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MDU Resources Group, Inc.

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Mailing Address:
P.O. Box 5650
Bismarck, ND 58506-5650
(701) 530-1000

March 7, 200810, 2009

To Our Stockholders:

Please join us for the 20082009 Annual Meeting of Stockholders. The meeting will be held on Tuesday, April 22, 2008,28, 2009, at 11:00 a.m., Central Daylight SavingsSaving Time, at 909 Airport Road, Bismarck, North Dakota.

The formal matters are described in the accompanying Notice of Annual Meeting of Stockholders and Proxy Statement. We also will have a brief report on current matters of interest. Lunch will be served following the meeting.

We were pleased with the stockholder response for the 20072008 Annual Meeting at which 90.3190.53 percent of the common stock was represented in person or by proxy. We hope for an even greater representation at the 20082009 meeting.

You may vote your shares by telephone, by the Internet, or by returning the enclosed letter proxy.proxy card. Representation of your shares at the meeting is very important. We urge you to submit your proxy promptly.

I hope you will find it possible to attend the meeting.

Sincerely yours,

Terry D. Hildestad

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MDU RESOURCES GROUP, INC.

1200 West Century Avenue
Mailing Address:
P.O. Box 5650
Bismarck, ND 58506-5650
(701) 530-1000

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 22, 200828, 2009

Important Notice Regarding the Availability of Proxy Materials for the
Stockholder Meeting to Be Held on April 22, 200828, 2009

The 20082009 Notice of Annual Meeting and Proxy Statement and 20072008 Annual Report
to Stockholders are available atwww.mdu.com/proxymaterials.

March 7, 200810, 2009

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of MDU Resources Group, Inc. will be held at 909 Airport Road, Bismarck, North Dakota, on Tuesday, April 22, 2008,28, 2009, at 11:00 a.m., Central Daylight SavingsSaving Time, for the following purposes:

The board of directors has set the close of business on February 26, 200827, 2009 as the record date for the determination of common stockholders who will be entitled to notice of, and to vote at, the meeting.

All stockholders who find it convenient to do so are cordially invited and urged to attend the meeting in person. Registered stockholders will receive a request for admission ticket(s) with their letter proxy card that can be completed and returned to us postage-free. Stockholders whose shares are held in the name of a bank or broker will not receive a request for admission ticket(s). They should, instead, (1) call (701) 530-1000 to request an admission ticket(s), (2) bring a statement from their bank or broker showing proof of stock ownership as of February 26, 200827, 2009 to the annual meeting, and (3) present their admission ticket(s) and photo identification, such as a driver’s license. Directions to the meeting will be included with your admission ticket. We look forward to seeing you.

By order of the Board of Directors,

Paul K. Sandness
Secretary

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PROXY STATEMENT

The board of directors of MDU Resources Group, Inc. is furnishing this proxy statement beginning March 7, 200810, 2009 to solicit your proxy for use at our annual meeting of stockholders on April 22, 2008.28, 2009.

We will pay the cost of soliciting your proxy and reimburse brokers and others for forwarding proxy material to you. Georgeson Inc. additionally will solicit proxies for approximately $7,500 plus out-of-pocket expenses.

The Securities and Exchange Commission has adopted newCommission’s e-proxy rules that allow companies to post their proxy materials on the Internet and provide only a Notice of Internet Availability of Proxy Materials to stockholders.stockholders as an alternative to mailing full sets of proxy materials except upon request. For 2008,2009, we have opted to follow the Securities and Exchange Commission’s full set delivery option, which means that while we are posting our proxy materials online, we are also mailing a full set of our proxy materials to our stockholders. We believe that mailing a full set of proxy materials will help ensure that a majority of outstanding shares of our common stock are present in person or represented by proxy at our meeting. We also hope to help maximize stockholder participation. Therefore, even if you previously consented to receiving your proxy materials electronically, you will receive a full set of proxy materials in the mail for this year’s annual meeting. However, we will continue to evaluate the option of providing only a Notice of Internet Availability of Proxy Materials to some or all of our stockholders in the future.

VOTING INFORMATION

Who may vote?    You may vote if you owned shares of our common stock at the close of business on February 26, 2008.27, 2009. You may vote each share that you owned on that date on each matter presented at the meeting. As of February 26, 2008,27, 2009, we had 182,771,430183,785,994 shares outstanding entitled to one vote per share.

What am I voting on?    You are voting on:

What vote is required to pass an item of business?    A majority of our outstanding shares of common stock entitled to vote must be present in person or represented by proxy to hold the meeting.

If you hold shares through an account with a bank or broker, the bank or broker may vote your shares on certain matters even if you do not provide voting instructions. Brokerage firms have the authority under the New York Stock Exchange rules to vote shares on routine matters for which their customers do not provide voting instructions. The election of directors and the ratification of Deloitte & Touche LLP as our independent auditors for 20082009 are considered routine matters. When a proposal is not routine and the brokerage firm has not received voting instructions from its customers, the brokerage firm cannot vote the shares on that proposal. Those shares are considered “broker non-votes.”

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Item 1—Election of Directors

A pluralitymajority of votes of the common stock entitled to vote and present in person or represented by proxycast is required to elect a director.director in an uncontested election. A majority of votes cast means the number of votes cast “for” a director’s election must exceed the number of votes cast “against” the director’s election. “Abstentions” do not count as votes cast “for” or “against” the director’s election. In a contested election, which is an election in which the electionnumber of nominees for director exceeds the number of directors you may vote for the director or withhold your vote. Withheld votesto be elected, directors will be excluded fromelected by a plurality of the vote and will have no effect on the outcome.votes cast. If any nominee becomes unavailable for any reason, or if a vacancy should occur before the election, which we do not anticipate, the proxies will vote your shares for another person in their discretion.

In an uncontested election ofOur policy on majority voting for directors and our corporate governance guidelines require any nominee for director who receives a greater number of votes “withheld” fromto tender to the board, prior to nomination, his or her election than votes “for” his or her election to promptly tender his or herirrevocable resignation to the chairman offrom the board followingthat will be effective, in an uncontested election of directors only, upon

Following certification of the stockholder vote. Thevote, the nominating and governance committee will thenpromptly recommend to the board of directors whether or not to accept or reject the tendered resignation. The board will act on the nominating and governance committee’s recommendation no later than 90 days following the date of the annual meeting where the election occurred.

Item 2—Ratification of Deloitte & Touche LLP as Independent Auditors for 20082009

Ratification of the appointment of Deloitte & Touche LLP as our independent auditors for 20082009 requires the affirmative vote of a majority of our common stock present in person or represented by proxy at the meeting and entitled to vote on the proposal. Abstentions will count as votes “against” the proposal.

Unless you specify otherwise when you submit your proxy, the proxies will vote your shares of common stock “for” proposals 1all directors nominated by the board of directors and “for” proposal 2.

How do I vote?    There are three ways to vote by proxy:

You may be able to vote by telephone or the Internet if your shares are held in the name of a bank or broker. Follow their instructions.

Can I revoke my proxy?    Yes. You can revoke your proxy by:

ITEM 1. ELECTION OF DIRECTORS

At the 2007 annual meeting of stockholders, a majority of our stockholders voted in favor of declassifying our board of directors. The directors elected at the 2006 and 2007 annual meetingsmeeting of stockholders will continue to serve their full three-year terms through 2009 and 2010, respectively. However, directorsterms. Directors whose terms expire this year are nominated for one-year terms. Effective November 1, 2008, the number of directors was set at twelve.

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You will be voting on threeeight directors to serve for a term of one year each until 2009the annual meeting of stockholders in 2010 or until their respective successors are elected.elected and take office or until their earlier death, resignation, or removal. All of the nominees are incumbent directorsdirectors. Two of the nominees, A. Bart Holaday and nominatedThomas C. Knudson, were elected to the board effective November 1, 2008, and are nominees for reelection.election for the first time. Your proxy holder will vote your shares for the board’s nominees unless you instruct otherwise. If a nominee is unable to serve as a director, your proxy holder may vote for any substitute nominee proposed by the board. Unless we specifically note below, no corporation or organization named below is a subsidiary or other affiliate of ours. Information concerning the

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nominees, including their ages, years of service as directors, and business experience, which each nominee has furnished to us, is as follows:

DIRECTOR NOMINEES FOR ONE YEAR TERM

		Thomas Everist Age 5859		Director Since 1995 Nominated for Term Expiring in 20092010
		Mr. Everist has served as President and Chairman of The Everist Company, Sioux Falls, South Dakota, an aggregate, concrete and asphalt production company, since April 15, 2002. He previously was President and Chairman of L.G. Everist, Inc., Sioux Falls, South Dakota, an aggregate production company, from 1987 to April 15, 2002. He also is Managing Member of South Maryland Creek Ranch, LLC, a land development company, and President of SMCR, Inc., an investment company. He is a Director of Showplace Wood Products, Sioux Falls, South Dakota, a custom cabinets manufacturer, and a Director of Raven Industries, Inc., Sioux Falls, South Dakota, a general manufacturer of electronics, flow controls, and engineered films. He currently serves on the Compensation Committeecompensation committee of MDU Resources Group, Inc.
		Karen B. Fagg Age 5455		Director Since 2005 Nominated for Term Expiring in 20092010
		Ms. Fagg has beenserved as Vice President of DOWL LLC, d/b/a DOWL HKM, since April 2008. DOWL HKM is an engineering and design firm. Ms. Fagg was President from April 1, 1995 through March 2008, and Chairman and majority owner sincefrom June 2000 through March 2008 of HKM Engineering, Inc., Billings, Montana, an engineering and physical science services firm. SheHKM Engineering, Inc. merged with DOWL LLC on April 1, 2008. Ms. Fagg was employed with MSE, Inc., Butte, Montana, an environmental technologyenergy research and development company, as Business Development Director and Vice President of Operations from 1976 through 1988. Ms. Fagg also served a four-year term as Director of the Montana Department of Natural Resources and Conservation, Helena, Montana, from 1989 through 1992. From 1993 through 1995, she served as Corporate Development Director for MSE, Inc. Ms. Fagg is Board Chair for St. Vincent’s Healthcare and is a member of the Board of Trustees forof Carroll College and for St. Vincent’s Healthcare.the Board of Advisors of the Charles M. Bair Family Trust. Ms. Fagg currently serves on the Compensationcompensation and Nominatingnominating and Governance Committeesgovernance committees of MDU Resources Group, Inc.

