65.6		65.5
Commercial	51.0		44.7		44.2
Industrial	5.4		5.0		4.8
	131.2		115.3		114.5
Transportation sales:
Commercial	2.0		1.9		2.0
Industrial	165.7		172.5		158.0
	167.7		174.4		160.0
Total throughput	298.9		289.7		274.5
Average cost of natural gas per dk	$	6.22	$	4.70	$	3.91

MDU Resources Group, Inc. Form 10-K 41

Index

Part II

Years ended December 31, 2019
2018
2017
(Dollars in millions, where applicable)
Operating revenues $ 865.2
$ 823.2
$ 848.4
Purchased natural gas sold 477.6
454.8
479.9
Taxes, other than income 30.3
28.5
30.0
Adjusted gross margin 357.3
339.9
338.5
Operating expenses:
Operation and maintenance 185.0
173.4
164.3
Depreciation, depletion and amortization 79.6
72.5
69.4
Taxes, other than income 23.5
21.7
20.5
Total operating expenses 288.1
267.6
254.2
Operating income 69.2
72.3
84.3
Other income 7.2
.2
2.0
Interest expense 35.5
30.7
31.2
Income before income taxes 40.9
41.8
55.1
Income taxes 1.4
4.1
22.8
Net income 39.5
37.7
32.3
Loss/dividends on preferred stock —
—
.1
Earnings $ 39.5
$ 37.7
$ 32.2
Volumes (MMdk)
Retail sales:
Residential 69.4
63.7
63.6
Commercial 49.1
44.4
44.3
Industrial 5.2
4.5
4.6
123.7
112.6
112.5
Transportation sales:
Commercial 2.2
2.2
2.0
Industrial 163.9
147.3
142.5
166.1
149.5
144.5
Total throughput 289.8
262.1
257.0
Average cost of natural gas per dk $ 3.86
$ 4.04
$ 4.26

Adjusted gross margin is a non-GAAP financial measure. For additional information and reconciliation of the non-GAAP adjusted gross margin attributable to the natural gas distribution segment, see the Non-GAAP Financial Measures section later in this Item.

~~2019~~2022 compared to ~~2018~~2021: Natural gas distribution earnings ~~increased $1.8~~decreased $6.4 million ~~(5 percent)~~ as a result of:

~~Adjusted gross margin:~~• ~~Increase~~Revenue increased $301.9 million, largely from:

◦Higher purchased natural gas sold of ~~$17.4~~$273.3 million ~~primarily driven by an increase~~recovered in customer rates that was offset in expense, as described below.

◦Higher retail sales volumes of ~~9.9~~13.7 percent ~~related to~~across all customer classes due to colder weather, partially offset by weather normalization and ~~conservation adjustments~~decoupling mechanisms in certain jurisdictions.

◦Higher revenue-based taxes recovered in rates of $10.1 million that were offset in expense, as described below.

◦Approved rate relief of $3.6 million in certain jurisdictions and ~~approved rate~~higher pipeline replacement mechanisms of $1.8 million.

•Purchased natural gas sold increased $274.1 million, primarily due to:

◦Higher natural gas costs as a result of higher market prices of $198.1 million, including the higher recovery ~~in certain jurisdictions. The adjusted gross margin was also positively impacted by higher rate realization~~of purchase gas adjustments related to the February 2021 cold weather event and the 2018 Enbridge pipeline rupture.

◦Higher volumes of natural gas purchased due to ~~higher conservation revenue, which offsets~~increased retail sales volumes.

◦Purchased natural gas sold includes the ~~conservation expense~~disallowance of $845,000 ordered by the MNPUC, as discussed in ~~operation~~Note 20.

•Operation and maintenance ~~expense.~~increased $11.2 million, primarily due to:

~~Operation and maintenance:~~◦ ~~Increase~~Higher contract services of ~~$11.6~~$6.4 million, ~~largely related to~~primarily higher subcontractor costs.

◦Higher payroll-related costs, ~~as well as~~including higher ~~conservation expenses being recovered in revenue. The increase was~~straight-time payroll of $4.7 million, partially offset by lower ~~contract services, which includes the absence~~incentive accruals of ~~the prior year's recognition~~$3.3 million.

◦Higher other costs, partially resulting from inflation, including higher expected credit losses of ~~a non-recurring expense related to the approved WUTC general rate case settlement in the second quarter 2018.~~$1.8 million from higher receivables balances associated with colder weather and higher gas costs; higher software costs of $1.6 million; higher vehicle fuel cost of $1.3 million; and higher office, travel, materials and other miscellaneous employee costs.

•Depreciation, depletion and ~~amortization:~~amortization increased $3.4 million.

◦ ~~Increase of $7.1 million, primarily as a result of~~Largely from increased property, plant and equipment ~~balances.~~balances from growth and replacement projects placed in service.

◦Partially offset by decreased depreciation rates in certain jurisdictions of $1.0 million.

•Taxes, other than ~~income:~~ ~~Increase of $1.8 million due to higher property taxes in certain jurisdictions and~~income increased ~~payroll taxes.~~

~~Other income:~~ ~~Increase of $7.0~~$10.5 million, largely resulting from higher revenue-based taxes which are recovered in rates.

•Other income decreased $4.8 million primarily related to lower returns on the Company's nonqualified benefit plan investments ~~and increased interest income related to higher gas costs to be collected from customers,~~of $7.0 million, as discussed in ~~Item~~Note 8, ~~- Note 19. Partially offsetting these increases was a write-down of a non-utility investment, as discussed in Item 8 - Note 8.~~partially offset by increased interest income.

•Interest ~~expense:~~ expense increased $4.9 million, primarily from higher long-term debt balances and interest rates, partially offset by higher AFUDC debt largely due to higher rates.

•~~Increase~~Income tax expense decreased $600,000 due to lower income taxes of ~~$4.8~~$1.5 million related to lower taxable income, partially offset by higher permanent tax adjustments.

2021 compared to 2020 Natural gas distribution earnings increased $7.6 million as a result of:

•Revenue increased $123.7 million.

◦Largely as a result of:

▪Higher purchased natural gas sold of $93.9 million recovered in customer rates and was offset in expense, as described below.

▪Approved rate relief in certain jurisdictions of $15.9 million.

▪Increased retail sales volumes of 0.7 percent across all customer classes, including the benefit of weather normalization and decoupling mechanisms in certain jurisdictions.

▪Increased transportation volumes of 9 percent, primarily to electric generation customers.

▪Higher revenue-based taxes recovered in rates of $2.3 million that were offset in expense, as described below.

▪Higher non-regulated project revenues of $1.7 million.

▪Increased basic service charges due to customer growth and increased per unit average rates of $1.5 million each.

•Purchased natural gas sold increased $93.9 million, primarily due to higher natural gas costs as a result of higher market prices.

•Operation and maintenance increased $8.7 million.

◦Primarily due to:

▪Higher payroll-related costs of $4.3 million, largely ~~resulting~~related to health care costs and straight-time payroll.

▪Decreased credits of $2.4 million for costs associated with the installation of meters partially from delaying meter replacements for safety measures implemented as a result of the COVID-19 pandemic.

▪Higher expenses for materials, new software, insurance and vehicle fuel.

◦Partially offset by:

▪The absence of the write-off of an abandoned project in the third quarter of 2020 for $1.2 million.

▪Decreased bad debt expense of $1.0 million as the impacts of the COVID-19 pandemic began to subside.

•Depreciation, depletion and amortization increased $1.4 million.

◦Largely from increased ~~debt~~property, plant and equipment balances ~~to finance higher gas costs to be collected~~ from ~~customers, as discussed~~growth and replacement projects placed in ~~Item 8 - Note 19.~~service.

◦Partially offset by decreased depreciation rates in certain jurisdictions of $4.0 million.

42 MDU Resources Group, Inc. Form 10-K37

Index

Part II

~~Income taxes:~~• ~~Decrease of $2.7~~Taxes, other than income increased $3.6 million ~~largely due to increased permanent tax benefits related to the Company's benefit plan investments.~~resulting from:

~~2018 compared to 2017~~◦ ~~Natural gas distribution earnings increased $5.5~~Higher revenue-based taxes of $2.3 million, ~~(17 percent) as a result of:~~which are recovered in rates.

~~Adjusted gross margin:~~◦ ~~Increase of $1.4 million, primarily due to increased retail sales margins, mainly the result of weather normalization mechanisms~~Higher property taxes in certain jurisdictions ~~and conservation revenue, which offsets the conservation expense~~of $700,000.

◦Higher payroll taxes driven by increased payroll-related costs.

•Other income decreased $5.4 million primarily related to:

��The absence of an out-of-period adjustment of $4.4 million in ~~operation and maintenance expense. Also contributing to the retail sales margin increase were higher basic service charges~~2020 as a result of ~~increased retail sales customers and rate design. These increases were partially offset by tax reform revenue impacts for refunds to customers as a result of lower~~previously overstated benefit plan expenses.

◦Decreased interest income ~~taxes due~~related to the ~~enactment~~recovery of ~~TCJA and lower volumes~~purchased gas cost adjustment balances in certain jurisdictions.

~~Operation and maintenance:~~• ~~Increase of $9.1 million, largely related to conservation expenses being recovered in revenue; contract services, which includes the recognition of a non-recurring~~Interest expense ~~related to the approved WUTC general rate case settlement in the second quarter 2018; and higher payroll-related costs.~~increased $500,000, primarily from lower AFUDC borrowed.

~~Depreciation, depletion and amortization:~~• ~~Increase of $3.1 million, primarily as a result of~~Income tax expense increased ~~plant balances offset in part by lower depreciation rates implemented in certain jurisdictions.~~

~~Taxes, other than income:~~ ~~Increase of $1.2~~$2.6 million due to higher ~~property taxes in certain jurisdictions.~~

~~Other income:~~ ~~Decrease of $1.8 million, primarily the result of lower returns on investments.~~

~~Interest expense:~~ ~~Comparable to the prior year.~~

~~Income taxes:~~ Decrease of $18.7 million, largely due to the enactment of the TCJA reduced corporate tax rate, as well as the absence of $4.3 million income tax expense related to the 2017 revaluation of nonutility net deferred tax assets, and reduced income before income taxes. ~~A portion of the reduction in income taxes are being reserved against revenues or passed back to customers, as previously discussed, resulting in a minimal impact on overall earnings.~~

Outlook ~~The~~In 2022, the Company experienced rate base growth of 7.8 percent and expects these segments will grow rate base by approximately 56 percent to 7 percent annually over the next five years on a compound basis. Operations are spread across eight states where the Company expects customer growth to be higher than the national average. ~~Customer~~In 2022 and 2021, these segments experienced retail customer growth ~~is expected~~of approximately 1.6 percent and 1.7 percent, respectively, and the Company expects customer growth to ~~grow by~~continue to average 1 percent to 2 percent per year. This customer growth, along with system upgrades and replacements needed to supply safe and reliable service, will require investments in new and replacement electric ~~generation and transmission~~ and natural gas systems.

These segments are exposed to energy price volatility and may be impacted by changes in oil and natural gas exploration and production activity. Rate schedules in the jurisdictions in which the Company's natural gas distribution segment operates contain clauses that permit the Company to file for rate adjustments for changes in the cost of purchased natural gas. Although changes in the price of natural gas are passed through to customers and have minimal impact on the Company's earnings, the natural gas distribution segment's customers benefit from lower natural gas prices through the Company's utilization of storage and fixed price contracts. In 2022, the Company experienced increased natural gas prices across its service areas and more recently has seen higher natural gas prices in the Pacific Northwest, as previously discussed in Strategy and Challenges. As a result, the Company has filed an out-of-cycle cost of gas adjustment in Idaho to assist in the timely recovery of these costs. See Note 20 for additional details. The Company will continue to monitor natural gas prices, as well as oil and natural gas production levels.

In February 2019, the Company announced ~~that it intends to retire~~the retirement of three aging coal-fired electric generating ~~units, resulting from the Company's analysis showing that the plants are no longer expected to be cost competitive for customers.~~units. The ~~retirements are expected to be in early 2021 for~~Company ceased operations of Unit 1 at Lewis & Clark Station in Sidney, Montana, in March 2021 and ~~in early 2022 for units~~Units 1 and 2 at Heskett Station innear Mandan, North ~~Dakota.~~Dakota, in February 2022. In addition, in May 2022, the Company ~~announced that it intends to construct~~began construction of Heskett Unit 4, an 88-MW simple-cycle natural gas-fired combustion turbine peaking unit at the existing Heskett Station near Mandan, North ~~Dakota. Heskett Unit 4 production costs coupled~~Dakota, with an expected in service date in the summer of 2023.

The Company is one of four owners of Coyote Station and cannot make a unilateral decision on the plant's future; therefore, the Company could be negatively impacted by decisions of the other owners. In September 2021, Otter Tail Power Company filed its 2022 Integrated Resource Plan in Minnesota and North Dakota, which included its intent to start the process of withdrawal from its 35 percent ownership interest in Coyote Station with an anticipated exit from the plant by December 21, 2028. In October 2022, Otter Tail Power Company requested permission from the MNPUC to extend the deadline for its Integrated Resource Plan with the ~~MISO market purchases~~intent to update its modeling in light of recent developments in the industry, including increased capacity requirements in MISO. Otter Tail Power Company's extension was granted by the MNPUC on November 1, 2022, with revised modeling due March 31, 2023. The joint owners continue to collaborate in analyzing data and weighing decisions that impact the plant and its employees as well as each company's customers and communities served. Further state implementation of pollution control plans to improve visibility at Class I areas, such as national parks, under the EPA's Regional Haze Rule could require the owners of Coyote Station to incur significant new costs. If the owners decide to incur such costs, the costs could, dependent on determination by state regulatory commissions on approval to recover such costs from customers, negatively impact the Company's results of operations, financial position and cash flows. The NDDEQ submitted its state implementation plan to the EPA in August 2022 and expects a decision on the plan sometime in 2023. The plan, as submitted by the NDDEQ, does not require additional controls for any units in North Dakota, including Coyote Station.

Legislation and rulemaking The Company continues to monitor legislation and rulemaking related to clean energy standards that may impact its segments. Below are ~~expected~~some of the specific legislative actions the Company is monitoring.

•The current presidential administration is considering changes to the federal Clean Air Act, some of which were amended by the previous presidential administration. The content and impacts of the changes under consideration are uncertain and the Company continues to monitor for potential actions by the EPA.

•In Oregon, the Climate Protection Program Rule was approved in December 2021, which requires natural gas companies to reduce GHG emissions 50 percent below the baseline by 2035 and 90 percent below the baseline by 2050, which may be achieved through surrendering emissions allowances, investing in additional customer conservation and energy efficiency programs, purchasing community climate investment credits, and purchasing low carbon fuels such as renewable natural gas. The Company expects the compliance costs for these regulations to be recovered through customer rates. For more information about ~~half~~ the ~~total cost of continuing to run the coal-fired electric generating units at Heskett~~anticipated compliance costs, Items 1 and ~~Lewis & Clark stations. Heskett Unit 4 was~~2 - Business Properties. Cascade's draft 2023 Oregon integrated resource plan projects customer bills could increase by about 100 percent by 2035 compared with costs included in bills today and by about 300 percent by 2050 as a result of the ~~Company's recently submitted integrated resource plan.~~legislation. On ~~August 28, 2019,~~September 30, 2022, the Company filed a request for an advanced determination of prudence with the NDPSC for Heskett Unit 4. If approved, Heskett Unit 4 is expected to be placed into service in 2023. The Company filed requests for the usage of deferred accounting for the costs related to the retirement of Lewis & Clark Station and units 1 and 2 at Heskett Station with the NDPSC on September 16, 2019, the MTPSC on November 1, 2019 and the SDPUC on November 8, 2019. The SDPUC approved the use of deferred accounting ~~as requested on January 7, 2020.~~

for costs related to the rule and began deferring those costs. The Company, ~~continues to be focused~~along with the other two local natural gas distribution companies in Oregon, filed a lawsuit on March 18, 2022, challenging the regulatory recovery of its investments. The Company files for rate adjustments to seek recovery of operating costs and capital investments, as well as reasonable returns as allowed by regulators. The Company's most recent cases by jurisdiction are discussed in Item 8 - Note 19.

Climate Protection

38 MDU Resources Group, Inc. Form 10-K43

Index

Part II

Program Rule. The lawsuit was filed on behalf of customers as the Company does not believe the rule accomplishes environmental stewardship in the most effective and affordable way possible.

•In Washington, the Climate Commitment Act signed into law in May 2021 requires natural gas distribution companies to reduce overall GHG emissions 45 percent below 1990 levels by 2030, 70 percent below 1990 levels by 2040 and 95 percent below 1990 levels by 2050, which may be achieved through increased energy efficiency and conservation measures, purchased emission allowances and offsets, and purchases of low carbon fuels. As directed by the Climate Commitment Act, in September 2022, the Washington DOE published its final rule on the Climate Commitment Program. The rule was effective on October 30, 2022 and emissions compliance began on January 1, 2023. The Company has begun reviewing compliance options and expects the compliance costs for these regulations will be recovered through customer rates. For more information about the anticipated compliance costs, see Items 1 and 2 - Business Properties. Cascade's draft 2023 Washington integrated resource plan projects customer bills could increase by about 23 percent by 2035 compared with costs included in bills today and by about 78 percent by 2050 as a result of the legislation. On October 14, 2022, the Company filed a request for the use of deferred accounting for costs related to the rule and began deferring those costs.

•On April 22, 2022, the Washington State Building Code Council approved revisions to the state's commercial energy code that will significantly limit the use of natural gas for space and water heating in new and retrofitted commercial and multifamily buildings and proposed the review of similar restrictions in the future for residential buildings. On November 4, 2022, the Washington State Building Code Council adopted new residential codes requiring gas or electric heat pumps for most new space and water heating installations. The Company continues to assess the impact of these revisions.

•The Company has reviewed the income tax provisions of the IRA signed into law in August 2022, and the Company will continue to evaluate whether any of the new or renewed energy tax credits will provide a benefit.

Pipeline ~~and Midstream~~

Strategy and challenges The pipeline ~~and midstream~~ segment provides natural gas transportation, ~~gathering~~underground storage and ~~underground storage~~non-regulated cathodic protection services, as discussed in Items 1 and 2 - Business Properties. The segment focuses on utilizing its extensive expertise in the design, construction and operation of energy infrastructure and related services to increase market share and profitability through optimization of existing operations, organic growth and investments in energy-related assets within or in close proximity to its current operating areas. The segment focuses on the continual safety and reliability of its systems, which entails building, operating and maintaining safe natural gas pipelines and facilities. The segment continues to evaluate growth opportunities including the expansion of ~~existing storage, gathering and transmission~~natural gas facilities; incremental pipeline projects; and expansion of energy-related services leveraging on its core competencies. In support of this strategy, the ~~Company completed~~North Bakken Expansion project in western North Dakota was placed in service in February of 2022. The project has capacity to transport 250 MMcf of natural gas per day and ~~placed into service the following projects in 2019 and 2018:~~

can be increased to 625 MMcf per day with additional compression. In ~~November 2019, Phase I of~~addition, the Line Section 227 Expansion project was placed in ~~the Billings, Montana, area~~service in August of 2022 and increased system capacity by ~~14.3~~6.7 MMcf per day.

~~In September 2019, the Demicks Lake project in McKenzie County, North Dakota, increased capacity by 175 MMcf per day.~~

~~In November 2018, the Valley Expansion project in eastern North Dakota and far western Minnesota increased capacity by 40 MMcf per day.~~

In September 2018, the Line Section 27 Expansion project in the Bakken area of northwestern North Dakota increased capacity by over 200 MMcf per day and brought the total capacity of Line Section 27 to over 600 MMcf per day.

The segment is exposed to energy price volatility which is impacted by the fluctuations in pricing, production and basis differentials of the energy market's commodities. Legislative and regulatory initiatives ~~to increase~~on increased pipeline safety regulations and ~~reduce~~environmental matters such as the reduction of methane emissions could also impact the price and demand for natural gas.

~~Tariff increases on steel~~The pipeline segment is subject to extensive regulation related to certain operational and ~~aluminum materials could negatively affect the segment's construction projects~~environmental compliance, cybersecurity, permit terms and ~~maintenance work.~~system integrity. The Company continues to ~~monitor~~actively evaluate cybersecurity processes and procedures, including changes in the ~~impact~~industry's cybersecurity regulations, for opportunities to further strengthen its cybersecurity protections. Implementation of ~~tariffs~~enhancements and additional requirements is ongoing. The segment reviews and secures existing permits and easements, as well as new permits and easements as necessary, to meet current demand and future growth opportunities on ~~raw material costs.~~an ongoing basis.

The Company has continued to actively manage the national supply chain challenges being faced by working with its manufacturers and suppliers to help mitigate some of these risks on its business. The segment regularly experiences extended lead times on raw materials that are critical to the segment's construction and maintenance ~~work. Long lead times on materials~~work which could delay maintenance work and ~~project~~ construction projects potentially causing lost revenues and/or increased costs. The Company ~~continues to proactively monitor and plan~~is partially mitigating these challenges by planning for ~~the material~~extended lead times ~~as well as work with manufacturers and suppliers to help mitigate the risk of delays due to extended lead times.~~

The pipeline and midstream segment is subject to extensive regulation including certain operational, environmental and system integrity regulations, as well as various permit terms and operational compliance conditions. The Pipeline and Hazardous Materials Safety Administration recently issued additional rules to strengthen the safety of natural gas transmission and storage facilities and hazardous liquid pipelines. The Company is currently evaluating the first phase of the rules.further in advance. The segment is charged with the ongoing process of reviewing existing permits and easements, as well as securing new permits and easements as necessary to meet current demand and future growth opportunities. Exposure to pipeline opposition groups could also ~~cause negative impacts on the segment~~currently experiencing inflationary pressures with increased ~~costs~~raw material costs. The Company expects supply chain challenges and ~~potential delays~~inflationary pressures to ~~project completion.~~continue in 2023.

The segment focuses on the recruitment and retention of a skilled workforce to remain competitive and provide services to its customers. The industry in which it operates relies on a skilled workforce to construct energy infrastructure and operate existing infrastructure in a safe manner. A shortage of skilled personnel can create a competitive labor market which could increase costs incurred by the segment. Competition from other pipeline ~~and midstream~~ companies can also have a negative impact on the segment.

44 MDU Resources Group, Inc. Form 10-K39

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Earnings overview - The following information summarizes the performance of the pipeline ~~and midstream~~ segment.


							2022 vs. 2021		2021 vs. 2020
Years ended December 31,	2022		2021		2020		Variance		Variance
	(In millions)
Operating revenues	$	155.6	$	142.6	$	143.9	9	%	(1)	%
Operating expenses:
Operation and maintenance	60.9		61.3		59.9		(1)	%	2	%
Depreciation, depletion and amortization	26.9		20.5		21.7		31	%	(6)	%
Taxes, other than income	12.3		12.7		12.9		(3)	%	(2)	%
Total operating expenses	100.1		94.5		94.5		6	%	—	%
Operating income	55.5		48.1		49.4		15	%	(3)	%
Other income	1.3		9.4		2.9		(86)	%	224	%
Interest expense	11.3		7.0		7.6		61	%	(8)	%
Income before income taxes	45.5		50.5		44.7		(10)	%	13	%
Income tax expense	10.2		9.6		7.7		6	%	25	%
Net income	$	35.3	$	40.9	$	37.0	(14)	%	11	%

Years ended December 31, 2019
2018
2017
(Dollars in millions)
Operating revenues $ 140.4
$ 128.9
$ 122.2
Operating expenses:
Operation and maintenance 63.1
62.2
56.9
Depreciation, depletion and amortization 21.2
17.9
16.8
Taxes, other than income 13.3
12.7
12.5
Total operating expenses 97.6
92.8
86.2
Operating income 42.8
36.1
36.0
Other income 1.2
1.0
1.8
Interest expense 7.2
5.9
5.0
Income before income taxes 36.8
31.2
32.8
Income taxes 7.2
2.7
12.3
Net income $ 29.6
$ 28.5
$ 20.5
Transportation volumes (MMdk) 429.7
351.5
312.5
Natural gas gathering volumes (MMdk) 13.9
14.9
16.1
Customer natural gas storage balance (MMdk):
Beginning of period 13.9
22.4
26.4
Net injection (withdrawal) 2.3
(8.5 ) (4.0 )
End of period 16.2
13.9
22.4


Operating statistics
	2022	2021	2020
Transportation volumes (MMdk)	482.9	471.1	438.6
Natural gas gathering volumes (MMdk)	—	—	8.6
Customer natural gas storage balance (MMdk):
Beginning of period	23.0	25.5	16.2
Net injection (withdrawal)	(1.8)	(2.5)	9.3
End of period	21.2	23.0	25.5

~~2019~~2022 compared to ~~2018~~2021 Pipeline ~~and midstream~~ earnings ~~increased $1.1~~decreased $5.6 million ~~(4 percent)~~ as a result of:

~~Revenues:~~ •~~Increase~~Revenues increased $13.0 million.

