What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-02-22 compared with 2023-02-24 · 513 added, 612 removed, 679 unchanged (62% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operation

The Company is Building a Strong America® by providing essential infrastructure and services.

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

The Company provides essential infrastructure and services.

The Company and its employees work hard to keep the economy of America moving with the products and services provided, which include powering, heating and connecting homes, factories, offices and stores;

and building roads, highways, data infrastructure and airports.

The Company is authorized to conduct business in nearly every state in the United States and during peak construction season has employed over 16,800 employees.

and constructing and maintaining electrical and communication wiring and infrastructure.

The Company is authorized to conduct business in nearly every state in the United States.

The Company’s organic investments are strong drivers of high-quality earnings and continue to be an important part of the Company’s growth.

Management believes the Company is well positioned in the industries and markets in which it operates.

As part of the Company's strategic planning to optimize stockholder value, the Company announced its board of directors unanimously approved a plan to pursue a separation of Knife River from the Company on August 4, 2022, and, as a next step in its strategic planning, on November 3, 2022, the Company announced the board of directors' plan to create two pure-play companies:

a leading construction materials company and a regulated energy delivery company.

The separation of Knife River is planned as a tax-free spinoff transaction to the Company’s stockholders for U.S.

Chief Executive Officer Transition On January 5, 2024, David L.

Goodin, formerly president and chief executive officer of the Company, retired after a 40-year career with the Company.

The board of directors unanimously selected Nicole A.

Kivisto, formerly president and chief executive officer of the Company's electric and natural gas utility companies, to succeed Mr.

Goodin as the Company's president and chief executive officer effective January 6, 2024.

Kivisto became a member of the board of directors at the same time.

Strategic Initiatives The Company announced strategic initiatives in 2022 as part of the Company's continuous review of its business.

The Company incurred costs in connection with the announced strategic initiatives in 2022 and 2023, as noted in the Business Segment Financial and Operating Data section, and expects to continue to incur these costs until the initiatives are completed.

On May 31, 2023, the Company completed the separation of Knife River, formerly the construction materials and contracting segment, which resulted in two independent, publicly traded companies, MDU Resources Group, Inc.

and Knife River.

The Company's board of directors approved the distribution of approximately 90 percent of the issued and outstanding shares of Knife River to the Company's stockholders.

Stockholders of the Company received one share of Knife River common stock for every four shares of the Company's common stock held on May 22, 2023, the record date for the distribution.

The Company retained approximately 10 percent or 5.7 million shares of Knife River common stock immediately following the separation, which was disposed of in a tax-free exchange in November 2023.

The separation of Knife River was a tax-free spinoff transaction to the Company's stockholders for U.S.

federal income tax purposes.

The transaction is expected to result in two independent, publicly traded companies.

Completion of the separation will be subject to, among other things, the effectiveness of a registration statement on Form 10 with the SEC, final approval from the Company’s board of directors, receipt of one or more tax opinions and a private letter ruling from the IRS, and other customary conditions.

The Company may, at any time and for any reason until the proposed transaction is complete, abandon the separation or modify or change its terms.

The separation is expected to be complete in the second quarter of 2023, but there can be no assurance regarding the ultimate timing of the separation or that the separation will ultimately occur.

In addition, the board has authorized management to commence a strategic review process for MDU Construction Services with the objective of achieving the board’s goal of creating two pure-play public companies.

The strategic review is well underway, and the Company anticipates completing it during the second quarter of 2023.

On November 2, 2023, the Company announced its intent to pursue a tax-free spinoff of its wholly owned construction services business, MDU Construction Services.

The Company's board of directors believes a tax-free spinoff of the construction services business supports the Company's goal of enhancing value for stockholders by becoming a pure-play regulated energy delivery company.

See Item 1A - Risk Factors for a description of the risks and uncertainties with the proposed future structure.

The Company incurred costs in connection with the announced strategic initiatives in 2022, as noted in the Business Segment Financial and Operating Data section, and expects to continue to incur these costs until the initiatives are completed.

The Company continues to manage the inflationary pressures experienced throughout the United States, including the impact that inflation, rising interest rates, commodity price volatility and supply chain disruptions may have on its business and customers and proactively looks for ways to lessen the impact to its business.

Inflation rates in the Unites States increased significantly during 2022, relative to historical precedent, and may continue to rise.

The Company has continued to evaluate its businesses and has increased pricing for its products and services where necessary as evidenced by the increase in revenues recognized in 2022.

The ability to raise selling prices to cover higher costs due to inflation are subject to customer demand, industry competition and the availability of materials, among other things.

Rising interest rates have resulted in, and will likely continue to result in, higher borrowing costs on new debt, resulting in impacts to the Company's asset valuations and negatively impacting the purchasing power of its customers.

Based on the Company's anticipated future state as a pure-play regulated energy delivery business, the Company's board of directors established a long-term dividend payout ratio target of 60 percent to 70 percent of regulated energy delivery earnings.

The Company has an 86-year history of uninterrupted dividend payments to stockholders and remains committed to paying a competitive dividend as the Company transitions to being a pure-play regulated energy delivery company.

Market Trends The Company continues to manage the inflationary pressures experienced throughout the United States, including the impact that inflation, rising interest rates, commodity price volatility and supply chain disruptions may have on its business and customers and proactively looks for ways to lessen the impact to its business.

Rising interest rates have resulted in and may continue to result in higher borrowing costs on new debt, resulting in impacts to the Company's asset valuations and negatively impacting the purchasing power of its customers.

The Company has continued to evaluate its businesses and has increased pricing for its products and services where possible.

The ability to raise selling prices to cover higher costs due to inflation are subject to regulatory approval, customer demand, industry competition and the availability of materials, among other things.

For more information on possible impacts to the Company's businesses, see the Outlook for each segment below and Item 1A - Risk Factors.

7 unchanged sentences

Pipeline 47.4 36.2 41.1

Construction materials and contracting 116.2 129.8 147.3

Construction services 142.4 129.5 112.2

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Earnings per share - diluted $ 2.03 $ 1.81 $ 1.87

2022 compared to 2021 The Company's consolidated earnings decreased $10.6 million.

The Company experienced decreased earnings at the construction materials and contracting, natural gas distribution and pipeline businesses.

While the construction materials and contracting business experienced higher average pricing on materials and increased contracting revenues, results were negatively impacted by ongoing inflationary pressures, including energy and other operating costs.

2023 compared to 2022 The Company's consolidated earnings increased $47.2 million.

The Company experienced increased earnings at each of its continuing businesses.

• The electric business experienced higher retail sales due to rate relief in North Dakota and Montana, an electric service agreement to provide power to a data center near Ellendale, North Dakota, and higher transmission interconnect upgrades.

Electric earnings were partially offset by lower residential volumes, primarily due to cooler weather in the third quarter of the year.

• Natural gas distribution experienced higher retail sales revenue due to rate relief in Idaho and Washington, higher basic service charges, and recovery of short-term debt interest expense in Idaho related to increased gas costs.

These increases were largely offset by higher operation and maintenance expense, primarily higher payroll-related costs.

The natural gas distribution business also experienced a 6.6 percent decrease in retail sales volumes to all customer classes, largely due to warmer weather, which was partially offset by weather normalization and decoupling mechanisms.

• The pipeline's earnings increase was driven by higher transportation volumes, primarily from increased contracted volume commitments from the North Bakken Expansion project and a full year of benefit from this project;

as well as organic growth projects placed in service in November 2023 and August 2022.

In addition, revenues increased from new transportation and storage rates effective August 1, 2023 and higher storage-related activity.

The pipeline also benefited from higher allowance for funds used during construction on organic growth projects, lower property taxes and higher non-regulated project margin.

The increase was offset in part by higher operation and maintenance expense primarily attributable to payroll-related costs and contract services.

The pipeline business also incurred higher interest expense as a result of higher interest rates and higher debt balances.

• The construction services business experienced higher electrical and mechanical gross profit due to progress on hospitality and data center projects in the commercial market and higher industrial margins due to efficiency in labor and material costs.

The construction services business also benefited from higher transmission and distribution gross profit.

Earnings were partially offset by higher selling, general and administrative expense, largely attributable to increased payroll-related costs associated with operational growth, and higher reserve for uncollectible accounts on certain projects.

The construction services business also experienced higher interest expense due to higher working capital needs and interest rates.

34 MDU Resources Group, Inc.

• Other experienced a realized gain of $186.6 million related to the tax-free exchange of its retained interest in Knife River and higher interest income.

Partially offsetting these items were higher interest expense, primarily related to debt issued in connection with the Knife River separation.

Other also benefited from improved claims experience at the captive insurer in 2023 compared to 2022.

• On May 31, 2023, the Company completed the separation of Knife River, its former construction materials and contracting segment, into a new publicly traded company.

As a result of the separation, the historical results of operations for Knife River are shown in discontinued operations, net of tax, except for allocated general corporate overhead costs of the Company, which are reflected in Other and do not meet the criteria for income (loss) from discontinued operations.

Also included in discontinued operations are strategic initiative costs associated with the separation of Knife River.

The variance relates to five months of activity for Knife River in 2023 compared to the twelve months in 2022.

• The Company's earnings from continuing operations were further impacted by $17.7 million in higher returns on the Company's nonqualified benefit plan investments, as discussed in Note 9, partially offset by higher costs incurred in connection with other strategic initiatives of $7.6 million, after tax.

2022 compared to 2021 The Company's consolidated earnings decreased $10.6 million due to lower earnings at the natural gas distribution and pipeline businesses, as well as in discontinued operations.

Partially offsetting were higher earnings at the construction services and electric businesses.

• The electric business benefited from interim rate relief in North Dakota, higher net transmission revenues and higher retail sales volumes as a result of colder weather, as well as lower operation and maintenance expenses, largely related to plant closures.

• The natural gas distribution business experienced higher operating expenses, including subcontractor costs, as well as higher interest and depreciation expenses, partially offset by increased sales volumes and approved rate recovery in certain jurisdictions.

• The pipeline business experienced higher interest expense and lower non-regulated project margins, partially offset by the net benefit of the North Bakken Expansion project.

The Company's earnings were further impacted by $21.0 million in lower returns on the Company's nonqualified benefit plan investments, as discussed in Note 8, and the costs incurred in connection with the announced strategic initiatives of $12.7 million, after tax.

Partially offsetting the decreases were increased earnings at the construction services business resulting from higher electrical and mechanical project margins and earnings from the segment's joint ventures, partially offset by higher overall operating expenses related to increased payroll-related costs and expected credit losses.

The electric business benefited from interim rate relief in North Dakota, higher net transmission revenues and higher retail sales volumes as a result of colder weather, as well as lower operation and maintenance expenses, largely related to plant closures.

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

Negatively impacting the Company's earnings was a decrease in gross margin across most product lines at the construction materials and contracting business resulting from labor constraints;

increased material costs, including asphalt oil and diesel fuel;

higher equipment, repair and maintenance costs;

and less available paving work in certain regions.

The decrease was partially offset by higher AFUDC for the construction of the North Bakken Expansion project and higher earnings due to increased natural gas transportation volumes at the pipeline business.

Also positively impacting earnings was higher operating income at the electric and natural gas businesses, largely a result of approved rate relief in certain jurisdictions, partially offset by higher operations and maintenance expenses.

• Increased earnings at the construction services business resulting from higher electrical and mechanical project margins and earnings from the segment's joint ventures, partially offset by higher overall operating expenses related to increased payroll-related costs and expected credit losses.

• As previously discussed, the historical results of Knife River are shown in discontinued operations, except for allocated general corporate costs of the Company.

The decrease in earnings in 2022 was a result of Knife River being negatively impacted by ongoing inflationary pressures, including energy and other operating costs.

In addition, costs incurred in 2022 associated with the separation of Knife River had a negative impact on earnings.

• The Company's earnings from continuing operations were further impacted by $17.0 million in lower returns on the Company's nonqualified benefit plan investments, as discussed in Note 9, and the costs incurred in 2022 in connection with other strategic initiatives, which do not meet the criteria for income (loss) from discontinued operations of $3.7 million, after tax.

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

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Changes in such assumptions and factors could cause actual future results to differ materially from the Company's growth and earnings projections.

MDU Resources Group, Inc.

For information pertinent to various commitments and contingencies, see Item 8 - Notes to Consolidated Financial Statements.

For a summary of the Company's business segments, see Item 8 - Note 18.

MDU Resources Group, Inc.

Electric and Natural Gas Distribution

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The continued efforts to create operational improvements and efficiencies across both segments promotes the Company's business integration strategy.

The primary factors that impact the results of these segments are the ability to earn authorized rates of return, the cost of natural gas, cost of electric fuel and purchased power, weather, climate change initiatives, competitive factors in the energy industry, population growth and economic conditions in the segments' service areas.

The primary factors that impact the results of these segments are the ability to earn authorized rates of return;

climate change laws, regulations and initiatives;

competitive factors in the energy industry;

population growth;

and economic conditions in the segments' service areas.

The electric and natural gas distribution segments are subject to extensive regulation in the jurisdictions where they conduct operations with respect to costs, timely recovery of investments and permitted returns on investment.

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The Company also seeks rate adjustments for operating costs and capital investments, as well as reasonable returns on investments not covered by tracking mechanisms.

For more information on the Company's tracking mechanisms and recent cases, see Items 1 and 2 - Business Properties and Item 8 - Note 20.

For more information on the Company's tracking mechanisms and recent rate cases, see Items 1 and 2 - Business Properties and Item 8 - Note 21.

These segments are also subject to extensive regulation related to certain operational and environmental compliance, cybersecurity, permit terms and system integrity.

Both segments are faced with the ongoing need to actively evaluate cybersecurity processes and procedures related to its transmission and distribution systems for opportunities to further strengthen its cybersecurity protections.

Within the past year, there have been cyber and physical attacks within the energy industry on energy infrastructure, such as substations, and the Company continues to evaluate the safeguards implemented to protect its electric and natural gas utility systems.

Within the past year, there have been cyber and physical attacks within the energy industry on infrastructure, such as substations, and the Company continues to evaluate the safeguards implemented to protect its electric and natural gas utility systems.

Implementation of enhancements and additional requirements to protect the Company's infrastructure is ongoing.

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Over the long-term, the Company expects overall electric demand to be positively impacted by increased electrification trends, including electric vehicle adoption, as a means to address economy-wide carbon emission concerns and changing customer conservation patterns.

MISO and NERC have recently announced concerns with reliability of the electric grid due to capacity shortages, which has resulted from rapid expansion of renewables and rapid reduction of baseload resources such as coal, while load growth has increased faster than expected.

Recently, MISO and NERC announced concerns with reliability of the electric grid due to capacity shortages, which has resulted from rapid expansion of renewables and rapid reduction of baseload resources such as coal, while load growth has increased faster than expected.

MISO received FERC approval of a seasonal resource adequacy construct, or accreditation process, versus the previous annual summer peak capacity requirement process.

The new construct will include a higher planning reserve margin in winter, spring and fall and a higher Coincident Load Factor for Montana-Dakota in the winter season.

This is a change from the current summer requirement only process.

These changes have not required Montana-Dakota to obtain additional accredited seasonal capacity but additional future accreditation process changes could impact the Company and result in increased costs to produce electricity.

These changes have not had a significant impact on the requirements for Montana-Dakota.

The Company will continue to monitor the progress of these changes and assess the potential impacts they may have on its stakeholders, business processes, results of operations, cash flows and disclosures.

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Natural gas weather normalization and decoupling mechanisms in certain jurisdictions have been implemented to largely mitigate the effect that would otherwise be caused by variations in volumes sold to these customers due to weather and changing consumption patterns on the Company's distribution margins, as further discussed in Items 1 and 2 - Business Properties.