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		A. Bart Holaday Age 66		Director Since 2008 Nominated for Term Expiring in 2010
		Mr. Holaday headed the Private Markets Group of UBS Asset Management and its predecessor entities for 15 years prior to his retirement in 2001. Prior to that he was vice president and principal of the InnoVen Venture Capital Group. He was founder and president of Tenax Oil and Gas Corporation, an onshore Gulf Coast exploration and production company. He is a member of the board of directors of Adams Street Partners, LLC, a private equity investment firm, Alerus Financial, Jamestown College, the United States Air Force Academy Endowment (chairman), the Falcon Foundation (vice president), which provides scholarships to Air Force Academy applicants, the Center for Innovation Foundation at the University of North Dakota (chairman) and the University of North Dakota Foundation, and is chairman and CEO of the Dakota Foundation. He is a past member of the board of directors of the National Venture Capital Association, Walden University, and the U.S. Securities and Exchange Commission advisory committee on the regulation of capital markets. He serves on the audit committee of MDU Resources Group, Inc.

		Thomas C. Knudson Age 62		Director Since 2008 Nominated for Term Expiring in 2010
		Mr. Knudson has been president of Tom Knudson Interests, LLC, since its formation on January 14, 2004. Tom Knudson Interests, LLC, provides consulting services in energy, sustainable development, and leadership. Mr. Knudson began employment with Continental Oil Company (Conoco) in May 1975 and retired in 2004 from Conoco’s successor, ConocoPhillips, as senior vice president of human resources, government affairs and communications. Mr. Knudson served as a member of ConocoPhillips’ management committee. His diverse career at Conoco and ConocoPhillips included engineering, operations, business development, and commercial assignments. He was the founding chairman of the Business Council for Sustainable Development in both the United States and the United Kingdom. He is also the chairman of the board of directors of Bristow Group Inc. and a director of Natco Group Inc. Bristow Group Inc. is a leading provider of helicopter services to the offshore oil industry. Natco Group Inc. is a leading manufacturer of oil and gas processing equipment. Mr. Knudson has served on the boards of a number of petroleum industry associations, Covenant House Texas, The Houston Museum of Natural Science, and Alpha USA/Houston. He has served as an adjunct professor at the Jones Graduate School of Management at Rice University. He serves on the compensation committee of MDU Resources Group, Inc.

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		Richard H. Lewis Age 59		Director Since 2005 Nominated for Term Expiring in 2010
		Mr. Lewis has been the Managing General Partner of Brakemaka LLLP, a private investment partnership for managing family investments, and President of the Lewis Family Foundation since August 2004. Mr. Lewis serves as Chairman of the Board of Entre Pure Industries, Inc., a privately held company involved in the purified water and ice business. He serves as a Director of Colorado State Bank and Trust and on the senior advisory board of TPH Partners, L.P., a private equity fund with an energy only focus. Mr. Lewis founded Prima Energy Corporation, a natural gas and oil exploration and production company in 1980, and served as Chairman and Chief Executive Officer of the company until its sale in July 2004. He is a past president of the Colorado Oil and Gas Association. Mr. Lewis serves as the Chairman of the Development Board of Colorado Uplift, a non-profit organization whose mission is to build long-term, life-changing relationships with urban youth. He also serves on the Board of Trustees of Alliance for Choice in Education, which provides scholarships to inner city youth. He serves on the audit and nominating and governance committees for MDU Resources Group, Inc.
		Patricia L. Moss Age 5455		Director Since 2003 Nominated for Term Expiring in 20092010
		Ms. Moss has been President, Chief Executive Officer and a Director of Cascade Bancorp, a financial holding company, and Bank of the Cascades, Bend, Oregon, since 1998. She also serves as a Director of the Oregon Business Council, whose mission is to mobilize business leaders to contribute to Oregon’s quality of life and economic prosperity, a Director of the Oregon Investment Fund Advisory Council, a state sponsored program to encourage the growth of small businesses within Oregon, and a Director of Clear Choice Health Plans Inc., a multi-state insurance company. She currently serves on the Compensation Committeecompensation committee of MDU Resources Group, Inc.

The board of directors recommends a vote “for” each nominee.

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A plurality of votes of the common stock entitled to vote and present in person or represented by proxy is required to elect a director. “Withheld” votes do not count in determining whether a director nominee receives a plurality of votes.

In an uncontested election, any nominee for director who receives a greater number of votes “withheld” from his or her election than votes “for” his or her election is required to promptly tender his or her resignation to the chairman of the board following certification of the stockholder vote. The nominating and governance committee will then recommend to the board of directors whether to accept or reject the tendered resignation.

CONTINUING INCUMBENT DIRECTORS

Information concerning our continuing incumbent directors, whose terms expire in 2009 or 2010, including their ages, years of service as directors and business experience which each director has furnished to us, is as follows:

DIRECTOR TERMS EXPIRING IN 2009

		Richard H. Lewis Age 58		Director Since 2005 Term Expires in 2009
		Mr. Lewis has been the Managing General Partner of Brakemaka LLLP, a private investment partnership for managing family investments, and President of the Lewis Family Foundation since August 2004. He founded Prima Energy Corporation, a natural gas and oil exploration and production company, in 1980 and served as Chairman, President and Chief Executive Officer of the company until its sale in July 2004. Mr. Lewis serves as Chairman of the Board of Entre Pure Industries, Inc., a privately held company involved in the purified water and ice business. He is past President and a current Board member of the Colorado Oil and Gas Association and serves as a Director of Colorado State Bank and Trust. He is a Director of Colorado UpLift, a non-profit organization, whose mission is to build long-term, life-changing relationships with urban youth. Mr. Lewis also serves on the Board of Trustees of the Metro Denver YMCA, which strives to build strong kids, strong families and strong communities, and the Alliance for Choice in Education, which provides scholarships to inner city youth. He currently serves on the Audit and Nominating and Governance Committees for MDU Resources Group, Inc.

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		Harry J. Pearce Age 6566		Director Since 1997 Nominated for Term ExpiresExpiring in 20092010
		Mr. Pearce was elected Chairman of the Board of the Company on August 17, 2006. Prior to that, he served as Lead Director effective February 15, 2001 and was Vice Chairman of the Board from November 16, 2000 until February 15, 2001. Mr. Pearce was named Chairman of the Board of Nortel Networks Corporation, a global telecommunications company, on June 29, 2005. He retired on December 19, 2003, as Chairman of Hughes Electronics Corporation, a General Motors Corporation subsidiary and provider of digital television entertainment, broadband satellite network, and global video and data broadcasting. He had served as Chairman since June 1, 2001. Mr. Pearce formerly was Vice Chairman and a Director of General Motors Corporation, one of the world’s largest vehicle manufacturer,automakers, from January 1, 1996 to May 31, 2001. He is a Director of Marriott International, Inc., a major hotel chain, and is Chairman of The Marrow Foundation. He is a Director of the Leukemia & Lymphoma Society Research Foundation,United States Air Force Academy Endowment, and a member of the Advisory Board of the University of Michigan Cancer Center. He is a Fellow of the American College of Trial Lawyers, and a member of the International Society of Barristers. He also serves on the Board of Trustees of Northwestern University.
		Sister Thomas Welder, O.S.B. Age 6768		Director Since 1988 Nominated for Term ExpiresExpiring in 20092010
		Sister Welder has been the President of the University of Mary, Bismarck, North Dakota since 1978. She plans to retire from the University of Mary in June 2009. She is a Director of St. Alexius Medical Center of Bismarck, the Bismarck-Mandan Development Association, and the Missouri Slope Areawide United Way. She also is a member of the North Dakota Higher Education Roundtable and the Theodore Roosevelt Medora Founder’s Society and is a past member of the Bismarck-Mandan Area Chamber of Commerce Board and the Consultant-Evaluator Corps for the North Central Association of Colleges and Schools. She currently serves on the Nominatingnominating and Governance Committeegovernance committee for MDU Resources Group, Inc.

The board of directors recommends a vote “for” each nominee.

A majority of votes cast is required to elect a director in an uncontested election. A majority of votes cast means the number of votes cast “for” a director’s election must exceed the number of votes cast “against” the director’s election. “Abstentions” do not count as votes cast “for” or “against” the director’s election.

Our policy on majority voting for directors and our corporate governance guidelines require any nominee for director to tender to the board, prior to nomination, his or her irrevocable resignation from the board that will be effective, in an uncontested election of directors only, upon

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Following certification of the stockholder vote, the nominating and governance committee will promptly recommend to the board whether or not to accept the tendered resignation. The board will act on the nominating and governance committee’s recommendation no later than 90 days following the date of the annual meeting where the election occurred.