◦Driven by increased transportation volume revenues of ~~$11.5~~$16.4 million, largely attributable to increased volumes of natural gas transported through its system as a result of organic growth projects, as previously discussed in Strategy and challenges, and increased rates effective May 1, 2019, due to the ~~FERC rate case finalized~~North Bakken Expansion project placed in ~~September 2019.~~service in February 2022.

◦Partially offset by:

▪Lower non-regulated project revenues of $2.3 million.

▪Lower transmission rates due to expired negotiated contracts converted to tariff rates.

•Operation and ~~maintenance:~~ maintenance decreased $400,000.

◦~~Increase of $900,000, primarily from higher~~Primarily due to:

▪Lower payroll-related costs of $2.2 million, largely related to lower incentive accruals and ~~materials~~benefit-related costs.

▪Lower non-regulated project costs of $1.3 million directly associated with lower non-regulated project revenues, as previously discussed.

◦Partially offset by higher legal, maintenance materials and contract services.

•Depreciation, depletion and ~~amortization:~~ ~~Increase of $3.3~~amortization increased $6.4 million ~~primarily~~ due to increased property, plant and equipment balances, largely ~~the result of organic growth projects that have been placed into service, and higher depreciation rates effective May 1, 2019, due~~related to the ~~FERC rate case finalized in September 2019.~~North Bakken Expansion project.

•Taxes, other than ~~income:~~ ~~Increase~~income decreased $400,000 resulting from lower property taxes of ~~$600,000 driven~~$700,000 in Montana, partially offset by higher property taxes in ~~certain jurisdictions.~~North Dakota.

•Other ~~income:~~ ~~Comparable to the prior year.~~income decreased $8.1 million, primarily due to:

◦Lower AFUDC of $7.8 million as a result of the completion of the North Bakken Expansion project placed in service in February 2022.

◦Lower returns on the Company's nonqualified benefit plan investments, as discussed in Note 8.

•Interest ~~expense:~~ ~~Increase of $1.3~~expense increased $4.3 million, ~~largely~~ resulting from interest associated with higher debt balances to ~~finance organic growth projects,~~fund capital expenditures and lower AFUDC as ~~previously discussed.~~a result of the North Bakken Expansion project placed in service in February 2022.

•Income ~~taxes:~~ ~~Increase of $4.5 million, primarily driven by the absence in 2019~~tax expense increased $600,000, largely a result of a ~~$4.2 million~~reduction in tax credits, partially offset by lower income ~~tax benefit, as discussed later.~~before income taxes.

MDU Resources Group, Inc. Form 10-K 45

~~2018~~

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Part II

2021 compared to ~~2017~~2020 Pipeline ~~and midstream~~ earnings increased ~~$8.0~~$3.9 million ~~(39 percent)~~ as a result of:

~~Revenues:~~ •~~Increase~~Revenues decreased $1.3 million.

◦Primarily decreased gathering revenues of ~~$6.7~~$4.9 million due to the sale of the Company's natural gas gathering assets in 2020.

◦Partially offset by:

▪Increased transportation volumes and demand revenue of $1.8 million largely ~~attributable to increased volumes of natural gas transported through its system as a result of completed~~from organic growth projects, as previously discussed, ~~in Strategy~~ and ~~challenges,~~short-term discounted contracts.

▪Increased non-regulated project revenues of $1.4 million.

•Operation and ~~higher nonregulated project workloads, which~~maintenance increased ~~revenues $4.1 million. These increases were partially offset by decreased storage-related revenues reflecting~~$1.4 million due to:

◦The absence of the ~~decrease in~~gain on sale of the Company's natural gas ~~pricing spreads, as discussed~~gathering assets of $1.5 million in ~~the Outlook section.~~

~~Operation and maintenance:~~ ~~Increase of $5.3 million, primarily from higher nonregulated project costs of $3.9 million directly~~2020, offset partially by lower operating expenses related to the ~~increase in nonregulated project workloads, as previously discussed, as well as higher professional services, material costs and contract services.~~natural gas gathering assets.

◦Partially offset by lower payroll-related costs.

•Depreciation, depletion and ~~amortization:~~amortization decreased $1.2 million.

◦ ~~Increase~~Primarily related to lower expense of ~~$1.1~~$1.6 million ~~largely resulting from~~due to the sale of the Company's natural gas gathering assets in 2020, as previously discussed.

◦Slightly offset by increased property, plant and equipment balances related to organic growth projects.

•Taxes, other than ~~income:~~ ~~Comparable~~income was comparable to the same period in the prior year.

•Other ~~income:~~income increased $6.5 million.

◦ ~~Decrease~~Primarily due to:

▪Higher AFUDC of ~~$800,000, primarily~~$7.3 million for the construction of the North Bakken Expansion project.

▪The absence of the write-off of unrecovered gas costs and project expenses of $1.2 million in 2020.

◦Partially offset by:

▪The absence of a positive impact of $700,000 related to the sale of the Company's regulated gathering assets in 2020.

▪The absence of an out-of-period adjustment of $500,000 in 2020 as a result of ~~lower~~previously overstated benefit plan expenses.

▪Lower returns on ~~investments partially~~the Company's nonqualified benefit plan investments.

•Interest expense decreased $600,000.

◦Primarily due to:

▪Higher AFUDC of $1.5 million for the construction of the North Bakken Expansion project.

▪Lower average interest rates.

◦Partially offset by ~~higher AFUDC.~~

~~Interest expense:~~ ~~Increase of $900,000, largely resulting from~~ higher debt balances.

~~40 MDU Resources Group, Inc.~~• ~~Form 10-K~~

~~Part II~~

Income ~~taxes:~~ ~~Decrease of $9.6 million, primarily resulting from the lower corporate tax rate due to the enactment of the TCJA creating a reduction to income~~ tax expense ~~as well as the realization~~increased $1.9 million.

◦Largely a result of:

▪Higher income before income taxes.

▪The absence of ~~a $4.2 million income tax benefit related to~~ the reversal of ~~a regulatory liability recorded~~excess deferred taxes of $1.5 million associated with the sale of the Company's gas gathering assets in ~~2017 based on a FERC final accounting order issued during third quarter of 2018.~~2020.

◦Partially offset by permanent tax adjustments and an energy efficiency tax benefit.

Outlook The Company continues to monitor and assess the potential impacts of two FERC draft policy statements issued in the first quarter of 2022. One is the Updated Certificate of Policy Statement, which describes how the FERC will determine whether a new interstate natural gas transportation project is required by public convenience and necessity. It includes increased focus on a project's purpose and need and the environmental impacts; as well as impacts on landowners and environmental justice communities. The second draft policy statement, the Interim GHG Policy Statement, explains how the FERC will assess the impacts of natural gas infrastructure projects on climate change in its reviews under the National Environmental Policy Act and Natural Gas Act.

The Company has reviewed the income tax provisions of the IRA signed into law in August 2022 and does not expect any material income tax benefits as a result. The Company has also evaluated the impacts of the methane emissions charge imposed under the IRA legislation and does not expect any material fees given the current GHG reporting thresholds. The Company continues to monitor, evaluate and implement additional GHG emissions reduction strategies, including increased monitoring frequency and emission source control technologies to minimize potential risk.

The EPA recently proposed additional rules to update, strengthen and expand standards intended to significantly reduce GHG emissions and other air pollutants from the oil and natural gas industries. The standards will apply to natural gas compressors, pneumatic controllers and pumps, fugitive emissions components and super-emitter events. The EPA projects the final rules will be issued in August 2023. Additionally, the EPA anticipates revising the current GHG reporting rules to incorporate provisions in the IRA. These revisions are anticipated to be issued in April 2023. The Company continues to monitor and assess the proposed rules and the potential impacts they may have on its business processes, current and future projects, results of operations and disclosures.

The Company has continued to experience the ~~effects~~effect of associated natural gas production ~~at record levels,~~in the Bakken, which has provided opportunities for organic growth projects and increased demand. The completion of organic growth projects has contributed to ~~the Company transporting increasing~~higher volumes of natural gas the Company transports through its system. Associated natural gas production in the Bakken fell during the COVID-19 pandemic delaying previously

46 MDU Resources Group, Inc. Form 10-K

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forecasted production growth. Natural gas production has rebounded to pre-pandemic levels and drilling rig activities have increased, and the Company expects continued gradual increases over the next 2 years. The ~~record levels~~production delay, along with long-term contractual commitments on the North Bakken Expansion project placed in service in February 2022, has negatively impacted customer renewals of certain contracts. Bakken natural gas production outlook remains positive with continued growth expected due to new oil wells and increasing gas to oil ratios.

Increases in national and global natural gas supply ~~have~~has moderated ~~the need for storage services and put downward~~ pressure on natural gas prices and ~~minimized pricing~~price volatility. ~~Both~~While the Company believes there will continue to be varying pressures on natural gas production levels and ~~pressure on~~prices, the long-term outlook for natural gas prices ~~are expected~~continues to ~~continue in the near term.~~ provide growth opportunity for industrial supply-related projects and seasonal pricing differentials provide opportunities for storage services.

The Company continues to focus on ~~growth and~~ improving existing operations and growth opportunities through organic projects in all areas in which it ~~operates.~~operates, which includes additional projects with local distribution companies, Bakken area producers and industrial customers in various stages of development.

In July 2021, the Company announced plans for a natural gas pipeline expansion project in eastern North Dakota. The ~~following describes current growth projects.~~

~~The Company began construction on the Line Section 22~~Wahpeton Expansion project ~~in the Billings, Montana, area in May 2019. Phase I~~consists of ~~the project was placed into service in November 2019, as previously discussed. Phase II has an expected in-service date in the first quarter~~approximately 60 miles of ~~2020~~pipe and ancillary facilities and is designed to increase capacity by ~~8.2~~20 MMcf per day, which is supported by long-term customer agreements with Montana-Dakota and its utility customers. Construction is expected to ~~serve incremental demand~~begin in ~~Billings, Montana. The~~early 2024, depending on regulatory approvals, with an anticipated completion date later in 2024. On May 27, 2022, the Company ~~has signed long-term contracts supporting~~filed with FERC its application for the ~~project.~~

~~The Company began construction~~project and received FERC's draft environmental impact statement for the project on November 3, 2022. In accordance with the FERC schedule for environmental review on the ~~Demicks Lake Expansion~~ project, ~~located~~the final environmental impact statement is planned to be available in ~~McKenzie County, North Dakota, in November 2019. In February 2020,~~April 2023.

On September 19, 2022, the Company ~~completed~~filed with the FERC its prior notice application for its 2023 Line Section 27 Expansion project. This project consists of a new compressor station and ~~placed the project into service. The Company has signed a long-term contract supporting this project, which increased~~ancillary facilities and is designed to increase capacity by 175 MMcf per ~~day.~~day, which is supported by a long-term customer agreement. Construction is expected to begin in early 2023, pending regulatory approvals, with an anticipated completion date in late 2023.

~~In January 2019,~~On December 22, 2022, the Company ~~announced~~filed with the ~~North Bakken~~FERC its prior notice application for its Grasslands South Expansion project. This project ~~which includes construction~~consists of ~~a new pipeline, compression and ancillary facilities to transport natural gas from core Bakken production areas near Tioga,~~approximately 15 miles of pipe in western North Dakota, utilizing existing capacity on its Grasslands Subsystem to a new connection with ~~Northern Border Pipeline~~Big Horn Gas Gathering, LLC in ~~McKenzie County,~~northeastern Wyoming and ancillary facilities in North ~~Dakota. The Company's~~Dakota and Wyoming. A long-term customer ~~commitments and anticipated incremental commitments with the continuing record levels of natural gas production in the Bakken region support the project at~~agreement supports a design for incremental capacity of ~~350~~94 MMcf per day. Construction is expected to begin in ~~early 2021~~the second quarter of 2023, pending regulatory approvals, with an ~~estimated~~anticipated completion date in late ~~in 2021, which~~2023.

In addition, the Company has entered into long-term customer agreements for the construction of a fourth growth project with incremental natural gas design capacity anticipated to be 25 MMcf per day. The project is dependent on regulatory approvals and ~~environmental permitting. On June 28, 2019,~~anticipated to be completed in 2023. See Capital Expenditures within this section for additional information on the ~~Company filed with the FERC a request~~expenditures related to ~~initiate the National Environmental Policy Act pre-filing process and received FERC approval of the pre-filing request on July 3, 2019.~~these projects.

In December 2019, the Company entered into a purchase and sale agreement with Scout Energy Group II, LP to divest of its regulated gathering assets located in Montana and North Dakota, which includes approximately 400 miles of natural gas gathering pipelines and associated compression and ancillary facilities. On January 8, 2020, the Company filed an application with the FERC to authorize abandonment by sale of the gathering assets. The sale is expected to close in the first half of 2020 with an effective date of January 1, 2020, pending approval by the FERC.

Construction Materials and Contracting

Strategy and challenges The segment is a leading aggregates-based construction materials and contracting ~~segment provides an integrated set of aggregate-based construction~~ services provider in the United States, as discussed in Items 1 and 2 - Business Properties. The segment focuses on continued growth and maximizing its vertical integration, leveraging its core values to be a supplier of choice in all its markets. The segment is also focused on its commitment to its employees, customers and communities by operating with integrity and always striving for excellence; development and recruitment of talented employees; sustainable practices to create value for the communities it serves; being the provider of choice in midsize, high-growth ~~strategic markets located near major transportation corridors and desirable mid-sized metropolitan areas;~~markets; strengthening the long-term, strategic aggregate reserve position through available purchase and/or lease ~~opportunities;~~opportunities in existing and new geographies; and enhancing ~~profitability through cost containment, margin discipline~~its supply chain to provide reliable, timely and ~~vertical integration~~efficient services to its end customers. As previously discussed, the Company is pursuing a tax-free spinoff of the ~~segment's operations; development~~construction materials and ~~recruitment of talented employees;~~contracting segment, and ~~continued growth through organic and acquisition opportunities.~~

~~A key element of~~ the ~~Company's long-term strategy for this business~~separation is expected to ~~further expand its market presence~~be complete in the ~~higher-margin materials business (rock, sand, gravel, liquid asphalt, asphalt concrete, ready-mixed concrete and related products), complementing and expanding on the segment's expertise.~~ second quarter of 2023.

The ~~Company's acquisition activity supports this strategy.~~

Assegment is one of the ~~country's largest~~leading producers of crushed stone and sand and gravel, ~~producers,~~and the segment continues to strategically manage its ~~approximately 1.1 billion tons of~~ aggregate reserves, ~~in all its markets,~~ as well as take further advantage of being vertically integrated. The segment's vertical integration allows ~~the segment~~it to manage operations from aggregate mining to final lay-down of concrete and asphalt, with control of and access to permitted aggregate reserves being significant. The Company's aggregate reserves are naturally declining and as a result, the Company seeks permit expansion and acquisition opportunities to replace the reserves. In the first quarter of 2019, the Company purchased additional aggregate deposits in Texas that are estimated to contain a 40-year supply of high-quality aggregates. Also during 2019, the Company increased aggregate reserves by approximately 40 million tons largely due to strategic asset purchases.

The ~~construction materials~~segment's management continually monitors its margins and ~~contracting segment faces challenges that are not under~~has been proactive in applying strategies to address the ~~direct control~~inflationary impacts seen across the United States. The Company has increased its product pricing where necessary and continues to implement cost savings initiatives to mitigate these effects on the segment's gross margin. Due to existing contractual provisions, there can be a lag between the announced price increases and the time when they can be fully recognized. The Company will continue to evaluate further price increases on a regular cadence to stay ahead of ~~the business.~~ inflationary pressures and enhance stockholder value.

The segment operates in geographically diverse and ~~highly~~ competitive ~~markets. Competition~~markets yet strives to maximize efficiencies, including transportation costs and economies of scale, to maintain strong margins. The segment's margins can ~~put~~experience negative pressure onfrom competition, as well as impacts of the ~~segment's operating margins. The segment is also subject to~~ volatility in the cost of raw materials such as ~~diesel~~ fuel, ~~gasoline, liquid~~ asphalt oil, cement and ~~steel. Although it is difficult to determine~~steel, with fuel and asphalt oil costs having the ~~split between inflation and supply/demand increases, diesel fuel costs remained fairly stable in~~

most significant impact on

MDU Resources Group, Inc. Form 10-K 4147

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Part II

~~2019, while asphalt oil costs trended higher in 2019 as compared to 2018.~~the segment's recent results. Such volatility ~~can~~and inflationary pressures may continue to have ~~a negative~~an impact on the segment's ~~margins.~~margins, including fixed-price construction contracts that are particularly vulnerable to the volatility of energy and material prices. These increases are partially offset by mitigation measures implemented by the Company, including price increases, escalation clauses in contracting services contracts, pre-purchased materials and other cost savings initiatives. While the Company has experienced some supply chain constraints, it continues to have good relationships with its suppliers and has not experienced any material adverse impacts of shortages or delays on materials. Other variables that can impact the segment's margins include adverse weather conditions, the timing of project starts or ~~completion~~completions and declines or delays in new and existing projects due to the cyclical nature of the construction industry and governmental infrastructure spending. Accordingly, operating results in any particular period may not be indicative of the results that can be expected for any other period.

~~The~~As a people first company, the segment ~~also faces challenges in~~continually takes steps to address the challenge of recruitment and retention of employees. In order to help attract new workers to the construction industry and enhance the skills of its current employees, the Company has completed construction of a corporate-wide, state-of-the-art training facility in the Pacific Northwest. The training facility offers hands-on training for heavy equipment operators and truck drivers, as well as leadership and safety training. Trends in the labor market include an aging workforce and availability ~~issues.~~issues, and most of the markets the segment operates in have experienced labor shortages, largely truck drivers, causing increased labor-related costs and delays or inefficiencies on projects. The ~~segment~~new training facility is expected to help address some of these challenges. The Company continues to ~~face increasing pressure~~monitor the labor markets and assess additional opportunities to ~~control~~enhance and support its workforce. Despite these efforts, the Company expects labor costs ~~as well as find~~to continue to increase based on the increased demand for services and, ~~train~~to a ~~skilled workforce to meet~~lesser extent, the ~~needs of increasing demand and seasonal work.~~recent escalated inflationary environment in the United States.

Earnings overview - The following information summarizes the performance of the construction materials and contracting segment.


							2022 vs. 2021		2021 vs. 2020
Years ended December 31,	2022		2021		2020		% change		% change
	(In millions)
Operating revenues	$	2,534.7	$	2,228.9	$	2,178.0	14	%	2	%
Cost of sales:
Operation and maintenance*	2,009.6		1,737.4		1,676.6		16	%	4	%
Depreciation, depletion and amortization	112.9		96.8		84.8		17	%	14	%
Taxes, other than income	51.3		47.7		46.0		8	%	4	%
Total cost of sales	2,173.8		1,881.9		1,807.4		16	%	4	%
Gross profit	360.9		347.0		370.6		4	%	(6)	%
Selling, general and administrative expense:
Operation and maintenance*	155.8		146.0		146.4		7	%	—	%
Depreciation, depletion and amortization	4.9		4.2		4.8		17	%	(13)	%
Taxes, other than income	5.9		5.7		4.9		4	%	16	%
Total selling, general and administrative expense	166.6		155.9		156.1		7	%	—	%
Operating income	194.3		191.1		214.5		2	%	(11)	%
Other income (expense)	(5.4)		1.3		.8		(515)	%	63	%
Interest expense	30.1		19.2		20.6		57	%	(7)	%
Income before income taxes	158.8		173.2		194.7		(8)	%	(11)	%
Income tax expense	42.6		43.4		47.4		(2)	%	(8)	%
Net income	$	116.2	$	129.8	$	147.3	(10)	%	(12)	%

Years ended December 31, 2019
2018
2017
(Dollars in millions)
Operating revenues $ 2,190.7
$ 1,925.9
$ 1,812.5
Cost of sales:
Operation and maintenance 1,798.3
1,601.7
1,500.1
Depreciation, depletion and amortization 74.3
59.0
52.5
Taxes, other than income 44.1
39.7
38.0
Total cost of sales 1,916.7
1,700.4
1,590.6
Gross margin 274.0
225.5
221.9
Selling, general and administrative expense:
Operation and maintenance 86.3
77.6
71.5
Depreciation, depletion and amortization 3.1
2.2
3.4
Taxes, other than income 4.6
4.3
3.8
Total selling, general and administrative expense 94.0
84.1
78.7
Operating income 180.0
141.4
143.2
Other income (expense) 1.6
(3.1 ) .4
Interest expense 23.8
17.3
14.8
Income before income taxes 157.8
121.0
128.8
Income taxes 37.4
28.4
5.4
Net income $ 120.4
$ 92.6
$ 123.4
Sales (000's):
Aggregates (tons) 32,314
29,795
28,213
Asphalt (tons) 6,707
6,838
6,237
Ready-mixed concrete (cubic yards) 4,123
3,518
3,548

~~2019 compared~~* The Company identified certain costs that were reclassified from cost of sales to ~~2018~~ ~~Construction materials and contracting's earnings increased $27.8 million (30 percent) as a result of:~~

~~Revenues:~~ Increase of $264.8 million driven by higher contracting services and material sales due to strong economic environments in certain states, as well as additional material volumes associated with the businesses acquired.

~~Gross margin:~~ Increase of $48.5 million, largely resulting from higher revenues due to strong economic environments in certain states, as previously discussed, higher contracting bid margins and higher realized material prices. Also contributing to the increased gross margin was an increase in gains on asset sales in certain regions of approximately $7.5 million.

~~Selling,~~selling, general and administrative ~~expense:~~ expenses in 2021 and 2020 of $57.4 million and $56.5 million, respectively, and had no impact to net income.


Operating statistics	Revenues						Gross profit
	2022		2021		2020		2022		2021		2020
	(In millions)
Aggregates	$	496.6	$	444.0	$	406.6	$	69.6	$	60.6	$	62.7
Asphalt	427.5		339.8		349.9		41.7		40.4		45.5
Ready-mix concrete	609.5		584.4		547.0		85.9		81.5		74.4
Other products*	407.3		344.3		356.3		63.6		64.0		82.6
Contracting services	1,187.7		1,017.5		1,069.7		100.1		100.5		105.4
Intracompany eliminations	(593.9)		(501.1)		(551.5)		—		—		—
	$	2,534.7	$	2,228.9	$	2,178.0	$	360.9	$	347.0	$	370.6

*~~Increase~~Other products includes cement, asphalt oil, merchandise, fabric, spreading and other products that individually are not considered to be a major line of ~~$9.9 million, primarily related to~~business for the ~~businesses acquired and higher payroll-related costs.~~segment.

~~Other income (expense):~~ ~~Increased income of $4.7 million, largely the result of higher returns on the Company's benefit plan investments.~~

~~Interest expense:~~ ~~Increase of $6.5 million, largely resulting from higher debt balances as a result of recent acquisitions, capital expenditures and higher average interest rates.~~

~~Income taxes:~~ ~~Increase of $9.0 million directly resulting from an increase in income before taxes.~~

4248 MDU Resources Group, Inc. Form 10-K

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	2022		2021		2020
Sales (thousands):
Aggregates (tons)	33,994		33,518		30,949
Asphalt (tons)	7,254		7,101		7,202
Ready-mix concrete (cubic yards)	4,015		4,267		4,087
Average sales price:
Aggregates (per ton)	$	14.61	$	13.25	$	13.14
Asphalt (per ton)	$	58.93	$	47.86	$	48.58
Ready-mix concrete (per cubic yard)	$	151.80	$	136.94	$	133.86

2022 compared to 2021 Construction materials and contracting's earnings decreased $13.6 million as a result of:

•Revenues increased $305.8 million.

◦Primarily the result of increased revenues across all product lines as the business benefited from higher average selling prices of nearly $250 million, largely in response to inflationary pressures.

◦Also impacting materials revenues were:

▪Increased aggregates sales volumes of $10.2 million due mainly to recent acquisitions contributing 2.2 million tons, offset in part by lower volumes in certain states.

▪Increased asphalt sales volumes of $7.2 million from higher demand in California, Minnesota, Montana, North Dakota and Wyoming of $13.7 million, partially offset by lower volumes in Texas due to less available paving work.

▪Lower ready-mix concrete sales volumes of $38.5 million across all regions resulting from lower residential demand and fewer impact projects.

▪Decreased revenues for other products associated with volumes, largely related to asphalt oil.