In December 2022 and January 2023, natural gas prices significantly increased across the Pacific Northwest from multiple price-pressuring events including wide-spread below-normal temperatures;

higher natural gas consumption;

In December 2022 and January 2023, natural gas prices significantly increased across the Pacific Northwest from multiple price-pressuring events including wide-spread below-normal temperatures and higher natural gas consumption;

reduced natural gas flows due to pipeline constraints, including maintenance in West Texas;

and historically low regional natural gas storage levels.

These higher natural gas prices impacted both Intermountain and Cascade, both of which initiated $125.0 million and $150.0 million in early 2023, respectively, of short-term debt to finance the increased natural gas costs.

Intermountain filed an out of cycle purchased gas adjustment effective February 1, 2023, to start recovering the higher prices.

Natural gas prices stabilized by March 2023.

The higher natural gas prices in December 2022 and January 2023 impacted both Intermountain and Cascade, both of which borrowed short-term debt of $125.0 million and $150.0 million, respectively, in January 2023 to finance the increased natural gas costs.

To assist in the recovery of higher natural gas costs, Intermountain filed an out-of-cycle purchased gas adjustment with the IPUC that was effective February 1, 2023, and is collecting interest costs associated with short-term borrowing with rates effective October 1, 2023.

Effective November 1, 2023, as approved by the WUTC, Cascade started recovery in Washington of these increased gas costs over a period of two years rather than the normal one year period.

As of December 2023, Intermountain and Cascade have repaid $80.0 million and $100.0 million of the $125.0 million and $150.0 million short-term debt, respectively.

For a discussion of the Company's most recent cases by jurisdiction, see Item 8 - Note 21.

36 MDU Resources Group, Inc.

In late summer and fall of 2023, electric fuel and purchased power prices increased across Montana-Dakota's integrated system.

This was caused by transmission congestion in northwest North Dakota due to delays in additional SPP transmission line build-out, as well as additional load growth in the Bakken region.

Electric fuel and purchased power prices remained elevated into November.

To assist in the recovery of the higher fuel and purchased power costs, Montana-Dakota filed waiver requests with the NDPSC and SDPUC, which were approved on October 24, 2023 and November 7, 2023, respectively, deferring the increased costs to the annual fuel clause adjustment.

In Montana, the waiver request is filed monthly and is unopposed by the MTPSC.

On December 22, 2023, MISO filed a complaint letter with SPP regarding concerns related to the coordination of the constraint.

Montana-Dakota filed a complaint letter with FERC related to this issue on January 23, 2024.

The Company continues to proactively monitor and work with its manufacturers to reduce the effects of increased pricing and lead times on delivery of certain raw materials and equipment used in electric generation, transmission and distribution system and natural gas pipeline projects.

Long lead times are attributable to increased demand for steel products from pipeline companies as they continue pipeline system safety and integrity replacement projects driven by PHMSA regulations, as well as delays in the manufacturing and shipping of electrical equipment as a result of the lingering effects of the COVID-19 pandemic, staffing shortages across multiple industries and global conflicts.

While not material, these segments have experienced delays and inflationary pressures, including increased costs related to purchased natural gas and capital expenditures.

Long lead times are attributable to increased demand for steel products from pipeline companies as they continue pipeline system safety and integrity replacement projects driven by PHMSA regulations, as well as delays in the manufacturing and shipping of electrical equipment and increased demand for electrical equipment due to regulatory activity and grid expansion.

The Company has been able to minimize the effects by working closely with suppliers or obtaining additional suppliers, as well as modifying project plans to accommodate extended lead times and increased costs.

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The ability to grow through acquisitions is subject to significant competition and acquisition premiums.

In addition, the ability of the segments to grow their service territory and customer base is affected by regulatory constraints, the economic environment of the markets served and competition from other energy providers and fuels.

As the industry continues to expand the use of renewable energy sources, the need for additional transmission infrastructure is growing.

On July 25, 2022, as part of its long range transmission plan, MISO announced approval of 18 transmission projects totaling $10.3 billion of investments in MISO's midwest subregion, of which Montana-Dakota is a part.

As part of MISO's long range transmission plan, in August 2022, the Company announced its intent to develop, construct and co-own an approximately 95 mile 345 kV transmission line with Otter Tail Power Company in central North Dakota.

In addition, the ability of the segments to grow their service territory and customer base is affected by regulatory constraints, the economic environment of the markets served, population changes and competition from other energy providers and fuel.

The construction of new electric generating facilities, transmission lines and other service facilities is subject to increasing costs and lead times, extensive permitting procedures, and federal and state legislative and regulatory initiatives, which may necessitate increases in electric energy prices.

As the industry continues to expand the use of renewable energy sources, the need for additional transmission infrastructure is growing.

As part of MISO's long range transmission plan, in August 2022, the Company announced its intent to develop, construct and co-own JETx with Otter Tail Power Company in central North Dakota.

On October 6, 2023, the FERC issued an order approving the Company's request for CWIP Incentive Rate and Abandoned Plant Incentive treatment on this project.

MDU Resources Group, Inc.

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

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Operation and maintenance 119.6 120.7 124.9 (1) % (3) %

Depreciation, depletion and amortization 67.8 66.8 63.0 1 % 6 %

Depreciation and amortization

64.2 67.8 66.8 (5) % 1 %

Taxes, other than income 16.7 16.9 17.5 (1) % (3) %

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Operating income 92.8 79.7 66.3 16 % 20 %

Other income .5 4.6 7.2 (89) % (36) %

Other income 5.8 .5 4.6 NM (89) %

Interest expense 28.0 28.5 26.7 (2) % 7 %

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Net income $ 71.6 $ 57.1 $ 51.9 25 % 10 %

NM - not meaningful

Operating statistics

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347.6 328.4 303.6

Transportation and other 48.7 46.0 34.9

53.6 48.7 46.0

$ 401.2 $ 377.1 $ 349.6

Volumes (million kWh)

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Average cost of electric fuel and purchased power per kWh $ .024 $ .026 $ .021

2023 compared to 2022 Electric earnings increased $14.5 million as a result of:

• Revenue increased $24.1 million.

◦ Largely attributable to:

▪ Higher fuel and purchased power costs of $15.9 million recovered in customer rates and offset in expense, as described below.

▪ Rate relief of $4.4 million in North Dakota and Montana.

▪ Higher data center revenue of $3.4 million, including net transmission.

▪ Higher transmission interconnect upgrades of $2.9 million.

◦ Partially offset by lower retail sales volumes of $2.4 million, driven primarily by lower residential volumes, largely due to cooler weather in the third quarter of the year.

Although residential volumes were lower, there was a 25.5 percent increase in volumes overall, which was largely driven by the data center as previously discussed and further discussed in the outlook section.

• Electric fuel and purchased power increased $15.9 million, largely the result of higher retail sales volumes, partially offset by lower commodity prices.

• Operation and maintenance decreased $1.1 million.

◦ Largely the result of:

▪ Decreased Coyote Station costs of $1.7 million due to the absence of the planned outage in 2022.

▪ Lower materials expense of $500,000, partially due to the closure of Units 1 and 2 at Heskett Station.

◦ Partially offset by increased payroll-related costs of $700,000, which include higher employee incentive accruals.

38 MDU Resources Group, Inc.

• Depreciation and amortization decreased $3.6 million.

◦ Primarily due to decreased amortization of plant retirement and closure costs of $5.3 million resulting from an extension to the recovery period for these costs, which are recovered in operating revenues, as discussed in Note 12.

◦ Partially offset by increased depreciation of $1.2 million associated with higher property, plant and equipment balances, the result of transmission projects placed in service to improve reliability and update aging infrastructure.

• Taxes, other than income were comparable to the same period in the prior year.

• Other income increased $5.3 million, primarily resulting from higher returns on the Company's nonqualified benefit plan investments of $4.7 million, as discussed in Note 9, and higher interest income of $1.3 million, largely related to contributions in aid of construction, offset in part by lower AFUDC equity due to higher average debt balance.

• Interest expense decreased $500,000, as a result of higher AFUDC debt, largely due to higher rates, partially offset by higher average interest rates.

• Income tax benefit decreased $4.4 million.

◦ Largely due to:

▪ Higher income taxes of $4.7 million related to higher taxable income.

▪ Decreased excess deferred income tax amortization.

◦ Partially offset by lower permanent tax adjustments.

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

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

• Operation and maintenance decreased $4.2 million.

• Operation and maintenance expense decreased $4.2 million.

◦ Primarily due to:

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◦ Partially offset by increased contract services associated with a planned outage at Coyote Station of $2.6 million.

• Depreciation, depletion and amortization increased $1.0 million, largely resulting from increased property, plant and equipment balances placed in service, mostly related to growth and replacement projects.

• Depreciation and amortization increased $1.0 million, largely resulting from increased property, plant and equipment balances placed in service, mostly related to growth and replacement projects.

• Taxes, other than income decreased $600,000, largely as a result of lower coal conversion taxes in certain jurisdictions.

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

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

• Revenue increased $17.6 million

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

◦ Higher transmission revenues of $3.3 million.

◦ Higher transmission interconnect upgrades of $2.4 million.

◦ Higher MISO revenue of $2.0 million.

◦ Higher demand revenues of $1.5 million.

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

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

• Operation and maintenance expense increased $3.6 million.

◦ Primarily the result of:

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

▪ Higher other miscellaneous expenses.

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

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

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

◦ Increased amortization of plant retirement and closure costs of $1.7 million recovered in operating revenues, as discussed in Item 8 - Note 6.

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

MDU Resources Group, Inc.

• Other income decreased $2.6 million.

◦ Primarily due to:

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

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

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

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

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

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

◦ Lower excess deferred tax amortization.

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

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Operation and maintenance 219.7 205.3 194.1 7 % 6 %

Depreciation, depletion and amortization 89.4 86.0 84.6 4 % 2 %

Depreciation and amortization

95.3 89.4 86.0 7 % 4 %

Taxes, other than income 75.2 71.1 60.6 6 % 17 %

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Operating income 92.2 91.9 89.2 — % 3 %

Other income 3.3 8.1 13.5 (59) % (40) %

Other income 20.8 3.3 8.1 NM (59) %

Interest expense 57.6 42.2 37.3 36 % 13 %

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Net income $ 48.5 $ 45.2 $ 51.6 7 % (12) %

NM - not meaningful

Operating statistics

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2023 compared to 2022 :

Natural gas distribution earnings decreased $6.4 million as a result of:

• Revenue increased $301.9 million, largely from:

Natural gas distribution earnings increased $3.3 million as a result of:

• Revenue increased $13.7 million.

◦ Largely from:

▪ Rate relief of $7.9 million in Idaho and Washington, including the excess deferred income tax tariff settlement of $1.1 million in Washington.

▪ Increased revenue-based taxes recovered in rates of $6.1 million that were offset in expense, as described below.

▪ Higher basic service charges of $4.7 million.

▪ Higher transportation revenue of $3.8 million due to 13.5 percent higher volumes, largely higher electric generation.

▪ Approved rate recovery of short-term debt interest expense related to increased gas costs in Idaho of $3.2 million.

▪ Higher nonregulated revenue of $1.7 million, largely higher liquefied natural gas sales.

▪ Recovery of COVID-19 response costs, including bill assistance programs and waived late payment fees, in Oregon of

◦ Partially offset by:

▪ Lower purchased gas sold of $10.8 million, recovered in customer rates that was offset in expense, as described below.

▪ A 6.6 percent decrease in retail sales volumes to all customer classes, offset in part by weather normalization and decoupling mechanisms in certain jurisdictions.

• Purchased natural gas sold decreased $11.0 million, primarily due to lower volumes of natural gas purchased of $59.8 million, largely offset by higher natural gas costs of $48.7 million as a result of higher market prices.

Purchased natural gas sold includes the absence of the prior year disallowance of $845,000 ordered by the MNPUC.

• Operation and maintenance increased $14.4 million.

◦ Primarily due to:

▪ Higher payroll-related costs of $12.6 million, primarily higher employee incentive accruals and straight-time payroll

▪ Increased uncollectible accounts expense of $1.6 million, largely due to higher revenue.

▪ Higher insurance expense of $1.0 million.

▪ Higher software related expenses of $900,000.

◦ Partially offset by:

▪ Lower contract services of $1.2 million, largely lower subcontract labor and consulting fees.

▪ Decreased other expenses, including regulatory deferrals, miscellaneous employee expenses, and gain on sale of the Company's customer service center.

• Depreciation and amortization increased $5.9 million, primarily resulting from growth and replacement projects placed in service.

• Taxes, other than income increased $4.1 million, largely from higher revenue-based taxes of $6.1 million which are recovered in rates, partially offset by lower property taxes due to lower assessed values of $2.3 million.

• Other income increased $17.5 million, driven by higher interest income of $11.3 million, largely related to purchased gas costs, and higher returns on the Company's nonqualified benefit plans of $6.9 million, as discussed in Note 9.

These increases were offset in part by higher pension and postretirement expense.

• Interest expense increased $15.4 million, primarily from higher short-term and long-term debt balances from debt issued in 2023 and 2022 and higher interest rates, partially offset by higher AFUDC debt of $2.6 million, due to higher rates.

• Income tax expense decreased $900,000 largely the result of higher permanent tax adjustments, partially offset by higher income before income taxes.

2022 compared to 2021 Natural gas distribution earnings decreased $6.4 million as a result of:

• Revenue increased $301.9 million .

◦ Largely from:

▪ Higher purchased natural gas sold of $273.3 million recovered in customer rates that was offset in expense, as described below.

2 unchanged sentences

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

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

• Purchased natural gas sold increased $274.1 million.

◦ Primarily due to:

▪ Higher natural gas costs as a result of higher market prices of $198.1 million, including the higher recovery of purchase gas adjustments related to the February 2021 cold weather event and the 2018 Enbridge pipeline rupture.

1 unchanged sentence

▪ Purchased natural gas sold includes the disallowance of $845,000 ordered by the MNPUC, as discussed in Note 21.

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

MDU Resources Group, Inc.

• Operation and maintenance increased $11.2 million.

◦ Primarily due to:

▪ Higher contract services of $6.4 million, primarily higher subcontractor costs.

4 unchanged sentences

and higher office, travel, materials and other miscellaneous employee costs.

• Depreciation, depletion and amortization increased $3.4 million.

◦ Largely from increased property, plant and equipment balances from growth and replacement projects placed in service.

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

• Depreciation and amortization increased $3.4 million.

◦ Largely from:

▪ Increased property, plant and equipment balances from growth and replacement projects placed in service.

◦ Partially offset by:

▪ Decreased depreciation rates in certain jurisdictions of $1.0 million.

• Taxes, other than income increased $10.5 million, largely resulting from higher revenue-based taxes which are recovered in rates.

2 unchanged sentences

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

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

• Revenue increased $123.7 million .

◦ Largely as a result of:

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

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

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

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

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

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

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

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

• Operation and maintenance increased $8.7 million.

◦ Primarily due to:

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

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

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

◦ Partially offset by:

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

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

• Depreciation, depletion and amortization increased $1.4 million.

◦ Largely from increased property, plant and equipment balances from growth and replacement projects placed in service.

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

42 MDU Resources Group, Inc.

• Taxes, other than income increased $3.6 million resulting from:

◦ Higher revenue-based taxes of $2.3 million, which are recovered in rates.

◦ Higher property taxes in certain jurisdictions of $700,000.

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

• Other income decreased $5.4 million primarily related to:

◦ The absence of an out-of-period adjustment of $4.4 million in 2020 as a result of previously overstated benefit plan expenses.

◦ Decreased interest income related to the recovery of purchased gas cost adjustment balances in certain jurisdictions.

• Interest expense increased $500,000, primarily from lower AFUDC borrowed.

• Income tax expense increased $2.6 million due to higher income before income taxes.

Outlook In 2022, the Company experienced rate base growth of 7.8 percent and expects these segments will grow rate base by approximately 6 percent to 7 percent annually over the next five years on a compound basis.

Outlook In 2023, the Company experienced rate base growth of 8.5 percent and expects these segments will grow rate base by approximately 7 percent annually over the next five years on a compound basis.