CONTINUING INCUMBENT DIRECTORS

Information concerning our continuing incumbent directors, whose terms expire in 2010, including their ages, years of service as directors and business experience which each director has furnished to us, is as follows:

DIRECTOR TERMS EXPIRING IN 2010

		Terry D. Hildestad Age 5859		Director Since 2006 Term Expires in 2010
		Mr. Hildestad was elected President and Chief Executive Officer and a Director of the Company effective August 17, 2006. He had served as President and Chief Operating Officer from May 1, 2005 until August 17, 2006. Prior to that, he served as President and Chief Executive Officer of our subsidiary, Knife River Corporation, from 1993 until May 1, 2005. He additionally serves as an executive officer and as chairman of the Company’s principal subsidiaries and of the Managing Committeesmanaging committees of Montana-Dakota Utilities Co. and Great Plains Natural Gas Co. Mr. Hildestad serves on the Foundation Board at Dickinson State University in Dickinson, North Dakota.Dakota, and is a member of the U.S. Bancorp Western North Dakota Advisory Board of Directors.

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		Dennis W. Johnson Age 5859		Director Since 2001 Term Expires in 2010
		Mr. Johnson is Chairman, Chief Executive Officer and President of TMI Corporation, and Chairman and Chief Executive Officer of TMI Systems Design Corporation, TMI Transport Corporation, and TMI Storage Systems Corporation, all of Dickinson, North Dakota, manufacturers of casework and architectural woodwork. He has been employed at TMI since 1974 serving as President or Chief Executive Officer since 1982 and has been the majority stockholder since 1985. Mr. Johnson serves as President of the Dickinson City Commission. He previously was a Director of the Federal Reserve Bank of Minneapolis. He currently serves on the Audit Committeeaudit committee for MDU Resources Group, Inc.

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		John L. Olson Age 6869		Director Since 1985 Term Expires in 2010
		Mr. Olson has been President and Chief Executive Officer of Blue Rock Products Company and of Blue Rock Distributing Company, a beverage bottling company and a distributing company, respectively, in Sidney, Montana since 1965. He also is Chairman of Admiral Beverage Corporation, Worland, Wyoming, and Ogden, Utah, and current President of Liquid Assets of Montana, Inc., a property development business. He is a former Chairman and Director of the Foundation for Community Care, Sidney, Montana, past Chairman and apast member of the Executive Committee of the University of Montana Foundation, and a past Director of BlueCross BlueShield of Montana, and President of Liquid Assets of Montana, Inc.Montana. He currently serves on the Auditaudit and Nominatingnominating and Governance Committeesgovernance committees for MDU Resources Group, Inc. Mr. Olson plans to retire from the board effective August 13, 2009. In accordance with the Bylaws, Mr. Olson must retire from the board at the first regular board meeting after his 70th birthday.
		John K. Wilson Age 5354		Director Since 2003 Term Expires in 2010
		Mr. Wilson has beenwas President of Durham Resources, LLC, a privately held financial management company, in Omaha, Nebraska, since 1994. He also serves as President of the Durham Foundation and is a Director of Bridges Investment Fund, a mutual fund, the Greater Omaha Chamber of Commerce and the Durham Western Heritage Museum, all in Omaha. He additionally serves on the community relations board of US Bank NA Omaha and is a governor of the Joslyn Art Museum in Omaha.from 1994 to January 1, 2009. He previously was President of Great Plains Energy Corp., a public utility holding company and an affiliate of Durham Resources, LLC, from 1994 to July 1, 2000. He also was Vice President of Great Plains Natural Gas Co., an affiliate company of Durham Resources, LLC, until July 1, 2000. The Company bought Great Plains Energy Corp. and Great Plains Natural Gas Co. on July 1, 2000. Mr. Wilson also served as President of the Durham Foundation and was a Director of Bridges Investment Fund, a mutual fund, and the Greater Omaha Chamber of Commerce. He currentlyis presently a director of HDR, Inc., an international architecture and engineering firm based in Omaha, and a director of the Durham Museum in Omaha. Mr. Wilson is a governor of the Joslyn Art Museum in Omaha. He serves on the Audit Committeeaudit committee for MDU Resources Group, Inc.

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ITEM 2. RATIFICATION OF INDEPENDENT AUDITORS

The audit committee at its February 20082009 meeting appointed Deloitte & Touche LLP as our independent auditors for fiscal year 2008.2009. The board of directors concurred with the audit committee’s decision. Deloitte & Touche LLP has served as our independent auditors since fiscal year 2002.

Although your ratification vote will not affect the appointment or retention of Deloitte & Touche LLP for 2008,2009, the audit committee will consider your vote in determining its appointment of our independent auditors for the next fiscal year. The audit committee, in appointing our independent auditors, reserves the right, in its sole discretion, to change an appointment at any time during a fiscal year if it determines that such a change would be in our best interests.

A representative of Deloitte & Touche LLP will be present at the annual meeting and will be available to respond to appropriate questions. We do not anticipate that the representative will make a prepared statement at the meeting; however, he or she will be free to do so if he or she chooses.

The board of directors recommends a vote “for” the ratification of Deloitte & Touche LLP as our independent auditors for 2008.2009.

Ratification of the appointment of Deloitte & Touche LLP as our independent auditors for 20082009 requires the affirmative vote of a majority of our common stock present in person or represented by proxy at the meeting and entitled to vote on the proposal. Abstentions will count as votes against this proposal.

In connection with the audit of our financial statements for 2008,2009, the parties have drafted an agreement for Audit Committeeaudit committee approval that contains provisions for alternative dispute resolution and for the exclusion of punitive damages. The agreement provides that disputes arising out of our engagement of Deloitte & Touche LLP are resolved through mediation or arbitration, commonly referred to as alternative dispute resolution procedures, and that the companycompany’s and Deloitte & Touche LLP’s rights to pursue punitive damages or other forms of relief not based upon actual damages are waived. The alternative dispute resolution provisions do not apply to claims by third parties, such as our stockholders or creditors.

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ACCOUNTING AND AUDITING MATTERS

Fees

The following table summarizes the aggregate fees that our independent auditors, Deloitte & Touche LLP, billed or are expected to bill us for professional services rendered for 20072008 and 2006:2007:

Pre-Approval Policy

The audit committee pre-approved all services Deloitte & Touche LLP performed in 20072008 in accordance with the pre-approval policy and procedures the audit committee adopted at its August 12, 2003 meeting. This policy is designed to achieve the continued independence of Deloitte & Touche LLP and to assist in our compliance with Sections 201 and 202 of the Sarbanes-Oxley Act of 2002 and related rules of the Securities and Exchange Commission.

The policy defines the permitted services in each of the audit, audit-related, tax and all other services categories as well as prohibited services. The pre-approval policy requires management to submit annually for approval to the audit committee a service plan describing the scope of work and anticipated cost associated with each category of service. At each regular audit committee meeting, management reports on services performed by Deloitte & Touche LLP and the fees paid or accrued through the end of the quarter preceding the meeting. Management may submit requests for

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additional permitted services before the next scheduled audit committee meeting to the designated member of the audit committee, Dennis W. Johnson, for approval. The designated member updates the audit committee at the next regularly scheduled meeting regarding any services that he approved during the interim period. At each regular audit committee meeting, management may submit to the audit committee for approval a supplement to the service plan containing any request for additional permitted services.

In addition, prior to approving any request for audit-related, tax or all other services of more than $50,000, Deloitte & Touche LLP will provide a statement setting forth the reasons why the rendering of the proposed services does not compromise Deloitte & Touche LLP’s independence. This description and statement by Deloitte & Touche LLP may be incorporated into the service plan or as an exhibit thereto or may be delivered in a separate written statement.

EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

The following compensation discussion and analysis may contain statements regarding corporate performance targets and goals. These targets and goals are disclosed in the limited context of our compensation programs and should not be understood to be statements of management’s expectations or estimates of results or other guidance. We specifically caution investors not to apply these statements to other contexts.

Introduction

In this compensation discussion and analysis, we discuss our compensation objectives, our decisions, and the reasons for our decisions relating to 20072008 compensation for our named executive officers.

There have been a few changes inFor 2008, our named executive officers from 2006 to 2007.were Terry D. Hildestad, Vernon A. Raile, John G. Harp, William E. Schneider, and John G. Harp werePaul K. Sandness. Mr. Sandness, MDU Resources Group, Inc.’s general counsel and secretary, is a named executive officers in 2006officer for the first time and continue to be named executive officers for 2007.replaces Bruce T. Imsdahl, the president and chief executive officer of Montana-Dakota Utilities Co. and Great Plains Natural Gas Co., joins our named executive officer group for 2007. Martin A. White, our formerand chief executive officer and Warren L. Robinson, our former executive vice president and chief financial officer,of Cascade Natural Gas Corporation, who retired in 2006, and John K. Castleberry, our former executive vice president – administration, retired in 2007.June 2008.