▪Increased contracting revenues of $170.2 million across most regions as a result of more available agency and commercial work, recent acquisitions contributing $27.9 million and more available paving work in Idaho, Minnesota, Montana, North Dakota and Wyoming. In addition, inflationary pressures led to higher contract values in all regions.

◦These increases were partially offset by an increase in the elimination for internal materials sales used in other products and services.

•Gross profit increased $13.9 million.

◦Primarily the result of higher average selling prices, as previously noted, contributions from recent acquisitions of $12.9 million and increased margins for aggregates and ready-mix concrete as a result of implemented price increases outpacing inflationary pressures.

◦Partially offset by higher operating costs across the business, mostly the result of inflationary pressures. These costs include higher asphalt oil costs of $59.3 million; higher labor costs of $32.0 million; higher fuel costs of $42.6 million; and higher cement costs of $20.7 million.

•Selling, general and administrative expense increased $10.7 million.

◦Largely the result of:

▪Increased payroll-related costs of $11.6 million, partially resulting from inflationary pressures.

▪Increased travel expenses of $2.3 million.

▪Increased office expenses of $1.7 million.

▪Increased professional fees of $1.7 million, partially due to increased legal and audit fees.

▪Increased expected credit losses of $1.4 million related to the absence of recoveries received during 2021.

▪Increased safety and training costs.

◦Offset in part by higher net gains on asset sales of $7.5 million.

•Other income (expense) decreased $6.7 million, primarily resulting from lower returns on the Company's nonqualified benefit plan investments, as discussed in Note 8.

•Interest expense increased $10.9 million, related to higher debt balances to fund recent acquisitions and higher working capital needs, along with higher average interest rates.

•Income tax expense decreased $800,000 as a result of lower income before income taxes.

MDU Resources Group, Inc. Form 10-K 49

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~~2018~~2021 compared to ~~2017~~2020 Construction materials and contracting's earnings decreased ~~$30.8~~$17.5 million ~~(25 percent)~~ as a result of:

~~Revenues:~~ •~~Increase~~Revenues increased $50.9 million.

◦Largely the result of:

▪Higher aggregate sales volumes from acquisitions in 2021 contributed $20.1 million and strong demand for airport, commercial and health care work in Oregon added $16.3 million. Also contributing was an additional $1.6 million due to a few large projects in South Dakota. These increases were partially offset by lower volumes in Texas of ~~$113.4~~$2.0 million driven by lower energy-related sales volumes.

▪Higher ready-mix concrete volumes from increased commercial and residential demand in Texas contributed $8.2 million, strong demand in Oregon added $7.8 million and acquisitions in 2021 contributed an additional $4.5 million. Ready-mix concrete revenues also benefited from an increase in average sales price in all regions. These increases were partially offset by decreased sales of $14.8 million due to lower demand in Hawaii as a result of the overall slowdown of the travel industry from COVID-19.

◦Partially offset by:

▪Decreased contracting revenues partially due to less available paving work in certain regions of $60.0 million and the absence of a few large jobs in 2020 of $17.5 million. These decreases were offset in part by strong demand for health care, agency and commercial work in Oregon of $28.8 million.

▪Decreased asphalt volumes primarily due to less available highway paving work in the public sector of $26.2 million in certain regions was partially offset by strong demand in Oregon.

•Gross profit decreased $23.6 million.

◦Primarily due to:

▪Lower gross profit and margins in other product lines, primarily due to higher asphalt oil material costs of $15.1 million, along with repair and maintenance costs of $2.6 million.

▪Higher fuel costs of $13.3 million across all product lines.

▪Lower asphalt gross profit of $5.1 million, largely resulting from less available paving work.

▪Lower contracting services gross profit resulting from less available paving work of $8.6 million, as previously discussed, and ~~aggregate volumes~~the absence of a few large jobs for $5.4 million. Margins were also impacted by higher fuel costs, as previously discussed.

▪Lower aggregates gross profit resulting from reduced work in Hawaii due to increased agency demand, increased realized prices and lower material costs. Partially offsetting these increases were lower ready-mixed concrete volumes due to a decrease in available work and unfavorable weather conditions in certain regions.

~~Gross margin:~~ ~~Increase~~the overall slowdown of ~~$3.6 million~~the travel industry resulting from COVID-19 of $3.9 million, startup costs of $1.3 million associated with new aggregate sites in Texas and $600,000 higher ~~asphalt product volumes and margins, largely from recent acquisitions and~~material costs in Alaska. These decreases were partially offset by higher ~~realized prices. Also contributing to the increase were higher aggregate volumes and~~ margins due to strong ~~market~~ demand in Oregon of $2.1 million and ~~lower material costs.~~ South Dakota of $1.4 million along with the effects of recent acquisitions.

▪Labor constraints, especially truck drivers, which resulted in isolated project delays and staffing inefficiencies across the business.

◦Partially ~~offsetting these increases were lower ready-mixed~~offset by an increase in ready-mix concrete gross profit of $7.1 million due in part to higher average pricing in all regions and higher volumes ~~and margins due to a decrease~~ in ~~available work and unfavorable weather conditions in certain~~most regions.

•Selling, general and administrative ~~expense:~~ expense decreased $200,000.

◦~~Increase~~Largely the result of:

▪The recovery of ~~$5.4~~prior bad debt expense of $2.1 million.

▪Higher net gains on asset sales of $1.4 million.

◦Offset in part by:

▪Increased payroll-related costs of $1.6 million, primarily ~~payroll-related costs,~~for higher health care costs.

▪Higher acquisition costs ~~and higher insurance-related costs.~~of $700,000.

▪An increase in miscellaneous taxes, license and governmental fees.

•Other income ~~(expense):~~ ~~Decrease of $3.5 million, largely the result of lower returns on investments.~~

~~Interest expense:~~ ~~Increase of $2.5 million, largely~~increased $500,000, primarily resulting from ~~higher debt balances~~an out-of-period adjustment in 2020 as a result of ~~recent acquisitions, capital expenditures and higher working capital needs.~~previously overstated benefit plan expenses.

~~Income taxes:~~• ~~Increase of $23.0 million, primarily~~Interest expense decreased $1.4 million.

◦Primarily resulting from lower average interest rates of $2.8 million.

◦Offset in part by higher average debt balances.

•Income tax expense decreased $4.0 million as a result of lower income before income taxes.

OutlookIn August 2022, the ~~absence~~Company announced its intent to separate this segment into a standalone publicly traded company. The separation is expected to result in ~~2018~~two independent, publicly traded companies: (1) MDU Resources Group, Inc., the existing company and (2) Knife River, a construction materials and contracting services company. The separation is expected to be completed in the second quarter of 2023 and is expected to unlock inherent value within the two companies, which each have unique growth prospects and investment opportunities. The Company may, at any time and for any reason until the proposed transaction is complete, abandon the separation or modify or change its terms. For a ~~$41.9 million tax benefit recorded~~complete discussion of all of the conditions to and the risks and uncertainties associated with the separation and distribution, see Item 1A - Risk Factors.

50 MDU Resources Group, Inc. Form 10-K

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Funding for public projects is dependent on federal and state funding, such as appropriations to the Federal Highway Administration. The American Rescue Plan Act enacted in the first quarter of 2021 provides $1.9 trillion in COVID-19 relief funding for states, schools and local governments. States are beginning to move forward with allocating these funds based on federal criteria and state needs, and in some cases, funding of infrastructure projects could positively impact the segment. Additionally, the bipartisan infrastructure proposal, known as the IRA, was enacted in the fourth quarter of ~~2017~~2021 and is providing long-term opportunities by designating $119 billion for the ~~revaluation~~repair and rebuilding of roads and bridges across the Company's footprint. In addition, the IRA provides $369 billion in new funding for clean energy programs. These programs include new tax incentives for solar, battery storage and hydrogen development along with funding to expand the production of electric vehicles and the build out of infrastructure to support electric vehicles. In addition to federal funding, 11 out of the ~~segment's net deferred tax liabilities. Partially offsetting this increase were lower income taxes due~~14 states in which the Company operates have implemented their own funding mechanisms for public projects, including projects related to highways, airports and other public infrastructure. The Company continues to monitor the ~~enactment~~progress of ~~the TCJA, which reduced the corporate tax rate.~~these legislative items.

~~Outlook~~The segment's vertically integrated ~~aggregate-based~~aggregates-based business model provides the Company with the ability to capture margin throughout the sales delivery process. The aggregate products are sold internally and externally for use in other products such as ~~ready-mixed~~ready-mix concrete, asphaltic concrete and public and private construction markets. The contracting services and construction materials are sold ~~primarily to construction contractors~~ in connection with street, highway and other public infrastructure projects, as well as private commercial, industrial and residential development projects. The public infrastructure projects have traditionally been more stable markets as public funding is more secure during periods of economic decline. The public ~~funding is,~~projects are, however, dependent on ~~state~~federal and ~~federal~~state funding such as appropriations to the Federal Highway Administration. Spending on private development is highly dependent on both local and national economic cycles, providing additional sales during times of strong economic ~~cycles.~~

~~The Company remains optimistic about overall economic growth~~cycles and ~~infrastructure spending. The IBISWorld Incorporated Industry Report issued in June 2019~~potential for sand and gravel mining in the United States projects a 1.1 percent annual growth rate through 2024. The report also states the demand for clay and refractory materials is projected to continue deteriorating in several downstream manufacturing industries. However, the report expects this decline will be offset by rising activity in the residential and nonresidential construction markets, growing public sector investment in the highway and bridge construction markets and the oil and gas sector growth. The Company believes stronger demand in the housing construction markets along with continued demand from the highway and bridge construction markets should provide a stable demand for construction materials and contracting products and services in the near future.reductions during recessionary periods.

During ~~2019~~2022 and ~~2018,~~2021, the Company made strategic ~~asset~~ purchases and ~~acquired businesses~~completed acquisitions that support the Company's long-term strategy to expand its market presence. In the first quarter of 2019, the Company purchased additional aggregate deposits in Texas, which augments the segment's existing operations and enhances its ability to sell aggregates to third partiespresence in the coming years. Also, in the first quarter of 2019, the Company acquired Viesko Redi-Mix, Inc., a ready mixed concrete supplier headquartered near Salem, Oregon. In the fourth quarter of 2019, the Company acquired Roadrunner Ready Mix, Inc., a ready-mixed concrete supplier in Idaho. In the first quarter of 2020, the Company acquired the assets of Oldcastle Infrastructure Spokane, a prestressed-concrete business located in Spokane, Washington.higher-margin materials markets. The Company continues to evaluate additional acquisition opportunities. For more information on the Company's business combinations, see Item 8 - Note 3.4. In 2022, the Company is upgrading its prestress facility located in Spokane, Washington. The state-of-the-art facility is expected to be completed during the first half of 2023. The facility is expected to be a platform for growth through improved productivity and quality, which will help meet strong market demand for prefabricated concrete solutions.

The construction materials and contracting ~~segment had~~segment's backlog remained strong at December 31, ~~2019, of $693~~2022, at $935 million, ~~which was comparable~~as compared to backlog at December 31, ~~2018,~~2021, of ~~$706~~$708 million. ~~The Company expects~~A significant portion of the Company's backlog at December 31, 2022, relates to ~~complete a significant amount~~publicly funded projects, largely street and highway construction projects, which are primarily driven by public work projects for state departments of transportation. Period over period increases or decreases in backlog cannot be used as an indicator of future revenues or net income. Of the $935 million of backlog at December 31, ~~2019,~~2022, the Company expects to complete an estimated $836 million during 2023. While the ~~next 12 months.~~

~~During~~Company believes the ~~second quarter~~current backlog of ~~2019, the governor of Oregon signed House Bill 3427, which creates a Corporate Activity Tax. The tax was enacted~~work remains firm, prolonged delays in the ~~third quarter~~receipt of ~~2019~~critical supplies and ~~was effective for the Company on January 1, 2020. The Company expects the additional taxation will~~materials or continued increases to pricing could result in customers seeking to delay or terminate existing or pending agreements. Factors noted in Item 1A - Risk Factors can cause revenues to be ~~less than $2.0 million annually~~realized in periods and at ~~the construction materials and contracting segment, which is dependent on the level of taxable commercial activity in Oregon.~~levels that are different from originally projected.

Construction Services

Strategy and challenges The construction services segment provides ~~inside~~electrical and ~~outside~~mechanical and transmission and distribution specialty contracting services, as discussed in Items 1 and 2 - Business Properties. The construction services segment focuses on safely executing projects; providing a superior return on investment by

~~MDU Resources Group, Inc.~~ ~~Form 10-K~~ 43

~~Part II~~

building new and strengthening existing customer relationships; ensuring quality service; effectively controlling costs; ~~collecting on receivables;~~ retaining, developing and recruiting talented employees; growing through organic and strategic acquisition opportunities; and focusing efforts on projects that will permit higher margins while properly managing risk. The growth experienced by the segment in recent years is due in part to ~~its~~the project awards in the markets served and the ability to support national customers in most of the regions in which ~~they operate.~~it operates.

The construction services segment faces challenges, which are not under direct control of the business, in the ~~highly competitive~~ markets in which it ~~operates. Competitive pricing environments, project delays, changes~~operates, including those described in ~~management's estimates of variable consideration~~Item 1A - Risk Factors. These factors, and ~~the effects from restrictive regulatory requirements~~those noted below, have ~~negatively impacted~~caused fluctuations in revenues, gross margins and ~~margins~~earnings in the past and are likely to cause fluctuations in the future.

•Revenue mix and impact on margins. The mix of revenues based on the types of services the segment provides can impact margins as certain industries and services provide higher margin opportunities. Larger or more complex projects typically result in higher margin opportunities since the segment assumes a higher degree of performance risk and there is greater utilization of the segment's resources for longer construction timelines. However, larger or more complex projects have a higher risk of regulatory and seasonal or cyclical delay. Project schedules fluctuate, which can affect the amount of work performed in a given period. Smaller or less complex projects typically have a greater number of companies competing for them, and competitors at times may be more aggressive when pursuing available work. A greater percentage of smaller scale or less complex work in a given period could ~~affect revenues~~negatively impact margins due to the inefficiency of transitioning between a greater number of smaller projects versus continuous production on a few larger projects.

•Project variability and performance. Margins for a single project may fluctuate period to period due to changes in the volume or type of work performed, the pricing structure under the project contract or job productivity. Productivity and performance on a project can vary period to period based on a number of factors, including unexpected project difficulties; unexpected project site conditions; project location, including locations with challenging operating conditions or difficult geographic characteristics; whether the work is on an open or encumbered right of way; inclement weather or severe weather events; environmental restrictions or regulatory delays; political or legal challenges related to a

MDU Resources Group, Inc. Form 10-K 51

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project; and the performance of third parties. In addition, the type of contract can impact the margin on a project. Under fixed-price contracts, which are more common with larger or more complex projects, the segment assumes risk related to project estimates versus execution. Revenues under this type of contract can vary, sometimes significantly, from original projects due to additional project complexity; timing uncertainty or extended bidding; extended regulatory or permitting processes; and other factors, which can result in a reduction in profit or losses on a project.

•Subcontractor work and provision of materials. Some work under project contracts is subcontracted out to other companies and margins on subcontractor work is generally lower than work performed by the Company. Increased subcontractor work in a given period may therefore result in lower margins. In addition, inflationary or other pressures may increase the ~~future. Additionally,~~cost of materials under fixed-price contracts and may result in decreased margins ~~may be negatively impacted~~ on ~~a quarterly basis due~~the project. The Company has worked to ~~adverse weather conditions,~~implement provisions in project contracts to allow for the pass-through of inflationary costs to customers where feasible and will continue to do so to mitigate the impacts.

The segment's management continually monitors its operating margins and has been proactive in addressing the inflationary impacts seen across the United States. The segment is currently experiencing continued labor constraints and increased fuel and material costs, as well as ~~timing~~impacts from delays in the national supply chain. The segment is working with suppliers and providers of goods and services in advance of construction to secure pricing and reduce delays for goods and services. The inflationary costs and national supply chain challenges experienced by the segment have increased costs but have not had significant impacts to the procurement of project ~~starts or completions, declines or delays in new projects due~~materials. Such volatility and inflationary pressures may continue to have an impact on the segment's margins, including fixed-price construction contracts that are particularly vulnerable to the ~~cyclical nature~~volatility of energy and material prices. These increases are partially offset by mitigation measures implemented by the ~~construction industry~~Company, including escalation clauses in contracts, pre-purchased materials and other ~~factors. These~~cost savings initiatives. The segment also continues recruitment and retention efforts to attract and retain employees. The Company expects these inflationary pressures and national supply chain challenges ~~may also impact the risk of loss on certain projects.~~to continue. Accordingly, operating results in any particular period may not be indicative of the results that can be expected for any other period.

The need to ensure available specialized labor resources for projects also drives strategic relationships with customers and project margins. These trends include an aging workforce and labor availability issues, ~~increasing pressure to reduce costs and improve reliability, and~~as well as increasing duration and complexity of customer capital programs. Most of the markets the segment operates in have experienced labor shortages which in some cases have caused increased labor-related costs. The Company continues to monitor the labor markets and expects labor costs to continue to increase based on increases included in the collective bargaining agreements and, to a lesser extent, the recent escalated inflationary environment in the United States. Due to these and other factors, the Company believes overall customer and competitor demand for labor resources will continue to ~~increase, possibly surpassing the supply of industry resources.~~increase.

Earnings overview - The following information summarizes the performance of the construction services segment.

Years ended December 31, 2019
2018
2017
(In millions)
Operating revenues $ 1,849.3
$ 1,371.5
$ 1,367.6
Cost of sales:
Operation and maintenance 1,555.4
1,150.4
1,153.9
Depreciation, depletion and amortization 15.0
14.3
14.2
Taxes, other than income 58.8
42.0
43.4
Total cost of sales 1,629.2
1,206.7
1,211.5
Gross margin 220.1
164.8
156.1
Selling, general and administrative expense:
Operation and maintenance 87.0
72.2
69.3
Depreciation, depletion and amortization 2.0
1.4
1.5
Taxes, other than income 4.7
4.4
4.0
Total selling, general and administrative expense 93.7
78.0
74.8
Operating income 126.4
86.8
81.3
Other income 1.9
1.1
1.3
Interest expense 5.3
3.6
3.7
Income before income taxes 123.0
84.3
78.9
Income taxes 30.0
20.0
25.6
Net income $ 93.0
$ 64.3
$ 53.3

~~2019 compared to 2018Construction services earnings increased $28.7 million (45 percent) as a result of:~~

~~Revenues:~~ Increase of $477.8 million, largely resulting from higher inside specialty contracting workloads from an increase in customer demand for hospitality, data center and high-tech projects. Also contributing to the increase was higher outside specialty contracting workloads, primarily resulting from increased utility customer demand.

~~Gross margin:~~ Increase of $55.3 million, primarily due to the higher volume of work resulting in an increase in revenues, as previously discussed, partially offset by an increase in operation and maintenance expense as a direct result of the increased workloads.

~~Selling, general and administrative expense:~~ ~~Increase of $15.7 million, resulting from increased payroll-related costs, as well as higher office expense and outside professional service costs.~~

~~Other income:~~ ~~Increase of $800,000, largely resulting from higher returns on the Company's benefit plan investments.~~

~~Interest expense:~~ ~~Increase of $1.7 million, related to higher debt balances as a result of additional working capital needs from the increase in contracting workloads in 2019.~~

~~Income taxes:~~ ~~Increase of $10.0 million, directly resulting from an increase in income before taxes.~~


							2022 vs. 2021		2021 vs. 2020
Years ended December 31,	2022		2021		2020		Variance		Variance
	(In millions)
Operating revenues	$	2,699.2	$	2,051.6	$	2,095.7	32	%	(2)	%
Cost of sales:
Operation and maintenance	2,325.9		1,725.5		1,747.5		35	%	(1)	%
Depreciation, depletion and amortization	16.9		15.8		15.7		7	%	1	%
Taxes, other than income	80.4		62.4		74.2		29	%	(16)	%
Total cost of sales	2,423.2		1,803.7		1,837.4		34	%	(2)	%
Gross profit	276.0		247.9		258.3		11	%	(4)	%
Selling, general and administrative expense:
Operation and maintenance	101.5		92.9		98.1		9	%	(5)	%
Depreciation, depletion and amortization	4.6		4.5		7.8		2	%	(42)	%
Taxes, other than income	5.3		4.8		4.8		10	%	—	%
Total selling, general and administrative expense	111.4		102.2		110.7		9	%	(8)	%
Operating income	164.6		145.7		147.6		13	%	(1)	%
Other income	7.3		2.6		2.0		181	%	30	%
Interest expense	6.3		3.5		4.1		80	%	(15)	%
Income before income taxes	165.6		144.8		145.5		14	%	—	%
Income tax expense	40.8		35.4		35.8		15	%	(1)	%
Net income	$	124.8	$	109.4	$	109.7	14	%	—	%

4452 MDU Resources Group, Inc. Form 10-K

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Operating Statistics
	Revenues						Gross profit
Business Line	2022		2021		2020		2022		2021		2020
	(In millions)
Electrical & mechanical
Commercial	$	1,082.5	$	553.2	$	741.5	$	105.2	$	59.8	$	48.4
Industrial	405.7		457.5		374.8		43.4		51.3		41.3
Institutional	215.5		123.1		158.8		3.8		6.2		23.8
Renewables	151.1		12.3		5.4		(.6)		1.2		1.1
Service & other	143.0		188.4		121.0		19.8		25.1		21.5
	1,997.8		1,334.5		1,401.5		171.6		143.6		136.1
Transmission & distribution
Utility	645.1		630.5		592.5		100.3		92.4		106.7
Transportation	72.3		103.1		111.8		4.1		11.9		15.5
	717.4		733.6		704.3		104.4		104.3		122.2
Intrasegment eliminations	(16.0)		(16.5)		(10.1)		—		—		—
	$	2,699.2	$	2,051.6	$	2,095.7	$	276.0	$	247.9	$	258.3

~~2018~~2022 compared to ~~2017~~2021 Construction services earnings increased ~~$11.0~~$15.4 million ~~(21 percent)~~ as a result of:

~~Revenues:~~ •~~Comparable to the prior year.~~Revenues increased $647.6 million.

~~Gross margin:~~ ◦~~Increase of $8.7 million, largely resulting from higher outside specialty contracting gross margins~~Largely due ~~to increased outside equipment sales~~to:

▪Increased electrical and ~~rentals. Partially offsetting the increase were decreased inside specialty contracting gross margins~~mechanical revenues, partially as a result of ~~decreased workloads~~inflationary pressures as well as:

◦Higher commercial revenues driven largely by a $251.5 million increase in hospitality projects due to the progress on large projects, a $121.8 million increase in data center projects driven by both the number of and progress on projects and an increase in general commercial projects as a result of project mix and progression of contracts.

◦Higher renewable revenues from the timing of and progress on projects.

◦Higher institutional revenues largely the result of increased activity and progress on projects from education projects of $26.0 million, healthcare projects of $24.1 million and government projects.

▪Increased utility revenues for electrical projects of $37.5 million, underground projects of $24.5 million, distribution projects of $12.7 million, telecommunications projects of $7.0 million and substation projects, with each sector being driven by higher customer demand. These increases were partially offset by lower transmission and storm work projects.

◦Partially offset by:

▪Lower industrial revenues driven by decreased demand for maintenance, high-tech and refinery projects and lower service revenues driven by decreased demand for the repair and maintenance of electrical and mechanical projects.

▪Lower transportation revenues, primarily from lower customer demand for street lighting projects of $39.8 million.

•Gross profit increased $28.1 million.

◦Largely due to the increased electrical and mechanical revenues previously discussed.

◦Partially offset by higher operating costs related to inflationary pressures, including labor, materials and equipment costs.

•Selling, general and administrative ~~expense:~~ expense increased $9.2 million resulting from higher payroll-related costs of $5.7 million, increased expected credit losses of $2.4 million due to changes in estimates during 2021 and higher office expenses.

•~~Increase~~Other income increased $4.7 million, primarily related to the Company's joint ventures.

•Interest expense increased $2.8 million due to higher working capital needs and higher interest rates.

•Income tax expense increased $5.4 million as a result of higher income before income taxes.

2021 compared to 2020 Construction services earnings decreased $300,000 as a result of:

•Revenues decreased $44.1 million.

◦Largely due to:

▪The completion of several large commercial projects in early 2021 and 2020 in the Las Vegas market of $129.0 million.

▪Decreased institutional projects of $15.0 million from less available work and the completion of a larger project.

▪The completion of a significant industrial project of $43.0 million.

▪Decreased demand for electric transportation projects which includes traffic signalization and street lighting.

◦Partially offset by:

▪Higher industrial work due to the number of projects awarded and progress on significant projects of $96.0 million.