Operations are spread across eight states where the Company expects customer growth to be higher than the national average.

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Although changes in the price of natural gas are passed through to customers and have minimal impact on the Company's earnings, the natural gas distribution segment's customers benefit from lower natural gas prices through the Company's utilization of storage and fixed price contracts.

In 2022, the Company experienced increased natural gas prices across its service areas and more recently has seen higher natural gas prices in the Pacific Northwest, as previously discussed in Strategy and Challenges.

As a result, the Company has filed an out-of-cycle cost of gas adjustment in Idaho to assist in the timely recovery of these costs.

See Note 20 for additional details.

In 2022, the Company experienced increased natural gas prices across its service areas, and in January 2023, experienced higher natural gas prices in the Pacific Northwest, as previously discussed in Strategy and Challenges.

As a result, the Company filed an out-of-cycle cost of gas adjustment in Idaho, which assisted in the timely recovery of these costs, and received approval from the WUTC to recover these increased gas costs over a period of two years rather than the normal one year period.

The Company will continue to monitor natural gas prices, as well as oil and natural gas production levels.

In February 2019, the Company announced the retirement of three aging coal-fired electric generating units.

The Company ceased operations of Unit 1 at Lewis & Clark Station in Sidney, Montana, in March 2021 and Units 1 and 2 at Heskett Station near Mandan, North Dakota, in February 2022.

In addition, in May 2022, the Company began construction of Heskett Unit 4, an 88-MW simple-cycle natural gas-fired combustion turbine peaking unit at the existing Heskett Station near Mandan, North Dakota, with an expected in service date in the summer of 2023.

In May 2022, the Company began construction of Heskett Unit 4, an 88-MW simple-cycle natural gas-fired combustion turbine peaking unit at the existing Heskett Station near Mandan, North Dakota.

The in service date has been delayed past 2023 due to unforeseen operational setbacks.

While performing start-up testing an incident occurred resulting in damage to the generator field and turbine components.

Repairs are ongoing with the in service date now expected in the second quarter of 2024, assuming no further action is needed based on the conclusions of the ongoing root cause analysis, or other unexpected delays.

The Company is one of four owners of Coyote Station and cannot make a unilateral decision on the plant's future;

therefore, the Company could be negatively impacted by decisions of the other owners.

In September 2021, Otter Tail Power Company filed its 2022 Integrated Resource Plan in Minnesota and North Dakota, which included its intent to start the process of withdrawal from its 35 percent ownership interest in Coyote Station with an anticipated exit from the plant by December 21, 2028.

In October 2022, Otter Tail Power Company requested permission from the MNPUC to extend the deadline for its Integrated Resource Plan with the intent to update its modeling in light of recent developments in the industry, including increased capacity requirements in MISO.

Otter Tail Power Company's extension was granted by the MNPUC on November 1, 2022, with revised modeling due March 31, 2023.

The joint owners continue to collaborate in analyzing data and weighing decisions that impact the plant and its employees as well as each company's customers and communities served.

Further state implementation of pollution control plans to improve visibility at Class I areas, such as national parks, under the EPA's Regional Haze Rule could require the owners of Coyote Station to incur significant new costs.

Existing and proposed emissions reduction plans from the EPA could require the owners of Coyote Station to incur significant new costs.

If the owners decide to incur such costs, the costs could, dependent on determination by state regulatory commissions on approval to recover such costs from customers, negatively impact the Company's results of operations, financial position and cash flows.

The NDDEQ submitted its state implementation plan to the EPA in August 2022 and expects a decision on the plan sometime in 2023.

The plan, as submitted by the NDDEQ, does not require additional controls for any units in North Dakota, including Coyote Station.

The NDDEQ submitted its state implementation plan to the EPA in August 2022.

On March 4, 2023, the Company began to provide power for Applied Digital Corporation's data center near Ellendale, North Dakota under an interim electric service agreement approved by the NDPSC, and on June 6, 2023, the NDPSC unanimously approved the Company's electric service agreement request.

At full capacity, the data center requires 180 megawatts of electricity, which is the equivalent of about 28 percent of the Company's generation portfolio.

The Applied Digital Corporation's load will be purchased from the MISO market and will not impact other customers' power supply.

On October 2, 2023, the Company filed with the NDPSC an electric service agreement request to serve an additional data center in its service territory.

42 MDU Resources Group, Inc.

The Infrastructure Investment and Jobs Act, commonly known as the Bipartisan Infrastructure Law, was enacted in the fourth quarter of 2021 and is providing long-term opportunities by designating funds for investments such as upgrades to electric and grid infrastructure, transportation systems, and electric vehicle infrastructure.

The Company is pursuing various opportunities under the Grid Resilience and Innovative Partnerships Program, which is a part of the Infrastructure Investment and Jobs Act, and will continue to monitor additional opportunities from this law.

Legislation and rulemaking The Company continues to monitor legislation and rulemaking related to clean energy standards that may impact its segments.

Below are some of the specific legislative actions the Company is monitoring.

• The current presidential administration is considering changes to the federal Clean Air Act, some of which were amended by the previous presidential administration.

The content and impacts of the changes under consideration are uncertain and the Company continues to monitor for potential actions by the EPA.

• In Oregon, the Climate Protection Program Rule was approved in December 2021, which requires natural gas companies to reduce GHG emissions 50 percent below the baseline by 2035 and 90 percent below the baseline by 2050, which may be achieved through surrendering emissions allowances, investing in additional customer conservation and energy efficiency programs, purchasing community climate investment credits, and purchasing low carbon fuels such as renewable natural gas.

• The EPA released rulemaking under the federal Clean Air Act in the Federal Register on May 23, 2023, amending GHG emission standards for new fossil-fired electric generating units and re-proposing GHG emission guidelines for existing fossil-fired electric generating units.

The proposed standards for new natural gas-fired electric generating units have been made more stringent, requiring units that operate more frequently to install carbon capture controls or co-fire with hydrogen.

For existing coal and natural gas-fired units operating more frequently and long-term, the EPA’s emissions guidelines include standards equivalent to installation of carbon capture pollution control or co-firing with lower or zero-carbon fuels, such as hydrogen.

States must evaluate individual units and develop, adopt, and submit a plan to the EPA which would include emission standards for each individual unit.

State plans are required to be submitted to the EPA no later than 24 months after the final rule effective date.

The EPA requested comment on the proposed GHG emission standards and guidelines by August 8, 2023, and intends to finalize the rules in 2024.

The EPA has not currently proposed GHG emission standards for existing simple cycle combustion turbines and intends to explore setting emission standards in the future for these units.

It is unknown at this time what emission limits or controls would be required for each Montana-Dakota owned and jointly owned fossil-fired electric generating unit.

Due to the uncertainty of the EPA rulemaking, Montana-Dakota cannot determine the potential financial impact on its operations.

Each year, compliance instruments will be distributed to the Company by the Oregon Department of Environmental Quality at no cost and will decline annually in step with the reduction from baseline.

The Company intends to meet its obligations through surrendering no cost emissions allowances and will fill remaining compliance obligations by investing in additional customer conservation and energy efficiency programs, purchasing community climate investment credits, and purchasing low carbon fuels such as renewable natural gas.

The Company expects the compliance costs for these regulations to be recovered through customer rates.

For more information about the anticipated compliance costs, Items 1 and 2 - Business Properties.

Cascade's draft 2023 Oregon integrated resource plan projects customer bills could increase by about 100 percent by 2035 compared with costs included in bills today and by about 300 percent by 2050 as a result of the legislation.

Due to timing of regulatory recovery, future compliance obligation purchases could impact the Company's operating cash flow.

For more information about this rule and associated compliance costs, see Items 1 and 2 - Business Properties.

Cascade's 2023 Oregon integrated resource plan projects customer bills could increase substantially as a result of the legislation.

Projected customer bill impacts are estimates, subject to change as legislation is implemented and compliance begins, as well as, numerous assumptions used in the complex analysis of integrated resource planning.

On September 30, 2022, the Company filed a request for the use of deferred accounting for costs related to the rule and began deferring those costs.

The Company, along with the other two local natural gas distribution companies in Oregon, filed a lawsuit on March 18, 2022, challenging the Climate Protection

MDU Resources Group, Inc.

Program Rule.

The OPUC approved the deferred accounting order on June 27, 2023.

The Company, along with the other two local natural gas distribution companies in Oregon, filed a lawsuit on March 18, 2022, challenging the Climate Protection Program Rule.

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

• In Washington, the Climate Commitment Act signed into law in May 2021 requires natural gas distribution companies to reduce overall GHG emissions 45 percent below 1990 levels by 2030, 70 percent below 1990 levels by 2040 and 95 percent below 1990 levels by 2050, which may be achieved through increased energy efficiency and conservation measures, purchased emission allowances and offsets, and purchases of low carbon fuels.

As directed by the Climate Commitment Act, in September 2022, the Washington DOE published its final rule on the Climate Commitment Program.

The rule was effective on October 30, 2022 and emissions compliance began on January 1, 2023.

The Company has begun reviewing compliance options and expects the compliance costs for these regulations will be recovered through customer rates.

For more information about the anticipated compliance costs, see Items 1 and 2 - Business Properties.

Cascade's draft 2023 Washington integrated resource plan projects customer bills could increase by about 23 percent by 2035 compared with costs included in bills today and by about 78 percent by 2050 as a result of the legislation.

On December 20, 2023, the Oregon Court of Appeals ruled that the Climate Protection Program rules are invalid.

On January 22, 2024, the Oregon Department of Environmental Quality issued a news release stating it will not appeal the court decision invalidating the rule.

As a result, the Company did not record any associated emissions compliance obligations as of December 31, 2023.

The Oregon Department of Environmental Quality announced its intent to begin the process to reinstate the Climate Protection Program in the first quarter of 2024 and expects the process to take about 12 months.

As directed by the Climate Commitment Act, in September 2022, the Washington DOE published its final rule on the Climate Commitment Act, which was effective on October 30, 2022, and emissions compliance began on January 1, 2023.

The Company must demonstrate that they have met GHG emissions reduction goals through a combination of on-site emissions reductions and the use of approved allowances and offsets.

Emissions compliance may be achieved through increased energy efficiency and conservation measures, purchased allowances and offsets, and purchases of low carbon fuels.

Emissions allowances are allocated by the Washington DOE to the Company at no cost and additional allowances are required to be purchased at auction.

Auctions for allowances are held quarterly.

The Company intends to meet the first compliance period requirements, in part, by purchasing allowances through auction.

The Company expects compliance costs for these regulations will be recovered through customer rates.

Due to the timing of regulatory recovery, the purchase of allowances could impact the Company's operating cash flow.

For more information about this rule and associated compliance costs, see Items 1 and 2 - Business Properties.

MDU Resources Group, Inc.

Cascade's 2023 Washington integrated resource plan projects customer bills could increase substantially as a result of the legislation.

In 2023, related to this legislation, the Company recorded a liability of $66.8 million for environmental compliance obligations and received proceeds of $62.0 million from the sale of the allocated allowances.

Projected customer bill impacts are estimates, subject to change as the legislation is implemented and compliance costs begin, as well as, numerous assumptions used in the complex analysis of integrated resource planning.

On October 14, 2022, the Company filed a request for the use of deferred accounting for costs related to the rule and began deferring those costs.

The WUTC approved the deferred accounting order on February 28, 2023.

• On April 22, 2022, the Washington State Building Code Council approved revisions to the state's commercial energy code that will significantly limit the use of natural gas for space and water heating in new and retrofitted commercial and multifamily buildings and proposed the review of similar restrictions in the future for residential buildings.

On November 4, 2022, the Washington State Building Code Council adopted new residential codes requiring gas or electric heat pumps for most new space and water heating installations.

The Company continues to assess the impact of these revisions.

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

Strategy and challenges The pipeline segment provides natural gas transportation, underground storage and non-regulated cathodic protection services, as discussed in Items 1 and 2 - Business Properties.

The Company, along with two other local natural gas distribution companies in Washington, filed a lawsuit on May 22, 2023, challenging these amendments which the Company believes will stifle innovation, increase the cost of housing and energy for our customers, and do not consider the limitations of electric heat pumps in colder climates.

On June 1, 2023, the plaintiffs filed a motion for a preliminary injunction to preliminarily enjoin the challenged building code amendments.

Oral arguments on the preliminary injunction were held on July 18, 2023.

The court denied the preliminary injunction, finding no immediate harm and confirming the building code amendments were not yet in effect due to the stay of 120 days issued by the Washington State Building Code Council.

On September 15, 2023, the Washington State Building Code Council voted to delay the implementation of the State Building and Energy Codes until March 15, 2024.

Strategy and challenges The pipeline segment provides natural gas transportation, underground storage and non-regulated energy-related services, as discussed in Items 1 and 2 - Business Properties.

The segment focuses on utilizing its extensive expertise in the design, construction and operation of energy infrastructure and related services to increase market share and profitability through optimization of existing operations, organic growth and investments in energy-related assets within or in close proximity to its current operating areas.

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and expansion of energy-related services leveraging on its core competencies.

In support of this strategy, the North Bakken Expansion project in western North Dakota was placed in service in February of 2022.

In support of this strategy, the Company completed the following organic growth projects in 2022 and 2023:

• In February 2022, the North Bakken Expansion project in western North Dakota was placed in service.

The project has capacity to transport 250 MMcf of natural gas per day and can be increased to 625 MMcf per day with additional compression.

In addition, the Line Section 7 Expansion project was placed in service in August of 2022 and increased system capacity by 6.7 MMcf per day.

The segment is exposed to energy price volatility which is impacted by the fluctuations in pricing, production and basis differentials of the energy market's commodities.

• In August 2022, the Line Section 7 Expansion project was placed in service and increased system capacity by 6.7 MMcf per day.

• In November 2023, the Grasslands South Expansion project was placed in service.

The project increased system capacity by 94 MMcf of natural gas per day.

• In November 2023, the Line Section 15 Expansion project was placed in service and increased system capacity by 25 MMcf of natural gas per day.

The segment is exposed to natural gas and oil price volatility including fluctuations in basis differentials.

Legislative and regulatory initiatives on increased pipeline safety regulations and environmental matters such as the reduction of methane emissions could also impact the price and demand for natural gas.

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The segment reviews and secures existing permits and easements, as well as new permits and easements as necessary, to meet current demand and future growth opportunities on an ongoing basis.

The Company has continued to actively manage the national supply chain challenges being faced by working with its manufacturers and suppliers to help mitigate some of these risks on its business.

The Company continues to actively manage the national supply chain challenges being faced by working with its manufacturers and suppliers to help mitigate some of these risks on its business.

The segment regularly experiences extended lead times on raw materials that are critical to the segment's construction and maintenance work which could delay maintenance work and construction projects potentially causing lost revenues and/or increased costs.

The Company is partially mitigating these challenges by planning for extended lead times further in advance.

The segment is also currently experiencing inflationary pressures with increased raw material costs.

The Company expects supply chain challenges and inflationary pressures to continue in 2023.

However, supply chain challenges related to electrical equipment have delayed the anticipated in-service date of one of the Company's growth projects as noted in the Outlook section.

The segment is also currently experiencing inflationary pressures with increased raw material and contract services costs.

The Company expects supply chain challenges and inflationary pressures to continue.

The segment focuses on the recruitment and retention of a skilled workforce to remain competitive and provide services to its customers.

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Operation and maintenance 70.8 60.9 61.3 16 % (1) %

Depreciation, depletion and amortization 26.9 20.5 21.7 31 % (6) %

Depreciation and amortization

26.8 26.9 20.5 — % 31 %

Taxes, other than income 10.8 12.3 12.7 (12) % (3) %

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Income tax expense 12.4 10.5 9.7 18 % 8 %

Income from continuing operations

$ 47.4 $ 36.2 $ 41.1 31 % (12) %

Discontinued operations, net of tax*

$ (.5) $ (.9) $ (.2) (44) % NM

Net income $ 46.9 $ 35.3 $ 40.9 33 % (14) %

*Discontinued operations includes interest on debt facilities repaid in connection with the Knife River separation.