Each year we conduct a strategic analysis to identify opportunities and challenges associated with the operating environments in which we do business. Some ofOur strategy is to apply our ongoing strategic goals include:expertise in energy and transportation infrastructure industries to increase market share, increase profitability, and enhance stockholder value through:

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Throughout our compensation discussion and analysis we discuss specific pay decisions for each named executive officer and why we made those decisions. One basic tenet underlying some of our pay decisions is our overall performance. Our company’s performance, in turn, is significantly impacted by the performance of our named executive officers. When the compensation committee met in November 2006 to establish 2007 base salaries, we were in the final weeks of a year which yielded the following financial results:

Objectives of our Compensation Program

We structure our compensation program to help retain and reward the executive officers who we believe are critical to our long-term success. We have a written executive compensation policy for our Section 16 officers, including all our named executive officers. Our policy has the following stated objectives:

We pay/grant

If earned, incentive compensation, which consists of annual cash incentive awards and three-year performance share awards under our Long-Term Performance-Based Incentive Plan, makes up the greatest portion of our named executive officers’ total compensation. The compensation committee

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believes incentive compensation comprising approximately 55% to 70%72% of total target compensation for the named executive officers for 2008 is appropriate because:

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The following table shows the allocation of total target compensation for 20072008 among the individual components of base salary, annual incentive, and long-term incentive:

In order to reward long-term growth as well as short-term results, the compensation committee establishes incentive targets that emphasize long-term compensation as much as or more than short-term compensation for all Section 16 officers. The annual incentive targets for 20072008 range from 10%30% to 100% of base salary and the long-term incentive targets range from 15%30% to 133%150% of base salary, depending on the executive’s salary grade. Generally, our approach is to allocate a higher percentage of total target compensation to the long-term incentive than to the short-term incentive for our higher level executives, since they are in a better position to influence our long-term performance.

Additionally, the long-term incentive, if earned, is paid in company common stock. These awards, combined with our stock ownership guidelines, promote ownership of our stock by the named executive officers. The compensation committee believes that, as stockholders, the named executive officers will be motivated to consistently deliver financial results that build wealth for all stockholders over the long-term.

We also offer our Section 16 officers, including all of our named executive officers, benefits under our pension plans and our non-qualified defined benefit retirement plan, which we refer to as the Supplemental Income Security Plan or SISP. The SISP was adopted in 1982 to provide participants with additional retirement income and death benefits. We provide these benefits because of their importance to our success in recruiting and retaining executive talent.

All of our named executive officers have change of control employment agreements. The change of control employment agreements define “change of control” to include consummation of a merger or similar transaction rather than merely stockholder approval.approval of the merger. This prevents severance and other benefits from being provided if the transaction is not consummated.

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Following a change of control transaction, the change of control employment agreements provide job and financial security to our named and executive officers by providing for a three-year employment period from the date of the change of control. During the employment period, the executive officer receives guaranteed minimum levels of compensation and benefits. The executive officer will also receive severance payments and benefits if his or her employment is terminated without cause, or if he or she resigns for good reason.

In 2008, we amended the change of control employment agreements to address changes in federal tax law under Section 162(m) and Section 409A of the Internal Revenue Code and to eliminate provisions our compensation committee determined were either not necessary or did not

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further the intended purposes of the agreements. Two changes related to the types of employment terminations that entitle the executives to severance benefits. The agreements containfirst change removed what areis commonly referred to as a “13th month triggers,trigger,” which provideprovided that a resignation for good reason includesincluded a resignation for any reason during the 30 day period beginning on the first anniversary of the change of control. The second change eliminated a provision providing severance benefits for certain terminations occurring prior to a change of control. While we made these changes in part to address tax law issues, the compensation committee believesbelieved removing these provisions would be in the best interest of the company by eliminating the possibility the company would provide the severance benefits under the agreements even when a change of control transaction is not consummated. The amendments also removed what employees could view as an incentive to terminate employment in the 13th month trigger encourages executive officers to remain with the company or a successor during the critical year-long transition period following a transaction. This is beneficial to the company and its stockholders and, when combined with the other severance, protects executive officers who choose to continue employment.

The agreements also provide what is commonly referred to as a “modified tax gross-up.” This provides for an additional payment to make an officer whole for federal excise taxes that could be imposed on payments and benefits deemed to be related to the change of control. The gross-up payment is considered “modified” since it provides for gross-up payments only if

Additionally, the total payments deemedamendments included the removal of the severance benefits attributable to relate to the changeadditional years of control would have to beservice under our qualified pension plan and our welfare plans, and reduced by more than 10% to avoid the excise tax. If this threshold amount is not exceeded, payments and benefits to the executive are reduced to avoid the excise tax. The compensation committee believes a modified gross-up using a 110% threshold strikes an appropriate balance between the potential detriment to the officer of having to forfeit some payments and the potential benefit to the company of avoiding the excise tax and related gross-up obligation.

The board of directors and the compensation committee reviewed the change of control agreements in 2006. We compared the terms of our change of control agreements to the terms of agreements for certain companies in our performance graph peer group and to the Frederic W. Cook & Co., Inc., 2005 Change-in-Control Report, Prevalence and Design of Executive Change-in-Control Arrangements at Each of the Top 50 NYSE and NASDAQ Companies. The compensation committee determinedso that the terms of our agreements were consistent with current practice and, accordingly, that maintaining these agreements is essential to competing with peer companiescompany does not reimburse the executive officers for top officers. income or excise taxes imposed on the gross-up payment.

We also believe it is important to encourage our named executive officers to continue working for us during any change of control transaction periods and to provide severance payments and benefits if employment is terminated in connection with a change of control or for no fault of the officer.officer following a change of control. These agreements provide a measure of job and financial security so that potentially disruptive transactions do not affect the officers’ judgment when working on behalf of the company and its stockholders prior to and after a change of control. We do not view the change of control agreements as additional compensation and do not take them into account when determining the amount of compensation provided because the events required to trigger these payments and benefits may never occur.

In addition to these agreements, the Long-Term Performance-Based Incentive Plan provides for accelerated vesting of awards previously granted but not yet vestedand payment of performance awards at the time of a change of control and payment of performance awards.control. The compensation committee believes that these protections are necessary to reassure the officers that they will not lose prior incentive awards or otherwise be adversely affected by a change of control.

Role of Compensation Consultants and Management

Role of Compensation Consultants

The compensation committee uses an outside consulting firm to assess the competitive pay levels for base salary and incentive compensation for each Section 16 officer position. The assessment

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includes identifying material changes to the positions analyzed, updating competitive compensation information, gathering and analyzing relevant general and industry-specific survey data, and updating the base salary structure. In August 2006, theThe committee retained Towers Perrin, a nationally recognized consulting firm, to assist it in establishing competitive 20072008 compensation targets for our Section 16 officers. Towers Perrin assessed competitive pay levels for base salary, total annual cash, which is base salary plus annual incentives, and total direct compensation, which is the sum of total annual cash and the expected value of long-term incentives. Towers Perrin also prepared an updated salary grade structure based on the above competitive analyses and identified overall competitive compensation targets. They compared our positions to like positions contained in general industry salary surveys, industry-specific salary surveys and, for our chief executive officer, the chief executive officers in our performance graph peer group. The salary surveys used by Towers Perrin were:

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Our revenues for 2005 were approximately $3.5 billion. For 2006 our revenues were approximately $4.0 billion and forbillion. For 2007, our revenues were $4.2 billion and for 2008, our revenues were approximately $5.0 billion.

In addition to the above salary surveys, for the chief executive officer comparison, Towers Perrin used salary information for the chief executive officers at the following companies, which comprised our performance graph peer group in July 2007:

*The information in the table is based solely upon information provided by the publishers of the surveys and is not deemed filed or a part of this compensation discussion and analysis for certification purposes.

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In addition to the above salary surveys, for the chief executive officer comparison, Towers Perrin used salary information for the chief executive officers at the following companies, which comprised 24 of the 26 companies in our performance graph peer group in July 2006:

Role of Management

The chief executive officer played an important role in recommending 20072008 compensation to the committee for the other named executive officers. The chief executive officer attended compensation committee meetings; however, he was not present during discussions regarding his compensation. In addition, he assessed the performance of the named executive officers and worked with the human resources department and compensation consultants to recommend:

Our human resources personnel also supported the chief executive officer and the compensation committee by:

Once performance goals are approved by the compensation committee, the committee generally does not modify the goals. However, if major unforeseen changes in economic and environmental conditions or other significant factors beyond the control of management substantially affected their ability to achieve the specified performance goals, the compensation committee, in consultation with the chief executive officer, may modify the performance goals. Such goal modifications will only be considered in years of unusually adverse or favorable external conditions.

Decisions for 20072008

The compensation committee, in conjunction with the board of directors, determined all compensation for each named executive officer for 20072008 and set overall and individual compensation targets for the three components of compensation — base salary, annual incentive, and long-term incentive. The compensation committee made recommendations to the board of directors regarding

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compensation of all Section 16 officers, and the board of directors then approved the recommendations.

The compensation committee began its review ofreviewed competitive executive compensation data from Towers Perrin and established salary grades at its August 20062007 meeting. At the November 20062007 meeting, it established salary grades and individual base salaries.salaries, target annual incentive award levels, and target long-term incentive award levels for 2008. At the February meetings of the compensation committee and the board of directors, we determine annual and long-term incentive awards were determined, along with the payouts based on performance from the recently completed performance period for prior annual and long-term awards. The February meetings occur after the release of earnings for the prior year.