▪Increased service work of $37.0 million related to the repair and maintenance of electrical, mechanical and fire protection systems.

▪Strong demand for utility projects including the progress on substations of $21.0 million and power line repair of $3.0 million.

MDU Resources Group, Inc. Form 10-K 53

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•Gross profit decreased $10.4 million.

◦Largely due to:

▪The absence of higher margin utility projects in 2020 negatively impacted gross profit by $15.0 million, which includes storm power line repair and fire hardening work.

▪Decreased transportation gross profit, largely the completion of a higher margin project of $5.1 million.

▪Institutional projects, primarily the recognition of reduced margins of $9.4 million from lower margin work in 2021 and the impacts of a job loss of $8.4 million related to change order disputes which resulted in a significant job recognizing higher labor and material costs.

◦Partially offset by:

▪Increased industrial gross profit primarily due to a change order settlement of $10.0 million on a significant project.

▪The absence of a job loss in 2020 of $8.9 million related to a large commercial project.

▪An increase in the amount of service work awarded and the progress on that work.

•Selling, general and administrative expense decreased $8.5 million.

◦Largely due to:

▪Lower bad debt expense of $7.0 million, largely due to changes in estimates related to expected credit losses.

▪Lower amortization expense of $3.2 ~~million, primarily higher~~million.

◦Offset in part by:

▪Higher office ~~expense, outside professional costs and~~expenses of $1.3 million.

▪Increased payroll-related costs.

•Other ~~income:~~ ~~Comparable~~income increased $600,000, largely related to ~~the prior year.~~increased earnings on investments.

•Interest ~~expense:~~ ~~Comparable~~expense decreased $600,000, largely related to ~~the prior year.~~decreased debt balances due to lower working capital needs and increased cash collections.

•Income ~~taxes:~~ ~~Decrease~~tax expense decreased $400,000 as a result of ~~$5.6 million, largely the~~ lower ~~corporate tax rate due to the enactment of the TCJA.~~income before income taxes.

Outlook Funding for public projects is highly dependent on federal and state funding, such as appropriations to the Federal Highway Administration. The American Rescue Plan provides $1.9 trillion in COVID-19 relief funding for states, schools and local government including broadband infrastructure. States are beginning to move forward with allocating these funds based on federal criteria and state needs, and in some cases, funding of infrastructure projects could positively impact the segment. Additionally, the Infrastructure Investment and Jobs Act, was enacted in the fourth quarter of 2021 and is providing long-term opportunities by designating funds for investments for upgrades to electric and grid infrastructure, transportation systems, airports and electric vehicle infrastructure, all industries this segment supports. In addition, the IRA provides $369 billion in new funding for clean energy programs. These programs include new tax incentives for solar, battery storage and hydrogen development along with funding to expand the production of electric vehicles and the build out of infrastructure to support electric vehicles. The Company ~~expects~~will continue to monitor the implementation of these legislative items.

The Company continues to have bidding ~~activity to remain strong for both inside and outside~~opportunities in the specialty ~~construction companies~~contracting markets in ~~2020.~~which it operated in during 2022, as evidenced by the segment's backlog. Although bidding remains highly competitive in all areas, the Company expects the segment's relationship with existing customers, skilled workforce, quality of service and effective cost management will continue to provide a benefit in securing and executing profitable ~~projects.~~projects in the future. The Company has also seen rapidly growing needs for services across the electric vehicle charging, wind generation and energy storage markets that complement existing renewable projects performed by the Company.

The construction services ~~segment had~~segment's backlog at December 31 ~~2019, of $1.1 billion, up from $939 million~~was as follows:


	2022		2021
	(In millions)
Electrical & mechanical	$	1,861	$	1,109
Transmission & distribution	270		276
	$	2,131	$	1,385

The increase in backlog at December 31, ~~2018. The 22 percent increase in~~2022, as compared to backlog at December 31, 2021, was largely attributable to the new project opportunities that the Company continues to be awarded across its diverse operations, particularly ~~inside specialty electrical~~within the commercial, industrial, institutional, and ~~mechanical contracting~~power utility markets. The increases in backlog have been offset by decreases in the ~~hospitality, high-tech, mission critical~~renewable and ~~public industries. The Company's outside power, communications and natural gas specialty contracting also have a high volume~~transportation markets due to the timing of ~~available work. The Company expects to complete a significant amount~~project completions. Period over period increases or decreases in backlog cannot be used as an indicator of future revenues or net income. Of the $2.1 billion of backlog at December 31, ~~2019,~~2022, the Company expects to complete an estimated $1.8 billion during 2023. While the ~~next 12 months.~~Company believes the current backlog of work remains firm, prolonged delays in the receipt of critical supplies and materials could result in customers seeking to delay or terminate existing or pending agreements. As of December 31, 2022, customers have not provided the Company with any indications that they no longer wish to proceed with the planned projects that have been included in backlog. Additionally, the Company continues to further evaluate potential acquisition opportunities that would be accretive to earnings of the Company and continue to grow the ~~Company's~~segment's backlog. Factors noted in Item 1A - Risk Factors can cause revenues to be realized in periods and at levels that are different from originally projected.

~~In support of the Company's strategic plan to grow through acquisitions, the Company purchased the assets of Pride Electric,~~

54 MDU Resources Group, Inc., an electrical construction company in Redmond, Washington, in the third quarter of 2019. In the first quarter of 2020, the Company acquired PerLectric, Inc., an electrical construction company in Fairfax, Virginia. For more information on the Company's business combinations, see Item 8 - Note 3. Form 10-K

During the second quarter of 2019, the governor of Oregon signed House Bill 3427, which creates a Corporate Activity Tax. The tax was enacted in the third quarter of 2019 and was effective for the Company on January 1, 2020. The Company expects the additional taxation will be less than $2.0 million annually at the construction services segment, which is dependent on the level of taxable commercial activity in Oregon.

Index

Part II

Other


																	2022 vs. 2021		2021 vs. 2020
Years ended December 31,	2019			2018			2017			Years ended December 31,	2022		2021		2020		Variance
	(In millions)										(In millions)
Operating revenues	$	16.6		$	11.3		$	7.9		Operating revenues	$	17.6	$	13.7	$	11.9	28	%	15	%
Operating expenses:										Operating expenses:
Operation and maintenance	15.6			9.3			6.3			Operation and maintenance	25.1		15.2		12.2		65	%	25	%
Depreciation, depletion and amortization	2.1			2.0			2.0			Depreciation, depletion and amortization	4.4		4.6		2.7		(4)	%	70	%
Taxes, other than income	.1			.1			.2			Taxes, other than income	.1		.1		.1		—	%	—	%
Total operating expenses	17.8			11.4			8.5			Total operating expenses	29.6		19.9		15.0		49	%	33	%
Operating loss	(1.2		)	(.1		)	(.6		)	Operating loss	(12.0)		(6.2)		(3.1)		94	%	(100)	%
Other income	.9			1.0			.9			Other income	1.0		.4		.4		150	%	—	%
Interest expense	1.9			2.8			3.6			Interest expense	1.5		.3		.8		400	%	(63)	%
Loss before income taxes	(2.2		)	(1.9		)	(3.3		)	Loss before income taxes	(12.5)		(6.1)		(3.5)		105	%	(74)	%
Income taxes	(.1		)	(1.2		)	(1.8		)
Income tax benefit										Income tax benefit	(1.2)		(.2)		(.4)		500	%	50	%
Net loss	$	(2.1	)	$	(.7	)	$	(1.5	)	Net loss	$	(11.3)	$	(5.9)	$	(3.1)	(93)	%	(90)	%


~~(a)~~			The commercial paper program is supported by a revolving credit agreement with various banks (provisions allow for increased borrowings, at the option of Montana-Dakota on stated conditions, up to a maximum of $225.0 million). There were no amounts outstanding under the revolving credit agreement.


~~(b)~~	~~Amount outstanding under commercial paper program.~~


~~(c)~~	~~Certain provisions allow for increased borrowings, up to a maximum of $125.0 million.~~


~~(d)~~	~~Outstanding letter(s) of credit reduce the amount available under the credit agreement.~~


~~(e)~~	~~Certain provisions allow for increased borrowings, up to a maximum of $110.0 million.~~


~~(f)~~	The commercial paper program is supported by a revolving credit agreement with various banks (provisions allow for increased borrowings, at the option of Centennial on stated conditions, up to a maximum of $700.0 million). There were no amounts outstanding under the revolving credit agreement.

The respective commercial paper programs are supported by revolving credit agreements. While the amount of commercial paper outstanding does not reduce available capacity under the respective revolving credit agreements, Montana-Dakota and Centennial do not issue commercial paper in an aggregate amount exceeding the available capacity under their credit agreements. The commercial paper borrowings may vary during the period, largely the result of fluctuations in working capital requirements due to the seasonality of certain operations of the Company's subsidiaries.

~~48 MDU Resources Group, Inc.~~ ~~Form 10-K~~

~~Part II~~

Total equity as a percent of total capitalization was 5654 percent and 55 percent at December 31, ~~2019~~2022 and ~~2018,~~2021, respectively. This ratio is calculated as the Company's total equity, divided by the Company's total capital. Total capital is the Company's total debt, including short-term borrowings and long-term debt due within ~~one year,~~12 months, plus total equity. ~~This~~Management believes this ratio is an indicator of how the Company is financing its operations, as well as its financial strength.

The Company currently has a shelf registration statement on file with the SEC, under which the Company may issue and sell any combination of common stock and debt securities. The Company may sell such securities if warranted by market conditions and the Company's capital requirements. Any public 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. The Company's board of directors currently has authorized the issuance and sale of up to an aggregate of $1.0 billion worth of such securities. The Company's board of directors reviews this authorization on a periodic basis and the aggregate amount of securities authorized may be increased in the future.

On February 22, 2019, the Company entered into a Distribution Agreement with J.P. Morgan Securities LLC and MUFG Securities Americas Inc., as sales agents, with respect to the issuance and sale of up to 10.0 million shares of the Company's common stock in connection with an “at-the-market” offering. The common stock may be offered for sale, from time to time, in accordance with the terms and conditions of the agreement. Proceeds from the sale of shares of common stock under the agreement have been and are expected to be used for general corporate purposes, which may include, among other things, working capital, capital expenditures, debt repayment and the financing of acquisitions.

The Company issued 3.6 million shares of common stock for the year ended December 31, 2019, pursuant to the “at-the-market” offering. For the year ended December 31, 2019, the Company received net proceeds of $94.0 million and paid commissions to the sales agents of approximately $950,000 in connection with the sales of common stock under the "at-the-market" offering. The net proceeds were used for capital expenditures and acquisitions. As of December 31, 2019, the Company had remaining capacity to issue up to 6.4 million additional shares of common stock under the "at-the-market" offering program.

Certain of the Company's debt instruments use LIBOR as a benchmark for establishing the applicable interest rate. LIBOR is the subject of recent national, international and other regulatory guidance and proposals for reform. These reforms and other pressures may cause LIBOR to disappear entirely or to perform differently than in the past. The Company has been proactive to anticipate the reform of LIBOR by replacing it with Secured Overnight Financing Rate in certain of its new debt instruments, as well as those that are being renewed. The Company continues to evaluate the impact the reform will have on its debt instruments and, at this time, does not anticipate a significant impact.

~~The following includes information related to the preceding table.~~

Montana-Dakota On January 1, 2019, the Company's revolving credit agreement and commercial paper program became Montana-Dakota's revolving credit agreement and commercial paper program as a result of the Holding Company Reorganization. The outstanding balance of the revolving credit agreement was also transferred to Montana-Dakota. All of the related terms and covenants of the credit agreements remained the same.

On December 19, 2019, Montana-Dakota amended and restated its revolving credit agreement extending the maturity date to December 19, 2024. Montana-Dakota's revolving credit agreement supports its commercial paper program. Commercial paper borrowings under this agreement are classified as long-term debt as they are intended to be refinanced on a long-term basis through continued commercial paper borrowings. Montana-Dakota's objective is to maintain acceptable credit ratings in order to access the capital markets through the issuance of commercial paper. Historically, downgrades in credit ratings have not limited, nor are currently expected to limit, Montana-Dakota's ability to access the capital markets. If Montana-Dakota were to experience a downgrade of its credit ratings in the future, it may need to borrow under its credit agreement and may experience an increase in overall interest rates with respect to its cost of borrowings.

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

MDU Energy CapitalOn ~~July 24, 2019, Montana-Dakota~~October 21, 2022, MDU Energy Capital entered into a ~~$200.0~~$11.5 million term loan agreement with a SOFR-based variable interest rate and a maturity date of July 21, 2023. The agreement contains customary covenants and provisions, including a covenant of MDU Energy Capital not to permit, at any time, the ratio of total debt to total capitalization to be greater than 70 percent. The covenants also include certain restrictions on the sale of certain assets, loans and investments.

Cascade On November 30, 2022, Cascade amended and restated its revolving credit agreement to extend the maturity date to November 30, 2027. Any borrowings under the revolving credit agreement are classified as long-term debt as they are intended to be refinanced on a long-term basis

MDU Resources Group, Inc. Form 10-K 59

Index

Part II

through continued borrowings. The credit agreement contains customary covenants and provisions, including a covenant of Cascade not to permit, at any time, the ratio of total debt to total capitalization to be greater than 65 percent. Other covenants include restrictions on the sale of certain assets, limitations on indebtedness and the making of certain investments.

On June 15, 2022, Cascade issued $50.0 million of senior notes under a note purchase agreement with maturity dates ranging from ~~October 17, 2039~~June 15, 2032 to ~~November 18, 2059,~~June 15, 2052, at a weighted average interest rate of ~~3.95~~4.50 percent. The agreement contains customary covenants and provisions, including a covenant of Cascade not to permit, at any time, the ratio of debt to total capitalization to be greater than 65 percent. Other covenants include restrictions on the sale of certain assets, limitations on indebtedness and the making of certain investments.

On January 20, 2023, Cascade entered into a $150.0 million term loan agreement with a SOFR-based variable interest rate and a maturity date of January 19, 2024. The agreement contains customary covenants and provisions, including a covenant of Cascade not to permit, at any time, the ratio of total debt to total capitalization to be greater than 65 percent. The covenants also include certain restrictions on the sale of certain assets, loans and investments.

~~Cascade~~Intermountain On ~~June 7, 2019, Cascade~~October 13, 2022, Intermountain amended and restated its revolving credit agreement to increase the borrowing ~~limit~~capacity to $100.0 million and extend the maturity date to ~~June 7, 2024.~~October 13, 2027. Any borrowings under the revolving credit agreement are classified as long-term debt as they are intended to be refinanced on a long-term basis through continued borrowings. The credit agreement contains customary covenants and provisions, including a covenant of Intermountain not to permit, at any time, the ratio of total debt to total capitalization to be greater than 65 percent. Other covenants include restrictions on the sale of certain assets, limitations on indebtedness and the making of certain investments.

~~MDU Resources Group, Inc.~~ ~~Form 10-K~~ 49

~~Part II~~

On June ~~13, 2019, Cascade~~15, 2022, Intermountain issued ~~$75.0~~$40.0 million of senior notes under a note purchase agreement with maturity dates ranging from June ~~13, 2029~~15, 2052 to June ~~13, 2049,~~15, 2062, at a weighted average interest rate of ~~3.93~~4.68 percent. The agreement contains customary covenants and provisions, including a covenant of Intermountain not to permit, at any time, the ratio of debt to total capitalization to be greater than 65 percent. Other covenants include restrictions on the sale of certain assets, limitations on indebtedness and the making of certain investments.

On January 20, 2023, Intermountain ~~On June 7, 2019, Intermountain amended its revolving credit~~entered into a $125.0 million term loan agreement ~~to extend the~~with a SOFR-based variable interest rate and a maturity date of January 19, 2024. The agreement contains customary covenants and provisions, including a covenant of Intermountain not to ~~June 7, 2024. Any borrowings under~~permit, at any time, the ~~revolving credit agreement are classified as long-term~~ratio of total debt ~~as they are intended~~to total capitalization to be ~~refinanced~~greater than 65 percent. The covenants also include certain restrictions on ~~a long-term basis through continued borrowings.~~

~~On June 13, 2019, Intermountain issued $50.0 million~~the sale of ~~senior notes under a note purchase agreement with maturity dates ranging from June 13, 2029 to June 13, 2049, at a weighted average interest rate of 3.92 percent.~~certain assets, loans and investments.

Centennial On December 19, 2019, Centennial amended and restated its revolving credit agreement to increase the borrowing capacity to $600.0 million and extend the maturity date to December 19, 2024. Centennial's revolving credit agreement supports its commercial paper program. Commercial paper borrowings under this agreement are classified as long-term debt as they are intended to be refinanced on a long-term basis through continued commercial paper borrowings. Centennial's objective is to maintain acceptable credit ratings in order to access the capital markets through the issuance of commercial paper. Historically, downgrades in Centennial's credit ratings have not limited, nor are currently expected to limit, Centennial's ability to access the capital markets. If Centennial were to experience a downgrade of its credit ratings in the future, it may need to borrow under its credit agreement and may experience an increase in overall interest rates with respect to its cost of borrowings.

Prior to the maturity of the Centennial credit agreement, Centennial expects that it will negotiate the extension or replacement of this agreement, which provides credit support to access the capital markets. In the event Centennial is unable to successfully negotiate this agreement, or in the event the fees on this facility become too expensive, which Centennial does not currently anticipate, it would seek alternative funding.

On ~~April 4, 2019,~~March 18, 2022, Centennial entered into a $100.0 million term loan agreement with a SOFR-based variable interest rate and a maturity date of March 17, 2023. The agreement contains customary covenants and provisions, including a covenant of Centennial not to permit, at any time, the ratio of total debt to total capitalization to be greater than 65 percent. The covenants also include certain restrictions on the sale of certain assets, loans and investments.

On March 23, 2022, Centennial issued $150.0 million of senior notes under a note purchase agreement with maturity dates ranging from ~~April 4, 2029~~March 23, 2032 to ~~April 4,~~March 23, 2034, at a weighted average interest rate of ~~4.60~~3.71 percent. The agreement contains customary covenants and provisions, including a covenant of Centennial not to permit, at any time, the ratio of debt to total capitalization to be greater than 60 percent. Other covenants include restrictions on the sale of certain assets, limitations on indebtedness and the making of certain investments.

On December 19, 2022, Centennial entered into a $135.0 million term loan agreement with a SOFR-based variable interest rate and a maturity date of December 18, 2023. The agreement contains customary covenants and provisions, including a covenant of Centennial not to permit, at any time, the ratio of total debt to total capitalization to be greater than 65 percent. The covenants also include certain restrictions on the sale of certain assets, loans and investments.

WBI Energy Transmission On ~~July 26, 2019,~~December 22, 2022, WBI Energy Transmission amended its uncommitted note purchase and private shelf agreement to increase capacity to ~~$300.0~~$350.0 million ~~and extend the issuance period and~~with an expiration date ~~to May 16, 2022.~~of December 22, 2025. On December ~~16, 2019,~~22, 2022, WBI Energy Transmission issued ~~$45.0~~$40.0 million ofin senior notes under the private shelf agreement with a maturity date of December ~~16, 2034,~~22, 2030, at an interest rate of ~~4.17~~6.67 percent. WBI Energy Transmission had ~~$170.0~~$235.0 million of notes outstanding at December 31, ~~2019,~~2022, which reduced the remaining capacity under this uncommitted private shelf agreement to ~~$130.0~~$115.0 million. This agreement contains customary covenants and provisions, including a covenant of WBI Energy Transmission not to permit, as of the end of any fiscal quarter, the ratio of total debt to total capitalization to be greater than 55 percent. Other covenants include a limitation on priority debt, restrictions on the sale of certain assets and the making of certain investments.

60 MDU Resources Group, Inc. Form 10-K

Index

Part II

Equity Resources

In August 2020, the Company amended the Distribution Agreement dated February 22, 2019, with J.P. Morgan Securities LLC and MUFG Securities Americas Inc., as sales agents. This agreement, as amended, allows the offering, issuance and sale of up to 6.4 million shares of the Company's common stock in connection with an “at-the-market” offering. The common stock may be offered for sale, from time to time, in accordance with the terms and conditions of the agreement. As of December 31, 2022, the Company had capacity to issue up to 3.6 million additional shares of common stock under the "at-the-market" offering program. The Company did not issue any shares under the "at-the-market" offering program in 2022. Proceeds from the sale of shares of common stock under the agreement have been and are expected to be used for general corporate purposes, which may include, among other things, working capital, capital expenditures, debt repayment and the financing of acquisitions.

Dividend restrictions

For information on the Company's dividends and dividend restrictions, see Item 8 - Note 12.

~~Off balance sheet arrangements~~

~~As of December 31, 2019, the Company had no material off balance sheet arrangements as defined by the rules of the SEC.~~

~~Contractual obligations and commercial commitments~~Material cash requirements

For more information on the Company's contractual obligations on long-term debt, operating leases and purchase commitments, see

Item 8 - Notes 9, 10 and ~~20.~~21. At December 31, ~~2019~~,2022, the Company's ~~commitments~~material cash requirements under these obligations were as follows:


	Less than 1 year		1-3 years		3-5 years		More than 5 years		Total
	(In millions)
Short-term debt	$	246.5	$	—	$	—	$	—	$	246.5
Long-term debt maturities*	78.1		654.7		371.6		1,743.9		2,848.3
Estimated interest payments**	163.0		229.0		182.2		903.7		1,477.9
Operating leases	38.9		46.5		18.5		40.0		143.9
Purchase commitments	712.9		416.2		185.3		676.5		1,990.9
	$	1,239.4	$	1,346.4	$	757.6	$	3,364.1	$	6,707.5

Less than 1 year
1-3 years
3-5 years
More than 5 years
Total
(In millions)
Long-term debt maturities* $ 16.6
$ 149.5
$ 451.3
$ 1,632.8
$ 2,250.2
Estimated interest payments** .8
6.6
13.9
74.4
95.7
Operating leases 35.2
41.8
17.6
47.9
142.5
Purchase commitments 405.5
434.5
210.5
678.4
1,728.9
$ 458.1
$ 632.4
$ 693.3
$ 2,433.5
$ 4,217.3
* Unamortized debt issuance costs and discount are excluded from the table.

** Represents the estimated interest payments associated with the Company's long-term debt outstanding at December 31, 2022, assuming current interest rates and consistent amounts outstanding until their respective maturity dates over the periods indicated in the table above.


*			~~Unamortized debt issuance costs and discount are excluded from the table.~~


**	Represents the estimated interest payments associated with the Company's long-term debt outstanding at December 31, 2019, assuming current interest rates and consistent amounts outstanding until their respective maturity dates over the periods indicated in the table above.

Material short-term cash requirements of the Company include repayment of outstanding borrowings and interest payments on those agreements, payments on operating lease agreements, payment of obligations on purchase commitments and asset retirement obligations. At December 31, ~~2019~~,2022, the current portion of asset retirement obligations was $4.6 million and was included in other accrued liabilities on the Consolidated Balance Sheets.

Material long-term cash requirements of the Company include repayment of outstanding borrowings and interest payments on those agreements, payments on operating lease agreements, payment of obligations on purchase commitments and asset retirement obligations. At December 31, 2022, the Company had total liabilities of ~~$417.6~~$410.5 million related to asset retirement obligations that are excluded from the table above. ~~Of the total asset retirement obligations, the current portion was $4.3 million at~~ ~~December 31, 2019, and was included in~~

~~50 MDU Resources Group, Inc.~~ ~~Form 10-K~~

~~Part II~~

other accrued liabilities on the Consolidated Balance Sheet. The remainder, which constitutes the long-term portion of asset retirement obligations, was included in deferred credits and other liabilities - other on the Consolidated Balance Sheet. Due to the nature of these obligations, the Company cannot determine precisely when the payments will be made to settle these obligations. For more information, see Item 8 - Note ~~10.~~11.

Not reflected in the previous table are ~~$576,000~~$2.0 million in uncertain tax positions at December 31, ~~2019.~~2022.

The Company has no minimum funding requirements for its defined benefit pension plans for ~~2020~~2023 due to ~~the~~an additional contribution of $20.0 million in 2019.

The Company's MEPP contributions are based on union employee payroll, which cannot be determined in advance for future periods. The Company may also be required to make additional contributions to its MEPPs as a result of their funded status. For more information, see Item 1A - Risk Factors and Item 8 - Note ~~17.~~18.

New Accounting Standards

For information regarding new accounting standards, see Item 8 - Note 1,2, which is incorporated herein by reference.