NM - not meaningful

Operating statistics

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Transportation volumes (MMdk) 567.2 482.9 471.1

Natural gas gathering volumes (MMdk) — — 8.6

Customer natural gas storage balance (MMdk):

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End of period 37.7 21.2 23.0

2023 compared to 2022 Pipeline earnings increased $11.6 million as a result of:

• Revenues increased $22.0 million.

◦ Driven by increased transportation volumes, largely due to:

▪ Increased contracted volume commitments and a full year of benefit from the North Bakken Expansion project of $9.9 million.

▪ Increased transportation volumes and demand revenue from other organic growth projects placed in service in November 2023 and August 2022.

◦ New rates effective August 1, 2023 of $5.0 million.

◦ Higher storage-related revenues.

◦ Higher non-regulated project revenues of $2.6 million.

◦ Partially offsetting these increases was non-renewal of certain contracts.

• Operation and maintenance increased $9.9 million.

◦ Primarily due to:

▪ Higher payroll-related costs of $6.9 million, largely related to higher incentive accruals and benefit-related costs.

▪ Higher non-regulated project costs of $1.2 million directly associated with higher non-regulated project revenues, as previously discussed.

▪ Higher contract services and insurance costs.

• Depreciation and amortization decreased $100,000 due to fully depreciated plant, largely offset by higher plant balances associated with growth projects placed in-service, as previously discussed.

• Taxes, other than income decreased $1.5 million largely resulting from lower property taxes in Montana.

• Other income increased $2.6 million, primarily due to:

◦ Higher returns on the Company's nonqualified benefit plan investments, as discussed in Note 9.

◦ Higher AFUDC of $800,000 for the construction of the company's growth projects.

• Interest expense in continuing operations increased $3.2 million, resulting from higher average interest rates and higher debt balances to fund capital expenditures, partially offset by higher AFUDC, as previously discussed.

• Income tax expense in continuing operations increased $1.9 million, largely due to higher income before income taxes, partially offset by permanent tax adjustments.

MDU Resources Group, Inc.

2022 compared to 2021 Pipeline earnings decreased $5.6 million as a result of:

2 unchanged sentences

◦ Partially offset by:

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

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

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

4 unchanged sentences

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

• Depreciation, depletion and amortization increased $6.4 million due to increased property, plant and equipment balances, largely related to the North Bakken Expansion project.

• Depreciation and amortization increased $6.4 million due to increased property, plant and equipment balances, largely related to the North Bakken Expansion project.

• Taxes, other than income decreased $400,000 resulting from lower property taxes of $700,000 in Montana, partially offset by higher property taxes in North Dakota.

2 unchanged sentences

◦ Lower returns on the Company's nonqualified benefit plan investments, as discussed in Note 9.

• Interest expense increased $4.3 million, resulting from interest associated with higher debt balances to fund capital expenditures and lower AFUDC as a result of the North Bakken Expansion project placed in service in February 2022.

• Income tax expense increased $600,000, largely a result of a reduction in tax credits, partially offset by lower income before income taxes.

MDU Resources Group, Inc.

2021 compared to 2020 Pipeline earnings increased $3.9 million as a result of:

• Revenues decreased $1.3 million.

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

◦ Partially offset by:

▪ Increased transportation volumes and demand revenue of $1.8 million largely from organic growth projects, as previously discussed, and short-term discounted contracts.

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

• Operation and maintenance increased $1.4 million due to:

◦ The absence of the gain on sale of the Company's natural gas gathering assets of $1.5 million in 2020, offset partially by lower operating expenses related to the natural gas gathering assets.

◦ Partially offset by lower payroll-related costs.

• Depreciation, depletion and amortization decreased $1.2 million.

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

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

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

• Other income increased $6.5 million.

◦ Primarily due to:

▪ Higher AFUDC of $7.3 million for the construction of the North Bakken Expansion project.

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

◦ Partially offset by:

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

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

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

• Interest expense decreased $600,000.

◦ Primarily due to:

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

▪ Lower average interest rates.

◦ Partially offset by higher debt balances.

• Income tax expense increased $1.9 million.

◦ Largely a result of:

▪ Higher income before income taxes.

▪ The absence of the reversal of excess deferred taxes of $1.5 million associated with the sale of the Company's gas gathering assets in 2020.

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

• Interest expense in continuing operations increased $3.4 million, resulting from interest associated with higher debt balances to fund capital expenditures and lower AFUDC as a result of the North Bakken Expansion project placed in service in February 2022.

• Income tax expense in continuing operations increased $800,000, largely a result of a reduction in tax credits, partially offset by lower income before income taxes.

Outlook The Company continues to monitor and assess the potential impacts of two FERC draft policy statements issued in the first quarter of 2022.

3 unchanged sentences

The second draft policy statement, the Interim GHG Policy Statement, explains how the FERC will assess the impacts of natural gas infrastructure projects on climate change in its reviews under the National Environmental Policy Act and Natural Gas Act.

The Company has reviewed the income tax provisions of the IRA signed into law in August 2022 and does not expect any material income tax benefits as a result.

The Company has also evaluated the impacts of the methane emissions charge imposed under the IRA legislation and does not expect any material fees given the current GHG reporting thresholds.

The Company continues to monitor, evaluate and implement additional GHG emissions reduction strategies, including increased monitoring frequency and emission source control technologies to minimize potential risk.

The EPA recently proposed additional rules to update, strengthen and expand standards intended to significantly reduce GHG emissions and other air pollutants from the oil and natural gas industries.

The standards will apply to natural gas compressors, pneumatic controllers and pumps, fugitive emissions components and super-emitter events.

The EPA projects the final rules will be issued in August 2023.

Additionally, the EPA anticipates revising the current GHG reporting rules to incorporate provisions in the IRA.

These revisions are anticipated to be issued in April 2023.

On December 2, 2023, the EPA issued a prepublication version of its final rule to update, strengthen and expand standards intended to significantly reduce GHG emissions and other air pollutants from emission sources in the oil and natural gas industries.

The standards will apply to various sources of GHG emissions including natural gas compressors, process controllers, natural gas driven pumps, storage vessels, natural gas wells, fugitive emissions components and super-emitter events.

The final rule has not been published in the Federal Register to date.

Additionally, the EPA is revising the current GHG reporting rules to improve the calculation, monitoring and reporting of GHG data and incorporate provisions from the IRA.

The first of these revisions was published in the Federal Register on August 1, 2023.

The Company continues to monitor and assess the proposed rules and the potential impacts they may have on its business processes, current and future projects, results of operations and disclosures.

1 unchanged sentence

The completion of organic growth projects has contributed to higher volumes of natural gas the Company transports through its system.

Associated natural gas production in the Bakken fell during the COVID-19 pandemic delaying previously

46 MDU Resources Group, Inc.

forecasted production growth.

Natural gas production has rebounded to pre-pandemic levels and drilling rig activities have increased, and the Company expects continued gradual increases over the next 2 years.

The production delay, along with long-term contractual commitments on the North Bakken Expansion project placed in service in February 2022, has negatively impacted customer renewals of certain contracts.

Associated natural gas production in the Bakken fell during the COVID-19 pandemic delaying previously forecasted production growth.

The production delay, along with the long-term contractual commitments on the North Bakken Expansion project placed in service in February 2022, negatively impacted customer renewal of certain contracts.

Natural gas production has since rebounded, and is currently at record levels and the Company expects gradual increases in oil well drilling activity over the next two years.

Bakken natural gas production outlook remains positive with continued growth expected due to new oil wells and increasing gas to oil ratios.

Increases in national and global natural gas supply has moderated pressure on natural gas prices and price volatility.

While the Company believes there will continue to be varying pressures on natural gas production levels and prices, the long-term outlook for natural gas prices continues to provide growth opportunity for industrial supply-related projects and seasonal pricing differentials provide opportunities for storage services.

While the Company believes there will continue to be varying pressures on natural gas production levels and prices, the long-term outlook for natural gas prices continues to provide growth opportunity for industrial supply and demand related projects and seasonal pricing differentials provide opportunities for natural gas storage services.

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

46 MDU Resources Group, Inc.

In July 2021, the Company announced plans for a natural gas pipeline expansion project in eastern North Dakota.

The Wahpeton Expansion project consists of approximately 60 miles of pipe and ancillary facilities and is designed to increase capacity by 20 MMcf per day, which is supported by long-term customer agreements with Montana-Dakota and its utility customers.

Construction is expected to begin in early 2024, depending on regulatory approvals, with an anticipated completion date later in 2024.

On May 27, 2022, the Company filed with FERC its application for the project and received FERC's draft environmental impact statement for the project on November 3, 2022.

In accordance with the FERC schedule for environmental review on the project, the final environmental impact statement is planned to be available in April 2023.

On May 27, 2022, the Company filed with FERC its application for the project and received FERC's approval on October 19, 2023.

Construction is anticipated to begin in the second quarter of 2024 with an estimated completion in late 2024.

On September 19, 2022, the Company filed with the FERC its prior notice application for its 2023 Line Section 27 expansion project.

This project consists of a new compressor station and ancillary facilities and is designed to increase capacity by 175 MMcf per day, which is supported by a long-term customer agreement.

Construction is expected to begin in early 2023, pending regulatory approvals, with an anticipated completion date in late 2023.

On December 22, 2022, the Company filed with the FERC its prior notice application for its Grasslands South Expansion project.

This project consists of approximately 15 miles of pipe in western North Dakota, utilizing existing capacity on its Grasslands Subsystem to a new connection with Big Horn Gas Gathering, LLC in northeastern Wyoming and ancillary facilities in North Dakota and Wyoming.

A long-term customer agreement supports a design for incremental capacity of 94 MMcf per day.

Construction is expected to begin in the second quarter of 2023, pending regulatory approvals, with an anticipated completion date in late 2023.

In addition, the Company has entered into long-term customer agreements for the construction of a fourth growth project with incremental natural gas design capacity anticipated to be 25 MMcf per day.

The project is dependent on regulatory approvals and anticipated to be completed in 2023.

See Capital Expenditures within this section for additional information on the expenditures related to these projects.

Construction Materials and Contracting

Strategy and challenges The segment is a leading aggregates-based construction materials and contracting services provider in the United States, as discussed in Items 1 and 2 - Business Properties.

The segment focuses on continued growth and maximizing its vertical integration, leveraging its core values to be a supplier of choice in all its markets.

The segment is also focused on its commitment to its employees, customers and communities by operating with integrity and always striving for excellence;

development and recruitment of talented employees;

sustainable practices to create value for the communities it serves;

being the provider of choice in midsize, high-growth markets;

strengthening the long-term, strategic aggregate reserve position through available purchase and/or lease opportunities in existing and new geographies;

and enhancing its supply chain to provide reliable, timely and efficient services to its end customers.

As previously discussed, the Company is pursuing a tax-free spinoff of the construction materials and contracting segment, and the separation is expected to be complete in the second quarter of 2023.

The segment is one of the leading producers of crushed stone and sand and gravel, and the segment continues to strategically manage its aggregate reserves, as well as take further advantage of being vertically integrated.

The segment's vertical integration allows it to manage operations from aggregate mining to final lay-down of concrete and asphalt, with control of and access to permitted aggregate reserves being significant.

The Company's aggregate reserves are naturally declining and as a result, the Company seeks permit expansion and acquisition opportunities to replace the reserves.

The segment's management continually monitors its margins and has been proactive in applying strategies to address the inflationary impacts seen across the United States.

The Company has increased its product pricing where necessary and continues to implement cost savings initiatives to mitigate these effects on the segment's gross margin.

Due to existing contractual provisions, there can be a lag between the announced price increases and the time when they can be fully recognized.

The Company will continue to evaluate further price increases on a regular cadence to stay ahead of inflationary pressures and enhance stockholder value.

The segment operates in geographically diverse and competitive markets yet strives to maximize efficiencies, including transportation costs and economies of scale, to maintain strong margins.

The segment's margins can experience negative pressure from competition, as well as impacts of the volatility in the cost of raw materials such as fuel, asphalt oil, cement and steel, with fuel and asphalt oil costs having the most significant impact on

MDU Resources Group, Inc.

the segment's recent results.

Such volatility and inflationary pressures may continue to have an impact on the segment's margins, including fixed-price construction contracts that are particularly vulnerable to the volatility of energy and material prices.

These increases are partially offset by mitigation measures implemented by the Company, including price increases, escalation clauses in contracting services contracts, pre-purchased materials and other cost savings initiatives.

While the Company has experienced some supply chain constraints, it continues to have good relationships with its suppliers and has not experienced any material adverse impacts of shortages or delays on materials.

Other variables that can impact the segment's margins include adverse weather conditions, the timing of project starts or completions and declines or delays in new and existing projects due to the cyclical nature of the construction industry and governmental infrastructure spending.

Accordingly, operating results in any particular period may not be indicative of the results that can be expected for any other period.

As a people first company, the segment continually takes steps to address the challenge of recruitment and retention of employees.

In order to help attract new workers to the construction industry and enhance the skills of its current employees, the Company has completed construction of a corporate-wide, state-of-the-art training facility in the Pacific Northwest.

The training facility offers hands-on training for heavy equipment operators and truck drivers, as well as leadership and safety training.

Trends in the labor market include an aging workforce and availability issues, and most of the markets the segment operates in have experienced labor shortages, largely truck drivers, causing increased labor-related costs and delays or inefficiencies on projects.

The new training facility is expected to help address some of these challenges.

The Company continues to monitor the labor markets and assess additional opportunities to enhance and support its workforce.

Despite these efforts, the Company expects labor costs to continue to increase based on the increased demand for services and, to a lesser extent, the recent escalated inflationary environment in the United States.

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

Years ended December 31, 2022 2021 2020 % change % change

(In millions)

Operating revenues $ 2,534.7 $ 2,228.9 $ 2,178.0 14 % 2 %

Cost of sales:

Operation and maintenance* 2,009.6 1,737.4 1,676.6 16 % 4 %

Depreciation, depletion and amortization 112.9 96.8 84.8 17 % 14 %

Taxes, other than income 51.3 47.7 46.0 8 % 4 %

Total cost of sales 2,173.8 1,881.9 1,807.4 16 % 4 %

Gross profit 360.9 347.0 370.6 4 % (6) %

Selling, general and administrative expense:

Operation and maintenance* 155.8 146.0 146.4 7 % — %

Depreciation, depletion and amortization 4.9 4.2 4.8 17 % (13) %

Taxes, other than income 5.9 5.7 4.9 4 % 16 %

Total selling, general and administrative expense 166.6 155.9 156.1 7 % — %

Operating income 194.3 191.1 214.5 2 % (11) %

Other income (expense) (5.4) 1.3 .8 (515) % 63 %

Interest expense 30.1 19.2 20.6 57 % (7) %

Income before income taxes 158.8 173.2 194.7 (8) % (11) %

Income tax expense 42.6 43.4 47.4 (2) % (8) %

Net income $ 116.2 $ 129.8 $ 147.3 (10) % (12) %

* The Company identified certain costs that were reclassified from cost of sales to selling, general and administrative expenses in 2021 and 2020 of $57.4 million and $56.5 million, respectively, and had no impact to net income.

Operating statistics Revenues Gross profit

2022 2021 2020 2022 2021 2020

(In millions)

Aggregates $ 496.6 $ 444.0 $ 406.6 $ 69.6 $ 60.6 $ 62.7

Asphalt 427.5 339.8 349.9 41.7 40.4 45.5

Ready-mix concrete 609.5 584.4 547.0 85.9 81.5 74.4

Other products* 407.3 344.3 356.3 63.6 64.0 82.6

Contracting services 1,187.7 1,017.5 1,069.7 100.1 100.5 105.4

Intracompany eliminations (593.9) (501.1) (551.5) — — —

$ 2,534.7 $ 2,228.9 $ 2,178.0 $ 360.9 $ 347.0 $ 370.6

* Other products includes cement, asphalt oil, merchandise, fabric, spreading and other products that individually are not considered to be a major line of business for the segment.