Salary Grades for 20072008

The compensation committee determines ourthe named executive officers’ base salaries and annual and long-term incentive targets by reference to salary grades. Each salary grade has a minimum, midpoint, and maximum annual salary level with the midpoint targeted at approximately the 50th percentile of data provided by Towers Perrin for positions in the salary grade. The compensation committee may adjust the salary grades away from the 50th percentile in order to balance the

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external market data with the internal equity and relative value of the positions. The salary grades also have annual and long-term incentive target levels, which are expressed as a percentage of the individual’s actual annual salary. Named executive officers generally are placed into a salary grade based on historical classification of their positions; however, the compensation committee, at its August meeting, reviews each classification and may place a position into a different salary grade if it determines that the targeted competitive compensation for the position changes significantly or the executive’s responsibilities and/or performance warrants the change. The committee also considers, upon recommendation from the chief executive officer, a position’s relative value. A position’s relative value is determined by considering

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Our named executive officers’ salary grade classifications are listed below along with the 20072008 base salary ranges associated with each classification:

The executive vice president, treasurer and chief financial officer and the president and chief executive officerofficers of Knife River Corporation and MDU Construction Services Group, Inc. are assigned to salary grade “J.” The committee believes that from an internal equity standpoint, these two positions should carry the same salary grade based on the above factors. The positions of president and chief executive officer of MDU Construction Services Group, Inc. and Montana-Dakota Utilities Co. and Great Plains Natural Gas Co. have historically been assigned to salary grade “I.” The committee believes that from an internal equity standpoint, these two positions should carry the same salary grade based on the above factors. For all of our2008, Mr. Harp’s salary grade was increased from “I” to “J” to reflect the significant contribution the position has on total company financial results. For the other named executive officers, the salary grades remained unchanged for 2007.2008.

The compensation committee determines where, within each salary grade, an individual’s base salary should be. The compensation committee believes that having a range of possible salaries within each salary grade gives the committee the flexibility to assign different salaries to individual executives within a salary grade to reflect one or more of the following:

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Our performance assessment program rates performance in the following areas, which help determine actual salaries within the range of salaries associated with the executive’s salary grade:

An executive’s overall performance in our performance assessment program is rated on a scale of one to five, with five as the highest rating denoting distinguished performance. An overall performance rating between four and five is considered commendable performance.

The chief executive officer assessed each named executive officer’s performance under the performance assessment program, and the compensation committee, as well as the full board of directors, assessed the chief executive officer’s performance.

Base Salaries of the Named Executive Officers for 20072008

Terry D. Hildestad

Mr. Hildestad was promoted to chief executive officer in August 2006. At that timeFor 2008, the compensation committee assigned Mr. Hildestadincreased his salary by 12%, from $625,000 to salary grade “K,” our highest salary grade, and increased$700,000. The reasons for Mr. Hildestad’s base salary from $525,000 to $625,000. While the “K” salary grade midpoint was $750,000 in 2006, the compensation committee believed that setting Mr. Hildestad’s salary at the midpoint would have been premature given his new promotion to the position. In addition, the committee also decided that it would not give Mr. Hildestad a salary2008 increase in January 2007 and took this into consideration when increasing his salary to $625,000.were:

Vernon A. Raile

Mr. Raile has served as executive vice president, treasurer and chief financial officer since January 2006. Mr. Raile’s 20072008 base salary was $350,700,set at $400,000, representing an increase of 10.0%14.1% over his 20062007 base salary of $318,750.$350,700. The committee set his 20072008 base salary at $350,700$400,000, above the

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midpoint of his salary grade, due to his commendable performance assessment rating and to continue to move his base salary closer to the $390,000 midpoint of his salary grade. In addition, the committee increased Mr. Raile’s base salary due to results associated with these key achievements:

John G. Harp

Mr. Harp was appointed president and chief executive officer of MDU Construction Services Group, Inc. in September 2004. For 2008, his base salary was set at $400,000, representing an increase of 17.3% over his 2007 base salary of $341,000. The committee set his 2008 base salary at $400,000, above the midpoint of his salary grade, due to his commendable performance assessment rating and due to results associated with these key achievements:

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William E. Schneider

Mr. Schneider has served as president and chief executive officer of our subsidiary, Knife River Corporation, since May 2005. Mr. Schneider’s 2008 base salary was set at $447,400, representing an increase of 6.0% over his 2007 base salary was $422,000, which was above the 2007 salary grade midpoint of $390,000, and 7.7% higher than his 2006 base salary of $392,000.$422,000. The committee set his 2008 base salary at $447,400, above the midpoint of his salary grade, due to his commendable performance assessment rating and due to results associated with:

Paul K. Sandness

Mr. Sandness was appointed to general counsel and secretary in April 2004. Mr. Sandness’ 2008 base salary was set at $321,400, representing a 4.0% increase over his 2007 base salary of $309,000. The committee set his 2008 base salary at $422,000 because of Knife River Corporation’s record 2006 financial results and Mr. Schneider’s$321,400, due to his commendable performance assessment rating. In addition, the committee maintained Mr. Schneider’srating, ensuring his salary above theapproximated his salary grade midpoint, based onand due to results associated with these key achievements:

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John G. Harp

Mr. Harp was appointed president and chief executive officer of MDU Construction Services Group, Inc. in September 2004. Mr. Harp’s 2007 base salary was set at $341,000, which was above the salary grade midpoint of $315,000 and 10% higher than his 2006 base salary of $310,000. This increase was primarily attributable to Mr. Harp’s leadership of the financial turn-around of MDU Construction Services Group, Inc. from a loss in 2004 to record 2006 financial results, as well as Mr. Harp’s commendable performance assessment rating. The committee also considered these additional accomplishments in determining his 2007 base salary:

Bruce T. Imsdahl

Mr. Imsdahl was appointed president and chief executive officer of Montana-Dakota Utilities Co. and Great Plains Natural Gas Co. in November 2004 and was appointed chief executive officer of Cascade Natural Gas Corporation upon the closing of that acquisition in July 2007. Mr. Imsdahl’s 2007 base salary was set at $322,400, which was above the salary grade midpoint of $315,000 and 4% higher than his 2006 base salary of $310,000. The decision to maintain his salary above the salary grade midpoint was driven by Montana-Dakota’s 2006 earnings results finishing above plan, Mr. Imsdahl’s commendable performance assessment rating and Mr. Imsdahl’s performance on these key initiatives:

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The following table shows each named executive officer’s base salary for 20062007 and 20072008 and the percentage change.

20072008 Annual Incentives

What the Performance Measures Are and Why We Chose Them

The compensation committee develops and reviews financial and other corporate performance measures to help ensure that compensation to the executives reflects the success of their respective business unit and/or the corporation, as well as the value provided to our stockholders. For Messrs. Hildestad, Raile, and Raile,Sandness, the performance measures for annual incentive awards are our annual return on invested capital results compared to target and our annual earnings per share results compared to target. For Messrs. Schneider Harp and Imsdahl,Harp, the performance measures for annual incentive awards are their respective business units’unit’s annual return on invested capital results compared to target and their respective business units’unit’s allocated earnings per share results compared to target.

The compensation committee believes earnings per share and return on invested capital are very good measurements in assessing company performance from a financial standpoint. Earnings per share is a generally accepted accounting principle measurement and is a key driver of stockholder return over the long-term. Return on invested capital measures how efficiently and effectively management deploys its capital. Sustained returns on invested capital in excess of our cost of capital create wealth for our stockholders.

Allocated earnings per share for a business unit is calculated by dividing that business unit’s earnings by the business unit’s proportionportion of the total company weighted average shares outstanding. Return on invested capital for the company is calculated by dividing our earnings, beforewithout regard to after tax interest expense and preferred stock dividends, by our average capitalization for the calendar year. Return on invested capital for a business unit is calculated by dividing the business unit’s earnings, beforewithout regard to after tax interest expense and preferred stock dividends, by the business unit’s average capitalization for the calendar year.

The compensation committee determines the weighting of the goals each year based upon recommendations from the chief executive officer. The compensation committee weighted the 20072008 goals for return on invested capital compared to plannedtargeted results and allocated earnings per share

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compared to plannedtargeted results each at 50%. The compensation committee believes both measures are equally important in driving shareholder value in the short term and over time.

In 2006 we began limitingWe limit the after-tax incentive compensation we will pay above the target amount. The after-tax incentives paid above target will be limitedamount to 20% of earnings in excess of planned earnings. TheWe calculate the earnings in excess of planned earnings are calculated without regard to the after-tax incentive amounts above target. TheWe measure the 20% limitation is measured at the major business unit level for business unit and operating company executives, which include Messrs. Schneider, Harp and Imsdahl,Schneider, and at the corporate level for corporate executives, which include Messrs. Hildestad, Raile, and Raile.Sandness.

Incentive plan performance targets are established in connection with our annual financial planning process, where we assess the economic environment, competitive outlook, industry trends, and company specific conditions to set projections of results. The committee evaluates the projected results and uses this evaluation to establish the incentive plan performance targets. The committee also considers annual improvement in the return on invested capital measure for incentive

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purposes to help ensure that return on invested capital equalswill equal or exceedsexceed the weighted average cost of capital.

Targets are established Historically, this consideration took the form of a minimum annual increase in connection with our annual financial planning process, where we assess the future operating environment and set projections of results. Beginning in 2006, the committee implemented a change in how the return on investment capital targets are established for use in our annual incentive plans. The change was implemented to emphasize the need for each business unit and the company to generate, within a reasonable period of time, a return on invested capital that is at least equal to the business unit’s or company’s weighted average cost of capital. If a business unit’s and/or the company’s return on invested capital as establishedincentive plan performance target(s). For 2008, in the annual financial planning process, was below its weighted average costcase of capital,Knife River Corporation, and for 2009, in the case of Knife River Corporation and MDU Resources Group, Inc., the committee chose to use the stretch return on invested capital target used for incentiveapproved by the board in the 2009 business plan purposes would be increased. In February 2008,rather than the compensation committee determinedrequired annual minimum increase in recognition of the amount of incremental increase, if any, would be based on a consideration of factors including thesoft economic environment industry trends and company specific conditions when establishingdepressed commodity prices faced by that business unit and the company. The committee will again consider the minimum required return on invested capital targets.increase in 2010. In the committee’s discretion, they may establish incentive plan performance targets higher, lower, or at the same level as the prior year’s target and/or results.