MDU Resources Group, Inc. Form 10-K 61

Index

Part II

Critical Accounting ~~Policies Involving Significant~~ Estimates

The Company has prepared its financial statements in conformity with GAAP. The preparation of ~~these~~its financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. ~~The Company's significant accounting policies are discussed~~Management reviews these estimates and assumptions based on historical experience, changes in ~~Item 8 - Note 1.~~

~~Estimates are used for items such as impairment testing of long-lived assets~~business conditions and ~~goodwill; fair values of acquired assets and liabilities~~other relevant factors believed to be reasonable under the ~~acquisition method~~circumstances.

Critical accounting estimates are defined as estimates that require management to make assumptions about matters that are uncertain at the time the estimate was made and changes in the estimates could have a material impact on the Company's financial position or results of accounting; aggregate reserves; property depreciable lives; tax provisions; revenue recognized using the cost-to-cost measure of progress for contracts; uncollectible accounts; environmental and other loss contingencies; regulatory assets expected to be recovered in rates charged to customers; costs on construction contracts; unbilled revenues; actuarially determined benefit costs; asset retirement obligations; lease classification; present value of right-of-use assets and lease liabilities; and the valuation of stock-based compensation.operations. The Company's critical accounting ~~policies~~estimates are subject to judgments and uncertainties that affect the application of ~~such policies.~~its significant accounting policies discussed in Item 8 - Note 2. As ~~discussed below,~~additional information becomes available, or actual amounts are determinable, the recorded estimates are revised. Consequently, the Company's financial position or results of operations may be materially different when reported under different conditions or when using different assumptions in the application of ~~such policies.~~

~~As additional information becomes available, or actual amounts are determinable,~~ the ~~recorded estimates are revised. Consequently, operating results can be affected by revisions to prior accounting estimates. The~~ following critical accounting ~~policies involve significant judgments and~~ estimates.

~~Impairment of long-lived assets and intangibles~~

The Company reviews the carrying values of its long-lived assets and intangibles, excluding assets held for sale, whenever events or changes in circumstances indicate that such carrying values may not be recoverable and at least annually for goodwill.

Goodwill

The Company performs its goodwill impairment testing annually in the fourth quarter. In addition, the test is performed on an interim basis whenever events or circumstances indicate that the carrying amount of goodwill may not be recoverable. Examples of such events or circumstances may include a significant adverse change in business climate, weakness in an industry in which the Company's reporting units operate or recent significant cash or operating losses with expectations that those losses will continue.

The Company has determined that the reporting units for its goodwill impairment test are its operating segments, or components of an operating segment, that constitute a business for which discrete financial information is available and for which segment management regularly reviews the operating results. For more information on the Company's operating segments, see Item 8 - Note ~~16.~~17. Goodwill impairment, if any, is measured by comparing the fair value of each reporting unit to its carrying value. If the fair value of a reporting unit exceeds its carrying value, the goodwill of the reporting unit is not impaired. If the carrying value of a reporting unit exceeds its fair value, the Company must record an impairment loss for the amount that the carrying value of the reporting unit, including goodwill, exceeds the fair value of the reporting unit. For the years ended December 31, ~~2019, 2018~~2022, 2021 and ~~2017,~~2020, there were no impairment losses recorded.

At ~~December~~October 31, ~~2019,~~2022, the fair value substantially exceeded the carrying value at ~~all~~the Company's reporting ~~units.~~units with goodwill, with the exception of the natural gas distribution reporting unit. The Company's annual impairment testing indicated the natural gas distribution reporting unit's fair value is not substantially in excess of its carrying value ("cushion"). Based on the Company's assessment, the estimated fair value of the natural gas distribution reporting unit exceeded its carrying value, which includes $345.7 million of goodwill, by approximately 8 percent as of October 31, 2022. The decrease in the natural gas distribution reporting unit's cushion from the prior year was primarily attributable to the risk adjusted cost of capital increasing from 5.0 percent in 2021 to 6.4 percent 2022, which directly correlates with the treasury rates at the date of the test. The natural gas distribution reporting unit is at risk of future impairment if projected operating results are not met or other inputs into the fair value measurement model change.

~~MDU Resources Group, Inc.~~ ~~Form 10-K~~ 51

~~Part II~~

determined using a weighted combination of income and market approaches. The Company believes that the estimates and assumptions used in its impairment assessments are reasonable and based on available market information.

The Company uses a discounted cash flow methodology for its income approach. Under the income approach, the discounted cash flow model determines fair value based on the present value of projected cash flows over a specified period and a residual value related to future cash flows beyond the projection period. Both values are discounted using a rate which reflects the best estimate of the risk adjusted cost of capital ~~cost~~ at each reporting unit. ~~Risk~~The risk adjusted ~~capital~~ cost ~~which~~of capital varies by reporting unit and was in the range of 46 percent to 10 percent in 2022, 5 percent to 9 percent ~~was utilized in the goodwill impairment test performed in the fourth quarter of 2019. The goodwill impairment test also utilizes a long-term growth rate projection, which varies by reporting unit~~for 2021 and ~~was in the range of approximately 2~~4 percent to 38 percent ~~in the goodwill impairment test performed in the fourth quarter of 2019.~~ for 2020.

Under the market approach, the Company estimates fair value using various multiples derived from enterprise value to EBITDA for comparative peer companies for each respective reporting unit. These multiples are applied to operating data for each reporting unit to arrive at an indication of fair value. In addition, the Company adds a reasonable control premium when calculating the fair value utilizing the peer multiples, which is estimated as the premium that would be received in a sale in an orderly transaction between market participants. The Company ~~believes that the estimates~~used a 20 percent control premium in 2022 and ~~assumptions used~~a 15 percent control premium in ~~its impairment assessments are reasonable~~2021 and ~~based on available market information.~~

~~Long-Lived Assets~~ Unforeseen events and changes in circumstances and market conditions and material differences in the value of long-lived assets and intangibles due to changes in estimates of future cash flows could negatively affect the fair value of the Company's assets and result in an impairment charge. If an impairment indicator exists for tangible and intangible assets, excluding goodwill, the asset group held and used is tested for recoverability by comparing an estimate of undiscounted future cash flows attributable to the assets compared to the carrying value of the assets. If impairment has occurred, the amount of the impairment recognized is determined by estimating the fair value of the assets and recording a loss if the carrying value is greater than the fair value.

There is risk involved when determining the fair value of assets, tangible and intangible, as there may be unforeseen events and changes in circumstances and market conditions that have a material impact on the estimated amount and timing of future cash flows. In addition, the fair value of the asset could be different using different estimates and assumptions in the valuation techniques used.2020.

The Company believes its estimates used in calculating the fair value of long-lived assets, including goodwill and identifiable intangibles, are reasonable based on the information that is known when the estimates are made.

~~Business combinations~~

The Company accounts for acquisitions on the Consolidated Financial Statements starting from the date of the acquisition, which is the date that control is obtained. The acquisition method of accounting requires acquired assets and liabilities assumed be recorded at their respective fair values as of the date of the acquisition. The excess of the purchase price over the fair value of the assets acquired and liabilities assumed is recorded as goodwill. The estimation of fair values of acquired assets and liabilities assumed by the Company requiresuses significant judgment in estimating its five-year forecast. The assumptions underlying cash flow projections are in sync as applicable with the Company's strategy and ~~requires various~~ assumptions. ~~Although independent appraisals may be used to assist in~~Future projections are heavily correlated with the ~~determination~~current year results of the fair value of certain assets and liabilities, the appraised values may be based on significant estimates provided by management. The amounts and useful lives assigned to depreciable and amortizable assets compared to amounts assigned to goodwill, which is not amortized, can affect theoperations. Future results of operations may vary due to economic and financial impacts. The long-term growth rates are developed by management based on industry data, management's knowledge of the industry and management's strategic plans. The long-term growth rate varies by reporting unit. Construction

62 MDU Resources Group, Inc. Form 10-K

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materials and contracting and construction services long-term growth rate was 3 percent in 2022, 2021 and 2020. Natural gas distribution's long-term growth rate has been in the ~~period~~range of 1.5 percent to 3 percent in 2022, 2021 and ~~periods subsequent to a business combination.~~

There is a measurement period after the acquisition date during which the Company may adjust the amounts recognized for a business combination. Any such adjustments are recorded in the period the adjustment is determined with the corresponding offset to goodwill. These adjustments are typically based on obtaining additional information that existed at the acquisition date regarding the assets acquired and the liabilities assumed. The measurement period ends once the Company has obtained all necessary information that existed as of the acquisition date, but does not extend beyond one year from the date of the acquisition. Once the measurement period has ended, any adjustments to assets acquired or liabilities assumed are recorded in income from continuing operations.2020.

Regulatory accounting

The Company is subject to rate regulation by state public service commissions and/or the FERC. The Company's regulated businesses account for certain income and expense items under the provisions of regulatory accounting, which require these businesses to defer as regulatory assets or liabilities certain items that would have otherwise been reflected as expense or income, respectively, based on the expected regulatory treatment in future rates. Regulatory assets generally represent incurred or accrued costs that have been deferred and

~~52 MDU Resources Group, Inc.~~ ~~Form 10-K~~

~~Part II~~

are expected to be recovered in rates charged to customers. Regulatory liabilities generally represent amounts that are expected to be refunded to customers in future rates or amounts collected in current rates for future costs.

Management continually assesses the likelihood of recovery in future rates of incurred costs and refunds to customers associated with regulatory assets and liabilities. ~~The~~Decisions made by the various regulatory agencies can directly impact the amount and timing of these items. Therefore, expected recovery or ~~flowback~~refund of these deferred items generally is based on specific ratemaking decisions or precedent for each item. If future recovery of costs is no longer probable, the Company would be required to include those costs in the statement of income or accumulated other comprehensive loss in the period in which it is no longer deemed probable. The Company believes that the accounting subject to rate regulation remains appropriate and its regulatory assets are probable of recovery in current rates or in future rate proceedings. At December 31, 2022 and 2021, the Company's regulatory assets were $494.8 million and $476.5 million, respectively, and regulatory liabilities were $474.9 million and $445.1 million, respectively. At December 31, 2022 and 2021, regulatory assets in recovery were $427.8 million and $367.7 million, respectively, and regulatory assets not in recovery were $67.0 million and $108.8 million, respectively.

Revenue recognition

Revenue is recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The recognition of revenue requires the Company to make estimates and assumptions that affect the reported amounts of revenue. The accuracy of revenues reported on the Consolidated Financial Statements depends on, among other things, management's estimates of total costs to complete projects because the Company uses the cost-to-cost measure of progress on construction contracts for revenue recognition.

To determine the proper revenue recognition method for contracts, the Company evaluates whether two or more contracts should be combined and accounted for as one single contract and whether the combined or single contract should be accounted for as more than one performance obligation. This evaluation requires significant judgment and the decision to combine a group of contracts or separate the combined or single contract into multiple performance obligations could change the amount of revenue and profit recorded in a given period. For most contracts, the customer contracts with the Company to provide a significant service of integrating a complex set of tasks and components into a single project. Hence, the Company's contracts are generally accounted for as one performance obligation.

The Company recognizes construction contract revenue over time using an input method based on the cost-to-cost measure of progress for contracts because it best depicts the transfer of assets to the customer which occurs as the Company incurs costs on the contract. Under the cost-to-cost measure of progress, the costs incurred are compared with total estimated costs of a performance obligation. Revenues are recorded proportionately to the costs incurred. This method depends largely on the ability to make reasonably dependable estimates related to the extent of progress toward completion of the contract, contract revenues and contract costs. ~~Inasmuch as~~Since contract prices are generally set before the work is performed, the estimates pertaining to every project could contain significant unknown risks such as volatile labor, material and fuel costs, weather delays, adverse project site conditions, unforeseen actions by regulatory agencies, performance by subcontractors, job management and relations with project owners. Changes in estimates could have a material effect on the Company's results of operations, financial position and cash flows. For the years ended December 31, ~~2019~~2022 and ~~2018,~~2021, the Company's total construction contract revenue was ~~$2.8~~$3.8 billion and ~~$2.2~~$3.0 billion, respectively.

Several factors are evaluated in determining the bid price for contract work. These include, but are not limited to, the complexities of the job, past history performing similar types of work, seasonal weather patterns, competition and market conditions, job site conditions, work force safety, reputation of the project owner, availability of labor, materials and fuel, project location and project completion dates. As a project commences, estimates are continually monitored and revised as information becomes available and actual costs and conditions surrounding the job become known. If a loss is anticipated on a contract, the loss is immediately recognized.

Contracts are often modified to account for changes in contract specifications and requirements. The Company considers contract modifications to exist when the modification either creates new or changes the existing enforceable rights and obligations. Generally, contract modifications are for goods or services that are not distinct from the existing contract due to the significant integration of services provided in the context of the contract and are accounted for as if they were part of that existing contract. The effect of a contract modification on the transaction price and the measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue on a cumulative catch-up basis.

MDU Resources Group, Inc. Form 10-K 63

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The Company's construction contracts generally contain variable consideration including liquidated damages, performance bonuses or incentives, claims, ~~unapproved/~~unpriced change orders and penalties or index pricing. The variable amounts usually arise upon achievement of certain performance metrics or change in project scope. The Company estimates the amount of revenue to be recognized on variable consideration using one of the two prescribed estimation methods, ~~that~~the expected value method or the most likely amount method, depending on which method best ~~predict~~predicts the most likely amount of consideration the Company expects to be entitled to or expects to incur. Assumptions as to the occurrence of future events and the likelihood and amount of variable consideration are made during the contract performance period. Estimates of variable consideration and assessment of anticipated performance and all information (historical, current and forecasted) that is reasonably available to management. The Company only includes variable consideration in the estimated transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur or when the uncertainty associated with the variable consideration is resolved. Changes in circumstances could impact management's estimates made in determining the value of variable consideration recorded. When determining if the variable consideration is constrained, the Company considers if factors exist that could increase the likelihood of the magnitude of a potential reversal of revenue. The Company updates its estimate of the transaction price each reporting period and the effect of variable consideration on the transaction price is recognized as an adjustment to revenue on a cumulative catch-up basis.

The Company believes its estimates surrounding the cost-to-cost method are reasonable based on the information that is known when the estimates are made. The Company has contract administration, accounting and management control systems in place that allow its

~~MDU Resources Group, Inc.~~ ~~Form 10-K~~ 53

~~Part II~~

estimates to be updated and monitored on a regular basis. Because of the many factors that are evaluated in determining bid prices, it is inherent that the Company's estimates have changed in the past and will continually change in the future as new information becomes available for each job.

Pension and other postretirement benefits

The Company has noncontributory defined benefit pension plans and other postretirement benefit plans for certain eligible employees. Various actuarial assumptions are used in calculating the benefit expense (income) and liability (asset) related to these plans. Costs of providing pension and other postretirement benefits bear the risk of change, as they are dependent upon numerous factors based on assumptions of future conditions.

The Company makes various assumptions when determining plan costs, including the current discount rates and the expected long-term return on plan assets, the rate of compensation increases, actuarially determined mortality data and health care cost trend rates. In selecting the expected long-term return on plan assets, which is considered to be one of the key variables in determining benefit expense or income, the Company considers historical returns, current market conditions, the mix of investments and expected future market trends, including changes in interest rates and equity and bond market performance. Another key variable in determining benefit expense or income is the discount rate. In selecting the discount rate, the Company matches forecasted future cash flows of the pension and postretirement plans to a yield curve which consists of a hypothetical portfolio of high-quality corporate bonds with varying maturity dates, as well as other factors, as a basis. The Company's pension and other postretirement benefit plan assets are primarily made up of equity and fixed-income investments. Fluctuations in actual equity and bond market returns, as well as changes in general interest rates, may result in increased or decreased pension and other postretirement benefit costs in the future. Management estimates the rate of compensation increase based on long-term assumed wage increases and the health care cost trend rates are determined by historical and future trends. The Company estimates that a 50-basis point decrease in the discount rate or in the expected return on plan assets would each increase expense by approximately $1.7 million (after-tax) for the year ended ~~December 31, 2019~~.

The Company believes the estimates made for its pension and other postretirement benefits are reasonable based on the information that is known when the estimates are made. These estimates and assumptions are subject to a number of variables and are expected to change in the future. Estimates and assumptions will be affected by changes in the discount rate, the expected long-term return on plan assets, the rate of compensation increase and health care cost trend rates. A 50 basis point change in the assumed discount rate and the expected long-term return on plan assets would have had the following effects at December 31, 2022:


	Pension Benefits				Other Postretirement Benefits
	50 Basis Point Increase		50 Basis Point Decrease		50 Basis Point Increase		50 Basis Point Decrease
Discount rate	(In millions)
Projected benefit obligation as of December 31, 2022	$	(13.7)	$	14.8	$	(2.5)	$	2.7
Net periodic benefit cost (credit) for 2023	$	—	$	(.1)	$	(.2)	$	.2
Expected long-term return on plan assets
Net periodic benefit cost (credit) for 2023	$	(1.6)	$	1.6	$	(.4)	$	.4

A 100 basis point change in the assumed health care cost trend rates would have had the following effects at December 31, 2022:


	100 Basis Point Increase		100 Basis Point Decrease
	(In millions)
Service and interest cost components for 2023	$	.1	$	(.1)
Postretirement benefit obligation as of December 31, 2022	$	1.8	$	(1.6)

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The Company plans to continue to use its current methodologies to determine plan costs. For more information on the assumptions used in determining plan costs, see Item 8 - Note ~~17.~~18.

Business combinations

The Company accounts for acquisitions on the Consolidated Financial Statements starting from the date of the acquisition, which is the date that control is obtained. The acquisition method of accounting requires acquired assets and liabilities assumed be recorded at their respective fair values as of the date of the acquisition. The excess of the purchase price over the fair value of the assets acquired and liabilities assumed is recorded as goodwill. The estimation of fair values of acquired assets and liabilities assumed by the Company requires significant judgment and requires various assumptions. Although independent appraisals may be used to assist in the determination of the fair value of certain assets and liabilities, the appraised values may be based on significant estimates provided by management. The amounts and useful lives assigned to depreciable and amortizable assets compared to amounts assigned to goodwill, which is not amortized, can affect the results of operations in the period of and periods subsequent to a business combination.

In determining fair values of acquired assets and liabilities assumed, the Company uses various observable inputs for similar assets or liabilities in active markets and various unobservable inputs, which includes the use of valuation models. Fair values are based on various factors including, but not limited to, age and condition of property, maintenance records, auction values for equipment with similar characteristics, recent sales and listings of comparable properties, data collected from drill holes and other subsurface investigations and geologic data. The Company primarily uses the market and cost approaches in determining the fair value of land and property, plant and equipment. A combination of the market and income approaches are used for aggregate reserves and intangibles, primarily a discounted cash flow model. The Company must develop reasonable and supportable assumptions to evaluate future cash flows. The process is highly subjective and requires a large degree of management judgement. Assumptions used may vary for each specific business combination due to unique circumstances of each transaction. Assumptions may include discount rate, time period, terminal value and growth rate. The values generated from the discounted cash flow model are sensitive to the assumptions used. Inaccurate assumptions can lead to deviations from the values generated.

Income taxes

The Company is required to make judgments regarding the potential tax effects of various financial transactions and ongoing operations to estimate the Company's obligation to taxing authorities. These tax obligations include income, real estate, franchise and sales/use taxes. Judgments related to income taxes require the recognition in the Company's financial statements that a tax position ~~that~~ is more-likely-than-not to be sustained on audit.

Judgment and estimation is required in developing the provision for income taxes and the reporting of tax-related assets and liabilities and, if necessary, any valuation allowances. The interpretation of tax laws can involve uncertainty, since tax authorities may interpret such laws differently. Actual income tax could vary from estimated amounts and may result in favorable or unfavorable impacts to net income, cash flows and tax-related assets and liabilities. In addition, the effective tax rate may be affected by other changes including the allocation of property, payroll and revenues between states.

The Company assesses the deferred tax assets for recoverability taking into consideration historical and anticipated earnings levels; the reversal of other existing temporary differences; available net operating losses and tax carryforwards; and available tax planning strategies that could be implemented to realize the deferred tax assets. Based on this assessment, management must evaluate the need for, and amount of, a valuation allowance against the deferred tax assets. As facts and circumstances change, adjustment to the valuation allowance may be required.

~~Non-GAAP Financial Measures~~

The Business Segment Financial and Operating Data includes financial information prepared in accordance with GAAP, as well as another financial measure, adjusted gross margin, that is considered a non-GAAP financial measure as it relates to the Company's electric and natural gas distribution segments. The presentation of adjusted gross margin is intended to be a useful supplemental financial measure for investors’ understanding of the segments' operating performance. This non-GAAP financial measure should not be considered as an alternative to, or more meaningful than, GAAP financial measures such as operating income (loss) or net income (loss). The Company's non-GAAP financial measure, adjusted gross margin, is not standardized; therefore, it may not be possible to compare this financial measure with other companies’ gross margin measures having the same or similar names.

~~54 MDU Resources Group, Inc.~~ ~~Form 10-K~~

~~Part II~~

In addition to operating revenues and operating expenses, management also uses the non-GAAP financial measure of adjusted gross margin when evaluating the results of operations for the electric and natural gas distribution segments. Adjusted gross margin for the electric and natural gas distribution segments is calculated by adding back adjustments to operating income (loss). These add-back adjustments include: operation and maintenance expense; depreciation, depletion and amortization expense; and certain taxes, other than income.

Adjusted gross margin includes operating revenues less the cost of electric fuel and purchased power, purchased natural gas sold and certain taxes, other than income. These taxes, other than income, included as a reduction to adjusted gross margin relate to revenue taxes. These segments pass on to their customers the increases and decreases in the wholesale cost of power purchases, natural gas and other fuel supply costs in accordance with regulatory requirements. As such, the segments' revenues are directly impacted by the fluctuations in such commodities. Revenue taxes, which are passed back to customers, fluctuate with revenues as they are calculated as a percentage of revenues. For these reasons, period over period, the segments' operating income (loss) is generally not impacted. The Company's management believes the adjusted gross margin is a useful supplemental financial measure as these items are included in both operating revenues and operating expenses. The Company's management also believes that adjusted gross margin and the remaining operating expenses that calculate operating income (loss) are useful in assessing the Company's utility performance as management has the ability to influence control over the remaining operating expenses.

~~The following information reconciles operating income to adjusted gross margin for the electric segment.~~

Years ended December 31, 2019
2018
2017
(In millions)
Operating income $ 64.0
$ 65.2
$ 79.9
Adjustments:
Operating expenses:

Operation and maintenance 125.7
123.0
122.2
Depreciation, depletion and amortization 58.7
51.0
47.7
Taxes, other than income 16.1
14.5
13.5
Total adjustments 200.5
188.5
183.4
Adjusted gross margin $ 264.5
$ 253.7
$ 263.3

~~The following information reconciles operating income to adjusted gross margin for the natural gas distribution segment.~~

Years ended December 31, 2019
2018
2017
(In millions)
Operating income $ 69.2
$ 72.3
$ 84.3
Adjustments:
Operating expenses:
Operation and maintenance 185.0
173.4
164.3
Depreciation, depletion and amortization 79.6
72.5
69.4
Taxes, other than income 23.5
21.7
20.5
Total adjustments 288.1
267.6
254.2
Adjusted gross margin $ 357.3
$ 339.9
$ 338.5

~~Effects of Inflation~~

~~Inflation did not have a significant effect on the Company's operations in~~ ~~2019~~, ~~2018~~ or ~~2017~~.


Item 7A. Quantitative and Qualitative Disclosures About Market Risk

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

Interest rate risk

The Company uses fixed and variable rate long-term debt to partially finance capital expenditures, including acquisitions, and mandatory debt retirements. These debt agreements expose the Company to market risk related to changes in interest rates. The Company manages this risk by ~~taking~~attempting to take advantage of favorable market conditions when timing the placement of long-term financing. The Company from time to time has utilized interest rate

~~MDU Resources Group, Inc.~~ ~~Form 10-K~~ 55

~~Part II~~

swap agreements to manage a portion of the Company's interest rate risk and may take advantage of such agreements in the future to minimize such risk. For additional information on the Company's long-term debt, see Item 8 - Notes 8 and 9.

At December 31, ~~2019~~2022 and ~~2018,~~2021, the Company had no outstanding interest rate hedges.

MDU Resources Group, Inc. Form 10-K 65

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The following table shows the amount of long-term debt, which excludes unamortized debt issuance costs and discount, and related weighted average interest rates, both by expected maturity dates, as of December 31, ~~2019~~.2022.