48 MDU Resources Group, Inc.

2022 2021 2020

Sales (thousands):

Aggregates (tons) 33,994 33,518 30,949

Asphalt (tons) 7,254 7,101 7,202

Ready-mix concrete (cubic yards) 4,015 4,267 4,087

Average sales price:

Aggregates (per ton) $ 14.61 $ 13.25 $ 13.14

Asphalt (per ton) $ 58.93 $ 47.86 $ 48.58

Ready-mix concrete (per cubic yard) $ 151.80 $ 136.94 $ 133.86

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

• Revenues increased $305.8 million.

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

◦ Also impacting materials revenues were:

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

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

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

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

▪ Increased contracting revenues of $170.2 million across most regions as a result of more available agency and commercial work, recent acquisitions contributing $27.9 million and more available paving work in Idaho, Minnesota, Montana, North Dakota and Wyoming.

In addition, inflationary pressures led to higher contract values in all regions.

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

• Gross profit increased $13.9 million.

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

◦ Partially offset by higher operating costs across the business, mostly the result of inflationary pressures.

These costs include higher asphalt oil costs of $59.3 million;

higher labor costs of $32.0 million;

higher fuel costs of $42.6 million;

and higher cement costs of $20.7 million.

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

◦ Largely the result of:

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

▪ Increased travel expenses of $2.3 million.

▪ Increased office expenses of $1.7 million.

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

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

▪ Increased safety and training costs.

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

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

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

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

MDU Resources Group, Inc.

2021 compared to 2020 Construction materials and contracting's earnings decreased $17.5 million as a result of:

• Revenues increased $50.9 million.

◦ Largely the result of:

▪ Higher aggregate sales volumes from acquisitions in 2021 contributed $20.1 million and strong demand for airport, commercial and health care work in Oregon added $16.3 million.

Also contributing was an additional $1.6 million due to a few large projects in South Dakota.

These increases were partially offset by lower volumes in Texas of $2.0 million driven by lower energy-related sales volumes.

▪ Higher ready-mix concrete volumes from increased commercial and residential demand in Texas contributed $8.2 million, strong demand in Oregon added $7.8 million and acquisitions in 2021 contributed an additional $4.5 million.

Ready-mix concrete revenues also benefited from an increase in average sales price in all regions.

These increases were partially offset by decreased sales of $14.8 million due to lower demand in Hawaii as a result of the overall slowdown of the travel industry from COVID-19.

◦ Partially offset by:

▪ Decreased contracting revenues partially due to less available paving work in certain regions of $60.0 million and the absence of a few large jobs in 2020 of $17.5 million.

These decreases were offset in part by strong demand for health care, agency and commercial work in Oregon of $28.8 million.

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

• Gross profit decreased $23.6 million.

◦ Primarily due to:

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

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

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

▪ Lower contracting services gross profit resulting from less available paving work of $8.6 million, as previously discussed, and the absence of a few large jobs for $5.4 million.

Margins were also impacted by higher fuel costs, as previously discussed.

▪ Lower aggregates gross profit resulting from reduced work in Hawaii due to the overall slowdown of the travel industry resulting from COVID-19 of $3.9 million, startup costs of $1.3 million associated with new aggregate sites in Texas and $600,000 higher material costs in Alaska.

These decreases were partially offset by higher margins due to strong demand in Oregon of $2.1 million and South Dakota of $1.4 million along with the effects of recent acquisitions.

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

◦ Partially offset by an increase in ready-mix concrete gross profit of $7.1 million due in part to higher average pricing in all regions and higher volumes in most regions.

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

◦ Largely the result of:

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

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

◦ Offset in part by:

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

▪ Higher acquisition costs of $700,000.

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

• Other income increased $500,000, primarily resulting from an out-of-period adjustment in 2020 as a result of previously overstated benefit plan expenses.

• Interest expense decreased $1.4 million.

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

◦ Offset in part by higher average debt balances.

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

Outlook In August 2022, the Company announced its intent to separate this segment into a standalone publicly traded company.

The separation is expected to result in two independent, publicly traded companies:

(1) MDU Resources Group, Inc., the existing company and (2) Knife River, a construction materials and contracting services company.

The separation is expected to be completed in the second quarter of 2023 and is expected to unlock inherent value within the two companies, which each have unique growth prospects and investment opportunities.

The Company may, at any time and for any reason until the proposed transaction is complete, abandon the separation or modify or change its terms.

For a complete discussion of all of the conditions to and the risks and uncertainties associated with the separation and distribution, see Item 1A - Risk Factors.

50 MDU Resources Group, Inc.

Funding for public projects is dependent on federal and state funding, such as appropriations to the Federal Highway Administration.

The American Rescue Plan Act enacted in the first quarter of 2021 provides $1.9 trillion in COVID-19 relief funding for states, schools and local governments.

States are beginning to move forward with allocating these funds based on federal criteria and state needs, and in some cases, funding of infrastructure projects could positively impact the segment.

Additionally, the bipartisan infrastructure proposal, known as the IRA, was enacted in the fourth quarter of 2021 and is providing long-term opportunities by designating $119 billion for the repair and rebuilding of roads and bridges across the Company's footprint.

In addition, the IRA provides $369 billion in new funding for clean energy programs.

These programs include new tax incentives for solar, battery storage and hydrogen development along with funding to expand the production of electric vehicles and the build out of infrastructure to support electric vehicles.

In addition to federal funding, 11 out of the 14 states in which the Company operates have implemented their own funding mechanisms for public projects, including projects related to highways, airports and other public infrastructure.

The Company continues to monitor the progress of these legislative items.

The segment's vertically integrated aggregates-based business model provides the Company with the ability to capture margin throughout the sales delivery process.

The aggregate products are sold internally and externally for use in other products such as ready-mix concrete, asphaltic concrete and public and private construction markets.

The contracting services and construction materials are sold in connection with street, highway and other public infrastructure projects, as well as private commercial, industrial and residential development projects.

The public infrastructure projects have traditionally been more stable markets as public funding is more secure during periods of economic decline.

The public projects are, however, dependent on federal and state funding such as appropriations to the Federal Highway Administration.

Spending on private development is highly dependent on both local and national economic cycles, providing additional sales during times of strong economic cycles and potential for reductions during recessionary periods.

During 2022 and 2021, the Company made strategic purchases and completed acquisitions that support the Company's long-term strategy to expand its market presence in the higher-margin materials markets.

The Company continues to evaluate additional acquisition opportunities.

For more information on the Company's business combinations, see Item 8 - Note 4.

In 2022, the Company is upgrading its prestress facility located in Spokane, Washington.

The state-of-the-art facility is expected to be completed during the first half of 2023.

The facility is expected to be a platform for growth through improved productivity and quality, which will help meet strong market demand for prefabricated concrete solutions.

The construction materials and contracting segment's backlog remained strong at December 31, 2022, at $935 million, as compared to backlog at December 31, 2021, of $708 million.

A significant portion of the Company's backlog at December 31, 2022, relates to publicly funded projects, largely street and highway construction projects, which are primarily driven by public work projects for state departments of transportation.

Period over period increases or decreases in backlog cannot be used as an indicator of future revenues or net income.

Of the $935 million of backlog at December 31, 2022, the Company expects to complete an estimated $836 million during 2023.

While the Company believes the current backlog of work remains firm, prolonged delays in the receipt of critical supplies and materials or continued increases to pricing could result in customers seeking to delay or terminate existing or pending agreements.

Factors noted in Item 1A - Risk Factors can cause revenues to be realized in periods and at levels that are different from originally projected.

Construction began in the second quarter of 2023, with an anticipated completion date in the first quarter of 2024.

Supply chain challenges related to electrical equipment have impacted the project's schedule, resulting in a delay from the original anticipated in-service date of late 2023.

Construction is expected to begin in the second quarter of 2024 on the Line Section 28 expansion project, to serve a natural gas-fired power plant in northwestern North Dakota which will add 137 million cubic feet of natural gas transportation capacity per day.

This project is supported by a long-term negotiated customer agreement and is expected to be in service in the third quarter of 2024.

See Capital Expenditures within this section for information on the expenditures related to these growth projects.

Construction Services

Strategy and challenges The construction services segment provides electrical and mechanical and transmission and distribution specialty contracting services, as discussed in Items 1 and 2 - Business Properties.

Strategy and challenges The construction services segment provides electrical, mechanical and transmission and distribution specialty contracting services, as discussed in Items 1 and 2 - Business Properties.

The construction services segment focuses on safely executing projects;

11 unchanged sentences

Larger or more complex projects typically result in higher margin opportunities since the segment assumes a higher degree of performance risk and there is greater utilization of the segment's resources for longer construction timelines.

However, larger or more complex projects have a higher risk of regulatory and seasonal or cyclical delay.

However, larger or more complex projects can have a higher risk of regulatory and seasonal or cyclical delay.

Project schedules fluctuate, which can affect the amount of work performed in a given period.

Smaller or less complex projects typically have a greater number of companies competing for them, and competitors at times may be more aggressive when pursuing available work.

Smaller or less complex projects typically have a greater number of companies competing for them, and competitors at times may be more aggressive on pricing when pursuing available work.

A greater percentage of smaller scale or less complex work in a given period could negatively impact margins due to the inefficiency of transitioning between a greater number of smaller projects versus continuous production on a few larger projects.

7 unchanged sentences

environmental restrictions or regulatory delays;

political or legal challenges related to a

MDU Resources Group, Inc.

political or legal challenges related to a project;

and the performance of third parties.

In addition, the type of contract can impact the margin on a project.

Under fixed-price contracts, which are more common with larger or more complex projects, the segment assumes risk related to project estimates versus execution.

Under fixed-price contracts, which are more common with larger or more complex projects, the segment assumes risk related to project estimates versus actual execution.

Revenues under this type of contract can vary, sometimes significantly, from original projects due to additional project complexity;

7 unchanged sentences

The Company has worked to implement provisions in project contracts to allow for the pass-through of inflationary costs to customers where feasible and will continue to do so to mitigate the impacts.

The segment's management continually monitors its operating margins and has been proactive in addressing the inflationary impacts seen across the United States.

The segment is currently experiencing continued labor constraints and increased fuel and material costs, as well as impacts from delays in the national supply chain.

MDU Resources Group, Inc.

The segment's management continually monitors its operating margins and has been proactive in attempting to mitigate the inflationary impacts seen across the United States.

The segment is currently experiencing continued labor constraints and material costs, as well as impacts from delays in the national supply chain.

The segment is working with suppliers and providers of goods and services in advance of construction to secure pricing and reduce delays for goods and services.

3 unchanged sentences

The segment also continues recruitment and retention efforts to attract and retain employees.

The Company expects these inflationary pressures and national supply chain challenges to continue.

Accordingly, operating results in any particular period may not be indicative of the results that can be expected for any other period.

The need to ensure available specialized labor resources for projects also drives strategic relationships with customers and project margins.

These trends include an aging workforce and labor availability issues, as well as increasing duration and complexity of customer capital programs.

Challenges faced by the Company to ensure available specialized labor resources include an aging workforce and labor availability issues, as well as increasing duration and complexity of customer capital programs.

Most of the markets the segment operates in have experienced labor shortages which in some cases have caused increased labor-related costs.

1 unchanged sentence

Due to these and other factors, the Company believes overall customer and competitor demand for labor resources will continue to increase.

In order to meet customer demand, the Company is planning for future labor needs, increasing recruiting efforts and developing labor both locally and nationally.

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

4 unchanged sentences

Operation and maintenance 2,426.1 2,325.9 1,725.5 4 % 35 %

Depreciation, depletion and amortization 16.9 15.8 15.7 7 % 1 %

Depreciation and amortization

18.3 16.9 15.8 8 % 7 %

Taxes, other than income 88.1 80.4 62.4 10 % 29 %

3 unchanged sentences

Operation and maintenance 121.4 101.5 92.9 20 % 9 %

Depreciation, depletion and amortization 4.6 4.5 7.8 2 % (42) %

Depreciation and amortization

4.9 4.6 4.5 7 % 2 %

Taxes, other than income 5.1 5.3 4.8 (4) % 10 %

3 unchanged sentences

Interest expense

10.1 .2 (.1) NM NM

Income before income taxes 189.4 171.7 148.4 10 % 16 %

Income tax expense 47.0 42.2 36.2 11 % 17 %

Income from continuing operations

142.4 129.5 112.2 10 % 15 %

Discontinued operations, net of tax*

(5.2) (4.7) (2.8) 11 % 68 %

Net income $ 137.2 $ 124.8 $ 109.4 10 % 14 %

*Discontinued operations includes interest on debt facilities repaid in connection with the Knife River separation.

NM - not meaningful

48 MDU Resources Group, Inc.

Operating Statistics

Revenues Gross profit

Revenues Gross profit (loss)

Business Line 2023 2022 2021 2023 2022 2021

16 unchanged sentences

◦ Largely due to:

▪ Increased electrical and mechanical revenues as a result of:

◦ Higher commercial revenues driven largely by a $102.2 million increase in hospitality projects and $49.9 million in data center projects, both due to higher workloads, partially offset by lower general commercial and mechanical workloads of $23.0 million.

◦ Higher industrial revenues on high-tech and government projects of $66.4 million and $15.5 million, respectively, partially offset by lower industrial and low voltage projects of $12.9 million.

◦ Institutional revenues increased $46.8 million, largely the result of higher project workloads in the healthcare market.

▪ Increased transmission and distribution revenues as a result of higher utility workloads for distribution projects of $71.0 million, transmission projects of $26.0 million, and gas and underground projects of $25.1 million.

These increases were largely offset by lower workloads on electrical projects of $94.6 million.

◦ Partially offset by:

▪ Lower renewable revenues of $95.7 million due to timing of projects.

▪ Lower transportation revenues of $15.2 million, primarily from lower workloads on street lighting, government, and electrical projects.

These decreases were partially offset by higher traffic signalization projects.

• Gross profit increased $45.9 million.

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

◦ Increased also as a result of margin improvement due to project mix and efficiency in labor and materials costs compared to the prior year.

• Selling, general and administrative expense increased $20.0 million resulting from higher payroll-related costs of $7.3 million, higher reserves for uncollectible accounts on certain projects of $6.0 million, increased office expense, and higher professional services related to operational activity.

• Other income increased $1.7 million, primarily related to the Company's joint ventures.

• Interest expense in continuing operations increased $9.9 million due to higher working capital needs and higher interest rates.

• Income tax expense in continuing operations increased $4.8 million as a result of higher income before income taxes.

MDU Resources Group, Inc.

2022 compared to 2021 Construction services earnings increased $15.4 million as a result of:

• Revenues increased $647.6 million.

◦ Largely due to:

▪ Increased electrical and mechanical revenues, partially as a result of inflationary pressures as well as:

12 unchanged sentences

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

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

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

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

• Revenues decreased $44.1 million.

◦ Largely due to:

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

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

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

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

◦ Partially offset by:

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

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

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

MDU Resources Group, Inc.

• Gross profit decreased $10.4 million.

◦ Largely due to:

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

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

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

◦ Partially offset by:

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

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

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

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

◦ Largely due to:

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

▪ Lower amortization expense of $3.2 million.

◦ Offset in part by:

▪ Higher office expenses of $1.3 million.

▪ Increased payroll-related costs.

• Other income increased $600,000, largely related to increased earnings on investments.

• Interest expense decreased $600,000, largely related to decreased debt balances due to lower working capital needs and increased cash collections.

• Income tax expense decreased $400,000 as a result of lower income before income taxes.

Outlook Funding for public projects is highly dependent on federal and state funding, such as appropriations to the Federal Highway Administration.