What the Incentive Targets Are and Why We Chose Them

Annual incentive targets were established by the compensation committee as a percentage of the individual’s actual base salary.

The chief executive officer’s target annual incentive was 100% of his base salary,salary. Messrs. Raile, Harp, and the other named executive officers’Schneider’s target annual incentives were 50%65% of their base salaries. For Messrs. Raile, Harp, and Schneider, the 2008 target incentive was increased from 50% to 65% of base salary. Mr. Harp’s target annual incentive was increased from 50% in 2007 to 65% in 2008 to reflect the significant contribution the position has on total company financial results and to be similar to other like positions with the same salary grade. As previously discussed, Mr. Harp’s salary grade was increased from an “I” to a “J” for 2008. Mr. Sandness’ annual incentive target was 50% of his base salary. These incentive targets were derived in part from competitive data provided by Towers Perrin and in part by the compensation committee’s judgment on the internal equity of the positions, their relative value to the company, and the desire to maintain a consistent annual incentive target for presidents and chief executive officers of the business units and the executive vice president, treasurer and chief financial officer positions.

The named executive officers were eligible to earn from 0% to 200% of their targeted annual incentive. The award opportunities available to each named executive officer ranged from no payment if the goals were met below the 85% level to a 200% payout if the goals were met at or above the 115% level.

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The table below lists each named executive officer’s 20072008 base salary, which was used to calculate the 2008 annual incentive target percentage, the officer’s 2007 annual2008 incentive plan performance targets, the 20072008 incentive plan results, and the annual incentive earned for 2007.2008.

The following table shows the changes in our performance targets and achievements for both 2007 and 2008.

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The following table shows the changes in our performance targets and achievements for both 2006 and 2007.

Terry D. Hildestad’s 20072008 Annual Incentive Award

As president and chief executive officer of MDU Resources Group, Inc., Mr. Hildestad’s 20072008 incentive plan performance targets were based on our earnings per share and return on invested capital. We set his 2008 earnings per share target levels belowlevel above his 2007 earnings per share target level to reflect higher projected earnings from Cascade Natural Gas Corporation and from the 2006 achievement for these performance measuresoil and above the 2006 targets. The committee believed that the incentive plan performance targets for Mr. Hildestad were sufficiently challenging targets because 2006 was a record year, we anticipated softness in the residential construction market, and we believed the upward trend in natural gas prices would abateexploration and production segment. However, the 2008 target earnings per share was lower than 2007 actual earnings per share primarily because 2007 actual earnings per share included

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earnings from discontinued operations of $109.3 million. The 2008 return on invested capital target was slightly lower than the 2007 return on invested capital target primarily because of the investment in 2007. Cascade Natural Gas Corporation and was substantially lower than the 2007 return on invested capital results primarily because 2007 included earnings from discontinued operations of $109.3 million.

For 20072008 incentive plan results, we exceeded 2007 targetthe company’s 2008 earnings per share results and return on invested capital by 50.3%results were 89.8% and 39.4%, respectively. These results reflect87.9% of their respective 2008 targets. Therefore, $310,800 was paid to Mr. Hildestad’s leadership in deciding to divest the independent power assets, yieldingHildestad as a substantial gain and enabling redeployment of the proceeds into our core lines of business, and his leadership in furthering a culture of customer service, operating efficiencies, safety and earnings growth.2008 incentive.

Vernon A. Raile’s 20072008 Annual Incentive Award

As executive vice president, treasurer and chief financial officer of MDU Resources Group, Inc., Mr. Raile’s 20072008 incentive plan performance targets were based on our earnings per share and return on invested capital. WeAs discussed above for Mr. Hildestad, we set his 2008 earnings per share target levels belowlevel above his 2007 earnings per share target level to reflect higher projected earnings from Cascade Natural Gas Corporation and from the 2006 achievement for these performance measuresoil and above the 2006 targets. The committee believed that the incentive plan performance targets for Mr. Raile were sufficiently challenging targets because 2006 was a record year, we anticipated softness in the residential construction market, and we believed the upward trend in natural gas prices would abate for 2007. exploration and production segment. However, the 2008 target earnings per share was lower than 2007 actual earnings per share primarily because 2007 actual earnings per share included earnings from discontinued operations of $109.3 million. The 2008 return on invested capital target was slightly lower than the 2007 return on invested capital target primarily because of the investment in Cascade Natural Gas Corporation and was substantially lower than the 2007 return on invested capital results primarily because 2007 included earnings from discontinued operations of $109.3 million.

For 20072008 incentive plan results, we exceeded 2007 targetthe company’s 2008 earnings per share results and return on invested capital by 50.3%results were 89.8% and 39.4%, respectively. These results

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reflect Mr. Raile’s assistance in the divestiture of our independent power assets and his leadership in successfully representing the company in the capital markets.

William E. Schneider’s 2007 Annual Incentive Award

As president and chief executive officer of Knife River Corporation, Mr. Schneider’s 2007 incentive plan performance targets were based on allocated earnings per share and return on invested capital for Knife River Corporation. These targets included $4,000,000 in anticipated net income attributable to acquisitions throughout 2007, and $2,000,000 in anticipated net income on the sale of certain real estate assets. We set his targets at levels below 2006 achievement for allocated earnings per share and return on invested capital but above the 2006 targets for these performance measures. The committee believed that these targets were sufficiently challenging for Mr. Schneider because of the anticipated softness in the residential construction market, the substantial completion of a major project in 2006, and the overall record results that occurred in 2006. With respect to the 2007 incentive plan results, Knife River Corporation fell short of target earnings per share by 4.4% and fell short of the target return on invested capital by 5.0%.

Upon recommendation from the chief executive officer, the committee and board of directors agreed to reduce Knife River’s 2007 allocated earnings per share and return on invested capital targets by the equivalent of $3,748,000 in net income. The $3,748,000their respective 2008 targets. Therefore, $115,440 was comprised of:

The committee considers these events to be unusual conditions that warranted modificationspaid to Mr. Schneider’s annual incentive performance targets under the terms of the Knife River Corporation Executive Incentive Compensation Plan. Also, the compensation committee believes the adjustment is appropriate under the Knife River Corporation Executive Incentive Compensation Plan for the following reasons:

Had the 2007 allocated earnings per share and return on invested capital targets not been reduced by the $3,748,000, Mr. Schneider’s 2007 annual incentive award would have been $164,053, or approximately $43,000 less than the $207,000 annual incentive award earned for 2007.Raile as a 2008 incentive.

John G. Harp’s 20072008 Annual Incentive Award

As president and chief executive officer of MDU Construction Services Group, Inc., Mr. Harp’s 20072008 incentive plan performance targets were based on allocated earnings per share and return on invested capital for MDU Construction Services Group, Inc. We set his 2008 earnings per share target levels below the 2006 achievement for these performance measures andlevel above the 2006 targets. The committee believedhis 2007 earnings per share target level to reflect that the incentive2008 operating plan performancecontained higher projected workloads than the 2007 operating plan. We set the 2008 return on invested capital target to be slightly lower than the 2007 return on invested capital target. The 2008 earnings per share and return on invested capital targets were lower than the actual results for MDU Construction Services Group, Inc. were sufficiently challenging targets2007 allocated earnings per share and return on invested capital because 2006 wasthe 2007 results reflected an exceptional year. atypically high level of business activity.

For 20072008 incentive plan results, MDU Construction Services Group, Inc. exceeded 2007 target’s 2008 earnings per share results and return on invested capital by 58.1%results were 184.3% and 54.6%, respectively. These results reflect168.6% of their respective 2008 targets. Therefore, a maximum incentive award of $520,000 was paid to Mr. Harp’s leadershipHarp.

Also in driving operating efficiencies, providing superior value2008, Mr. Harp had an opportunity to customers and continuationearn an additional $200,000 annual incentive in recognition of the dramatic turnaround ofinstrumental role he played in MDU Construction Services Group, Inc.’s financial turnaround from a loss in 2004 to record earnings in 2007. The committee established this opportunity as an incentive to Mr. Harp to sustain his business unit’s exceptional financial results. The performance target for this additional $200,000 was MDU Construction Services Group, Inc.’s attainment of incremental after-tax earnings necessary to achieve return on invested capital results that were at least 200 basis points above the weighted cost of capital. Based on MDU Construction Services Group, Inc.’s 2008 planned capital structure, the incremental 200 basis points equated to a minimum of $6.6 million of incremental earnings.

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In 2008, Mr. Harp earned the full $200,000 because MDU Construction Services Group, Inc.’s 2008 return on invested capital results were more than 200 basis points above its weighted average cost of capital.

Bruce T. Imsdahl’s 2007William E. Schneider’s 2008 Annual Incentive Award

As president and chief executive officer of Montana-Dakota Utilities Co. and Great Plains Natural Gas Co.,Knife River Corporation, Mr. Imsdahl’s 2007Schneider’s 2008 incentive plan performance targets were based on allocated earnings per share and return on invested capital for Montana-Dakota Utilities Co. and Great Plains Natural Gas Co.Knife River Corporation. We set his 2007 target levels2008 targets for allocated earnings per share at $0.52 and return on invested capital at 7.1%. The committee believed that the incentive plan performance targets for Montana-Dakota Utilities Co. and Great Plains Natural Gas Co. were sufficiently challenging targets because they required focus on maintaining solid execution of operating responsibilities in a year when significant time and energy were dedicated to consummating the Cascade Natural Gas Corporation acquisition. For 2007 incentive plan results, Montana-Dakota Utilities, Co. and Great Plains Natural Gas Co. exceeded 2007 target earnings per share and return on invested capital by 28.8%lower than his 2007 targets and 16.9%the actual results for 2007. The reduction in 2008 targets was due primarily to the projected continued decline in the residential construction market and the anticipated reduction in margins and volumes.