	2023			2024			2025			2026			2027			Thereafter			Total			Fair Value
	(Dollars in millions)
Long-term debt:
Fixed rate	$	78.1		$	61.4		$	177.8		$	140.8		$	100.8		$	1,743.9		$	2,302.8		$	1,930.7
Weighted average interest rate	3.7		%	4.2		%	4.0		%	5.7		%	5.5		%	4.3		%	4.4		%
Variable rate	$	—		$	415.5		$	—		$	—		$	130.0		$	—		$	545.5		$	545.5
Weighted average interest rate	—		%	5.1		%	—		%	—		%	6.3		%	—		%	5.4		%

2020
2021
2022
2023
2024
Thereafter
Total
Fair
Value

(Dollars in millions)
Long-term debt:

Fixed rate $ 16.6
$ 1.5
$ 148.0
$ 77.9
$ 61.4
$ 1,632.8
$ 1,938.2
$ 2,113.7
Weighted average interest rate 4.8 % 1.1 % 4.5 % 3.7 % 4.2 % 4.6 % 4.5 %
Variable rate $ —
$ —
$ —
$ —
$ 312.0
$ —
$ 312.0
$ 312.0
Weighted average interest rate — % — % — % — % 2.7 % — % 2.7 %
Commodity price risk

The Company enters into commodity price derivative contracts to minimize the price volatility associated with natural gas costs for its customers at its natural gas distribution segment. At December 31, 2022 and 2021, these contracts were not material. For more information on the Company's derivatives, see Item 8 - Note 2.

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Item 8. Financial Statements and Supplementary Data

Management's Report on Internal Control Over Financial Reporting

The management of MDU Resources Group, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company's internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company's financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, ~~2019~~.2022. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013).

Based on our evaluation under the framework in Internal Control-Integrated Framework (2013), management concluded that the Company's internal control over financial reporting was effective as of December 31, ~~2019~~.2022.

The effectiveness of the Company's internal control over financial reporting as of December 31, ~~2019~~,2022, has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report.


/s/ David L. Goodin		/s/ Jason L. Vollmer


~~/s/~~ David L. Goodin		~~/s/~~ Jason L. Vollmer


~~David L. Goodin~~	~~Jason L. Vollmer~~
President and Chief Executive Officer	Vice President and Chief Financial Officer ~~and Treasurer~~

MDU Resources Group, Inc. Form 10-K 5767

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of MDU Resources Group, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of MDU Resources Group, Inc. and subsidiaries (the "Company") as of December 31, ~~2019~~2022 and ~~2018~~,2021, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, ~~2019~~,2022, and the related notes and the ~~financial statement~~ schedules listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, ~~2019~~ ~~and~~ ~~2018~~,2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, ~~2019~~,2022 and December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, ~~2019~~,2022, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February ~~21, 2020,~~24, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Revenue from Contracts with Customers-Construction Contract Revenue-Refer to Notes 12 and 23 to the financial statements

Critical Audit Matter Description

The Company recognizes construction contract revenue over time using an input method based on the cost-to-cost measure of progress asfor contracts because it best depicts the transfer of assets to the ~~customer.~~customer, which occurs as the Company incurs costs on the contract. Under ~~this method~~the cost-to-cost measure of ~~measuring~~ progress, the costs incurred are compared with total estimated costs of ~~the~~a performance ~~obligation and revenues~~obligation. Revenues are recorded proportionately to the costs incurred. ~~Ordinarily~~This method depends largely on the ~~Company’s contracts represent a single distinct performance obligation due~~ability to make reasonably dependable estimates related to the ~~highly interdependent and interrelated nature~~extent of progress toward completion of the ~~underlying goods or services.~~contract, contract revenues, contract costs, and contract profits. The accounting for these contracts involves judgment, particularly as it relates to the process of estimating total costs and profit for the performance obligation. For the year ended December 31, ~~2019,~~2022, the Company recognized ~~$2.8~~$3.8 billion of construction contract revenue.

Given the judgments necessary to estimate total costs and profit for the performance obligations used to recognize revenue for construction contracts, auditing such estimates required extensive audit effort due to the volume and complexity of construction contracts and a high degree of auditor judgment when performing audit procedures and evaluating the results of those procedures.

~~58 MDU Resources Group, Inc.~~ ~~Form 10-K~~

~~Part II~~

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to management’s estimates of total costs and profit for the performance obligations used to recognize revenue for ~~certain~~ construction contracts included the following, among others:

•We ~~evaluated~~tested the design and operating effectiveness of management's controls over construction contract revenue, including those over management’s estimation of total costs and profit for the performance obligations.

68 MDU Resources Group, Inc. Form 10-K

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•We developed an expectation of the amount of construction contract revenues for certain performance obligations based on prior year ~~margins,~~markups, and taking into account current year events, applied to the construction contract costs in the current year and compared our expectation to the amount of construction contract revenues recorded by management.

•We selected a sample of construction contracts and performed the following:

•Evaluated whether the contracts were properly included in management’s calculation of construction contract revenue based on the terms and conditions of each contract, including whether continuous transfer of control to the customer occurred as progress was made toward fulfilling the performance obligation.

•Observed the work sites and inspecting the progress to completion for certain construction contracts.

•Compared the transaction prices, including estimated variable consideration, to the consideration expected to be received based on current rights and obligations under the contracts and any modifications that were agreed upon with the customers.

•Evaluated management’s identification of distinct performance obligations by evaluating whether the underlying goods and services ~~or both~~ were highly interdependent and interrelated.

•Tested the accuracy and completeness of the costs incurred to date for the performance obligation.

•Evaluated the estimates of total cost and profit for the performance obligation by:


◦	~~Observing the work sites and inspecting the progress to completion.~~


◦	~~Comparing costs incurred to date to the costs management estimated to be incurred to date.~~


◦	Evaluating management’s ability to achieve the estimates of total cost and profit by performing corroborating inquiries with the Company’s project managers and engineers, and comparing the estimates to management’s work plans, engineering specifications, and supplier contracts.


◦	~~Comparing management’s estimates for the selected contracts to costs and profits of similar performance obligations, when applicable.~~

◦Comparing total costs incurred to date to the costs management estimated to be incurred to date and selecting specific cost types to compare costs incurred to date to management's estimated costs at completion.

◦Evaluating management’s ability to achieve the estimates of total cost and profit by performing corroborating inquiries with the Company’s project managers and engineers, and comparing the estimates to management’s work plans, engineering specifications, and supplier contracts.

◦Comparing management’s estimates for the selected contracts to costs and profits of similar performance obligations, when applicable.

•Tested the mathematical accuracy of management’s calculation of construction contract revenue for the performance obligation.

•We evaluated management’s ability to estimate total costs and profits accurately by comparing actual costs and profits to management’s historical estimates for performance obligations that have been fulfilled.

Regulatory Matters-Impact of Rate Regulation on the Financial Statements-Refer to Notes 12 and 1920 to the financial statements

Critical Audit Matter Description

Through the Company’s regulated utility businesses, it provides electric and natural gas services to customers, and generates, transmits, and distributes electricity. The Company is subject to rate regulation by federal and state utility regulatory agencies (collectively, the “Commissions”), which have jurisdiction with respect to the rates of electric and natural gas distribution companies in states where the Company operates. The Company’s regulated utility businesses account for certain income and expense items under the provisions of regulatory accounting, which requires these businesses to defer as regulatory assets or liabilities certain items that would have otherwise been reflected as expense or income, respectively, based on the expected regulatory treatment in future rates. The expected recovery, refund or ~~flowback~~future rate reduction of these deferred items generally is based on specific ratemaking decisions or precedent for each item. Accounting for the economics of rate regulation impacts multiple financial statement line items and disclosures, such as property, plant, and equipment; regulatory assets and liabilities; operating revenues; operation and maintenance expense; depreciation expense; and income taxes.

Rates are determined and approved in regulatory proceedings based on an analysis of the Company’s costs to provide utility service and a return on the Company’s investment in the regulated utility businesses. Regulatory decisions can have an impact on the recovery of costs, the rate of return earned on investment, and the timing and amount of assets to be recovered by rates. The regulation of rates is premised on the full recovery of prudently incurred costs and a reasonable rate of return on invested capital. Decisions to be made by the Commissions in the future will impact the accounting for regulated operations.

Accounting for the economics of rate regulation impacts multiple financial statement line items and disclosures, such as property, plant, and equipment; regulatory assets and liabilities; operating revenues; operation and maintenance expense; and depreciation expense. We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management to support its assertions about impacted account balances and disclosures and the degree of subjectivity involved in assessing the impact of future regulatory orders on the financial statements. Management judgments include assessing the likelihood of (1) recovery in future rates of incurred costs and (2) refunds or future rate reduction to customers. Given management’s accounting judgments are based on assumptions about the outcome of future decisions by the Commissions, auditing these judgments requires specialized knowledge of accounting for rate regulation due to its inherent complexities.

~~MDU Resources Group, Inc.~~ ~~Form 10-K~~ 59

~~Part II~~

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the uncertainty of future decisions by the Commissions included the following, among others:

•We tested the design and operating effectiveness of management’s controls over the evaluation of the likelihood of (1) the recovery in future rates of costs incurred as property, plant, and equipment and deferred as regulatory assets; and (2) a refund or a future reduction in rates that should be reported as regulatory liabilities. We tested management’s controls over the initial recognition of amounts as regulatory assets or liabilities; and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates or of a future reduction in rates.

MDU Resources Group, Inc. Form 10-K 69

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•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.

•We read relevant regulatory orders issued by the Commissions for the Company and other public utilities in the Company’s significant jurisdictions, ~~regulatory statutes, interpretations,~~ procedural memorandums, filings made by the Company or interveners, and other publicly available information to assess the likelihood of recovery in future rates or of a future reduction in rates based on ~~precedence~~precedents of the treatment of similar costs under similar circumstances. We evaluated the external information and compared to management’s recorded regulatory asset and liability balances for ~~completeness.~~

~~For regulatory matters in process, we inspected the Company’s filings with the Commissions~~completeness, and ~~the filings with the Commissions by intervenors that may impact the Company’s future rates,~~ for any evidence that might contradict management’s assertions.

•We obtained an analysis from management regarding probability of recovery for regulatory assets or refund or future reduction in rates for regulatory liabilities not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery, or ~~that~~ a future reduction in rates.

•We inspected minutes of the board of directors to identify any evidence that may contradict management’s assertions regarding probability of recovery or refunds. We also inquired of management regarding current year rate filings and new regulatory assets or liabilities.

Goodwill – Natural Gas Distribution Reporting Unit – Refer to Notes 2 and 7 to the financial statements

Critical Audit Matter Description

The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of the reporting unit to its carrying value. The Company determines the fair value of its reporting units using the discounted cash flow model and the market approach. The determination of the fair value requires management to make significant estimates and assumptions related to forecasts of future cash flows, earnings before interest, taxes, depreciation, and amortization (EBITDA), long-term growth rates, ~~is not likely.~~and discount rates. Changes in these assumptions could have a significant impact on either the fair value or the amount of any goodwill impairment charge. The goodwill balance was $764 million as of December 31, 2022, of which $346 million was allocated to the Natural Gas Distribution Reporting Unit (“Natural Gas Distribution”). The fair value of Natural Gas Distribution exceeded its carrying value as of the measurement date and, therefore, no impairment was recognized.

We identified goodwill for Natural Gas Distribution as a critical audit matter because of the significant judgments made by management to estimate the fair value and the difference between its fair value and carrying value. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to forecasts of future cash flows, EBITDA and selection of the discount rate and long-term growth rate.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the forecasts of future cash flows, EBITDA, the discount rate, and the long-term growth rate, used by management to estimate the fair value of Natural Gas Distribution included the following, among others:

•We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the determination of the fair value of Natural Gas Distribution, such as controls related to management’s forecasts of future cash flows, EBITDA and selection of the discount rate and long-term growth rate.

•We evaluated management’s ability to accurately forecast by comparing actual results to management’s historical forecasts.

•We evaluated the reasonableness of management’s forecasts by comparing the forecasts to (1) historical results, (2) internal communications to management and the Board of Directors, and (3) forecasted information included in the Company press releases as well as in analyst and industry reports of the Company and companies in its peer group.

•We evaluated the impact of changes in management’s forecasts from the October 31, 2022, annual measurement date to December 31, 2022.

•With the assistance of our fair value specialists, we evaluated the reasonableness of the valuation methodology, discount rate, and long-term growth rate, including testing the underlying source information and the mathematical accuracy of the calculations, and developing a range of independent estimates and comparing those to the discount rate and long-term growth rate selected by management.

•With the assistance of our fair value specialists, we evaluated the EBITDA multiples, including testing the underlying source information and mathematical accuracy of the calculations, and comparing the multiples selected by management to its guideline companies.



/s/ Deloitte & Touche LLP


Minneapolis, Minnesota
February ~~21, 2020~~24, 2023

We have served as the Company's auditor since 2002.

6070 MDU Resources Group, Inc. Form 10-K

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Goodwill

Goodwill represents the excess of the purchase price over the fair value of identifiable net tangible and intangible assets acquired in a business combination. Goodwill is required to be tested for impairment annually, which the Company completes in the fourth quarter, or more frequently if events or changes in circumstances indicate that goodwill may be impaired.

The Company has determined that the reporting units for its goodwill impairment test are its operating segments, or components of an operating segment, that constitute a business for which discrete financial information is available and for which segment management regularly reviews the operating results. For more information on the Company's operating segments, see Note 17. Goodwill impairment, if any, is measured by comparing the fair value of each reporting unit to its carrying value. If the fair value of a reporting unit exceeds its carrying value, the goodwill of the reporting unit is not impaired. If the carrying value of a reporting unit exceeds its fair value, the Company must record an impairment loss for the amount that the carrying value of the reporting unit, including goodwill, exceeds the fair value of the reporting unit. For the years ended December 31, 2022, 2021 and 2020, there were no impairment losses recorded.

Investments

The Company's investments include the cash surrender value of life insurance policies, insurance contracts, mortgage-backed securities and U.S. Treasury securities. The Company measures its investment in the insurance contracts at fair value with any unrealized gains and losses recorded on the Consolidated Statements of Income. The Company has not elected the fair value option for its mortgage-backed securities and U.S. Treasury securities and, as a result, the unrealized gains and losses on these investments are recorded in accumulated other comprehensive loss. For more information, see Notes 8 and 18.

Government Assistance

The Company accounts for government assistance received for capital projects by reducing the cost of the project by the amount of assistance received. The Company records government assistance received as taxable income and writes-up the tax basis of the asset to include the amount of the assistance received.

Government assistance received for the years ended December 31, 2022, 2021 and 2020, was immaterial.

Variable interest entities

The Company evaluates its arrangements and contracts with other entities to determine if they are VIEs and if so, if the Company is the primary beneficiary. GAAP provides a framework for identifying VIEs and determining when a company should include the assets, liabilities, noncontrolling interest and results of activities of a VIE in its consolidated financial statements.

A VIE should be consolidated if a party with an ownership, contractual or other financial interest in the VIE (a variable interest holder) has the power to direct the VIE's most significant activities and the obligation to absorb losses or right to receive benefits of the VIE that could be significant to the VIE. A variable interest holder that consolidates the VIE is called the primary beneficiary. Upon consolidation, the primary beneficiary generally must initially record all of the VIE's assets, liabilities and noncontrolling interests at fair value and subsequently account for the VIE as if it were consolidated.

The Company's evaluation of whether it qualifies as the primary beneficiary of a VIE involves significant judgments, estimates and assumptions and includes a qualitative analysis of the activities that most significantly impact the VIE's economic performance and whether the Company has the power to direct those activities, the design of the entity, the rights of the parties and the purpose of the arrangement.

Joint ventures

The Company accounts for unconsolidated joint ventures using either the equity method or proportionate consolidation. The Company currently holds interests between 25 percent and 50 percent in joint ventures formed primarily for the purpose of pooling resources on construction contracts. Proportionate consolidation is used for joint ventures that include unincorporated legal entities and activities of the joint venture which are construction-related. For those joint ventures accounted for under proportionate consolidation, only the Company’s pro rata share of assets, liabilities, revenues and expenses are included in the Company’s balance sheet and results of operations.

For those joint ventures accounted for using proportionate consolidation, the Company recorded in its Consolidated Statements of Income $14.8 million, $14.7 million, and $69.7 million of revenue for the years ended December 31, 2022, 2021 and 2020, respectively, and $3.0 million, $4.7 million and $20.6 million of operating income for the years ended December 31, 2022, 2021 and 2020, respectively. At December 31, 2022 and 2021, the Company had interest in assets from these joint ventures of $2.4 million and $14.3 million, respectively.

For those joint ventures accounted for under the equity method, the Company's investment balances for the joint venture is included in Investments in the Consolidated Balance Sheets and the Company’s pro rata share of net income is included in Other income in the Consolidated Statements of Income. The Company’s investments in equity method joint ventures were a net asset of $1.3 million for both December 31, 2022 and 2021, respectively. In 2022, 2021 and 2020, the Company recognized income (loss) from equity method joint ventures of $5.4 million, $892,000 and $(32,000), respectively.

MDU Resources Group, Inc. Form 10-K 83

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Derivative instruments

The Company enters into commodity price derivative contracts in order to minimize the price volatility associated with customer natural gas costs at its natural gas distribution segment. These derivatives are not designated as hedging instruments and are recorded in the Consolidated Balance Sheets at fair value. Changes in the fair value of these derivatives along with any contract settlements are recorded each period in regulatory assets or liabilities in accordance with regulatory accounting. The Company does not enter into any derivatives for trading or other speculative purposes.

During 2022, the Company did not enter into any commodity price derivative contracts. During 2021, the Company entered into commodity price derivative contracts securing the purchase of 450,000 MMBtu of natural gas.

Leases

Lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected lease term. The Company recognizes leases with an original lease term of 12 months or less in income on a straight-line basis over the term of the lease and does not recognize a corresponding right-of-use asset or lease liability. The Company determines the lease term based on the non-cancelable and cancelable periods in each contract. The non-cancelable period consists of the term of the contract that is legally enforceable and cannot be canceled by either party without incurring a significant penalty. The cancelable period is determined by various factors that are based on who has the right to cancel a contract. If only the lessor has the right to cancel the contract, the Company will assume the contract will continue. If the lessee is the only party that has the right to cancel the contract, the Company looks to asset, entity and market-based factors. If both the lessor and the lessee have the right to cancel the contract, the Company assumes the contract will not continue.

The discount rate used to calculate the present value of the lease liabilities is based upon the implied rate within each contract. If the rate is unknown or cannot be determined, the Company uses an incremental borrowing rate, which is determined by the length of the contract, asset class and the Company's borrowing rates, as of the commencement date of the contract.

~~Regulatory assets and liabilities~~

The Company's regulated businesses account for certain income and expense items under the provisions of regulatory accounting, which requires these businesses to defer as regulatory assets or liabilities certain items that would have otherwise been reflected as expense or income. The Company records regulatory assets or liabilities at the time the Company determines the amounts to be recoverable in current or future rates.

~~Goodwill~~

The Company has determined that the reporting units for its goodwill impairment test are its operating segments, or components of an operating segment, that constitute a business for which discrete financial information is available and for which segment management regularly reviews the operating results. For more information on the Company's operating segments, see Note 16. Goodwill impairment, if any, is measured by comparing the fair value of each reporting unit to its carrying value. If the fair value of a reporting unit exceeds its carrying value, the goodwill of the reporting unit is not impaired. If the carrying value of a reporting unit exceeds its fair value, the Company must record an impairment loss for the amount that the carrying value of the reporting unit, including goodwill, exceeds the fair value of the reporting unit. For the years ended ~~December 31, 2019~~, ~~2018~~ ~~and~~ ~~2017, there were no impairment losses recorded. At~~ ~~December 31, 2019, the fair value substantially exceeded the carrying value at all reporting units.~~

Determining the fair value of a reporting unit requires judgment and the use of significant estimates which include assumptions about the Company's future revenue, profitability and cash flows, amount and timing of estimated capital expenditures, inflation rates, risk adjusted capital cost, operational plans, and current and future economic conditions, among others. The fair value of each reporting unit is determined using a weighted combination of income and market approaches. The Company uses a discounted cash flow methodology for its income approach. Under the income approach, the discounted cash flow model determines fair value based on the present value of projected cash flows over a specified period and a residual value related to future cash flows beyond the projection period. Both values are discounted using a rate which reflects the best estimate of the risk adjusted capital cost at each reporting unit. Risk adjusted capital cost, which varies by reporting unit and was in the range of 4 percent to 9 percent was utilized in the goodwill impairment test performed in the fourth quarter of 2019. The goodwill impairment test also utilizes a long-term growth rate projection, which varies by reporting unit and was in the range of approximately 2 percent to 3 percent in the goodwill impairment test performed in the fourth quarter of 2019. Under the market approach, the Company estimates fair value using various multiples derived from enterprise value to EBITDA for comparative peer companies for each respective reporting unit. These multiples are applied to operating data for each reporting unit to arrive at an indication of fair value. In addition, the Company adds a reasonable control premium when calculating the fair value utilizing the peer multiples, which is estimated as the premium that would be received in a sale in an orderly transaction between market participants. The Company believes that the estimates and assumptions used in its impairment assessments are reasonable and based on available market information.

~~Revenue recognition~~

Revenue is recognized when a performance obligation is satisfied by transferring control over a product or service to a customer. Revenue is measured based on consideration specified in a contract with a customer, and excludes any sales incentives and amounts collected on behalf of third parties. The Company is considered an agent for certain taxes collected from customers. As such, the Company presents revenues net of these taxes at the time of sale to be remitted to governmental authorities, including sales and use taxes.

~~MDU Resources Group, Inc.~~ ~~Form 10-K~~ 71

~~Part II~~

The electric and natural gas distribution segments generate revenue from the sales of electric and natural gas products and services, which includes retail and transportation services. These segments establish a customer's retail or transportation service account based on the customer's application/contract for service, which indicates approval of a contract for service. The contract identifies an obligation to provide service in exchange for delivering or standing ready to deliver the identified commodity; and the customer is obligated to pay for the service as provided in the applicable tariff. The product sales are based on a fixed rate that includes a base and per-unit rate, which are included in approved tariffs as determined by state or federal regulatory agencies. The quantity of the commodity consumed or transported determines the total per-unit revenue. The service provided, along with the product consumed or transported, are a single performance obligation because both are required in combination to successfully transfer the contracted product or service to the customer. Revenues are recognized over time as customers receive and consume the products and services. The method of measuring progress toward the completion of the single performance obligation is on a per-unit output method basis, with revenue recognized based on the direct measurement of the value to the customer of the goods or services transferred to date. For contracts governed by the Company’s utility tariffs, amounts are billed monthly with the amount due between 15 and 22 days of receipt of the invoice depending on the applicable state’s tariff. For other contracts not governed by tariff, payment terms are net 30 days. At this time, the segment has no material obligations for returns, refunds or other similar obligations.

The pipeline and midstream segment generates revenue from providing natural gas transportation, gathering and underground storage services, as well as other energy-related services to both third parties and internal customers, largely the natural gas distribution segment. The pipeline and midstream segment establishes a contract with a customer based upon the customer’s request for firm or interruptible natural gas transportation, storage or gathering service(s). The contract identifies an obligation for the segment to provide the requested service(s) in exchange for consideration from the customer over a specified term. Depending on the type of service(s) requested and contracted, the service provided may include transporting, gathering or storing an identified quantity of natural gas and/or standing ready to deliver or store an identified quantity of natural gas. Natural gas transportation, gathering and storage revenues are based on fixed rates, which may include reservation fees and/or per-unit commodity rates. The services provided by the segment are generally treated as single performance obligations satisfied over time simultaneous to when the service is provided and revenue is recognized. Rates for the segment’s regulated services are based on its FERC approved tariff or customer negotiated rates, and rates for its non-regulated services are negotiated with its customers and set forth in the contract. For contracts governed by the company’s tariff, amounts are billed on or before the ninth business day of the following month and the amount is due within 12 days of receipt of the invoice. For gathering contracts not governed by the tariff, amounts are due within 20 days of invoice receipt. For other contracts not governed by the tariff, payment terms are net 30 days. At this time, the segment has no material obligations for returns, refunds or other similar obligations.