• Interest expense in continuing operations increased $300,000 due to higher working capital needs and higher interest rates.

• Income tax expense in continuing operations increased $6.0 million as a result of higher income before income taxes.

Outlook On November 2, 2023, the Company announced its intent to pursue a tax-free spinoff of its wholly owned construction services business, MDU Construction Services.

Some of the construction services projects are publicly funded, which is highly dependent on federal and state funding.

The American Rescue Plan provides $1.9 trillion in COVID-19 relief funding for states, schools and local government including broadband infrastructure.

6 unchanged sentences

Although bidding remains highly competitive in all areas, the Company expects the segment's relationship with existing customers, skilled workforce, quality of service and effective cost management will continue to provide a benefit in securing and executing profitable projects in the future.

The Company has also seen rapidly growing needs for services across the electric vehicle charging, wind generation and energy storage markets that complement existing renewable projects performed by the Company.

The construction services segment's backlog at December 31 was as follows:

The Company has also seen rapidly growing needs for services across the electric vehicle charging, solar generation and energy storage markets that complement existing renewable projects performed by the Company.

Backlog consists of the uncompleted portion of services to be performed under job-specific contracts.

Contracts are subject to delay, default or cancellation, and contracts in our backlog are subject to changes in the scope of services to be provided, as well as adjustments to the costs.

Backlog may also be affected by project delays or cancellations resulting from weather conditions, external market factors and economic factors beyond our control, among other things.

Accordingly, there is no assurance that backlog will be realized.

As of December 31, 2023, the Company has not experienced any material impacts related to customer notices indicating that they no longer wish to proceed with the planned projects that have been included in backlog.

The timing of contract awards, duration of large new contracts and the mix of services can significantly affect backlog.

Backlog at any given point in time may not accurately represent the revenue or net income that is realized in any period.

Also, the backlog as of the end of the year may not be indicative of the Operating revenues and Net income expected to be earned in the following year and should not be relied upon as a standalone indicator of future Operating revenues or Net income.

Factors noted in Item 1A - Risk Factors can cause revenues to be realized in periods and at levels that are different from originally projected.

50 MDU Resources Group, Inc.

Subject to the foregoing discussion, the construction services segment's backlog at December 31 was as follows:

(In millions)

2 unchanged sentences

$ 2,011 $ 2,131

The increase in backlog at December 31, 2022, as compared to backlog at December 31, 2021, was largely attributable to the new project opportunities that the Company continues to be awarded across its diverse operations, particularly within the commercial, industrial, institutional, and power utility markets.

The increases in backlog have been offset by decreases in the renewable and transportation markets due to the timing of project completions.

Period over period increases or decreases in backlog cannot be used as an indicator of future revenues or net income.

Of the $2.1 billion of backlog at December 31, 2022, the Company expects to complete an estimated $1.8 billion during 2023.

While the Company believes the current backlog of work remains firm, prolonged delays in the receipt of critical supplies and materials could result in customers seeking to delay or terminate existing or pending agreements.

As of December 31, 2022, customers have not provided the Company with any indications that they no longer wish to proceed with the planned projects that have been included in backlog.

Additionally, the Company continues to further evaluate potential acquisition opportunities that would be accretive to earnings of the Company and continue to grow the segment's backlog.

Factors noted in Item 1A - Risk Factors can cause revenues to be realized in periods and at levels that are different from originally projected.

54 MDU Resources Group, Inc.

The decrease in backlog at December 31, 2023, as compared to backlog at December 31, 2022, was largely attributable to the progress of completion on certain electrical and mechanical projects within industrial, renewables and commercial markets.

This decrease in backlog has been partially offset by an increase in transmission and distribution project awards in both the transportation and utility markets.

Years ended December 31, 2023 2022 2021 Variance Variance

3 unchanged sentences

Operation and maintenance 22.5 22.9 18.2 (2) % 26 %

Depreciation, depletion and amortization 4.4 4.6 2.7 (4) % 70 %

Depreciation and amortization

4.1 4.4 4.7 (7) % (6) %

Taxes, other than income .1 .2 — (50) % 100%

1 unchanged sentence

Operating loss (18.7) (21.7) (18.3) (14) % (19) %

Other income 1.0 .4 .4 150 % — %

Interest expense 1.5 .3 .8 400 % (63) %

Loss before income taxes (12.5) (6.1) (3.5) 105 % (74) %

Gain on tax-free exchange of retained shares in Knife River

186.6 — — NM NM

Other income (expense) 15.7 (.6) 1.1 NM (155) %

Interest expense 18.9 .3 .2 NM 50 %

Income (loss) before income taxes 164.7 (22.6) (17.4) NM (30) %

Income tax benefit (5.8) (5.4) (3.1) 7 % (74) %

Net loss $ (11.3) $ (5.9) $ (3.1) (93) % (90) %

Included in Other is insurance activity at the Company's captive insurer and general and administrative costs and interest expense previously allocated to the exploration and production and refining businesses that do not meet the criteria for income (loss) from discontinued operations.

During 2022, Other experienced higher operation and maintenance expense related to costs incurred of $14.4 million for the announced strategic initiatives, partially offset by a reduction in the estimated losses recorded at the captive insurer.

Income (loss) from continuing operations

170.5 (17.2) (14.3) NM (20) %

Discontinued operations, net of tax

(60.0) 122.3 138.6 (149) % (12) %

Net income $ 110.5 $ 105.1 $ 124.3 5 % (15) %

NM - not meaningful

On May 31, 2023, the Company completed the separation of Knife River, its former construction materials and contracting segment, into a new publicly traded company.

As a result of the separation, the historical results of operations for Knife River are shown in discontinued operations, net of tax, except for allocated general corporate overhead costs of the company, which do not meet the criteria for income (loss) from discontinued operations.

Also included in discontinued operations are strategic initiative costs associated with the separation of Knife River.

Also included in Other is insurance activity at the Company's captive insurer and general and administrative costs and interest expense previously allocated to the exploration and production and refining businesses that do not meet the criteria for income (loss) from discontinued operations.

In November 2023, the Company completed a tax-free exchange of its 5.7 million shares of its retained interest in Knife River, which is reflected in Other.

This tax-free exchange resulted in a gain of $186.6 million.

Other also benefited from higher interest income.

Partially offsetting these items were higher interest expense, primarily related to debt issued in connection with the Knife River separation.

Other also benefited from lower insurance claims experience in 2023 at the captive insurer compared to 2022.

During 2022, Other experienced higher operation and maintenance expense primarily related to costs that do not meet the criteria for income (loss) from discontinued operations, including costs associated with other strategic initiatives and general corporate overhead costs allocated to Knife River, partially offset by a reduction in the estimated losses recorded at the captive insurer.

Other was positively impacted by higher premiums included in operating revenues in 2022 for the captive insurer compared to 2021.

Other was negatively impacted in 2021 as a result of higher insurance claims experience at the captive insurer and depreciation expense as compared to 2020.

Premiums for the captive insurer were also higher in 2021 compared to 2020, which impacts both operating revenues and operation and maintenance expense.

Discontinued operations reflect the historical results of operations for Knife River, as previously discussed.

MDU Resources Group, Inc.

Intersegment Transactions

7 unchanged sentences

Purchased natural gas sold 62.1 58.2 58.9

Interest expense

For more information on intersegment eliminations, see Item 8 - Note 18.

Liquidity and Capital Commitments

At December 31, 2022, the Company had cash and cash equivalents of $80.5 million and available borrowing capacity of $427.3 million under the outstanding credit facilities of the Company's subsidiaries.

The Company expects to meet its obligations for debt maturing within 12 months and its other operating and capital requirements from various sources, including internally generated funds;

credit facilities and commercial paper of the Company's subsidiaries, as described later in Capital resources;

and the issuance of debt and equity securities if necessary.

MDU Resources Group, Inc.

At December 31, 2023, the Company had cash, cash equivalents and restricted cash of $77.0 million and available borrowing capacity of $525.8 million under the outstanding credit facilities of the Company and its subsidiaries.

The Company expects to meet its obligations for debt maturing within one year and its other operating and capital requirements from various sources, including internally generated funds;

credit facilities and commercial paper of the Company and its subsidiaries, as described in Capital resources;

and issuance of debt and equity securities if necessary.

Years ended December 31, 2023 2022 2021

4 unchanged sentences

Financing activities 204.6 155.2 384.7

Increase (decrease) in cash and cash equivalents 26.3 (5.4) (6.9)

Cash and cash equivalents -- beginning of year 54.2 59.6 66.5

Cash and cash equivalents -- end of year $ 80.5 $ 54.2 $ 59.6

Increase (decrease) in cash, cash equivalents and restricted cash (3.5) 26.3 (5.4)

Cash, cash equivalents and restricted cash -- beginning of year 80.5 54.2 59.6

Cash, cash equivalents and restricted cash -- end of year $ 77.0 $ 80.5 $ 54.2

Operating activities

11 unchanged sentences

Other noncurrent changes (22.8) (10.7) (51.7) (12.1) 41.0

Net cash provided by (used in) discontinued operations .2 (.3) (1.4) .5 1.1

Net cash provided by continuing operations 492.7 307.6 299.0 185.1 8.6

Net cash (used in) provided by discontinued operations (160.1) 202.4 196.8 (362.5) 5.6

Net cash provided by operating activities $ 332.6 $ 510.0 $ 495.8 $ (177.4) $ 14.2

The changes in cash flows from operating activities generally follow the results of operations as discussed in Business Segment Financial and Operating Data and are also affected by changes in working capital.

The increase in cash flows provided by operating activities from 2022 to 2021 was largely driven by higher 2022 accounts payable for natural gas purchases due to higher natural gas prices and colder weather, partially offset by the associated increased receivables from customers.

Partially offsetting the increase in cash flows provided by operating activities was higher working capital needs at the construction services business due to fluctuations in job activity resulting in higher receivables in the period, as well as lower collections of accounts receivable compared to 2021, offset in part by increased accounts payable.

In addition, higher revenues resulted in higher receivables in the period at the construction materials and contracting business.

The decrease in cash flows provided by operating activities from 2021 to 2020 was largely driven by an increase in natural gas purchases and the related unbilled revenues at the natural gas distribution business, partially offset by the associated deferred taxes and increased payables.

Also contributing to the decrease was the payment of previously deferred CARES Act taxes and the timing of income tax payments across all of the Company's businesses, as well as the timing of insurance claim payments in relation to receipt of insurance reimbursement at the construction services business.

In addition, higher asphalt oil inventory balances due to higher material costs and tank storage balances and higher aggregate inventory balances as a result of production at the businesses acquired at the construction materials and contracting business contributed to the decrease.

Partially offsetting the decrease in cash flows provided by operating activities was higher bonus depreciation related to acquisitions at construction materials and contracting business.

52 MDU Resources Group, Inc.

The changes in cash flows from operating activities generally follow the results of operations as discussed in Business Segment Financial and Operating Data and are affected by changes in working capital.

The decrease in cash flows provided by operating activities in 2023 from 2022 was largely driven by increased cash used in discontinued operations, primarily cash used at Knife River in the five months of 2023 compared to cash provided by Knife River in the twelve months of 2022 and higher costs incurred in 2023 associated with the Knife River separation.

Also contributing were the payment of increased natural gas costs and the purchase/sale of environmental allowances in 2023, as discussed in Note 7, all at the natural gas distribution business.

Partially offsetting these items was higher cash from receivables due to the timing of the job activity, billing fluctuations and higher cash collections at the construction services business and the timing of collection of accounts receivable from customers at the natural gas distribution business.

The increase in cash flows provided by operating activities in 2022 from 2021 was driven by higher 2022 accounts payable for natural gas purchases due to higher natural gas prices and colder weather at the natural gas distribution business.

In addition, an increase in cash from other current assets contributed to the improvement, largely related to a 2021 income tax overpayment that was utilized in 2022.

Partially offsetting the increase was higher working capital needs at the construction services business due to fluctuations in job activity resulting in higher receivables in the period, as well as lower collections of accounts receivable compared to 2021, offset in part by increased accounts payable.

Investing activities

3 unchanged sentences

Acquisitions, net of cash acquired — — (2.5) — 2.5

Net proceeds from sale or disposition of property and other 22.4 15.2 35.6 7.2 (20.4)

Net proceeds from sale or disposition of property 16.5 11.3 14.6 5.2 (3.3)

Cost of removal, net of salvage value 1.1 (11.8) (11.4) 12.9 (.4)

Investments 16.3 (4.1) (3.1) 20.4 (1.0)

Net cash used in continuing operations (485.8) (483.0) (487.6) (2.8) 4.6

Net cash used in discontinued operations (54.9) (155.9) (398.3) 101.0 242.4

Net cash used in investing activities $ (540.7) $ (638.9) $ (885.9) $ 98.2 $ 247.0

The decrease in cash used in investing activities from 2022 to 2021 was primarily the result of lower cash used for acquisition activity at the construction materials and contracting business, along with increased proceeds from asset sales.

The decrease in cash used in investing activities in 2023 from 2022 was primarily the result of lower cash used in discontinued operations in the five months of 2023 versus twelve months of 2022, higher proceeds from investments in 2023, and the absence of 2022 plant removal costs at the electric business.

This was partially offset by higher capital expenditures at the pipeline business for its expansion projects and increased capital expenditures at the natural gas distribution business, primarily higher natural gas distribution system improvements related to increased capacity, largely offset by lower capital expenditures for electric production and transmission projects.

The decrease in cash used in investing activities in 2022 from 2021 was primarily the result of lower cash used in discontinued operations for acquisition activity.

Decreased capital expenditures at the pipeline business as a result of the North Bakken Expansion project being placed in service in February 2022 were mostly offset by increased capital expenditures at the natural gas distribution business for higher natural gas distribution projects, including natural gas mains and meters, and at the electric business for increased electric production projects, including the construction of Heskett Unit 4 and the repower of Diamond Willow.

The increase in cash used in investing activities from 2021 to 2020 was primarily the result of higher cash used in acquisition activity at the construction materials and contracting business, partially offset by decreased acquisition activity at the construction services business.

In addition, increased capital expenditures in 2021 at the pipeline business, largely related to the North Bakken Expansion project, and the construction materials and contracting business contributed to the increase, partially offset by lower capital expenditures at the electric and natural gas distribution businesses related to reduced electric transmission and distribution projects and reduced natural gas meters and mains.

Financing activities

10 unchanged sentences

Tax withholding on stock-based compensation (3.0) (4.9) (4.1) 1.9 (.8)

Net cash provided by (used in) financing activities $ 155.2 $ 384.7 $ (145.1) $ (229.5) $ 529.8

The decrease in cash flows provided by financing activities from 2022 to 2021 was largely the result of increased repayment and decreased issuance of long-term debt at the construction materials and contracting business.

Partially offsetting this was increased issuances of short-term borrowings as long-term debt was replaced with short-term debt at the construction materials and contracting business related to the anticipated spinoff previously discussed and decreased repayment of short-term borrowings at Montana-Dakota.

Partially offsetting the decrease was the increased issuance of long-term debt at the construction services business as a result of higher working capital needs and the absence of the issuance of common stock under the Company's "at-the-market" offering during 2022, as discussed in Note 12.

The increase in cash flows provided by financing activities from 2021 to 2020 was largely the result of increased long-term borrowings for acquisitions at the construction materials and contracting business, and increased long-term borrowings, net of repayments, associated with capital expenditures at the pipeline, electric and natural gas distribution businesses.

The construction services business also increased its long-term borrowings as a result of increased working capital needs.

In addition, net proceeds from the issuance of common stock under the Company's "at-the-market" offering during 2021 also contributed to the increase in cash flows from financing activities.

Partially offsetting these increases were decreased short-term borrowings during 2021 at the natural gas distribution business.

Montana-Dakota repaid $50 million of short-term borrowings during the first quarter of 2021 related to short-term borrowings during 2020.