For 2008, Knife River Corporation’s 2008 earnings per share results and return on invested capital results were 40.8% and 46.7% of their respective 2008 targets. Therefore, no incentive was paid to Mr. Schneider for 2008.

Paul K. Sandness’ 2008 Annual Incentive Award

As general counsel and secretary of MDU Resources Group, Inc., respectively. These resultsMr. Sandness’ 2008 incentive plan performance targets were based on our earnings per share and return on invested capital. As discussed above for Messrs. Hildestad and Raile, we set his 2008 earnings per share target level above his 2007 earnings per share target level to reflect Mr. Imsdahl’s leadership in keeping his team of employees engaged in effectively operating Montana-Dakota Utilities Co. and Great Plains Natural Gas Co. while, at the same time, dealing with regulatory matters and integration issues associated with the acquisition ofhigher projected earnings from Cascade Natural Gas Corporation.Corporation and from the oil and natural gas exploration and production segment. However, the 2008 target earnings per share was lower than 2007 actual earnings per share primarily because 2007 actual earnings per share included earnings from discontinued operations of $109.3 million. The 2008 return on invested capital target was slightly lower than the 2007 return on invested capital target primarily because of the investment in Cascade Natural Gas Corporation and was substantially lower than the 2007 return on invested capital results primarily because 2007 included earnings from discontinued operations of $109.3 million.

For 2008 incentive plan results, the company’s 2008 earnings per share results and return on invested capital results were 89.8% and 87.9% of their respective 2008 targets. Therefore, $71,351 was paid to Mr. Sandness as a 2008 incentive.

Deferral of Annual Incentive Compensation

We provide executives the opportunity to defer receipt of earned annual incentives. If an executive chooses to defer his/his or her annual incentive, the companywe will credit the deferral with interest. In August 2007, the compensation committee, effective January 1,For 2008, reduced the interest rate on deferred compensation from the prime rate plus one percentage point towas the prime rate.

20072008 Long-Term Incentives

Awards Granted in 20072008 under the Long-Term Performance-Based Incentive Plan

We use the Long-Term Performance-Based Incentive Plan, which is an omnibus plan and has been approved by our stockholders, for long-term incentive compensation. We discontinued the use of stock options in 2003 and now use performance shares as the only form of long-term incentive compensation.

At its August 2006 meeting, the compensation committee updated the list of companies that comprise our performance graph peer group to better reflect changes in the mix of our businesses since the establishment of the prior performance graph peer group in 2001. The compensation committee useduses the updated performance graph peer group as the comparator group to determine relative stockholder return and potential payments under the Long-Term Performance-Based Incentive Plan beginning with the 2007-2009for its 2008-2010 performance share award cycle. The companies comprising our updated performance graph peer group are as follows:

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The performance measures aremeasure is our total stockholder return over a three-year measurement period as compared to the total stockholder returns of the companies in our performance graph peer group over the same three-year period. The compensation committee selected this goal because it believes executive pay under a long-term, capital accumulation program such as this should mirror our long-term performance in stockholder return as compared to other public companies in our industries. Payments are made in company stock; dividend equivalents are paid in cash.

Total stockholder return is the percentage change in the value of an investment ofin the common stock of a company, from the closing price on the last trading day in the calendar year preceding the beginning of the performance period, through the last trading day in the final year of the performance period. It is assumed that dividends are reinvested in additional shares of common stock at the frequency paid.

As with the annual incentive target, the long-term incentive target for a given position is determined by reference to the salary grade. These incentive targets were derived in part from competitive data provided by Towers Perrin and in part by the committee’s judgment on the impact each position has on our total stockholder return. The committee also believed consistency across positions in the same salary grades was important from an internal equity standpoint. The variance in target percentages reflects our philosophy that executives in higher salary grades should have more of their total compensation at risk because they are in positions to have a more direct impact on our long-term results.

The compensation committee increased Mr. Hildestad’s long-term incentive target from 133% of base salary in 2007 to 150% of base salary in 2008. The committee’s rationale for the increase was to bring Mr. Hildestad’s long-term incentive target closer to the competitive chief executive officer pay data provided by Towers Perrin. Their analysis for 2007 and again for 2008 reported the competitive long-term incentive target for chief executive officers ranged from approximately 200% to 400% of base salary. The committee decided to set Mr. Hildestad’s long-term incentive target lower than the competitive data in order to avoid creating too great a difference between Mr. Hildestad’s long-term incentive target and the long-term incentive targets of his direct reports, and to recognize that Mr. Hildestad’s SISP benefit is larger than similar benefits offered to chief executive officers.

Mr. Harp’s long-term incentive target was increased to 90% of base salary in 2008 from 75% of base salary in 2007. The committee’s rationale for the increase was to reflect the significant increase the position has on total company financial results. The committee believes from an internal equity standpoint this target should be similar to that of other like positions with the same salary grade.

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On February 15, 2007,14, 2008, the board of directors, upon recommendation of the compensation committee, made performance share grants to the named executive officers. The compensation committee determined the target number of performance shares granted to each named executive officer by multiplying the named executive officer’s 20072008 base salary by his or her long-term incentive target and then dividing this product by the average of the closing prices of our stock from January 3, 20072, 2008 through January 22, 2007,2008, as shown in the following table:

From 0% to 200% of the target grant will be paid out in February 20102011 depending on our three-year 2007-20092008-2010 total stockholder return compared to the total three-year stockholder returns of companies in our performance graph peer group. The payout percentage will be a function of our rank against our performance graph peer group as follows:

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Payouts for percentile ranks falling between the intervals will be interpolated. We also will pay dividend equivalents in cash on the number of shares actually earned for the performance period. The dividend equivalents will be paid in 20102011 at the same time as the performance awards are paid.

Awards Paid on February 15, 200714, 2008 under the Long-Term Performance-Based Incentive Plan

We granted performance shares to our named executive officers under the Long-Term Performance-Based Incentive Plan on February 12, 200417, 2005 for the 20042005 through 20062007 performance period. Our total stockholder return for the 20042005 through 20062007 performance period was 73.92%65.82%, which corresponded to a percentile rank of 48%62% against our performance graph peer group. The percentile rank of 48%62% corresponded to a payout percentage of 82%124%, meaning 82%124% of the target shares originally granted plus dividend equivalents were paid to the named executive officers. The table below lists the shares granted on February 12, 2004,17, 2005, the shares paid on February 15, 200714, 2008 based on the payout percentage, and the dividend equivalents earned.

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Options That Accelerated Vested on February 15, 2007

We granted stock options to our named executive officers in 2001, pursuant to the 1992 Key Employee Stock Option Plan or the Long-Term Performance-Based Incentive Plan. These options become exercisable automatically on February 15, 2010. Vesting is accelerated upon change of control or upon attainment of performance goals. A portion of these options vested on February 12, 2004 after goals were met for the first performance cycle, 2001-2003; the remaining options vested on February 15, 2007 after goals were met for the second performance cycle, 2004-2006.

The performance goals for Messrs. Hildestad and Schneider were based on Knife River Corporation’s earnings and three-year average return on invested capital. The vesting of Messrs. Hildestad and Schneider’s remaining options was accelerated because Knife River Corporation’s 2006 earnings were 135.8% of its forecasted 2006 earnings, and its three-year average return on invested capital for 2004-2006 was 95.9% of its forecasted three-year average return on invested capital.

Mr. Imsdahl’s performance goals were based on Montana-Dakota Utilities Co.’s earnings and three-year average return on invested capital. The vesting of Mr. Imsdahl’s remaining options was accelerated because Montana-Dakota Utilities Co.’s 2006 earnings were 96.6% of its forecasted 2006 earnings, and its three-year average return on invested capital for 2004-2006 was 101.5% of its forecasted three-year average return on invested capital.

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PEER4 Analysi$: Comparison of Pay for Performance Ratios

Each year we compare our named executive officers’ pay for performance ratios to the pay for performance ratios of the named executive officers in the performance graph peer group. This analysis looks at the relationship between our compensation levels and our average annual total stockholder return in comparison to the peer group over a five-year period. All data used in the analysis, including the valuation of long-term incentives and calculation of stockholder return, were compiled by Equilar, Inc., an independent service provider, which uses each company’s annual filings as a basis of its data collection.

This analysis consisted of comparingdividing what we paid our named executive officers for the years 20022003 through 2006 to2007 by our average annual total stockholder return for the same five-year period.period to yield our pay ratio. Our pay ratio was then compared to the pay ratio of the companies in the performance graph peer group, which was calculated by dividing total direct compensation for all the proxy group executives by the sum of each company’s average annual total stockholder return for the same five-year period. The results are shown in the following chart.

5 Year Total Direct Compensation to 5 Year Total Stockholder Return*

The results of the analysis showed that we paid our named executive officers lessslightly more than what the peer group companies paid their named executive officers for comparable levels of stockholder return over the five-year period. Specifically, as indicated in the chart, the data shows that we paid each of our named executive officers approximately $106,000 less$40,000 more per point of stockholder return than our performance graph peer group. The compensation committee believes this comparison helps demonstrate thatThis is the first occurrence in which MDU Resources Group, Inc. has paid its named executive officers more per point of stockholder return than the performance graph peer group. We have been conducting our stockholders receive good value for our executive compensation expense.PEER4 Analysi$ since 2004.

*The chart is not deemed filed or a part of this compensation discussion and analysis for certification purposes.

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Perquisites

Our named executive officers have limited perquisites, which may include personal use of our plane, limited accompaniment of family members with executives traveling for business purposes, reasonable vehicle allowances, home office allowances and subsidized annual physical examinations.

Post-Termination Compensation and Benefits

Pension Plans

Effective 2006, we no longer offer defined benefit pension plans to new non-bargaining unit employees. Instead, executives and other employees are offered increased company contributions to our 401(k) plan. The pension plans continue in effect for all eligible employees hired before 2006.

We provide our executives and other employees hired before 2006 with income for their retirement through our qualified defined benefit pension plans, where benefits are determined by years of service and base salary. Because benefits under our pension plan increase with an employee’s period of service and earnings, we believe the pension encourages our employees to make long-term commitments to the company and, as such, serves as an important retention tool.

Supplemental Income Security Plan

Benefits Offered

We offer certain key managers and executives, including all of our named executive officers, benefits under our non-qualified retirement plan, which we refer to as the Supplemental Income Security Plan or SISP. The SISP, which has a ten-year vesting schedule, provides participants with additional retirement income and death benefits. The additional retirement income may take two forms:

A death benefit is provided if SISP participants die before their supplemental retirement benefits commence or if they elect to receive death benefits in lieu of all or a part of their supplemental retirement benefits. The death benefit is payable for 15 years.

SISP Competitiveness Analysis

At the request of the compensation committee, the human resources department presented its report on the competitiveness of the SISP in November 2007. The human resources department analyzed the most recent proxy statements of our performance graph peer group. Of the performance graph peer companies, 15 reported offering one or more non-qualified defined benefit plans; 14 of the 15 reported the present value of the accumulated benefit at normal retirement age in the pension benefit table of their 2007 proxy statements. One company’s proxy statement containing this information was filed in January 2008 and therefore was not included in the November 2007 analysis.

The present value of the accumulated benefit at normal retirement, averaged for all of our named executive officers, was $2,044,351. This equated to the 72^nd percentile of the 14 averages (one for each of the performance graph peer companies that offered one or more non-qualified defined

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benefit plans) of the present values of the accumulated benefits at normal retirement, averaged for each company’s named executive officers.

Our SISP benefit is high when compared to benefits at our performance graph peer companies who offer one or more non-qualified defined benefit plans. We believe, however, that the SISP is critical in retaining the talent necessary to drive long-term stockholder value. In addition, we believe that the 10 year vesting provisionsprovision of the SISP help offset the amounts our namedhelps promote retention of key executive officers will receive for their sustained commitment to the company.officers.

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Benefit Level Increases

Each November the compensation committee considers SISP benefit level increases.increases for the upcoming year. The chief executive officer recommends the benefit level increases to the committee on executives other than himself; the committee considers benefit level increases for the chief executive. In November 2006,2007, Messrs. Hildestad, Raile, and SchneiderHarp each received an increase in their SISP benefit levellevels which was effective on January 1, 2007.2008. The committee’s rationale for the benefit level increases was recognition of each named executive’s contribution to the financial success of the company. The following table reflects our named executive officers’ SISP levels:

To encourage Mr. Harp to remain with the company, through 2007, on November 16, 2006, upon recommendation of our chief executive officer and the compensation committee, our board of directors approved an additional retirement benefit for Mr. Harp. The benefit provides for Mr. Harp to receive payments that represent the equivalent of an additional three years of service under the pension plan and the SISP becauseif he did not resign or retire before January 2, 2008, and he hashad acceptable successors in place. The additional three years of service recognize Mr. Harp’s previous employment with a subsidiary of the company.

Clawback

In November 2005, we implemented a guideline for repayment of incentives due to accounting restatements, commonly referred to as a clawback policy, whereby the compensation committee may seek repayment of annual and long-term incentives paid to executives if accounting restatements occur within three years after the payment of incentives under the annual and long-term plans. Under our clawback policy, the compensation committee may require employees to forfeit awards and may rescind vesting, or the acceleration of vesting, of an award.

Impact of Tax and Accounting Treatment

The compensation committee may consider the impact of tax and/or accounting treatment in determining compensation. Section 162(m) of the Internal Revenue Code places a limit of $1,000,000$1 million on the amount of compensation paid to certain officers that we may deduct as a business expense in any tax year unless, among other things, the compensation qualifies as performance-based compensation, as that term is used in section 162(m). Generally, long-term incentive compensation

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and annual incentive awards for our chief executive officer and those executive officers whose overall compensation is likely to exceed $1,000,000$1 million are structured to be deductible for purposes of Section 162(m) of the Internal Revenue Code, but we may pay compensation to an executive officer that is not deductible. All annual or long-term incentive compensation paid to our named executive officers in 2007for 2008 satisfied the requirements for deductibility.

Section 409A of the Internal Revenue Code imposes additional income taxes on executive officers for certain types of deferred compensation if the deferral does not comply with Section

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409A. We administerhave amended our compensation plans and agreements in accordance witharrangements affected by Section 409A and our compensation arrangements are structured to comply with the objective of not triggering any additional income taxes under Section 409A, to the extent applicable, so that these taxes are avoided.409A.

Section 4999 of the Internal Revenue Code imposes an excise tax on payments to executives and others of amounts that are considered to be related to a change of control if they exceed levels specified in Section 280G of the Internal Revenue Code. The potential impact of the Section 4999 excise tax is addressed with the modified tax gross-uppayment provisions in the change of control employment agreements, which are described earlier in this compensation discussion and analysis and later in the proxy statement under the heading “Potential Payments Uponupon Termination or Change of Control.” We do not consider the potential impact of Section 4999 or 280G when designing our compensation programs.

The compensation committee also considers the accounting and cash flow implications of various forms of executive compensation. In our financial statements, we record salaries and performance-based compensation incentives as expenses in the amount paid, or to be paid, to the named executive officers. Accounting rules also require that we record an expense in our financial statements for equity awards. The accounting expense of equity awards to employees is calculated in accordance with SFAS 123 (revised).

Stock Ownership Guidelines

We instituted stock ownership guidelines on May 5, 1993, which we revised in February 2003, to encourage executives to own a multiple of their base salary in our common stock. All officers who participate in our Long-Term Performance-Based Incentive Plan are subject to the guidelines. The guidelines call for the executive to reach the multiple within five years. Unvested performance shares and other unvested equity awards do not count towards the guidelines. Each February the compensation committee receives a report on the status of stock holdings by executives. The table shows the named executive officers’ holdings as of December 31, 2007:2008:

The compensation committee may consider the guidelines and the executive’s stock ownership in determining compensation. The committee, however, did not do so with respect to 20072008 compensation.

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Policy Regarding Hedging Stock Ownership

In our Executive Compensation Policy, we adopted a policy that prohibits executives from hedging their ownership of company common stock. Executives may not enter into transactions that allow the executive to benefit from devaluation of our stock or otherwise own stock technically but without the full benefits and risks of such ownership.

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COMPENSATION COMMITTEE REPORT

The compensation committee has reviewed and discussed the Compensation Discussion and Analysis required by Reg. S-K, Item 402(b) with management. Based on the review and discussions referred to in the preceding sentence, the compensation committee recommended to the board of directors that the Compensation Discussion and Analysis be included in our proxy statement on Schedule 14A.

Thomas Everist, Chairman
Karen B. Fagg
Thomas C. Knudson
Patricia L. Moss

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Summary Compensation Table for 20072008

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For additional information about these stock awards and option awards, refer to Note 14 of our audited financial statements in our Annual Report on Form 10-K for the year ended December 31, 2007.2008.

*See footnote 5.6.

Mr. Harp’s additional retirement benefit is described in the narrative that follows the Pension Benefits for 20072008 table. The additional retirement benefit provides Mr. Harp with additional retirement benefits equal to the additional benefit he would earn under the pension plan, excess SISP, and the SISP if he had three additional years of service. The amounts in the table above reflect the change in present value of this additional benefit in 2006, 2007, and 2007.2008. The additional retirement benefit was determined by calculating the actuarial present values of the accumulated benefits under the pension plan, excess SISP, and SISP, with and without the three additional years of service, using the same assumptions used to determine the amounts disclosed in the Pension Benefits for 20072008 table. Because Mr. Harp would be fully vested in his SISP benefit if he retired at age 65, the assumed retirement age of these calculations, the additional years of service provided by the additional retirement agreement would not increase that benefit. If Mr. Harp retires before becoming 100% vested in his SISP benefit, his SISP benefit would be less than the amount shown in the Pension Benefits for 20072008 table, but the payments he would receive under the additional retirement benefit arrangement would increase, as would the amounts reflected in the table above and in the Summary Compensation Table. In the Summary Compensation Table in last year’s proxy statement, we disclosed a change in pension value of $772,200 for Mr. Harp. This included $197,550 attributable to the increase in Mr. Harp’s pension due to the additional years of service and $317,273 attributable to the increase in Mr. Harp’s SISP benefits due to the additional years of service. To calculate these amounts, we assumed Mr. Harp met the vesting conditions necessary to earn the additional retirement benefit and terminated employment on January 2, 2008. Both the $197,550 and the $317,273 amounts were reflected in our financial statements for 2007. We have determined, however, that it is more appropriate and consistent with our other disclosures in column (h) of the Summary Compensation Table and in the Pension Benefits for 2007 table if the amounts in the Summary Compensation Table attributable to this additional retirement benefit are determined using the same assumed retirement ages used for these other disclosures.

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Grants of Plan-Based Awards in 20072008