The construction materials and contracting segment generates revenue from contracting services and construction materials sales. This segment focuses on the vertical integration of its contracting services with its construction materials to support the aggregate based product lines. This segment provides contracting services to a customer when a contract has been signed by both the customer and a representative of the segment obligating a service to be provided in exchange for the consideration identified in the contract. The nature of the services this segment provides generally includes integrating a set of services and related construction materials into a single project to create a distinct bundle of goods and services, which the Company evaluates to determine whether a separate performance obligation exists. The transaction price is the original contract price plus any subsequent change orders and variable consideration. Examples of variable consideration that exist in this segment's contracts include liquidated damages; performance bonuses or incentives and penalties; claims; unapproved/unpriced change orders; and index pricing. The variable amounts usually arise upon achievement of certain performance metrics or change in project scope. The Company estimates the amount of revenue to be recognized on variable consideration using estimation methods that best predict the most likely amount of consideration the Company expects to be entitled to or expects to incur. The Company includes variable consideration in the estimated transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur or when the uncertainty associated with the variable consideration is resolved. Changes in circumstances could impact management's estimates made in determining the value of variable consideration recorded. The Company updates its estimate of the transaction price each reporting period and the effect of variable consideration on the transaction price is recognized as an adjustment to revenue on a cumulative catch-up basis. Revenue is recognized over time using an input method based on the cost-to-cost measure of progress on a project. This is the preferred method of measuring revenue because the costs incurred have been determined to represent the best indication of the overall progress toward the transfer of such goods or services promised to a customer. This segment also sells construction materials to third parties and internal customers. The contract for material sales is the use of a sales order or an invoice, which includes the pricing and payment terms. All material contracts contain a single performance obligation for the delivery of a single distinct product or a distinct separately identifiable bundle of products and services. Revenue is recognized at a point in time when the performance obligation has been satisfied with the delivery of the products or services. The warranties associated with the sales are those consistent with a standard warranty that the product meets certain specifications for quality or those required by law. For most contracts, amounts billed to customers are due within 30 days of receipt. There are no material obligations for returns, refunds or other similar obligations.

~~72 MDU Resources Group, Inc.~~ ~~Form 10-K~~

~~Part II~~

The construction services segment generates revenue from specialty contracting services which also includes the sale of construction equipment and other supplies. This segment provides specialty contracting services to a customer when a contract has been signed by both the customer and a representative of the segment obligating a service to be provided in exchange for the consideration identified in the contract. The nature of the services this segment provides generally includes multiple promised goods and services in a single project to create a distinct bundle of goods and services, which the Company evaluates to determine whether a separate performance obligation exists. The transaction price is the original contract price plus any subsequent change orders and variable consideration. Examples of variable consideration that exist in this segment's contracts include claims, unapproved/unpriced change orders, bonuses, incentives, penalties and liquidated damages. The variable amounts usually arise upon achievement of certain performance metrics or change in project scope. The Company estimates the amount of revenue to be recognized on variable consideration using estimation methods that best predict the most likely amount of consideration the Company expects to be entitled to or expects to incur. The Company includes variable consideration in the estimated transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur or when the uncertainty associated with the variable consideration is resolved. Changes in circumstances could impact management's estimates made in determining the value of variable consideration recorded. The Company updates its estimate of the transaction price each reporting period and the effect of variable consideration on the transaction price is recognized as an adjustment to revenue on a cumulative catch-up basis. Revenue is recognized over time using the input method based on the measurement of progress on a project. The input method is the preferred method of measuring revenue because the costs incurred have been determined to represent the best indication of the overall progress toward the transfer of such goods or services promised to a customer. This segment also sells construction equipment and other supplies to third parties and internal customers. The contract for these sales is the use of a sales order or invoice, which includes the pricing and payment terms. All such contracts include a single performance obligation for the delivery of a single distinct product or a distinct separately identifiable bundle of products and services. Revenue is recognized at a point in time when the performance obligation has been satisfied with the delivery of the products or services. The warranties associated with the sales are those consistent with a standard warranty that the product meets certain specifications for quality or those required by law. For most contracts, amounts billed to customers are due within 30 days of receipt. There are no material obligations for returns, refunds or other similar obligations.

~~The Company recognizes all other revenues when services are rendered or goods are delivered.~~

Asset retirement obligations

The Company records the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the Company capitalizes a cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, the Company either settles the obligation for the recorded amount or incurs a gain or loss at its ~~nonregulated~~non-regulated operations or incurs a regulatory asset or liability at its regulated operations.

~~Legal costs~~

~~The Company expenses external legal fees as they are incurred.~~

~~Natural gas costs recoverable or refundable through rate adjustments~~

Under the terms of certain orders of the applicable state public service commissions, the Company is deferring natural gas commodity, transportation and storage costs that are greater or less than amounts presently being recovered through its existing rate schedules. Such orders generally provide that these amounts are recoverable or refundable through rate adjustments within a period ranging from 12 to 36 months from the time such costs are paid. Natural gas costs refundable through rate adjustments were ~~$23.8 million~~ ~~and~~ ~~$30.0 million~~ at ~~December 31, 2019~~ ~~and~~ ~~2018, respectively, which is included in other accrued liabilities on the Consolidated Balance Sheets. Natural gas costs recoverable through rate adjustments were $89.2 million and~~ ~~$42.7 million~~ at ~~December 31, 2019~~ ~~and~~ ~~2018, respectively, which is included in prepayments and other current assets and deferred charges and other assets - other on the Consolidated Balance Sheets.~~

Stock-based compensation

The Company determines compensation expense for stock-based awards based on the estimated fair values at the grant date and recognizes the related compensation expense over the vesting period. The Company uses the straight-line amortization method to recognize compensation expense related to restricted stock, which only has a service condition. This method recognizes stock compensation expense on a straight-line basis over the requisite service period for the entire award. The Company recognizes compensation expense related to performance awards that vest based on performance metrics and service conditions on a straight-line basis over the service period. Inception-to-date expense is adjusted based upon the determination of the potential achievement of the performance target at each reporting date. The Company recognizes compensation expense related to performance awards with market-based performance metrics on a straight-line basis over the requisite service period.

The Company records the compensation expense for performance share awards using an estimated forfeiture rate. The estimated forfeiture rate is calculated based on an average of actual historical forfeitures. The Company also performs an analysis of any known factors at the

~~MDU Resources Group, Inc.~~ ~~Form 10-K~~ 73

~~Part II~~

time of the calculation to identify any necessary adjustments to the average historical forfeiture rate. At the time actual forfeitures become more than estimated forfeitures, the Company records compensation expense using actual forfeitures.

Earnings per share

Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per share is computed by dividing net income by the total of the weighted average number of shares of common stock outstanding during the year, plus the effect of nonvested performance share awards and restricted stock units. Common stock outstanding includes issued shares less shares held in treasury. Net income was the same for both the basic and diluted earnings per share calculations. A reconciliation of the weighted average common shares outstanding used in the basic and diluted earnings per share calculations follows:


	2022	2021	2020
	(In thousands)
Weighted average common shares outstanding - basic	203,358	202,076	200,502
Effect of dilutive performance share awards	104	307	69
Weighted average common shares outstanding - diluted	203,462	202,383	200,571
Shares excluded from the calculation of diluted earnings per share	14	—	164

84 MDU Resources Group, Inc. Form 10-K

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Income taxes

The Company provides deferred federal and state income taxes on all temporary differences between the book and tax basis of the Company's assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. Excess deferred income tax balances associated with the Company's rate-regulated activities have been recorded as a regulatory ~~liability and are included in other~~ liabilities. These regulatory liabilities are expected to be reflected as a reduction in future rates charged to customers in accordance with applicable regulatory procedures.

The Company uses the deferral method of accounting for investment tax credits and amortizes the credits on regulated electric and natural gas distribution plant over various periods that conform to the ratemaking treatment prescribed by the applicable state public service commissions.

The Company records uncertain tax positions in accordance with accounting guidance on accounting for income taxes on the basis of a two-step process in which (1) the Company determines whether it is more-likely-than-not that the tax position will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the ~~more-likely than-not~~more-likely-than-not recognition threshold, the Company recognizes the largest amount of the tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. Tax positions that do not meet the more-likely-than-not criteria are reflected as a tax liability. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income taxes.

~~Earnings per common share~~

Note 3 - Revenue from Contracts with Customers

Revenue is recognized when a performance obligation is satisfied by transferring control over a product or service to a customer. Revenue is measured based on consideration specified in a contract with a customer and excludes any sales incentives and amounts collected on behalf of third parties. The Company is considered an agent for certain taxes collected from customers. As such, the Company presents revenues net of these taxes at the time of sale to be remitted to governmental authorities, including sales and use taxes.

~~Basic earnings per common share were computed by dividing earnings on common stock~~As part of the adoption of ASC 606 - Revenue from Contracts with Customers, the Company elected the practical expedient to recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the Company otherwise would have recognized is 12 months or less.

Disaggregation

In the following table, revenue is disaggregated by the ~~weighted average number~~type of ~~shares~~customer or service provided. The Company believes this level of ~~common stock outstanding during~~disaggregation best depicts how the ~~year. Diluted earnings per common share were computed~~nature, amount, timing and uncertainty of revenue and cash flows are affected by dividing earnings on common stock by the total of the weighted average number of shares of common stock outstanding during the year, plus the effect of nonvested performance share awards and restricted stock units. Common stock outstandingeconomic factors. The table also includes ~~issued shares less shares held in treasury. Earnings on common stock was the same for both the basic and diluted earnings per share calculations. A~~a reconciliation of the ~~weighted average common shares outstanding used in the basic and diluted earnings per share calculation was as follows:~~

2019
2018
2017
(In thousands)
Weighted average common shares outstanding - basic 198,612
195,720
195,304
Effect of dilutive performance share awards 14
430
383
Weighted average common shares outstanding - diluted 198,626
196,150
195,687
Shares excluded from the calculation of diluted earnings per share 164
10
—

~~Use of estimates~~

The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Estimates are used for items such as long-lived assets and goodwill; fair values of acquired assets and liabilities under the acquisition method of accounting; aggregate reserves; property depreciable lives; tax provisions;disaggregated revenue recognized using the cost-to-cost measure of progress for contracts; uncollectible accounts; environmental and other loss contingencies; regulatory assets expected to be recovered in rates charged to customers; costs on construction contracts; unbilled revenues; actuarially determined benefit costs; asset retirement obligations; lease classification; present value of right-of-use assets and lease liabilities; and the valuation of stock-based compensation. As additionalby reportable segments. For more information ~~becomes available, or actual amounts are determinable, the recorded estimates are revised. Consequently, operating results can be affected by revisions to prior accounting estimates.~~

~~New accounting standards~~

~~Recently adopted accounting standards~~

~~ASU 2016-02 - Leases~~ ~~In February 2016, the FASB issued this ASU guidance relating to ASC 842 -~~ ~~Leases. The guidance required lessees to recognize a lease liability and a right-of-use asset~~ on the balance sheet for operating and financing leases. The guidance remained largely the same for lessors, although some changes were made to better align lessor accounting with the new lessee accounting and to align with the revenue recognition standard. The guidance also required additional disclosures, both quantitative and qualitative, related to operating and financing leases for the lessee and sales-type, direct financing and operating leases for the lessor. The Company adopted the standard on January 1, 2019.Company's business segments, see Note 17.


Year ended December 31, 2022	Electric		Natural gas distribution		Pipeline		Construction materials and contracting		Construction services		Other		Total
	(In thousands)
Residential utility sales	$	138,634	$	718,191	$	—	$	—	$	—	$	—	$	856,825
Commercial utility sales	146,182		453,802		—		—		—		—		599,984
Industrial utility sales	43,766		41,710		—		—		—		—		85,476
Other utility sales	7,597		—		—		—		—		—		7,597
Natural gas transportation	—		48,886		129,290		—		—		—		178,176
Natural gas storage	—		—		14,583		—		—		—		14,583
Contracting services	—		—		—		1,187,721		—		—		1,187,721
Construction materials	—		—		—		1,940,890		—		—		1,940,890
Internal sales	—		—		—		(593,882)		—		—		(593,882)
Electrical & mechanical specialty contracting	—		—		—		—		1,988,729		—		1,988,729
Transmission & distribution specialty contracting	—		—		—		—		662,705		—		662,705
Other	45,608		13,617		11,450		—		436		17,605		88,716
Intersegment eliminations	(494)		(555)		(59,012)		(1,016)		(5,494)		(17,605)		(84,176)
Revenues from contracts with customers	381,293		1,275,651		96,311		2,533,713		2,646,376		—		6,933,344
Other revenues	(4,714)		(2,402)		256		—		47,380		—		40,520
Total external operating revenues	$	376,579	$	1,273,249	$	96,567	$	2,533,713	$	2,693,756	$	—	$	6,973,864

~~74 MDU Resources Group, Inc.~~ ~~Form 10-K~~

~~Part II~~

~~In July 2018, the FASB issued ASU 2018-11~~ ~~- Leases: Targeted Improvements~~, an accounting standard update to ASU 2016-02. This ASU provided an entity the option to adopt the guidance using one of two modified retrospective approaches. An entity could adopt the guidance using the modified retrospective transition approach beginning in the earliest year presented in the financial statements. This method of adoption would have required the restatement of prior periods reported and the presentation of lease disclosures under the new guidance for all periods reported. The additional transition method of adoption, introduced by ASU 2018-11, allowed entities the option to apply the guidance on the date of adoption by recognizing a cumulative effect adjustment to retained earnings during the period of adoption and did not require prior comparative periods to be restated.

The Company adopted the standard on January 1, 2019, utilizing the additional transition method of adoption applied on the date of adoption and the practical expedient that allowed the Company to not reassess whether an expired or existing contract contained a lease, the classification of leases or initial direct costs. The Company did not identify any cumulative effect adjustments. The Company also adopted a short-term leasing policy as the lessee where leases with a term of 12 months or less are not included on the Consolidated Balance Sheet.

As a practical expedient, a lessee may choose not to separate nonlease components from lease components and instead account for lease and nonlease components as a single lease component. The election shall be made by asset class. The Company has elected to adopt the lease/nonlease component practical expedient for all asset classes as the lessee. The Company did not elect the practical expedient to use hindsight when assessing the lease term or impairment of right-of-use assets for the existing leases on the date of adoption.

In January 2018, the FASB issued a practical expedient for land easements under the new lease guidance. The practical expedient permits an entity to elect the option to not evaluate land easements under the new guidance if they existed or expired before the adoption of the new lease guidance and were not previously accounted for as leases under the previous lease guidance. Once an entity adopts the new guidance, the entity should apply the new guidance on a prospective basis to all new or modified land easements. The Company has adopted this practical expedient.

The Company formed a lease implementation team to review and assess existing contracts to identify and evaluate those containing leases. Additionally, the team implemented new and revised existing software to meet the reporting and disclosure requirements of the standard. The Company also assessed the impact the standard had on its processes and internal controls and identified new and updated existing internal controls and processes to ensure compliance with the new lease standard; such modifications were not deemed to be significant. During the assessment phase, the Company used various surveys, reconciliations and analytic methodologies to ensure the completeness of the lease inventory. The Company determined that most of the current operating leases were subject to the guidance and were recognized as operating lease liabilities and right-of-use assets on the Consolidated Balance Sheet upon adoption. On January 1, 2019, the Company recorded approximately $112 million to right-of-use assets and lease liabilities as a result of the initial adoption of the guidance. In addition, the Company evaluated the impact the new guidance had on lease contracts where the Company is the lessor and determined it did not have a significant impact to the Company's financial statements.

~~ASU 2017-04 - Simplifying the Test for Goodwill Impairment~~ In January 2017, the FASB issued guidance on simplifying the test for goodwill impairment by eliminating Step 2, which required an entity to measure the amount of impairment loss by comparing the implied fair value of reporting unit goodwill with the carrying amount of such goodwill. This guidance requires entities to perform a quantitative impairment test, previously Step 1, to identify both the existence of impairment and the amount of impairment loss by comparing the fair value of a reporting unit to its carrying amount. Entities will continue to have the option of performing a qualitative assessment to determine if the quantitative impairment test is necessary. The guidance also requires additional disclosures if an entity has one or more reporting units with zero or negative carrying amounts of net assets. The Company early adopted the guidance on a prospective basis beginning with the preparation of its 2019 goodwill impairment test in the fourth quarter of 2019. The adoption of the guidance did not have a material impact on its results of operations, financial position, cash flows or disclosures.

~~ASU 2018-15 - Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract~~ In August 2018, the FASB issued guidance on the accounting for implementation costs of a hosting arrangement that is a service contract. The guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract similar to the costs incurred to develop or obtain internal-use software and such capitalized costs to be expensed over the term of the hosting arrangement. Costs incurred during the preliminary and postimplementation stages should continue to be expensed as activities are performed. The capitalized costs are required to be presented on the balance sheet in the same line the prepayment for the fees associated with the hosting arrangement would be presented. In addition, the expense related to the capitalized implementation costs should be presented in the same line on the income statement as the fees associated with the hosting element of the arrangements. The Company adopted the guidance effective January 1, 2019, on a prospective basis. The adoption of the guidance did not have a material impact on its results of operations, financial position, cash flows or disclosures.

MDU Resources Group, Inc. Form 10-K 7585



Delaware						30-1133956
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)



Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, par value $1.00 per share	MDU	New York Stock Exchange



Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐


Part I				Page

~~Part I~~ Forward-Looking Statements				~~Page~~ 7

~~Forward-Looking Statements~~				7

Items 1 and 2 Business and Properties		7
			General	7
			Electric	911
			Natural Gas Distribution	1315
			Pipeline ~~and Midstream~~	1517
			Construction Materials and Contracting	1619
			Construction Services	1923

Item 1A			Risk Factors	2124

Item 1B			Unresolved Staff Comments	2934

Item 3			Legal Proceedings	2934

Item 4			Mine Safety Disclosures	2934

Part II

Item 5			Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	3035

Item 6			~~Selected Financial Data~~Reserved	3135

Item 7			Management's Discussion and Analysis of Financial Condition and Results of Operations	3336

Item 7A			Quantitative and Qualitative Disclosures About Market Risk	5565

Item 8 Financial Statements and Supplementary Data				5767
			Consolidated Statements of Income	6272
			Consolidated Statements of Comprehensive Income	6373
			Consolidated Balance Sheets	6474
			Consolidated Statements of Equity	6575
			Consolidated Statements of Cash Flows	6676
			Notes to Consolidated Financial Statements	6777
			1. ~~Summary~~Basis of Presentation	77
			2. Significant Accounting Policies	6778
			2.3. Revenue from Contracts with Customers	7885
			3.4. Business Combinations	8087
			~~4. Discontinued Operations~~5. Property, Plant and Equipment	8189
			~~5. Leases~~6. Regulatory Assets and Liabilities	8290
			6.7. Goodwill and Other Intangible Assets	8491
			~~7. Regulatory Assets and Liabilities~~	85
	8. Fair Value Measurements	8692
			9. Debt	8894
			10. Leases	~~10.~~96
			11. Asset Retirement Obligations	9197
			~~11. Preferred Stock~~12. Equity	9198
			~~12. Common Stock~~13. Stock-Based Compensation	9198
			~~13. Stock-Based Compensation~~14. Accumulated Other Comprehensive Loss	92100
			~~14.~~1 5 . Income Taxes	93101
			~~15.~~1 6 . Cash Flow Information	96102
	~~16. Business Segment Data~~	96
	~~17. Employee Benefit Plans~~	~~100~~


Part II (continued)					Page
			1 7 . Business Segment Data		103
			1 8 . Employee Benefit Plans		106
			19. Jointly Owned Facilities		115
			20. Regulatory Matters		115
			21. Commitments and Contingencies		117
			22. Subsequent Events		119


~~Part II (continued)~~			~~Page~~

	~~18. Jointly Owned Facilities~~	~~109~~
	~~19. Regulatory Matters~~	~~109~~
	~~20. Commitments and Contingencies~~	~~111~~
	~~21. Subsequent Events~~	~~114~~

Item 9	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure			~~118~~122

Item 9A			Controls and Procedures		~~118~~122

Item 9B			Other Information		~~118~~122

~~Part III~~Item 9C			Disclosure Regarding Foreign Jurisdictions that Prevent Inspections		122

Part III

Item 10			Directors, Executive Officers and Corporate Governance		~~119~~123

Item 11			Executive Compensation		~~119~~123

Item 12			Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		~~119~~123

Item 13			Certain Relationships and Related Transactions, and Director Independence		~~119~~123

Item 14			Principal ~~Accounting~~Account ant Fees and Services		~~119~~123

Part IV

Item 15			Exhibits, Financial Statement Schedules		~~120~~124

3. Exhibits					128

Item 16			Form 10-K Summary		~~124~~130

~~3. Exhibits~~Signatures					~~124~~131

~~Signatures~~			~~127~~



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



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



The following abbreviations and acronyms used in this Form 10-K are defined below:
Abbreviation or Acronym
AFUDC		Allowance for funds used during construction
Army Corps		U.S. Army Corps of Engineers
ASC		FASB Accounting Standards Codification
ASU		FASB Accounting Standards Update
Audit Committee		Audit Committee of the board of directors of the Company
Bcf		Billion cubic feet
Big Stone Station		475-MW coal-fired electric generating facility near Big Stone City, South Dakota (22.7 percent ownership)
~~Brazilian Transmission Lines~~BSSE		~~Company's former investment in companies owning three electric transmission lines in Brazil~~
~~BSSE~~	345-kilovolt transmission line from Ellendale, North Dakota, to Big Stone City, South Dakota (50 percent ownership)
Btu		British thermal unit
~~Cascade~~CARES Act		United States Coronavirus Aid, Relief, and Economic Security Act
Cascade		Cascade Natural Gas Corporation, an indirect wholly owned subsidiary of MDU Energy Capital
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's Consolidated EBITDA~~CERCLA		Centennial's consolidated net income from continuing operations plus the related interest expense, taxes, depreciation, depletion, amortization of intangibles and any non-cash charge relating to asset impairment for the preceding 12-month period
~~Centennial Resources~~	~~Centennial Energy Resources LLC, a direct wholly owned subsidiary of Centennial~~
~~CERCLA~~	Comprehensive Environmental Response, Compensation and Liability Act
~~Clean Air Act~~Code		~~Federal Clean Air Act~~The U.S. Internal Revenue Code, the highest form of tax law in the United States
~~Clean Water Act~~Coincident Load Factor		~~Federal Clean Water Act~~The discount from peak requirements when the Company's peak is at a time different from the MISO system peak for the winter season.
Company		MDU Resources Group, Inc. (formerly known as MDUR Newco), which, as the context requires, refers to the previous MDU Resources Group, Inc. prior to January 1, 2019, and the new holding company of the same name after January 1, 2019
COVID-19		Coronavirus disease 2019
Coyote Creek		Coyote Creek Mining Company, LLC, a subsidiary of The North American Coal Corporation
Coyote Station		427-MW coal-fired electric generating facility near Beulah, North Dakota (25 percent ownership)
CyROC		Cyber Risk Oversight Committee
~~Dakota Prairie Refining~~dk		~~Dakota Prairie Refining, LLC, a limited liability company previously owned by WBI Energy and Calumet Specialty Products Partners, L.P. (previously included in the Company's refining segment)~~Decatherm
dk		~~Decatherm~~
Dodd-Frank Act	Dodd-Frank Wall Street Reform and Consumer Protection Act
EBITDA		Earnings before interest, taxes, depreciation, depletion and amortization
EIN		Employer Identification Number
EPA		United States Environmental Protection Agency
ERISA		Employee Retirement Income Security Act of 1974
ESA		Endangered Species Act
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 (previously referred to as the Company's exploration and production segment)
FIP		Funding improvement plan
GAAP		Accounting principles generally accepted in the United States of America
GHG		Greenhouse gas
Grasslands Subsystem		A portion of WBI Energy Transmission's natural gas pipeline that runs from western North Dakota to north central Wyoming
Great Plains		Great Plains Natural Gas Co., a public utility division of ~~the Company prior to the closing of the Holding Company Reorganization and a public utility division of~~ Montana-Dakota ~~as of January 1, 2019~~
GVTC		Generation Verification Test Capacity



Holding Company Reorganization	The internal holding company reorganization completed on January 1, 2019, pursuant to the agreement and plan of merger, dated as of December 31, 2018, by and among Montana-Dakota, the Company and MDUR Newco Sub, which resulted in the Company becoming a holding company and owning all of the outstanding capital stock of Montana-Dakota.
IBEW		International Brotherhood of Electrical Workers
ICWU		International Chemical Workers Union
Intermountain		Intermountain Gas Company, an indirect wholly owned subsidiary of MDU Energy Capital
IPUC		Idaho Public Utilities Commission
IRA		Inflation Reduction Act
IRS		Internal Revenue Service


Item 8		Financial Statements and Supplementary Data
Knife River		Knife River Corporation, a direct wholly owned subsidiary of Centennial
Knife River Holding Company		The holding company established in conjunction with the proposed spinoff of Knife River
Knife River - Northwest		Knife River Corporation - Northwest, an indirect wholly owned subsidiary of Knife River
K-Plan		Company's 401(k) Retirement Plan
kW		Kilowatts
kWh		Kilowatt-hour
kV		Kilovolts
LIBOR		London Inter-bank Offered Rate
~~LWG~~MD&A		~~Lower Willamette Group~~
~~MD&A~~	Management's Discussion and Analysis of Financial Condition and Results of Operations
~~Mdk~~		~~Thousand dk~~
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
MDUR Newco		MDUR Newco, Inc., a public holding company created by implementing the Holding Company Reorganization, now known as the Company
MDUR Newco Sub		MDUR Newco Sub, Inc., a direct, wholly owned subsidiary of MDUR Newco, which was merged with and into ~~Montana–Dakota~~Montana-Dakota in the Holding Company Reorganization
MEPP		Multiemployer pension plan
MISO		Midcontinent Independent System Operator, Inc., the organization that provides open-access transmission services and monitors the high-voltage transmission system in the Midwest United States and Manitoba, Canada and a southern United States region which includes much of Arkansas, Mississippi and Louisiana
MMBtu		Million Btu
MMcf		Million cubic feet
MMdk		Million dk
MNPUC		Minnesota Public Utilities Commission
Montana-Dakota		Montana-Dakota Utilities Co. ~~(formerly known as MDU Resources Group, Inc.), a public utility division of the Company prior to the closing of the Holding Company Reorganization and~~ a direct wholly owned subsidiary of MDU Energy Capital ~~as of January 1, 2019~~
MPPAA		Multiemployer Pension Plan Amendments Act of 1980
~~MTPSC~~MTDEQ		Montana Department of Environmental Quality
MTPSC		Montana Public Service Commission
MW		Megawatt
~~NDPSC~~NDDEQ		North Dakota Department of Environmental Quality
NDPSC		North Dakota Public Service Commission
NERC		North American Electric Reliability Corporation
~~NGL~~Oil		~~Natural gas liquids~~
~~Non-GAAP~~	~~Not in accordance with GAAP~~
~~Oil~~	Includes crude oil and condensate
OPUC		Oregon Public Utility Commission
~~PCBs~~PCAOB		~~Polychlorinated biphenyls~~Public Company Accounting Oversight Board
~~Pronghorn~~PCBs		~~Natural gas processing plant located near Belfield, North Dakota (WBI Energy Midstream's 50 percent ownership interests were sold effective January 1, 2017)~~Polychlorinated biphenyls
PHMSA		Pipeline and Hazardous Material Safety Administration
Proxy Statement		Company's ~~2020~~2023 Proxy Statement to be filed no later than April ~~29, 2020~~28, 2023
PRP		Potentially Responsible Party
~~RCRA~~Qualified Person		As defined by the SEC, a mineral industry professional with at least five years of relevant experience in the type of mineralization and type of deposit under consideration and in the specific type of activity that person is undertaking. The qualified person must also be an eligible member or licensee in good standing of a recognized professional organization.
RCRA		Resource Conservation and Recovery Act
RPRNG		~~Rehabilitation plan~~Renewable Natural Gas
~~SDPUC~~RP		Rehabilitation plan
SDPUC		South Dakota Public Utilities Commission
SEC		United States Securities and Exchange Commission
Securities Act		Securities Act of 1933, as amended
~~Securities Act Industry Guide 7~~		~~Description of Property by Issuers Engaged or to be Engaged in Significant Mining Operations~~



Sheridan System	A separate electric system owned by Montana-Dakota
~~TCJA~~SOFR		~~Tax Cuts and Jobs Act~~Secured Overnight Financing Rate
~~Tesoro~~SPP		~~Tesoro Refining & Marketing Company LLC~~Southwest Power Pool, the organization that manages the electric grid and wholesale power market for the central United States.
UA		United Association of Journeyman and Apprentices of the Plumbing and Pipefitting Industry of the United States and Canada


TSA		Transportation Security Administration
VIE		Variable interest entity
Washington DOE		Washington State Department of Ecology
WBI Energy		WBI Energy, Inc., ~~a direct wholly owned subsidiary of WBI Holdings~~
~~WBI Energy Midstream~~	~~WBI Energy Midstream, LLC,~~ an indirect wholly owned subsidiary of ~~WBI Holdings~~Centennial
WBI Energy Transmission		WBI Energy Transmission, Inc., an indirect wholly owned subsidiary of WBI Holdings
WBI Holdings		WBI Holdings, Inc., a direct wholly owned subsidiary of Centennial
WUTC		Washington Utilities and Transportation Commission
Wygen III		100-MW coal-fired electric generating facility near Gillette, Wyoming (25 percent ownership)
~~WYPSC~~WYDEQ		Wyoming Department of Environmental Quality
WYPSC		Wyoming Public Service Commission
ZRCs		Zonal resource credits - a MW of demand equivalent assigned to generators by MISO for meeting system reliability requirements


Company	Collective-bargaining agreement	Number of employees represented	Agreement status
Montana-Dakota	IBEW	313	Effective through April 30, 2024
Intermountain	UA	139	Effective through March 31, 2023
Cascade	ICWU	195	Effective through March 31, 2024
WBI Energy Transmission	IBEW	68	Effective through April 30, 2023
Knife River	40 various agreements	502	2 agreements in negotiations
MDU Construction Services	106 various agreements	7,588	No agreements in negotiations
Total		8,805


Environmental Matters The Company believes it has a responsibility to use natural resources efficiently and attempt to minimize the environmental impact of its activities. The Company produces GHG emissions primarily from its fossil fuel electric-generating facilities, as well as from natural gas pipeline and storage systems, and operations of equipment and fleet vehicles. The Company has developed renewable generation with lower or no GHG emissions. Governmental legislation and regulatory initiatives regarding environmental and energy policy are continuously evolving and could negatively impact the Company's operations and financial results. As legislation and regulation are finalized, the impact of these measures can be assessed. The Company will continue to monitor legislative and regulatory activity related to environmental and energy policy initiatives. ~~Disclosure regarding specific environmental matters applicable to each of the Company's businesses is set forth under each business description later.~~ In addition, for a discussion of the Company's risks related to environmental laws and regulations, see Item 1A - Risk Factors.


			Governmental Matters The operations of the Company and certain of its subsidiaries are subject to laws and regulations relating to air, water and solid waste pollution control; state facility-siting regulations; zoning and planning regulations of certain state and local authorities; federal and state health and safety regulations; and state hazard communication standards. The Company strives to be in substantial compliance with applicable regulations, except as to what may be ultimately determined with regard to items discussed in Environmental matters in Item 8 - Note 21. There are no pending CERCLA actions for any of the Company's material properties. However, the Company is involved in certain claims relating to the Portland, Oregon, Harbor Superfund Site and the Bremerton Gasworks Superfund Site. For more information on the Company's environmental matters, see Item 8 - Note 21 and Item 7 - MD&A - Business Section Financial and Operating Data.


~~VIE~~



	2019			2018			2017
	Customers Served	Revenues		Customers Served	Revenues		Customers Served	Revenues
	(Dollars in thousands)
Residential	118,563	$	125,614	118,426	$	126,173	118,379	$	121,171
Commercial	22,948	142,062		22,756	141,961		22,764	140,856
Industrial	234	37,790		236	36,081		242	34,417
Other	1,601	7,454		1,604	7,882		1,516	8,275
	143,346	$	312,920	143,022	$	312,097	142,901	$	304,719


GeneralThe Company's electric segment is operated through its wholly owned subsidiary, Montana-Dakota. Montana-Dakota provides electric service at retail, serving residential, commercial, industrial and municipal customers in 185 communities and adjacent rural areas. The material properties owned by Montana-Dakota for use in its electric operations include interests in 13 electric generating units at 11 facilities and two small portable diesel generators, as further described under System Supply, System Demand and Competition, approximately 3,400 and 4,800 miles of transmission and distribution lines, respectively, and 84 transmission and 294 distribution substations. Montana-Dakota has obtained and holds, or is in the process of renewing, valid and existing franchises authorizing it to conduct its electric operations in all of the municipalities it serves where such franchises are required. Montana-Dakota intends to protect its service area and seek renewal of all expiring franchises. At December 31, 2022, Montana-Dakota's net electric plant investment was $1.7 billion and its rate base was $1.4 billion.


Generating Station	Type	Fuel	Nameplate Rating (kW) at December 31, 2022	2022 ZRCs	(a)	2022 Net Generation (kWh in thousands)
Interconnected System:
North Dakota:
Coyote (b)	Steam	Coal	103,647	94.0		571,389
Heskett (c)	Steam	Coal	—	—		47,046
Heskett	Combustion turbine	Natural gas	89,038	73.5		3,551
Glen Ullin	Renewable	Heat recovery	7,500	3.3		13,884
Cedar Hills	Renewable	Wind	19,500	3.8		64,546
Thunder Spirit	Renewable	Wind	155,500	24.6		577,567
South Dakota:
Big Stone (b)	Steam	Coal	94,111	106.8		430,748
Montana:
Lewis & Clark	Reciprocating internal combustion engine	Natural gas	18,700	18.0		1,539
Glendive	Combustion turbine	Natural gas / diesel	75,522	63.1		2,260
Miles City	Combustion turbine	Natural gas / diesel	23,150	18.6		583
Diamond Willow	Renewable	Wind	30,000	5.3		91,105
Portable Units (2)	Reciprocating internal combustion engine	Diesel	3,650	3.9		8
			620,318	414.9		1,804,226
Sheridan System:
Wyoming:
Wygen III (b)	Steam	Coal	28,000	N/A		202,487
			648,318	414.9		2,006,713



Generating Station	Type	Nameplate Rating (kW)	2019 ZRCs	(a)	2019 Net Generation (kWh in thousands)
Interconnected System:
North Dakota:
Coyote (b)	Steam	103,647	90.9		501,394
Heskett	Steam	86,000	86.9		438,726
Heskett	Combustion Turbine	89,038	65.2		1,900
Glen Ullin	Heat Recovery	7,500	4.8		42,276
Cedar Hills	Wind	19,500	4.6		51,845
Diesel Units	Oil	3,650	3.8		4
Thunder Spirit	Wind	155,500	29.3		548,180
South Dakota:
Big Stone (b)	Steam	94,111	105.8		656,783
Montana:
Lewis & Clark	Steam	44,000	41.4		261,457
Lewis & Clark	Reciprocating Internal Combustion Engine	18,700	17.6		3,673
Glendive	Combustion Turbine	75,522	70.8		2,702
Miles City	Combustion Turbine	23,150	21.6		352
Diamond Willow	Wind	30,000	6.3		95,224
		750,318	549.0		2,604,516
Sheridan System:
Wyoming:
Wygen III (b)	Steam	28,000	N/A		188,254
		778,318	549.0		2,792,770


~~(a)~~			Interconnected system only. MISO requires generators to obtain their summer capability through the GVTC. The GVTC is then converted to ZRCs by applying each generator's forced outage factor against its GVTC. Wind generator's ZRCs are calculated based on a wind capacity study performed annually by MISO. ZRCs are used to meet supply obligations within MISO.


GeneralThe Company's natural gas distribution segment is operated through its wholly owned subsidiaries, consisting of operations from Montana-Dakota, Cascade and Intermountain. These companies sell natural gas at retail, serving residential, commercial and industrial customers in 338 communities and adjacent rural areas across eight states. They also provide natural gas transportation services to certain customers on the Company's systems. These services are provided through distribution and transmission systems aggregating approximately 21,300 miles and 600 miles, respectively. The natural gas distribution operations have obtained and hold, or are in the process of renewing, valid and existing franchises authorizing them to conduct their natural gas operations in all of the municipalities they serve where such franchises are required. These operations intend to seek renewal of all expiring franchises. At December 31, 2022, the natural gas distribution operations' net natural gas distribution plant investment was $2.2 billion and its rate base was $1.6 billion.


GeneralWBI Energy owns and operates both regulated and non-regulated businesses. The regulated business of this segment, WBI Energy Transmission, owns and operates approximately 3,800 miles of natural gas transmission and storage lines. WBI Energy Transmission's underground storage fields provide storage services to local distribution companies, industrial customers, natural gas marketers and others, and serve to enhance system reliability. Its system is strategically located near four natural gas producing basins, making natural gas supplies available to its transportation and storage customers. The system has 14 interconnecting points with other pipeline facilities allowing for the receipt and/or delivery of natural gas to and from other regions of the country and from Canada. Under the Natural Gas Act, as amended, WBI Energy Transmission is subject to the jurisdiction of the FERC regarding certificate, rate, service and accounting matters, and at December 31, 2022, its net plant investment was $798.1 million. The non-regulated business of this segment WBI Energy Transmission, owns and operates approximately 4,000 miles of natural gas transmission, gathering and storage lines in Minnesota, Montana, North Dakota, South Dakota and Wyoming. WBI Energy Transmission's underground storage fields in Montana and Wyoming provide storage services to local distribution companies, industrial customers, natural gas marketers and others, and serve to enhance system reliability. Its system is strategically located near four natural gas producing basins, making natural gas supplies available to its transportation and storage customers. The system has 13 interconnecting points with other pipeline facilities allowing for the receipt and/or delivery of natural gas to and from other regions of the country and from Canada. Under the Natural Gas Act, as amended, WBI Energy Transmission is subject to the jurisdiction of the FERC regarding certificate, rate, service and accounting matters, and at ~~December 31, 2019, its net plant investment was $519.3 million.~~ The nonregulated business of this segment owns and operates gathering facilities in Montana and Wyoming. In total, facilities include approximately 800 miles of operated field gathering lines, some of which interconnect with WBI Energy's regulated pipeline system. The nonregulated business provides ~~natural gas gathering services and~~ a variety of ~~other~~ energy-related services, including cathodic protection and energy efficiency product sales and installation services to large end-users.


			GeneralKnife River mines, processes and sells construction aggregates (crushed stone and sand and gravel); produces and sells asphalt; and supplies ready-mix concrete. These products are used in most types of construction, performed by Knife River and other companies, including roads, freeways and bridges, as well as homes, schools, shopping centers, office buildings and industrial parks. Knife River's aggregate reserves provide the foundation for the vertical integration of its contracting services with its construction materials to support its aggregate-based product lines including heavy-civil construction, asphalt paving, concrete construction and site development and grading. Although not common to all locations, the segment also includes the sale of cement, liquid asphalt modification and distribution, various finished concrete products, merchandise and other building materials and related contracting services. Through its network of aggregate sites, ready-mix plants and asphalt plants, the Company supplies construction materials and contracting services to public and private customers in 14 states.


	Total Annual Aggregate Production		Aggregate Sites
Production Area	Crushed Stone	Sand & Gravel	Crushed Stone		Sand & Gravel
	(Tons in thousands)		Owned	Leased	Owned	Leased
Alaska	—	1,041	—	—	1	—
California	377	1,665	—	2	8	1
Hawaii	1,470	—	—	5	—	—
Idaho	5	2,339	—	1	6	3
Minnesota	375	2,410	3	1	48	8
Montana	—	3,043	—	—	11	2
North Dakota	—	897	—	—	3	12
Oregon	6,882	4,017	11	12	19	9
South Dakota	1,878	2,226	2	—	1	3
Texas	1,181	167	4	1	1	—
Wyoming	1,166	1,043	2	6	1	4
	13,334	18,848	22	28	99	42



	Number of Sites (Crushed Stone)		Number of Sites (Sand & Gravel)		Tons Sold (000's)			Estimated Reserves (000's tons)	Lease Expiration	Reserve Life (years)
Production Area	owned	leased	owned	leased	2019	2018	2017	Estimated Reserves (000's tons)	Lease Expiration	Reserve Life (years)
Anchorage, AK	—	—	1	—	868	725	1,425	15,179	N/A	15
Hawaii	—	6	—	—	1,680	1,734	1,614	47,979	2020-2064	29
Northern CA	—	—	8	1	1,901	1,798	1,785	40,768	2028	22
Southern CA	—	2	—	—	292	356	55	90,910	2035	Over 100
Portland, OR	2	4	5	3	4,868	5,402	4,694	204,583	2025-2055	41
Eugene, OR	3	4	6	—	1,205	743	633	158,558	2021-2049	Over 100
Central OR/WA/ID	—	1	9	2	2,700	2,362	2,160	85,181	2028-2077	35
Southwest OR	5	5	10	6	1,932	2,395	2,367	107,098	2020-2053	48
Central MT	—	—	3	1	822	1,081	1,065	14,417	2023	15
Northwest MT	—	—	9	1	2,084	1,965	1,745	61,098	2020	32
Wyoming	—	—	—	2	837	626	613	8,762	2020-2026	13
Central MN	1	1	41	7	3,477	2,890	2,773	62,381	2020-2028	20	*
Northern MN	2	—	14	2	330	369	270	20,555	2020-2021	64
ND/SD	1	—	2	29	3,747	1,506	1,100	70,921	2020-2031	33	*
Texas	1	2	4	—	1,378	1,094	1,192	65,796	2022-2029	54
Sales from other sources					4,193	4,749	4,722
					32,314	29,795	28,213	1,054,186


*	~~Includes estimate of three-year average sales for acquired reserves.~~


~~(a)~~	~~Includes reserves from acquisitions of businesses.~~


~~(c)~~	~~Includes property sales, revisions of previous estimates and expiring leases.~~



General MDU Construction Services operates in nearly every state across the country and provides a full spectrum of construction services through its electrical and mechanical and transmission and distribution specialty contracting services across the United States. These specialty contracting services are provided to utilities, manufacturing, transportation, commercial, industrial, institutional, renewable and governmental customers. Its electrical and mechanical contracting services include construction and maintenance of electrical and communication wiring and infrastructure, fire suppression systems, and mechanical piping and services. Its transmission and distribution contracting services include construction and maintenance of overhead and underground electrical, gas and communication infrastructure, as well as manufacturing and distribution of transmission line construction equipment and tools. Construction and maintenance crews are active year round. However, activity in certain locations may be seasonal in nature due to the effects of weather. MDU Construction Services works with the National Electrical Contractors Association, the IBEW and other trade associations on hiring and recruiting a qualified workforce.


*	~~Includes eliminations for the presentation of income tax adjustments between continuing and discontinued operations.~~


	Actual (a)						Estimated
	2020		2021		2022		2023		2024		2025
	(In millions)
Capital expenditures:
Electric	$	115	$	82	$	134	$	112	$	127	$	130
Natural gas distribution	193		170		240		224		311		260
Pipeline	62		235		62		145		117		127
Construction materials and contracting (b)	191		418		182		125		183		173
Construction services (b)	84		29		36		38		34		34
Other	3		2		3		3		4		4
Total capital expenditures	$	648	$	936	$	657	$	647	$	776	$	728



	Actual*						Estimated
	2017		2018		2019		2020		2021		2022
	(In millions)
Capital expenditures:
Electric	$	109	$	186	$	99	$	111	$	128	$	139
Natural gas distribution	147		206		207		221		191		180
Pipeline and midstream	31		70		71		85		304		53
Construction materials and contracting	44		280		190		167		154		157
Construction services	19		25		61		61		20		20
Other	2		2		8		5		3		3
Total capital expenditures	$	352	$	769	$	636	$	650	$	800	$	552


*	Capital expenditures for 2019, 2018 and 2017 include noncash transactions such as the issuance of the Company's equity securities in connection with acquisitions, capital expenditure-related accounts payable and AFUDC, totaling ~~$4.8 million, $33.4 million and $10.5 million, respectively.~~


Company	Facility	Facility Limit			Amount Outstanding		Letters of Credit			Expiration Date
		(In millions)
Montana-Dakota Utilities Co.	Commercial paper/Revolving credit agreement (a)	$	175.0		$	117.5	$	—		12/19/24
Cascade Natural Gas Corporation	Revolving credit agreement	$	100.0	(b)	$	44.4	$	2.2	(c)	11/30/27
Intermountain Gas Company	Revolving credit agreement	$	100.0	(d)	$	85.6	$	—		10/13/27
Centennial Energy Holdings, Inc.	Commercial paper/Revolving credit agreement (e)	$	600.0		$	298.0	$	—		12/19/24


/s/ Deloitte & Touche LLP


~~/s/ Deloitte & Touche LLP~~Minneapolis, Minnesota
February 24, 2023

~~Minneapolis, Minnesota~~
~~February 21, 2020~~


December 31,	2019			2018			December 31,		2022		2021
(In thousands, except shares and per share amounts)
Assets							Assets	(In thousands, except shares and per share amounts)
Current assets:							Current assets:
Cash and cash equivalents	$	66,459		$	53,948		Cash and cash equivalents		$	80,517	$	54,161
Receivables, net	836,605			722,945			Receivables, net		1,305,642		946,741
Inventories	278,407			287,309			Inventories		387,525		335,609
Current regulatory assets							Current regulatory assets		165,092		118,691
Prepayments and other current assets	115,805			119,500			Prepayments and other current assets		72,972		95,741
Current assets held for sale	425			430
Total current assets	1,297,701			1,184,132			Total current assets		2,011,748		1,550,943
Investments	148,656			138,620
Noncurrent assets:							Noncurrent assets:
Property, plant and equipment	7,908,628			7,397,321			Property, plant and equipment		9,364,038		8,972,849
Less accumulated depreciation, depletion and amortization	2,991,486			2,818,644			Less accumulated depreciation, depletion and amortization		3,272,493		3,216,461
Net property, plant and equipment	4,917,142			4,578,677			Net property, plant and equipment		6,091,545		5,756,388
Deferred charges and other assets:
Goodwill	681,358			664,922			Goodwill		763,500		765,386
Other intangible assets, net	15,246			10,815			Other intangible assets, net		17,532		22,578
Regulatory assets							Regulatory assets		329,659		357,851
Investments							Investments		161,913		175,476
Operating lease right-of-use assets	115,323			—			Operating lease right-of-use assets		119,375		124,138
Other	506,207			408,857			Other		165,509		157,675
Noncurrent assets held for sale	1,426			2,087
Total deferred charges and other assets	1,319,560			1,086,681
Total noncurrent assets							Total noncurrent assets		7,649,033		7,359,492
Total assets	$	7,683,059		$	6,988,110		Total assets		$	9,660,781	$	8,910,435
Liabilities and Stockholders' Equity							Liabilities and Stockholders' Equity
Current liabilities:							Current liabilities:
Short-term borrowings							Short-term borrowings		$	246,500	$	—
Long-term debt due within one year	$	16,540		$	251,854		Long-term debt due within one year		78,031		148,053
Accounts payable	403,391			358,505			Accounts payable		657,168		478,933
Taxes payable	48,970			41,929			Taxes payable		70,810		80,372
Dividends payable	41,580			39,695			Dividends payable		45,245		44,229
Accrued compensation	99,269			69,007			Accrued compensation		88,662		81,904
Current operating lease liabilities	31,664			—
Operating lease liabilities due within one year							Operating lease liabilities due within one year		34,516		35,368
Regulatory liabilities due within one year							Regulatory liabilities due within one year		26,440		16,303
Other accrued liabilities	221,502			221,059			Other accrued liabilities		232,231		207,078
Current liabilities held for sale	3,511			4,001
Total current liabilities	866,427			986,050			Total current liabilities		1,479,603		1,092,240
Noncurrent liabilities:							Noncurrent liabilities:
Long-term debt	2,226,567			1,856,841			Long-term debt		2,763,394		2,593,847
Deferred credits and other liabilities:
Deferred income taxes	506,583			430,085			Deferred income taxes		631,303		591,962
Noncurrent operating lease liabilities	83,742			—
Asset retirement obligations							Asset retirement obligations		405,885		458,061
Regulatory liabilities							Regulatory liabilities		448,454		428,790
Operating lease liabilities							Operating lease liabilities		85,534		89,253
Other	1,152,494			1,148,359			Other		259,479		273,408
Total deferred credits and other liabilities	1,742,819			1,578,444
Commitments and contingencies (Note 20)
Total noncurrent liabilities							Total noncurrent liabilities		4,594,049		4,435,321
Commitments and contingencies							Commitments and contingencies
Stockholders' equity:							Stockholders' equity:
Common stock
Authorized - 500,000,000 shares, $1.00 par value Shares issued - 200,922,790 at December 31, 2019 and 196,564,907 at December 31, 2018	200,923			196,565
Common stock Authorized - 500,000,000 shares, $1.00 par value Shares issued - 204,162,814 at December 31, 2022 and 203,889,661 at December 31, 2021							Common stock Authorized - 500,000,000 shares, $1.00 par value Shares issued - 204,162,814 at December 31, 2022 and 203,889,661 at December 31, 2021		204,163		203,889
Other paid-in capital	1,355,404			1,248,576			Other paid-in capital		1,466,037		1,461,205
Retained earnings	1,336,647			1,163,602			Retained earnings		1,951,138		1,762,410
Accumulated other comprehensive loss	(42,102		)	(38,342		)	Accumulated other comprehensive loss		(30,583)		(41,004)
Treasury stock at cost - 538,921 shares	(3,626		)	(3,626		)	Treasury stock at cost - 538,921 shares		(3,626)		(3,626)
Total stockholders' equity	2,847,246			2,566,775			Total stockholders' equity		3,587,129		3,382,874
Total liabilities and stockholders' equity	$	7,683,059		$	6,988,110		Total liabilities and stockholders' equity		$	9,660,781	$	8,910,435