Montana-Dakota also issued $50 million of short-term borrowings during the first quarter of 2021 related to financing the higher natural gas purchases, as previously discussed, which was repaid prior to the end of the year.

Net cash provided by continuing operations $ 111.1 $ 155.3 $ 102.9 (44.2) 52.4

Net cash provided by (used in) discontinued operations 93.5 (0.1) 281.8 93.6 (281.9)

Net cash provided by financing activities $ 204.6 $ 155.2 $ 384.7 $ 49.4 $ (229.5)

MDU Resources Group, Inc.

The increase in cash provided by financing activities in 2023 from 2022 was primarily due to higher issuance of short-term borrowings associated with the debt for equity exchange of the Knife River retained shares, as well as the issuance of short-term borrowings at the natural gas distribution business to fund higher natural gas costs.

Also contributing were higher issuance of long-term debt at the Company to replace the Centennial debt repayment and to fund capital expenditures and increased cash provided by discontinued operations.

Partially offsetting the increase was higher repayments of short-term and long-term debt at the construction services and natural gas distribution businesses.

In addition, due to the Knife River separation, Centennial repaid all of its outstanding debt in the second quarter of 2023, which was facilitated by the Knife River repayment and the Company entering into various new debt instruments.

Refer to Note 3 for additional information related to the repayment of debt associated with the Knife River separation.

Refer to Note 10 for additional information related to the short-term debt related to the retained shares of Knife River.

The decrease in cash provided by financing activities in 2022 from 2021 was largely the result of increased repayment and decreased issuance of long-term debt in discontinued operations and the absence of the issuance of common stock under the Company's "at-the-market" offering during 2022, as discussed in Note 13.

Partially offsetting these items were increased issuance of short-term debt as long-term debt replaced short-term debt in preparation of the separation of Knife River, the absence of a 2021 repayment of short-term borrowings at Montana-Dakota, and the increased issuance of long-term debt at the construction services business as a result of higher working capital needs.

Defined benefit pension plans

3 unchanged sentences

Actuarial assumptions include assumptions about the discount rate and expected return on plan assets.

For 2022, the Company

MDU Resources Group, Inc.

assumed a long-term rate of return on its qualified defined pension plan assets of 6 percent.

Due to the decline in the equity and fixed-income markets, the Company experienced more of a loss than estimated on its qualified defined pension plan assets.

For 2023, the Company assumed a long-term rate of return on its qualified defined pension plan assets of 6.5 percent.

Due to market performance in the equity and fixed-income markets, the Company experienced an increase in the qualified defined pension plan assets.

Differences between actuarial assumptions and actual plan results are deferred and amortized into expense when the accumulated differences exceed 10 percent of the greater of the projected benefit obligation or the market-related value of plan assets.

Therefore, this change in asset values will be reflected in future expenses of the plans beginning in 2024.

The funded status of the plans did not change significantly with the decrease in assets because the liabilities decreased as well.

The Company's benefit obligations for the pension plans also saw a decline in value due to higher discount rates at the end of 2022.

The funded status of the plans improved $9.2 million, primarily due to the increase in plan assets, as discussed previously.

At December 31, 2023, the pension plans' accumulated benefit obligations exceeded these plans' assets by approximately $27.0 million.

Pretax pension income reflected in the Consolidated Statements of Income for the years ended December 31, 2022, 2021 and 2020, was $2.3 million, $1.7 million and $684,000, respectively.

The Company's pension income is currently projected to be approximately $236,000 in 2023.

Pretax pension income reflected in the Consolidated Statements of Income for the years ended December 31, 2023, 2022 and 2021, was $580,000, $2.3 million and $1.7 million, respectively.

The Company's pension expense is currently projected to be approximately $800,000 in 2024.

Funding for the pension plans is actuarially determined.

The Company has no minimum funding requirements for its defined benefit pension plans for 2023 due to an additional contribution of $20.0 million in 2019, which created prefunding credits to be used in future periods.

There were no minimum required contributions for the years ended December 31, 2022 and 2021 or 2020.

The Company expects to contribute the minimum funding requirement of $3.3 million in 2024.

There were no minimum required contributions for the years ended December 31, 2023, 2022, or 2021 due to an additional contribution of $20.0 million in 2019, which created prefunding credits that were used in future periods.

For more information on the Company's pension plans, see Item 8 - Note 19.

2 unchanged sentences

Actual (a) Estimated

2021 2022 2023 (b)

2024 2025 2026

4 unchanged sentences

Pipeline 235 62 116 107 77 42

Construction materials and contracting (b) 191 418 182 125 183 173

Construction services (b) 84 29 36 38 34 34

Construction services (c)

29 36 35 52 — —

Other 2 3 1 3 3 3

Total capital expenditures $ 518 $ 475 $ 537 $ 612 $ 535 $ 532

(a) Capital expenditures for 2022, 2021 and 2020 include noncash transactions such as capital expenditure-related accounts payable, the issuance of the Company's equity securities in connection with an acquisition, AFUDC and accrual of holdback payments in connection with acquisitions totaling $1.7 million, $38.7 million and $(15.7) million, respectively.

(b) Capital expenditures for both the construction materials and contracting and construction services segments are subject to change with the announced strategic initiatives.

The 2022 capital expenditures were funded by internal sources, equity issuance, long-term debt issuances and borrowings under credit facilities and issuance of commercial paper of the Company's subsidiaries.

The Company has included in the estimated capital expenditures for 2023 through 2025 the development and construction of a renewable natural gas facility at the Deschutes County Landfill near Bend, Oregon, at the natural gas distribution segment;

construction of Heskett Unit 4 at the electric segment;

and the Wahpeton Expansion and additional growth projects at the pipeline segment, as previously discussed in Business Segment Financial and Operating Data.

Estimated capital expenditures for the years 2023 through 2025 include those for:

(a) Capital expenditures for 2023, 2022 and 2021 include noncash transactions such as capital expenditure-related accounts payable and AFUDC totaling $13.1 million, $(3.8) million and $30.6 million, respectively.

(b) 2023 capital expenditures were funded by internal sources, long-term debt issuances and borrowings under credit facilities and issuance of commercial paper of the Company and its subsidiaries.

54 MDU Resources Group, Inc.

Planned utility investments in the Company's estimated capital expenditures for 2024 through 2026 include construction of electric transmission lines and substations, as well as natural gas delivery infrastructure, to serve a customer base that is expected to continue growing at 1 percent to 2 percent annually over the next five years;

construction of JETx, a MISO approved project, in partnership with Otter Tail Power Company;

and replacing and modernizing certain existing electric and natural gas utility infrastructure to ensure continued safe and reliable service to customers.

At the pipeline business, the Company will focus on system growth to expand natural gas transmission capacity.

A number of projects are included in the planned investments, including the Wahpeton Expansion project in North Dakota that is expected to be constructed in 2024.

Planned investments at the construction services business include normal replacements and upgrades of the equipment that is used in the transmission and distribution, and electrical and mechanical services the company performs.

For more information on the Company's growth projects, see Business Segment Financial and Operating Data.

Other estimated capital expenditures for the years 2024 through 2026 include those for:

• System upgrades

5 unchanged sentences

• Power generation and transmission opportunities

• Environmental upgrades, including:

◦ The investigation of a manufactured gas plant site

◦ The closure of coal ash management units

◦ Upgrades to maintain air emissions compliance at electric generating stations

• Environmental upgrades

• Other growth opportunities

58 MDU Resources Group, Inc.

The Company continues to evaluate potential future acquisitions and other growth opportunities that would be incremental to the outlined capital program;

2 unchanged sentences

It is anticipated that all of the funds required for capital expenditures for the years 2024 through 2026 will be funded by various sources, including internally generated funds;

credit facilities and commercial paper of the Company's subsidiaries, as described later;

credit facilities and commercial paper of the Company and its subsidiaries, as described later;

and issuance of debt and equity securities if necessary.

21 unchanged sentences

$ 100.0 (d) $ 30.7 $ — 10/13/27

Centennial Energy Holdings, Inc.

Commercial paper/Revolving credit agreement (e) $ 600.0 $ 298.0 $ — 12/19/24

MDU Resources Group, Inc.

Revolving credit agreement

$ 150.0 $ — $ — 5/29/24

MDU Resources Group, Inc.

Revolving credit agreement

$ — $ 8.9 5/31/28

(a) The commercial paper program is supported by a revolving credit agreement with various banks (provisions allow for increased borrowings, at the option of Montana-Dakota on stated conditions, up to a maximum of $250.0 million).

3 unchanged sentences

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

(e) The commercial paper program is supported by a revolving credit agreement with various banks (provisions allow for increased borrowings, at the option of Centennial on stated conditions, up to a maximum of $700.0 million).

At December 31, 2022, there were no amounts outstanding under the revolving credit agreement.

The respective commercial paper programs are supported by revolving credit agreements.

While the amount of commercial paper outstanding does not reduce available capacity under the respective revolving credit agreements, Montana-Dakota and Centennial do not issue commercial paper in an aggregate amount exceeding the available capacity under their credit agreements.

The commercial paper borrowings may vary during the period, largely the result of fluctuations in working capital requirements due to the seasonality of certain operations of the Company's subsidiaries.

Total equity as a percent of total capitalization was 54 percent and 55 percent at December 31, 2022 and 2021, respectively.

(e) Certain provisions allow for increased borrowings, up to a maximum of $250.0 million.

MDU Resources Group, Inc.

On April 25, 2023, Knife River issued $425.0 million of senior notes, pursuant to an indenture, due in 2031 to qualified institutional buyers.

Knife River also entered into a new credit agreement which provided a revolving credit facility in an initial amount of up to $350.0 million and a senior secured term loan facility in an amount up to $275.0 million.

The net proceeds from the notes offering, revolving credit facility and the term loan were used to repay $825.0 million of Knife River's intercompany obligations owed to Centennial.

Centennial used the entirety of these proceeds from Knife River to repay a portion of its existing third-party indebtedness.

Centennial repaid the remainder of its outstanding debt in the second quarter of 2023 with proceeds from various new debt instruments entered into by the Company.

The Montana-Dakota commercial paper program is supported by a revolving credit agreement.

While the amount of commercial paper outstanding does not reduce available capacity under the revolving credit agreement, Montana-Dakota does not issue commercial paper in an aggregate amount exceeding the available capacity under their credit agreement.

The commercial paper and revolving credit agreement borrowings may vary during the period, largely the result of fluctuations in working capital requirements due to the seasonality of certain operations of Montana-Dakota.

Total equity as a percent of total capitalization was 55 percent at December 31, 2023 and 54 percent at December 31, 2022, which includes discontinued operations.

This ratio is calculated as the Company's total equity, divided by the Company's total capital.

Total capital is the Company's total debt, including short-term borrowings and long-term debt due within 12 months, plus total equity.

Total capital is the Company's total debt, excluding debt in discontinued operations and including short-term borrowings and long-term debt due within 12 months, plus total equity.

Management believes this ratio is an indicator of how the Company is financing its operations, as well as its financial strength.

Montana-Dakota Montana-Dakota's objective is to maintain acceptable credit ratings in order to access the capital markets through the issuance of commercial paper.

Montana-Dakota On October 18, 2023, Montana-Dakota amended and restated its revolving credit agreement to increase the borrowing capacity to $200.0 million and extend the maturity date to October 18, 2028.

Montana-Dakota's objective is to maintain acceptable credit ratings in order to access the capital markets through the issuance of commercial paper.

Historically, downgrades in credit ratings have not limited, nor are currently expected to limit, Montana-Dakota's ability to access the capital markets.

2 unchanged sentences

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

MDU Energy Capital On October 21, 2022, MDU Energy Capital entered into a $11.5 million term loan agreement with a SOFR-based variable interest rate and a maturity date of July 21, 2023.

The agreement contains customary covenants and provisions, including a covenant of MDU Energy Capital not to permit, at any time, the ratio of total debt to total capitalization to be greater than 70 percent.

The covenants also include certain restrictions on the sale of certain assets, loans and investments.

Cascade On November 30, 2022, Cascade amended and restated its revolving credit agreement to extend the maturity date to November 30, 2027.

Any borrowings under the revolving credit agreement are classified as long-term debt as they are intended to be refinanced on a long-term basis

MDU Resources Group, Inc.

through continued borrowings.

Cascade Any borrowings under the revolving credit agreement are classified as long-term debt as they are intended to be refinanced on a long-term basis through continued borrowings.

The credit agreement contains customary covenants and provisions, including a covenant of Cascade not to permit, at any time, the ratio of total debt to total capitalization to be greater than 65 percent.

Other covenants include restrictions on the sale of certain assets, limitations on indebtedness and the making of certain investments.

On June 15, 2022, Cascade issued $50.0 million of senior notes under a note purchase agreement with maturity dates ranging from June 15, 2032 to June 15, 2052, at a weighted average interest rate of 4.50 percent.

On January 20, 2023, Cascade entered into a $150.0 million term loan agreement with a SOFR-based variable interest rate and a maturity date of January 19, 2024.

On December 5, 2023, Cascade paid down $100.0 million of the outstanding balance, with the final $50.0 million repayment made on January 19, 2024.

On November 29, 2023, Cascade issued $100.0 million of senior notes under a note purchase agreement with a maturity date of November 30, 2033 and an interest rate of 6.39 percent.

The agreement contains customary covenants and provisions, including a covenant of Cascade not to permit, at any time, the ratio of debt to total capitalization to be greater than 65 percent.

Other covenants include restrictions on the sale of certain assets, limitations on indebtedness and the making of certain investments.

On January 20, 2023, Cascade entered into a $150.0 million term loan agreement with a SOFR-based variable interest rate and a maturity date of January 19, 2024.

The agreement contains customary covenants and provisions, including a covenant of Cascade not to permit, at any time, the ratio of total debt to total capitalization to be greater than 65 percent.

The covenants also include certain restrictions on the sale of certain assets, loans and investments.

Intermountain On October 13, 2022, Intermountain amended and restated its revolving credit agreement to increase the borrowing capacity to $100.0 million and extend the maturity date to October 13, 2027.

Any borrowings under the revolving credit agreement are classified as long-term debt as they are intended to be refinanced on a long-term basis through continued borrowings.

Intermountain Any borrowings under the revolving credit agreement are classified as long-term debt as they are intended to be refinanced on a long-term basis through continued borrowings.

The credit agreement contains customary covenants and provisions, including a covenant of Intermountain not to permit, at any time, the ratio of total debt to total capitalization to be greater than 65 percent.

Other covenants include restrictions on the sale of certain assets, limitations on indebtedness and the making of certain investments.

On June 15, 2022, Intermountain issued $40.0 million of senior notes under a note purchase agreement with maturity dates ranging from June 15, 2052 to June 15, 2062, at a weighted average interest rate of 4.68 percent.

The agreement contains customary covenants and provisions, including a covenant of Intermountain not to permit, at any time, the ratio of debt to total capitalization to be greater than 65 percent.

Other covenants include restrictions on the sale of certain assets, limitations on indebtedness and the making of certain investments.

On January 20, 2023, Intermountain entered into a $125.0 million term loan agreement with a SOFR-based variable interest rate and a maturity date of January 19, 2024.

The agreement contains customary covenants and provisions, including a covenant of Intermountain not to permit, at any time, the ratio of total debt to total capitalization to be greater than 65 percent.

The covenants also include certain restrictions on the sale of certain assets, loans and investments.

Centennial Centennial's objective is to maintain acceptable credit ratings in order to access the capital markets through the issuance of commercial paper.

Historically, downgrades in Centennial's credit ratings have not limited, nor are currently expected to limit, Centennial's ability to access the capital markets.

If Centennial were to experience a downgrade of its credit ratings in the future, it may need to borrow under its credit agreement and may experience an increase in overall interest rates with respect to its cost of borrowings.

Prior to the maturity of the Centennial credit agreement, Centennial expects that it will negotiate the extension or replacement of this agreement, which provides credit support to access the capital markets.

In the event Centennial is unable to successfully negotiate this agreement, or in the event the fees on this facility become too expensive, which Centennial does not currently anticipate, it would seek alternative funding.

On March 18, 2022, Centennial entered into a $100.0 million term loan agreement with a SOFR-based variable interest rate and a maturity date of March 17, 2023.

The agreement contains customary covenants and provisions, including a covenant of Centennial not to permit, at any time, the ratio of total debt to total capitalization to be greater than 65 percent.

The covenants also include certain restrictions on the sale of certain assets, loans and investments.

On March 23, 2022, Centennial issued $150.0 million of senior notes under a note purchase agreement with maturity dates ranging from March 23, 2032 to March 23, 2034, at a weighted average interest rate of 3.71 percent.

The agreement contains customary covenants and provisions, including a covenant of Centennial not to permit, at any time, the ratio of debt to total capitalization to be greater than 60 percent.

In March, April and May 2023, Intermountain paid down $20.0 million, $30.0 million and $30.0 million, respectively, of the outstanding balance, with the final $45.0 million repayment made on January 19, 2024.

On November 29, 2023, Intermountain issued $25.0 million of senior notes under a note purchase agreement with a maturity date of November 30, 2033 and an interest rate of 6.19 percent.

The agreement contains customary covenants and provisions, including a covenant of Intermountain not to permit, at any time, the ratio of debt to total capitalization to be greater than 65 percent.

Other covenants include restrictions on the sale of certain assets, limitations on indebtedness and the making of certain investments.

Centennial On March 18, 2022, Centennial entered into a $100.0 million term loan agreement with a SOFR-based variable interest rate and a maturity date of March 17, 2023.

On March 17, 2023, Centennial amended the agreement to extend the maturity date to September 15, 2023.

On May 31, 2023, Centennial repaid the full balance outstanding under the term loan agreement.

On December 19, 2022, Centennial entered into a $135.0 million term loan agreement with a SOFR-based variable interest rate and a maturity date of December 18, 2023.

The covenants also include certain restrictions on the sale of certain assets, loans and investments.

WBI Energy Transmission On December 22, 2022, WBI Energy Transmission amended its uncommitted note purchase and private shelf agreement to increase capacity to $350.0 million with an expiration date of December 22, 2025.

On December 22, 2022, WBI Energy Transmission issued $40.0 million in senior notes under the private shelf agreement with a maturity date of December 22, 2030, at an interest rate of 6.67 percent.

WBI Energy Transmission had $235.0 million of notes outstanding at December 31, 2022, which reduced the remaining capacity under this uncommitted private shelf agreement to $115.0 million.

This agreement contains customary covenants and provisions, including a covenant of WBI Energy Transmission not to permit, as of the end of any fiscal quarter, the ratio of total debt to total capitalization to be greater than 55 percent.

Other covenants include a limitation on priority debt, restrictions on the sale of certain assets and the making of certain investments.

On May 31, 2023, Centennial repaid the full balance outstanding under the term loan agreement.

56 MDU Resources Group, Inc.

On June 9, 2023, Centennial repaid the full balances outstanding on all its long-term senior note debt, which aggregated $455.0 million, as previously discussed.

MDU Resources Group, Inc.

On May 1, 2023, the Company entered into a $75.0 million term loan agreement with a SOFR-based variable interest rate and a maturity date of November 1, 2023.

On May 31, 2023, the Company repaid the full balance outstanding under the term loan agreement.

On May 31, 2023, the Company entered into a $150.0 million revolving credit agreement with a SOFR-based variable interest rate and a maturity date of May 29, 2024.

At December 31, 2023, the Company had no amount outstanding.

The agreement contains customary covenants and provisions, including a covenant of the Company not to permit, at any time, the ratio of total debt to total capitalization to be greater than 65 percent.

The covenants also include certain restrictions on the sale of certain assets, loans and investments.

On May 31, 2023, the Company entered into a $200.0 million revolving credit agreement with a SOFR-based variable interest rate and a maturity date of May 31, 2028.

Any borrowings under the revolving credit agreement are classified as long-term debt as they are intended to be refinanced on a long-term basis through continued borrowings.

The credit agreement contains customary covenants and provisions, including a covenant of the Company not to permit, at any time, the ratio of total debt to total capitalization to be greater than 65 percent.

The covenants also include certain restrictions on the sale of certain assets, loans and investments.

On May 31, 2023, the Company entered into a $375.0 million term loan agreement with a SOFR-based variable interest rate and a maturity date of May 31, 2025.

On November 15, 2023, the Company paid down $185.0 million of this term loan.

The term loan agreement contains customary covenants and provisions, including a covenant of the Company not to permit, at any time, the ratio of total debt to total capitalization to be greater than 65 percent.

The covenants also include certain restrictions on the sale of certain assets, loan and investments.

As discussed in Note 3, the Company retained 10 percent of the shares of Knife River with the intent to monetize its investment and provide proceeds to the Company.

On November 6, 2023, the Company entered into a $310.0 million term loan agreement which was used to facilitate the tax-free debt for equity exchange.

This term loan was repaid through a noncash exchange of the Company's shares in Knife River for $293.2 million and the remaining balance of this term loan was repaid in cash on November 10, 2023.

Equity Resources

The Company currently has a shelf registration statement on file with the SEC, under which the Company may issue and sell any combination of common stock and debt securities.

The Company may sell such securities if warranted by market conditions and the Company's capital requirements.

Any public offer and sale of such securities will be made only by means of a prospectus meeting the requirements of the Securities Act and the rules and regulations thereunder.

For more information on the Company's equity, see Item 8 - Note 12.

In August 2020, the Company amended the Distribution Agreement dated February 22, 2019, with J.P.

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This agreement, as amended, allows the offering, issuance and sale of up to 6.4 million shares of the Company's common stock in connection with an “at-the-market” offering.

The common stock may be offered for sale, from time to time, in accordance with the terms and conditions of the agreement.

As of December 31, 2022, the Company had capacity to issue up to 3.6 million additional shares of common stock under the "at-the-market" offering program.

The Company did not issue any shares under the "at-the-market" offering program in 2022.

Proceeds from the sale of shares of common stock under the agreement have been and are expected to be used for general corporate purposes, which may include, among other things, working capital, capital expenditures, debt repayment and the financing of acquisitions.

On August 10, 2023, the Company terminated the distribution agreement.

Prior to the termination, the Company had capacity to issue up to 3.6 million additional shares of common stock under the "at-the-market" offering program.

The Company was not subject to any termination penalties related to the termination of the distribution agreement.

The Company had no issuances of shares under the "at-the-market" offering program in 2023 or 2022.

Dividend restrictions

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Material short-term cash requirements of the Company include repayment of outstanding borrowings and interest payments on those agreements, payments on operating lease agreements, payment of obligations on purchase commitments and asset retirement obligations.

At December 31, 2022, the current portion of asset retirement obligations was $4.6 million and was included in other accrued liabilities on the Consolidated Balance Sheets.

At December 31, 2023, the current portion of asset retirement obligations was $784,000 and was included in other accrued liabilities on the Consolidated Balance Sheets.

MDU Resources Group, Inc.

Material long-term cash requirements of the Company include repayment of outstanding borrowings and interest payments on those agreements, payments on operating lease agreements, payment of obligations on purchase commitments and asset retirement obligations.

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Not reflected in the previous table are $2.3 million in uncertain tax positions at December 31, 2023.

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

The Company's minimum funding requirements for its defined benefit pension plans for 2024, which are not reflected in the previous table, is $3.3 million.

For information on potential contributions above the funding minimum requirements, see item 8 - Note 19.

The Company's MEPP contributions are based on union employee payroll, which cannot be determined in advance for future periods.

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

MDU Resources Group, Inc.

Critical Accounting Estimates

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For the years ended December 31, 2023, 2022 and 2021, there were no impairment losses recorded.

At October 31, 2022, the fair value substantially exceeded the carrying value at the Company's reporting units with goodwill, with the exception of the natural gas distribution reporting unit.

At October 31, 2023, the fair value substantially exceeded the carrying value at the Company's construction services reporting unit.

The Company's annual impairment testing indicated the natural gas distribution reporting unit's fair value is not substantially in excess of its carrying value ("cushion").

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The Company believes that the estimates and assumptions used in its impairment assessments are reasonable and based on available market information.

58 MDU Resources Group, Inc.

The Company uses a discounted cash flow methodology for its income approach.

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Both values are discounted using a rate which reflects the best estimate of the risk adjusted cost of capital at each reporting unit.

The risk adjusted cost of capital varies by reporting unit and was in the range of 6 percent to 10 percent in 2022, 5 percent to 9 percent for 2021 and 4 percent to 8 percent for 2020.

The risk adjusted cost of capital varies by reporting unit and was in the range of 6 percent to 10 percent in 2023, 6 percent to 9 percent for 2022 and 5 percent to 8 percent for 2021 from its continuing reporting units.

Under the market approach, the Company estimates fair value using various multiples derived from enterprise value to EBITDA for comparative peer companies for each respective reporting unit.

These multiples are applied to operating data for each reporting unit to arrive at an indication of fair value.

In addition, the Company adds a reasonable control premium when calculating the fair value utilizing the peer multiples, which is estimated as the premium that would be received in a sale in an orderly transaction between market participants.

The Company used a 20 percent control premium in 2022 and a 15 percent control premium in 2021 and 2020.

In addition, the Company also uses a rate base multiple, based on recent comparable industry transactions, at its natural gas distribution reporting unit.

With the exception of the rate base trading multiple, the Company adds a reasonable control premium when calculating the fair value utilizing the peer multiples, which is estimated as the premium that would be received in a sale in an orderly transaction between market participants.

The Company used a 20 percent control premium in 2023 and 2022 and a 15 percent control premium in 2021.

The Company uses significant judgment in estimating its five-year forecast.

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The long-term growth rate varies by reporting unit.

62 MDU Resources Group, Inc.

materials and contracting and construction services long-term growth rate was 3 percent in 2022, 2021 and 2020.

Natural gas distribution's long-term growth rate has been in the range of 1.5 percent to 3 percent in 2022, 2021 and 2020.

Construction services long-term growth rate was 3.0 percent in 2023, 2022 and 2021.

Natural gas distribution's long-term growth rate was 3.0 percent, 2.85 percent and 1.6 percent in 2023, 2022 and 2021, respectively.

Regulatory accounting

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For the years ended December 31, 2023 and 2022, the Company's total construction contract revenue was $2.8 billion and $2.6 billion, respectively.

MDU Resources Group, Inc.

Several factors are evaluated in determining the bid price for contract work.

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The effect of a contract modification on the transaction price and the measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue on a cumulative catch-up basis.

MDU Resources Group, Inc.

The Company's construction contracts generally contain variable consideration including liquidated damages, performance bonuses or incentives, claims, unpriced change orders and penalties or index pricing.

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The Company updates its estimate of the transaction price each reporting period and the effect of variable consideration on the transaction price is recognized as an adjustment to revenue on a cumulative catch-up basis.

The Company received notification from a customer on a large project with a contract that was billed on a time and materials basis with no stated maximum price, that it is withholding payment of approximately $31.0 million on remaining outstanding billings, including retention.

The Company believes it has substantial defenses against these claims based upon the terms of the contract and the Company's belief that it has performed under the terms of the contract.

The Company believes collection of the remaining outstanding billings, including retention is probable and, as a result, the Company has recognized the revenue from this project in its results.

However, there is uncertainty surrounding this matter, including the potential long-term nature of dispute resolution, the Company filing a lien on the property and the broad range of possible consideration amounts as a result of negotiations and potential litigation to resolve the dispute.

The Company believes its estimates surrounding the cost-to-cost method are reasonable based on the information that is known when the estimates are made.

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Costs of providing pension and other postretirement benefits bear the risk of change, as they are dependent upon numerous factors based on assumptions of future conditions.

The Company makes various assumptions when determining plan costs, including the current discount rates and the expected long-term return on plan assets, the rate of compensation increases, actuarially determined mortality data and health care cost trend rates.

The Company makes various assumptions when determining plan costs, including the current discount rates and the expected long-term return on plan assets, actuarially determined mortality data and health care cost trend rates.

In selecting the expected long-term return on plan assets, which is considered to be one of the key variables in determining benefit expense or income, the Company considers historical returns, current market conditions, the mix of investments and expected future market trends, including changes in interest rates and equity and bond market performance.

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Fluctuations in actual equity and bond market returns, as well as changes in general interest rates, may result in increased or decreased pension and other postretirement benefit costs in the future.

Management estimates the rate of compensation increase based on long-term assumed wage increases and the health care cost trend rates are determined by historical and future trends.

Health care cost trend rates are determined by historical and future trends.

60 MDU Resources Group, Inc.

The Company believes the estimates made for its pension and other postretirement benefits are reasonable based on the information that is known when the estimates are made.

These estimates and assumptions are subject to a number of variables and are expected to change in the future.

Estimates and assumptions will be affected by changes in the discount rate, the expected long-term return on plan assets, the rate of compensation increase and health care cost trend rates.

Estimates and assumptions will be affected by changes in the discount rate, the expected long-term return on plan assets and health care cost trend rates.

A 50 basis point change in the assumed discount rate and the expected long-term return on plan assets would have had the following effects at December 31, 2023:

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$ 0.4 $ (0.4)

64 MDU Resources Group, Inc.

The Company plans to continue to use its current methodologies to determine plan costs.

For more information on the assumptions used in determining plan costs, see Item 8 - Note 19.

Business combinations

The Company accounts for acquisitions on the Consolidated Financial Statements starting from the date of the acquisition, which is the date that control is obtained.

The acquisition method of accounting requires acquired assets and liabilities assumed be recorded at their respective fair values as of the date of the acquisition.

The excess of the purchase price over the fair value of the assets acquired and liabilities assumed is recorded as goodwill.

The estimation of fair values of acquired assets and liabilities assumed by the Company requires significant judgment and requires various assumptions.

Although independent appraisals may be used to assist in the determination of the fair value of certain assets and liabilities, the appraised values may be based on significant estimates provided by management.

The amounts and useful lives assigned to depreciable and amortizable assets compared to amounts assigned to goodwill, which is not amortized, can affect the results of operations in the period of and periods subsequent to a business combination.

In determining fair values of acquired assets and liabilities assumed, the Company uses various observable inputs for similar assets or liabilities in active markets and various unobservable inputs, which includes the use of valuation models.

Fair values are based on various factors including, but not limited to, age and condition of property, maintenance records, auction values for equipment with similar characteristics, recent sales and listings of comparable properties, data collected from drill holes and other subsurface investigations and geologic data.

The Company primarily uses the market and cost approaches in determining the fair value of land and property, plant and equipment.

A combination of the market and income approaches are used for aggregate reserves and intangibles, primarily a discounted cash flow model.

The Company must develop reasonable and supportable assumptions to evaluate future cash flows.

The process is highly subjective and requires a large degree of management judgement.

Assumptions used may vary for each specific business combination due to unique circumstances of each transaction.

Assumptions may include discount rate, time period, terminal value and growth rate.

The values generated from the discounted cash flow model are sensitive to the assumptions used.

Inaccurate assumptions can lead to deviations from the values generated.

There is a measurement period after the acquisition date during which the Company may adjust the amounts recognized for a business combination.

Any such adjustments are recorded in the period the adjustment is determined with the corresponding offset to goodwill.

These adjustments are typically based on obtaining additional information that existed at the acquisition date regarding the assets acquired and the liabilities assumed.

The measurement period ends once the Company has obtained all necessary information that existed as of the acquisition date, but does not extend beyond one year from the date of the acquisition.

Once the measurement period has ended, any adjustments to assets acquired or liabilities assumed are recorded in income from continuing operations.

The Company is required to make judgments regarding the potential tax effects of various financial transactions and ongoing operations to estimate the Company's obligation to taxing authorities.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis